Wednesday, May 11, 2016

First Lawsuit Filed Challenging FDA Deeming Regulations

Yesterday, the first lawsuit was filed which challenges the legality of the FDA’s electronic cigarette deeming regulations. The suit was filed in the D.C. District Court by Nicopure Labs, a maker of vaping devices and e-liquids. The complaint alleges that the FDA deeming regulations are in violation of the Administrative Procedure Act (APA) and the First Amendment.

There are three claims under the APA:

1. The FDA has interpreted the term “tobacco products” way too broadly and in a way which is inconsistent with the Tobacco Act.

Nicopure points out that the FDA has construed the term “tobacco product” so broadly that it includes not only e-liquids which actually do contain nicotine, but also batteries, wicks, electronic displays, and glass vials, which do not contain nicotine and are not derived from tobacco or any constituent of tobacco.

Comment: This seems like a good point. If I am a manufacturer of batteries for electric toothbrushes and people start using my batteries in their vaping devices, and I then put a note on my web site stating that these batteries may be used in vaping devices, I am now a tobacco product manufacturer under the regulations and must comply with all provisions. This means I must label my product as a tobacco product (falsely stating that it contains tobacco) and furthermore, that I cannot make any changes to my batteries after August 8, 2016, even if those changes are critical safety improvements, unless I receive pre-market authorization approval from the agency. If I am a manufacturer of glass vials and I am reasonably aware that many consumers are using these vials to store e-liquids, I could possibly be deemed to be a tobacco product manufacturer. If I advertise that these glass vials would make good containers for e-liquids, then I am most definitely considered a tobacco product manufacturer.
           2. The FDA regulations are arbitrary and capricious and impose a huge burden on businesses but without any rational connection to the protection of the public’s health.

Comment: The best example of this is the setting of August 8, 2016 as a date beyond which manufacturers cannot make any changes, including safety improvements, to their products. That date is arbitrary, as is the treating of products on the market on August 8th systematically different from products on the market as of August 7th. Moreover, there is no rational basis for imposing huge burdens on businesses through the pre-market tobacco application requirements because these requirements do not directly advance any public health objective. In fact, the FDA has failed to show that there is any substantial threat to the public’s health posed by vaping products or that its regulations will mitigate that threat. There is certainly no rational basis for preventing companies from making safety improvements to their products after August 8th.

3. The FDA’s cost-benefit analysis grossly underestimates the costs while exaggerating, and failing to even quantify the benefits of the regulations.

Comment: This is also a valid point. The deeming rule estimates that there will be 750 PMTAs submitted each year. However, one company alone will submit more than 750 PMTAs. A single company that sells 190 flavors of e-liquid, each in four nicotine strengths, will have to submit 760 PMTAs. That’s just a single company. It seems clear that an accurate cost-benefit analysis would have revealed that the costs of imposing these regulations are astronomical. Moreover, the FDA did not even quantify the benefits of the regulations. The agency pointed to no evidence that vaping products are causing public health harm. Nor did it quantify any of the supposed harms. It is difficult to see how the hypothetical benefits of regulation, which couldn’t even be quantified, justify the imposition of literally billions of dollars in capital costs on the vaping industry, including thousands of small business owners.

 4. The regulations violate the free speech rights of the company under the First Amendment by prohibiting it from making truthful and non-misleading statements about its products, and without any legitimate government interest.

Comment: I believe this is the strongest of the legal arguments. Without question, by subjecting vaping products to the modified risk provisions in section 911 of the Tobacco Act, the FDA has prohibited companies from claiming, truthfully, that their products are safer than real cigarettes, contain no tobacco, produce no smoke, or produce aerosol that contains levels of certain chemicals that are much lower than in tobacco smoke. These are all accurate and non-misleading claims that are in fact essential for consumers to understand, and these are the primary benefits of the product that companies need to be able to convey.
Moreover, the prohibition of these truthful claims advances no substantial government interest. In fact, it doesn’t advance any government interest. What government interest is there in banning companies from informing consumers that these products do not contain tobacco? How does that threaten the public’s health? The truth is that not informing consumers that these products do not contain tobacco is what will threaten the public’s health. It will hide from the public critical information necessary for people to make rational, informed decisions in choosing between smoking real, tobacco cigarettes and vaping fake, non-tobacco ones.

Because the FDA is prohibiting truthful claims that are in no way misleading, the test of whether these restrictions will survive First Amendment scrutiny will certainly be under strict scrutiny, or under the Central Hudson criteria. The government will have to show that these restrictions are based on a substantial government interest and that they will effectively advance that interest.

But I can think of no government interest in precluding a company which makes a much safer product than cigarettes from informing its consumers that its product is safer. I see no government interest in forcing companies to hide from their consumers the basic fact that their products do not contain tobacco. There is certainly a justification for forcing ingredient disclosure, but I cannot think of a legitimate interest that is served by forcing ingredient non-disclosure. I think it will be quite clear to the court that companies have a right to voluntarily disclose their ingredients and that the government has no interest in prohibiting that unless such disclosure would somehow be misleading. In this case, not disclosing that these products do not contain tobacco and do not produce smoke is what would be misleading.

The Rest of the Story

This is the first of what I imagine will be many lawsuits challenging the deeming regulations. The First Amendment challenge I think is extremely strong. There is a high likelihood of success on legal grounds, and enforcing the modified risk provisions would clearly cause severe and irreparable harm to the vaping companies. Thus, I think there is a solid chance that the court will grant injunctive relief and enjoin the FDA from enforcing this aspect of the regulations while the full case is heard. Because of the severability of the regulation provisions, only the modified risk provisions would be subject to injunctive relief under this aspect of the complaint.

It is more difficult to predict what the court will do with the APA claims. Of those, I believe the flawed cost-benefit analysis is the strongest claim because it will be easy to show that the FDA greatly underestimated the costs it is imposing on businesses. Essentially, the FDA underestimated the cost by at least two if not three orders of magnitude. The FDA estimated that there would be 750 PMTA’s per year. But the FDA itself acknowledged that there are 4,600 vape shops that mix their own liquids. Assuming, conservatively, that each vape shop sells only 10 e-liquid flavors, this amounts to 46,000 applications. And this is just from small businesses. It doesn’t include the large e-liquid manufacturers. Given the high likelihood of success of this argument and the severe and irreparable harm that enforcing it would produce, I think there is at least a solid chance that the court could provide injunctive relief on this claim, which would temporarily enjoin the FDA from enforcing the PMTA requirements.

The other two claims are compelling, but courts generally give federal agencies a huge amount of discretion when using the “rational basis” test.

The rest of the story is that Nicopure’s complaint outlines several compelling arguments which demonstrate that the FDA has exceeded its authority in its deeming rule in violation of the APA and in a way that cannot stand scrutiny under the First Amendment. I’m certain that this is only the first of many more lawsuits to come. This is not unexpected when a federal agency puts onerous and financially prohibitive burdens on an industry that result in a de facto elimination of the bulk of that industry.

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