FDA Advisory Committee Not Rife with Conflicts of Interest? — “Please!” Quips Federal Judge

FDAIn order to achieve results that it believes are vital to public health, the Food and Drug Administration (FDA) has demonstrated time and again that it’s not afraid to trample laws and constitutional rights along the way. Occasionally, judges reintroduce FDA to the Rule of Law. We applaud one such recent rebuke by Judge Richard Leon, whose July 21 Lorillard v. FDA decision reminded FDA that it cannot stack a science advisory panel with members who will tell the agency what it wants to hear.

FDA tobacco control. After the U.S. Supreme Court rejected the agency’s attempt to seize regulatory oversight of tobacco products in 2000 (FDA v. Brown & Williamson), Congress granted FDA the authority it coveted in 2010. Banning or severely restricting the use of menthol in cigarettes has long been a goal of FDA’s friends in the anti-tobacco movement. FDA created a science advisory panel, the Tobacco Products Scientific Advisory Committee (TPSAC) to study menthol. The TPSAC concluded in 2011 that menthol had a negative effect on public health. Two companies filed suit in Febuary 2011, charging that FDA violated federal law by appointing members to the TPSAC who had clear conflicts of interest. The plaintiffs asked the court to strike the TPSAC’s report from the regulatory record.

Judge Leon’s opinion. The TPSAC members in question had ongoing contracts to testify as expert witnesses for plaintiffs in suits against tobacco companies. They also served as consultants to manufacturers of tobacco cessation products. FDA didn’t feel such relationships conflicted with their duties on the TPSAC. Judge Leon was quite flabbergasted by FDA’s decision. “Please!” he exclaimed, adding, “This conclusion defies common sense.” With regard to the members’ work with plaintiffs’ lawyers, Judge Leon explained that they had a financial incentive not to make any recommendations that would compromise the lawsuits in which they would testify. On the product consulting work, the judge noted that any FDA regulation of menthol would likely inspire more smokers to quit, potentially with the assistance of cessation products. Thus the TPSAC members also had a financial incentive to offer advice that would encourage a ban or restrictions on menthol. Judge Leon concluded that such blatant disregard for obvious conflicts violated federal law, and he enjoined FDA from utilizing the report in its assessment of menthol. Continue reading

Alameda County, California Drug Disposal Ordinance Should Take a Hike

packAs an avid hiker in our National Parks, I am familiar with the saying “Pack It In, Pack It Out.” When it comes to minimizing our impact on Mother Nature, this slogan reminds us to carry out of the backcountry any food or other material we brought in with us.

Not only does this practice reduce litter and preserve natural beauty, but it also promotes personal responsibility. Following this ethic—and teaching it to our kids—leads hikers not to take more with them than they need, and it puts the onus for reducing and removing waste on the very people who created the waste in the first place.

Yet, when it comes to cleaning up prescription drugs and other unused medicines, elected officials in Alameda County (and elsewhere in California) seem to think that drug companies should do it for us. The U.S. Court of Appeals for the Ninth Circuit (in San Francisco) will hear oral arguments tomorrow in a challenge to Alameda County’s Safe Drug Disposal Ordinance (PhRMA vs. Alameda Co., California).

The lawsuit contests the ordinance’s constitutionality, not its wisdom as a policy matter. However, it’s important to recognize that if the Court strikes down this program as unconstitutional—as it will if it heeds WLF’s amicus brief—no one who cares about the problem of unused drugs should mind. Rather, such a ruling will clear the way for thinking about real solutions to the disposal challenge.

Alameda’s ordinance requires prescription drug manufacturers whose products enter Alameda County to establish programs (individually or jointly) to collect and safely dispose of all unused prescription medicines in the county. Local pharmacies are explicitly excluded from the producers who must contribute, and the producers are forbidden from charging a collection fee or imposing a fee on the sale of drugs in the county to cover these costs. In other words, the drafters of this ordinance went out of their way to ensure that the purchasers of the medicine (who generate the waste) do not have any responsibility to pay for its disposal. Continue reading

Finger on the Pulse: From Our Blogroll and Beyond

  • Five take-aways from FDA’s response to drug company coalition citizen petition regarding promotion of off-label uses (Original Source)
  • Class action lawyers will do anything to keep their cases alive, even asking courts to reopen discovery so they can find replacement lead plaintiffs (Class Action Countermeasures)
  • Why POM Wonderful SCOTUS ruling doesn’t alter landscape of food labeling class actions (we agree in this post) (Class Defense)
  • SEC Commissioner addresses boards of directors’ responsibilities in preventing and responding to cyberattacks and data breaches (D&O Diary)
  • With Solicitor General’s brief in Medtronic v. Stengel, federal government changes its tune on preemption (Drug & Device Law)
  • FDA issues two more “draft guidances” on social media use to promote medical products, one of which boils down to don’t use Twitter (FDA Law Blog)
  • The Supreme Court will review a critically important matter of administrative law in its October 2014 term: when does a change in established guidance require rulemaking? (Federal Regulations Adviser)

Court Upholds FTC Rule for Pharma Patent License Transfers

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

Last November, I wrote about a new Federal Trade Commission (FTC) rule which, in a change to long-standing policy, made the transfer of a license providing an exclusive licensee with “all commercially significant rights” over a patent within a therapeutic area reportable under the Hart-Scott-Rodino Act. In practice, this meant that licensing agreements which previously required only the signatures of the two parties, now required a waiting period and an FTC blessing.

Shortly before the rule was to become operative, the Pharmaceutical Research and Manufacturers of America (PhRMA), an industry group representing biopharmaceutical researchers and biotechnology companies sued to block it. The group argued that the FTC had not observed the appropriate procedures under the Administrative Procedures Act and that the FTC lacked authority to issue an industry-specific rule rather than a rule of general application, among other claims.

In a lengthy opinion on May 30, 2014, Judge Beryl A. Howell of the United States District Court for the District of Columbia, sided with the FTC and tossed PhRMA’s claims, finding that the FTC had followed the correct processes, had a reasoned basis for creating and instituting this rule, and should be shown deference. This bottom line is this puts us right back to where the FTC hoped it would be back in November: the transfer of “all commercially significant rights” over a patent is a HSR-reportable event.

That’s the headline but there are at least two questions that result from the opinion worth pausing to consider. First, this rule continues to only apply to the pharmaceutical industry. There are virtually no other industries with HSR-specific rules applicable only to them. Does this mean the FTC plans to extend HSR-specific rules to other industries? Or is the pharma industry so important in its own right that proper antitrust enforcement demands a different set of rules? Only time will tell. More importantly, perhaps, the FTC has not defined the phrase “all commercially significant rights.” What are the contours of this definition? What’s included or excluded? How, if at all, will the FTC provide guidance to the pharma community? PhRMA has up to 60 days to appeal so this may not be the last word. Stay tuned.

Second Circuit Mixes Clarity with Opacity in Ruling on Trial Courts’ Review of SEC Settlement

MatskoGuest Commentary

by Gary S. Matsko, Davis Malm & D’Agostine P.C.

It is curious how an appellate court can resolve cases before it in a manner and spirit that are vastly at odds with the driving philosophy behind the lower court’s decision. The U.S. Court of Appeals for the Second Circuit’s decision in United States Securities and Exchange Commission v. CitiGroup Global Markets, Inc.is such a case. Judge Jed Rakoff’s decision below, S.E.C. v. CitiGroup Global Markets, Inc., 827 F. Supp. 2d 328 (S.D.N.Y. 2011), in which he declined to enter a consent decree that resulted from settlement negotiations, was driven by the judge’s intense displeasure that the settlement presented to him failed to include an admission of guilty. The decision emboldened advocates who believed that the SEC should require admissions, and likely played a role in the agency announcing that it would so require them in certain matters.

The counsel appointed to represent Judge Rakoff’s view in the Second Circuit did not forcefully argue that a trial court could require admission as a predicate to approving settlement. The Second Circuit thus curtly brushed that perspective aside. Instead, the appellate court clipped the wings of trial judges who embrace an expansive substantive role for courts in reviewing consent decrees, underscoring the deference owed to a prosecuting agency. Despite that distinct conclusion, CitiGroup Global Markets did not offer clear guidance on the trial court’s role in assessing facts, and, surprisingly, invited the SEC to turn to its administrative forum if it is unhappy with the remaining limited intervention reserved to the trial judge. Continue reading

Wall Street Journal’s “The Americas” Column References WLF Publication on Mexican Antitrust Proposal

Flag_of_Mexico_(reverse)In today’s Wall Street Journal, influential “The Americas” columnist Mary Anastasia O’Grady focuses on a troubling overhaul of Mexico’s competition laws in Mexico’s Anti-Market Antitrust Law ($). Ms. O’Grady references a March 14, 2014 WLF Legal Backgrounder, Proposed Change To Mexican Antitrust Law: Erecting A Barrier To Competition?, in her explanation of why the new law will chill competition and curtail investment.  She writes:

How troublesome are these provisions? A March 14 memo written by antitrust lawyers John Roberti and Meytal McCoy of Mayer Brown in Washington and published by the Washington Legal Foundation helps explain. It points out that a company may be cited for ‘barriers to competition’ if the regulator identifies ‘the existence of market dominance or concentration in a critical input and not necessarily the unlawful exercise of that power.’ In other words, there is no need to commit a violation to qualify as a monopolist. One only has to produce something that many people buy.

Mr. Roberti and Ms. McCoy warn that the law allows for ‘industry-wide investigations.’ These might end in ‘structural remedies and price regulation and could be imposed without any obligation to make company-specific findings of the existence of anticompetitive conduct or agreements.’ They further note that ‘this ‘barriers to competition’ concept is not found in competition regimes elsewhere in the world.’ Revisions to the law’s text in Congress did not resolve these issues.

FDA’s Proposed Regulation of Brewers’ Spent Grains is All Wet

spent brewing grains

spent brewing grains

During his February 5, 2014 appearance at a House Energy and Commerce Committee hearing, Food and Drug Administration (FDA) Deputy Commissioner Michael Taylor stated that “the whole goal of [the Food Safety Modernization Act (FSMA)] is to achieve the food safety goal without imposing regulations, just for the sake of regulation.” Dr. Taylor must have been unaware of his agency’s proposal to require that brewers, distillers, and vintners develop extensive hazard analysis and control plans before selling or donating their spent grains or grape pomace to farmers for livestock feed. This proposal seems to be the epitome of regulating for the sake of regulating.

Farmers have been procuring and feeding their livestock spent brewing grains and grapes for centuries. These livestock “happy hour” arrangements advance environmental sustainability, engender bonds among local businesses, and financially benefit both parties. Farmers get low cost whole grain feed packed with fiber, protein, and, of particular importance to livestock in arid climates, moisture. Alcohol makers save millions by not having to landfill the by-products.

FSMA Section 116 exempts activities at facilities which “relateto the manufacturing, processing, packing, or holding of alcoholic beverages.” In a proposed animal food safety regulation, FDA essentially nullifies this statutory exemption. The agency “tentatively concludes” that when brewers or distillers go through the “mashing” process—soaking grains in hot water—and then offer the by-product to farmers, they suddenly become food producers. The same goes for winemakers and their grape pomace. FDA’s conclusion has sparked a deserved firestorm of opposition from the affected industries as well as members of Congress. Continue reading

Does FTC Glass Settlement Break the Efficiencies Mold?

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

(Editors note: The Legal Pulse would like to (belatedly) congratulate Andrea on her promotion to partner, the announcement for which at the end of last year escaped our discovery)

As expected, on April 11, 2014, the Federal Trade Commission (“FTC”) announced the resolution of their investigation and administrative court challenge into the $1.7 billion acquisition of Saint-Gobain Containers, Inc. (“St. Gobain”) by Ardagh Group SA (“Ardagh”). In order to allow the transaction to proceed and resolve the pending administrative trial, Ardagh agreed to sell six of its nine glass container manufacturing plants in the United States to an FTC-approved buyer within six months, including all tangible and intangible assets, and customer contracts. (All pleadings and filings for all parties, including the original complaint, which argued that the acquisition would harm competition in the markets for glass containers used to package beer and spirits, are available online.)

The fact that this litigation was resolved via a divestiture of brick-and-mortar facilities in an industry like glass manufacturing is not news of note to this FTC observer. What is worthy of pause, however, is that the vote to approve this consent was not unanimous (it was 3-1) and that the efficiencies defense stands front-and-center in the dispute between the majority and minority.

For the majority, Chairwoman Ramirez and Commissioners Brill and Ohlhausen, found that the transaction as originally structured would have resulted in a violation of Section 7 of the Clayton Act. When presented with a carefully crafted remedy, these Commissioners believed that the remedy would “fully replace[ ] the competition that would have been lost in both the beer and spirits glass container markets had the merger proceeded unchallenged.” Thus, they voted to accept the settlement. Continue reading

Federal Workplace Police Have a Tough Week in Court

6th CircuitIf anyone doubts our democracy’s need for an independent judiciary to check the executive and legislative branches, consider two federal court opinions issued last week. Federal workplace police at the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL) each received a thorough (and richly deserved) judicial slapdown for arrogantly flouting the rule of law.

EEOC v. Kaplan Higher Education Corp. The unanimous U.S. Court of Appeals for the Sixth Circuit panel set the tone of this seven-page opinion by declaring, “In this case the EEOC sued the defendant for using the same type of background check that the EEOC itself uses.”

Kaplan implemented vigorous screening of job applicants, including the use of credit checks, in response to several instances of employee theft. Such increased self-policing earned the company an EEOC legal action. The Commission argued that Kaplan’s credit checks had a disparate impact on minorities.

To support its case, EEOC hired a psychologist to perform statistical studies using Kaplan’s applicant data. The “expert” filed numerous reports with the trial judge, most of which were either late or contrary to the judge’s demand that he cease providing reports. The judge found that the psychologists’ reports were unreliable under Federal Rule of Evidence 702 and dismissed EEOC’s case.

The Commission fared just as poorly on appeal. The Sixth Circuit agreed with the lower court’s conclusion that EEOC’s “expert” and his methodology failed every factor that courts utilize to assess expert testimony under the Supreme Court’s Daubert v. Merrell Dow opinion. The judges agreed that a court could neither test the psychologist’s technique, nor could it evaluate the test’s error rate. EEOC argued that its “expert’s” theory did not have to be subject to peer review. The Sixth Circuit found the argument “meritless.” As for the other Daubert factors, EEOC essentially argued that the burden fell on Kaplan to prove they had been met. The court pointedly retorted, “The law says to the contrary.”

The opinion ended as sharply as it began:

We need not belabor the issue further.  The EEOC brought this case on the basis of homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.

Gate Guard Services v. Perez. Here, the Department of Labor lost more than just a case.  Because of its antics, American taxpayers had to shell out $565,527.61 in attorneys’ fees to the enforcement target.

DOL accused Gate Guard Services (GGS) of misclassifying gate sentries as independent contractors. GGS counter-sued and sought a declaratory judgment. In February 2013, U.S. District Court for the Southern District of Texas Senior Judge John Rainey granted GGS summary judgment and dismissed DOL’s claims against the company. GGS then sought attorneys’ fees under the Equal Access to Justice Act (EAJA).

Under that statute, the government must prove that its position in a lawsuit had a reasonable basis in both fact and law (“substantially justified”) at every stage of the action. Judge Rainey agreed with GGS that DOL’s lead investigator departed from DOL enforcement procedures when he destroyed interview notes and assessed a $6 million fine after he had interviewed only three gate sentries.

“Had the DOL interviewed more than just a handful of GGS’s roughly 400 gate attendants,” Judge Rainey wrote, “it would have known [they] were not employees.” He listed ten different factors that DOL failed to reasonably consider, including “the federal government itself, via the ACE [Army Corps of Engineers] uses the services of gate attendants at federal parks and classifies these individuals as independent contractors.”

The court concluded that DOL’s actions both before and during the suit were not substantially justified and awarded fees to GGS.

Checked and Balanced. But for an independent judiciary, the executive branch would be free to engage in the type of hypocrisy and disrespect for rules that were on display in these two cases. It might routinely label employers’ credit checks discriminatory while utilizing the very same screening method, or it could categorize a company’s gate sentries “employees” while other federal agencies consider similarly situation workers “independent contractors.” Agencies would prosecute businesses for destroying internal documents while permitting federal investigators to freely do the same.

We should all be grateful that our federal courts did not tolerate such behavior from EEOC and DOL, and instead reminded them of principles most of us learned in kindergarten: play by the rules and live by the same rules you expect others to abide by.

Also posted at WLF’s Forbes.com contributor page

Finger on the Pulse: From Our Blogroll and Beyond

  • Pepsico General Counsel (and new member of WLF’s Legal Policy Advisory Board) Larry D. Thompson has a new scholarly article on the Foreign Corrupt Practices Act (FCPA Professor)
  • SEC Commissioner Gallagher speaks out on reforms needed to address proxy wars initiated by gadfly shareholder activists (Reuters)
  • More troubling revelations on FDA and meningitis B vaccine, which we’ve blogged on here (and here) (Forbes.com The Apothecary)
  • Green activism has consequences: Desert smelt prevails over California water supply (Perkins Coie)
  • In battle of NIMBY activists and wind power advocates, wind power advocates win this round (DLA Piper)
  • Electric car maker’s efforts to sell directly to consumers tests retail distribution model and state laws (Truth on the Market)
  • State AGs inject themselves into scrutiny of Comcast-Time-Warner merger (Reuters via State AG Monitor)
  • Federal trial judge properly excludes “expert” testimony based solely on extrapolation from unreliable case reports (Product Liability Monitor)
  • POM Wonderful brings food labeling dispute to the Supreme Court; will it impact cases in the Food Court? (Private Surgeon General Class Action Defender)
  • Whistleblowers succeed in expanding controversial “implied certification” theory of qui tam liability under California false claims law (Original Source)
  • The real and ugly facts of litigation financing (D&O Diary)
  • Plaintiffs can’t evade removal under Class Action Fairness Act by suing for only declaratory relief (Class Defense)
  • Daimler v. Bauman SCOTUS decision and U.S. jurisdiction over foreign corporations scrutinized (Corporate Counsel)