FDA Exhibits Increased Authority under Food Safety and Modernization Act

In early September of 2012, the U.S. Food and Drug Administration (“FDA“) and Centers for Disease Control and Prevention (“CDC“) announced an investigation into a multi-state outbreak of Salmonella Bredeney infections linked to peanut butter manufactured by Sunland, Inc. The outbreak sickened 42 people in 20 states according to the CDC. As part of the investigation in late September, the FDA and CDC briefed Sunland on the status of the investigation and the company volunteered to recall approximately 100 products, which included peanut butter and other products made with nuts and seeds. A list of those products can be found in Sunlands recall announcement.

During the investigation, the FDA discovered multiple sanitation violations at the Sunland manufacturing facility. FDA testing revealed the presence of Salmonella in raw peanuts from the peanut processing facility. The FDA also found that Sunland had knowingly released contaminated products onto the market between 2009 and 2012. A copy of the FDAs inspection report can be found here.

In response to the outbreak, the FDA suspended the food facility registration of Sunland on November 26, 2012. Registration with the FDA is required for any facility that manufactures, processes, packs, or holds food for consumption in the United States. 21 CFR 1.225. If a facilitys registration is suspended, that facility is prohibited from introducing food into interstate or intrastate commerce. The suspension, however, is only temporary, and does not prevent Sunland from continuing to manufacture foods while the registration is suspended.

Significantly, this was the FDAs first use of its registration suspension authority pursuant to the Food Safety Modernization Act (“FSMA”). 21 U.S.C. § 350d(b). As we have previously reported, the FSMA contains various sweeping provisions that expand the FDAs power to regulate food facilities. The new authority enables the Agency to suspend registration when food manufactured, processed, packed, received, or held by a facility (1) has a reasonable probability of causing serious adverse health consequences or death to humans or animals; or (2) the facility knew of, or had reason to know of, such reasonable probability, and packed, received or held such food.

On December 20, 2012, the U.S. Department of Justice (“DOJ“) filed a complaint against Sunland and its president, Jimmie D. Shearer, in the U.S. District Court in the District of New Mexico seeking a permanent injunction. The suit was filed on behalf of the federal government by US Attorney for the District of New Mexico Kenneth Gonzales. The DOJ press release can be found here.

According to FDAs press release, on December 21, 2012, U. S. District Court Judge William P. Johnson signed a consent decree imposing requirements on Sunland to keep potentially harmful products from entering the marketplace. The consent decree requires that Sunland retain an independent sanitation expert to develop a sanitation control program that the company must then implement in compliance with current good manufacturing practice (“cGMP”) regulations. According to the consent decree, the FDA has determined that adequate grounds no longer exist to continue the suspension and will reinstate Sunlands food facility registration. However, the company cannot process or distribute food from its peanut butter plant until it has complied with the consent decrees requirements to the Agencys satisfaction and obtained written authorization from the FDA.

This case highlights the FDAs increased authority under the FSMA to take enforcement actions against non-compliant food facilities. Fuerst Ittleman David & Joseph will continue to monitor the FDAs measures under the FSMA. For more information regarding the FSMA, FDA enforcement measures, or other compliance issues, please contact us at contact@fidjlaw.com or (305) 350-5690.

How Can FDA More Reasonably Regulate Autologous Stem Cell Procedures?

In the December 26, 2012 edition of the Food & Drug Law Institutes (FDLI) Policy Forum, Andrew Ittleman of Fuerst Ittleman David & Joseph took on the question of how FDA may more reasonably regulate autologous stem cell procedures. In the article, Mr. Ittleman concludes that FDA, under certain circumstances described in the article, should exercise “enforcement discretion” with respect to autologous stem cell procedures. Mr. Ittleman also describes how FDA has interpreted the concepts of “minimal manipulation,” and “homologous use,” and discusses FDAs regulation of autologous stem cell procedures as being in direct conflict with traditional notions of the practice of medicine. A copy of the article is available here.

United States v. Caronia: Second Circuit Rules Manufacturers Cannot Be Criminally Prosecuted for Off-Label Promotion of Drugs Under FDCA

On December 3, 2012, the United States Court of Appeals for the Second Circuit issued a landmark decision in United States v. Caronia, holding that “the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.” In its opinion, available here, the court rejected the Governments interpretation of the FDCA as prohibiting manufacturer promotion of off-label uses and held that such a prohibition on manufacturers speech is an unconstitutional violation of the First Amendment. This decision is significant because it could change the way the FDA continues to regulate drugs under the misbranding and adulteration provisions of the FDCA.

Regulatory Framework

Under 21 U.S.C. § 355(a) of the FDCA, a drug must be approved by the FDA for specific use prior to being distributed into interstate commerce. Once the FDA approves a drug for distribution, physicians can prescribe the drug for both FDA-approved and unapproved (or “off- label”) uses. Courts and the FDA have long recognized the public value in allowing physicians to, in their best judgment, prescribe drugs for off-label use when in the best interest of the patient.

According to the FDA, the FDCA permits off-label prescription by physicians but does not allow “misbranding” by manufacturers through off-label promotion. The FDA has interpreted off-label promotion to be misbranding, stating that “[a]n approved drug that is marketed for an unapproved use (whether in labeling or not) is misbranded because the labeling of such drug does not include Ëœadequate directions for use.” (See FDAs Draft Guidance for Industry here.) It is important to note, however, that the FDCA and its associated regulations do not expressly prohibit the “promotion” or “marketing” of drugs for off-label use.

Factual Background

Alfred Caronia, an employee of Orphan Medical, Inc. (“Orphan”), now known as Jazz Pharmaceuticals, was found guilty of conspiracy to introduce a misbranded drug into interstate commerce in violation of the FDCA. Orphan manufactured the drug Xyrem, a central nervous system depressant, which contained gamma-hydroxybutryate (“GHB”), otherwise known as the “date rape drug”. Orphan obtained FDA approval for Xyrem for two indications: 1) to treat narcolepsy patients who experience cataplexy and 2) to treat narcolepsy patients with excessive daytime sleepiness. Due to the serious safety concerns related to the use of Xyrem, the FDA required Orphan to use a “black box” warning on its label stating that the drugs safety and efficacy were not established in patients under 16 years of age.

Mr. Caronia was hired by Orphan as a Specialty Sales Consultant to promote Xyrem. Under Orphans procedures, sales consultants were not permitted to respond to questions regarding the off-label use of Xyrem. Instead, sales consultants were required to fill out “medical information request forms” and Orphan would send information to the inquiring physicians. Any physician employed by Orphan as a promotional speaker, however, was permitted to answer off-label use questions. In 2005, the federal government launched an investigation of Orphan and Dr. Peter Gleason, a physician promotional speaker. The federal governments investigation was specifically focused on the off-label promotion of Xyrem. With the assistance of a government cooperator, who posed as a prospective Xyrem customer, the federal government audio-recorded Mr. Caronia and Dr. Gleason promoting Xyrem for unapproved uses. Specifically, Mr. Caronia was recorded as promoting Xyrem for use in the treatment of muscle disorders, chronic pain, and Fibromyalgia, as well as for treatment in patients under age sixteen. Xyrem was not approved for use in the treatment of these conditions or in patients under the age of sixteen. As a result of these statements, Mr. Caronia was charged and convicted with conspiracy to introduce and introducing a misbranded drug into interstate commerce in violation of 21 U.S.C. §§ 331(a) and 333(a)(2). Mr. Caronia appealed, arguing that the misbranding provisions of the FDCA prohibit off-label promotion, and therefore unconstitutionally restrict speech.

U.S. v. Caronia: Decision and Legal Rationale

The question before the Second Circuit Court of Appeals was whether the governments prosecution of Mr. Caronia under the FDCA for promoting an FDA-approved drug for off-label use was constitutionally permissible. In a 2-1 decision, the court found that “a conviction obtained under the governments application of the FDCAwould run afoul of the First Amendment” and vacated Mr. Caronias criminal conviction. In reaching its decision, the court relied heavily on the reasoning of the United States Supreme Court in IMS v. Sorrell. In that case, the Supreme Court first held that “[s]peech in aid of pharmaceutical marketingis a form of expression protected by the Free Speech Clause of the First Amendment.” In reaching this conclusion, the Court engaged in a two-step inquiry. First, the court considered whether the government regulation restricting speech was content and speaker-based. Second, the Court considered whether the government had shown that the restriction on speech was consistent with the First Amendment under the applicable level of scrutiny. The Court determined that because the statute set forth content- and speaker-based restrictions, it was subject to heighted scrutiny. Specifically, the Court held that the law, which prohibited pharmaceutical companies from using prescriber-identifying information for marketing purposes, disfavored speech with a particular content (marketing) when expressed by certain disfavored speakers (pharmaceutical manufacturers). Therefore, because “the creation and dissemination of information are speech within the meaning of the [Constitution],” the Supreme Court held that the Vermont law unconstitutionally restricted speech.

In reaching its decision in U.S. v. Caronia, the Second Circuit, like the Supreme Court in IMS v. Sorrell, engaged in a two-step inquiry: 1) whether the government regulation restricting speech was content-and speaker-based; and 2) whether the government had shown that the restriction on speech was consistent with the First Amendment under a heightened level of scrutiny. First, the court found that the governments interpretation of the FDCAs misbranding provisions as prohibiting off-label promotion is content-based because it distinguishes between “favored speech” and “disfavored speech” on the basis of ideas. Specifically, the court found that under the governments interpretation of the FDCA, speech about government-approved use of drugs is permitted, while certain speech about the off-label use of drugs is prohibited. Second, the court found that the governments regulation restricting speech only targeted one kind of speaker (pharmaceutical manufacturers), while allowing others to speak freely without restriction. Under the FDCA, off-label prescriptions and drug use are legal, which means that physicians and academics, for example, can speak about off-label use without consequence, while the same speech is prohibited when delivered by pharmaceutical manufacturers. The FDAs “construction Ëœthus has the effect of preventing [pharmaceutical manufacturers]”and only [pharmaceutical manufacturers]”from communicating with physicians in an effective and informative manner.” Therefore, the governments construction of the FDCAs misbranding provisions is content- and speaker-based, and subject to heightened scrutiny under Sorrell.

The court then examined the constitutionality of the governments restriction on commercial speech under the test set forth in Central Hudson Gas & Electric Corp. v. Public Service Commission. In applying the Central Hudson test, the court determined that the governments regulation of Mr. Caronias off-label promotion is unconstitutional because it does not directly advance the governments interest in drug safety and public health and is more extensive than necessary to achieve those interests.

The opinion explained that because the FDA contemplated and accepted off-label prescription and drug use as part of its regulatory framework, “it does not follow that prohibiting the truthful promotion of off-label drug usage by a particular class of speakers would directly further the governments goals” of preserving the FDAs drug approval process and reducing patient exposure to unsafe and ineffective drugs. Moreover, the court explained that selectively prohibiting manufacturer commercial speech “paternalistically” interferes with the ability of physicians and patients to receive treatment information, which could “inhibit, to the publics detriment, informed and intelligent treatment decisions.” Therefore, the governments construction of the FDCA “provides only ineffective or remote support for the governments purpose” because it “essentially legalizes the outcome”off-label use”but prohibits the free flow of information that would inform that outcome.”

Moreover, the court found that the governments construction of the FDCA “to impose a complete and criminal ban on off-label promotion by pharmaceutical manufacturers is more extensive than necessary to achieve the governments substantial interests” because other, less speech-restrictive alternatives are available. For example, according to the Second Circuit, the government could create other limits, such as ceilings or caps on off-label prescriptions to minimize off-label use or to address manufacturer evasion of the drug approval process. Alternatively, the government could further develop guides to help physicians and patients differentiate between misleading and false promotion, exaggerations and embellishments, and truthful or non-misleading information. Lastly, the court suggested that the government could even prohibit off-label use altogether if the use of off-label drug use is exceptionally concerning.

The court did limit the scope of its decision: “Our conclusion is limited to FDA-approved drugs for which off-label use is not prohibited, and we do not hold, of course, that the FDA cannot regulate the marketing of prescription drugs.”

Because the First Amendment mandates that the regulation of speech “be a last”not first”resort,” the court held that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech that promotes the lawful, off-label use of an FDA-approved drug. In its opinion, the court also explained that it construed the misbranding provisions of the FDCA as not prohibiting or criminalizing truthful promotion of off-label usage.  For these reasons, the court vacated Mr. Caronias criminal conviction and remanded the case to the district court.

At present, the U.S. v. Caronia decision is only binding on courts within the jurisdiction of the Second Circuit. However, we expect the government to petition for a rehearing or rehearing en banc in the Second Circuit, or for writ of certiorari to the United States Supreme Court. Because it is highly unlikely that the government will do nothing and simply allow the decision to stand, the constitutionality of off-label promotion of approved drugs is far from resolved, even in the Second Circuit. This decision is one that favors members of the pharmaceutical and life sciences industries; however, it remains unclear how, or whether, other courts will join the Second Circuit in finding that manufacturer off-label promotional speech warrants protection under the First Amendment.

Fuerst Ittleman David & Joseph will continue to monitor any developments in the regulation of off-label promotion of FDA-approved products. For more information, please feel free to contact us via email at contact@fidjlaw.com or via telephone at 305.350.5680.

U.S. Lifts Ban on Imports from Burma: Continued Efforts to Ease Burma Back into the Global Economy

Just one day before President Barack Obama embarked on the first-ever trip to Burma by a sitting U.S. president, on November 16, 2012, the U.S. government removed most import restrictions on goods from Burma. This joint effort between the Department of State and the U.S. Department of Treasury will waive portions of the Burmese Freedom and Democracy Act of 2003 to allow most Burma-origin goods into the American market for the first time in nearly a decade. These actions will be implemented by General License No.18 authorizing all Burma-origin imports except for jadeite, rubies, and any commodities specifically designated on U.S. black lists.

This lifting of certain trade restrictions marks the latest of several efforts by the United States and the international trade community to reintegrate Burma into the global marketplace, following severe trade restrictions that were initially placed on the country in the late 1980s for its government’s violent responses to opposition groups.

Canada, for example, lifted its ban on trade and investment in Burma in the Spring of 2012, including prohibitions on imports, exports, investment, the docking and landing of ships and aircraft, and the provision or acquisition of financial services.  It should be noted, however, that Canada has maintained an arms embargo and prohibitions against designated Burmese persons. Similarly, European foreign ministers approved a one-year suspension of the E.U. economic sanctions against Burma.

While companies have urged the present administration to formulate a plan to lift trade restrictions across all sectors of the Burmese economy, the U.S. is slightly more reluctant to move as swiftly as Canada and the E.U. in lifting Burmese sanctions. The Obama Administration has expressed intentions to pursue a calculated step-by-step process to reward the leaders in Burma for further reforms and to give the U.S. the flexibility to slow the process if Burmese reforms are delayed or reversed. As of April 4, 2012, the U.S. had lifted restrictions only on certain financial transactions in support of humanitarian, religious, and other non-profit activities authorized by the U.S. Department of Treasury.

The United States has recognized and rewarded Burma’s continued democratic and humanitarian reforms including the country’s April elections, release of political prisoners, increased press freedom and cease-fire agreements with armed ethnic groups. While the U.S. acknowledges these progressive steps, the most recent lift of import restrictions is a change in enforcement and not a full repeal of the legal framework that has authorized U.S. sanctions against Burma for almost 25 years. In a joint statement released by the U.S. Departments of State and Treasury, the agencies noted that “the U.S. government is closely monitoring and supporting Burma’s progress on reform, and the core authorities underlying our sanctions remain in place[d]espite positive changes, [we] remain concerned about corruption, remaining political prisoners, continued military ties to the Democratic People’s Republic of Korea and ethnic conflict.”

In a statement by House Ways and Means Committee Chairman, Dave Camp (R-Michigan), he noted, “While we’ve seen positive developments in Burma over the past few months, much work remains ahead. I encourage the Burmese Government to continue on its forward-looking trajectory and implement significant political and economic reforms in order to foster a truly free and prosperous Burma.” Democratic Senator Max Baucus (Montana) echoed these thoughts stating, “Burma has made real progress advancing democracy, but we need to maintain pressure to guarantee it continues.”

The President’s visit to Burma, an unthinkable prospect just two years ago, marked a “pivotal moment in Burmese history that embraced the progress that has been made and further encouraged the government and its people to move forward with their transition to democracy” said Deputy National Security Advisor for Strategic Communications, Ben Rhodes on a November 15th conference call regarding the presidents visit. Hopefully, the lifting of trade restrictions will be mutually beneficial for U.S. foreign relations and policy, Burmese domestic political infrastructure, and global trade as a whole.

Fuerst Ittleman David & Joseph, PL, has significant experience in trade law, sanction compliance programs, and in counseling our clients as to the best means to reap the benefits of changes in U.S. policies.  Contact us today for a free consultation.

Kirtsaeng v. John Wiley & Sons:

U.S. Supreme Court Addresses the First Sale Doctrines Applicability to Goods Produced and Manufactured Abroad

On October 29, 2012, the Supreme Court heard oral arguments in Kritsaeng v. John Wiley & Sons. The outcome of this case has very important implications for consumers as well as discount sellers and online re-sellers alike such as Amazon, EBay, Google, and Costco. The final decision could also reshape courts interpretation of the “First Sale Doctrine,” the legal principle that “permits the owner of a lawfully purchased copy of copyrighted work to resell it without limitations imposed by the copyright holder.”

The Kirtsaeng Case:  Factual and Procedural Overview

Supap Kirtsaeng moved to the United States from Thailand in 1997 to pursue an undergraduate degree in Mathematics at Cornell University. Upon completion, Kirtsaeng later moved to California to pursue a doctoral degree. To help fund the cost of his education, Between 2007 and September 8, 2008 Kirtsaeng operated a resale text book business.  His friends and family members would ship him foreign edition textbooks printed by John Wiley & Sons Asia division. Kirtsaeng would then sell these textbooks on commercial websites in the United States such as EBay and Amazon.

What many consumers may not know is that “foreign edition” textbooks; i.e., textbooks designed to be sold and used outside of the United States, are often identical in content to the U.S. editions, but retail for prices that are as much as 75% less.  American publishers will produce these international versions because students in foreign countries often cannot afford to pay the same prices as their American counterparts.

It is estimated that Kirtsaeng made anywhere between $900,000 and $1.2 Million in revenues and $100,000 in profits from secondary market sales of these text books.  In response, the publishing giant Wiley filed a copyright infringement law suit against Kirtsaeng in the United States District Court for the Southern District of New York. The District Court ultimately found Kirtsaeng liable for willful copyright infringement and imposed $600,000 in damages.

Kirtsaeng subsequently appealed the decision to the United States Court of Appeals for the Second Circuit arguing that pursuant to the first sale doctrine, Wiley lost its right to control resale of the books once they were legally purchased by his relatives in Thailand.

On appeal, the threshold question was whether the Copyright Act protections for copyright holders applied to goods produced and purchased outside of the United States, and subsequently resold in the United States without the copyright holders permission.  In its analysis of the statue, the Second Circuit looked to 17 U.S.C. §602(a)(1) and 17 U.S.C. §109(a) which both give somewhat conflicting views on the copyright holders protections.  On the one hand, Section 602(a)(1) provides that “[i]mportation into the United Sates,

without the authority of the owner of copyright under this title, of copiesof a work that have been acquired outside of the United States is an infringement of the exclusive right to distribute copies” On the other, 17 U.S.C. §109(a) “ the codification of the “first sale doctrine” “ provides that “the owner of a particular copylawfully made under this titleis entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy.”

In attempts to resolve this conundrum, the Second Circuit looked to the Supreme Courts decision in Quality King Distributors, Inc. v. Lanza Research International, Inc. In that 1998 case, Lanza Research International, a California distributor, sold its hair care products both internationally and domestically, but charged foreign distributors significantly lower prices than domestic distributors. Quality King took advantage of these cost savings by purchasing shipments of Lanzas products from one of Lanzas foreign distributors and re-exporting the products to the United States for re-sale. Similar to Wiley in the Kitrsaeng case, Lanza made claims that Quality Kings operation violated its exclusive rights to distribute and reproduce the copyrighted material in the United States. In an unanimous opinion, the Quality King court held that Section 109(a) limited the scope of Section 602(a)(1)s exclusive rights provisions, and that resale by a lawful owner is not an unauthorized importation. Thus, the first sale doctrine was indeed applicable, and the copyright holder, Lanza, could not prevent re-importation and resale of the products that it lawfully sold to its foreign distributors.

However, as the Second Circuit noted in the Kirtsaeng decision, the Quality King holding was distinguishable because there, the copyrighted items in question had all been manufactured in the United States. It is arguable whether Quality Kings dicta suggested that copyrighted material manufactured abroad was not subject to the first sale doctrine. But Justice Ruth Bader Ginsburgs concurrence in that case squarely stated that “I join the Courts opinion recognizing that we do not today resolve cases in which the allegedly infringing imports were manufactured abroad.”

Ultimately, the Second Circuit ruled in favor of Wiley. In its decision, the Second Circuit interpreted Section 109 (a)s phrase Ëœlawfully made under this Title to apply exclusively to

copies that are made in territories where the Copyright Act is law and not to foreign-manufactured works. The Second Circuit did however note the difficulty of deciphering the ambiguous language of the statues, and noted that its interpretation may be incorrect.  In response to the unfavorable decision, Kirtsaeng filed a petition for writ of certiori which was granted on April 16, 2012 and is now before the United States Supreme Court. This will not be the first time the United States Supreme Court has addressed the issues presented in the Kirtsaeng matter.

In 2010, the United States Supreme Court addressed this issue in Omega S.A. v. Costco Wholesale Corp.  In that case, Costco obtained watches with Omegas copyrighted design from the grey market.  Omega manufactured its watches in Switzerland and sold the watches through its network of authorized distributors abroad. Third parties purchased the watches and subsequently sold them Costco.  Costco then sold these watches domestically.  At no point did Omega authorize the importation of the watches into the U.S nor did it authorize Costcos resale.

In a 4-4 split decision in which Justice Elena Kagan recused herself, the Court was unable to come to a conclusion as to where it stood on the issue; therefore, it was obligated to affirm the lower courts decision which maintained that the first sale doctrine does not apply to items manufactured overseas unless they were previously imported and sold in the United States with the copyright holders permission.

Consequences of a Kirtsaeng Decision in Favor of Wiley

Legal commentators are hopeful that the ruling on the Kirtsaeng v. Wiley matter will provide a final answer on the issue of the first sale doctrine as it applies to foreign-produced items. While the Kirtsaeng case in particular deals with textbooks, the holding with respect to the applicability of the first sale doctrine to products produced outside of U.S. borders will have tremendous effects on consumer sales and trade. Many of the most frequently purchased items domestically are manufactured abroad and have logos, packaging, or component parts that are subject to copyright laws.  As such, global resellers and e-commerce sites may have to make major adjustments to their operations if the Court rules in Wileys favor.

On a broader scale, if the Supreme Court follows Wileys proposed interpretation of the first sale doctrine, another result may be an increase in the economic cost of producing goods.  As Judge Garvan J. Murtha of the Second Circuit wrote in his dissent in Kirtsaeng, “Granting a copyright holder unlimited authority to control all commercial activities involving copies of

her work would create high transaction costs and lead to uncertainty in the secondary market.”

Take for an example a domestic distributor of laptop computers or automobiles that are manufactured outside the United States. Under a holding that favors Wiley, a manufacturer could refuse the resale of these products in the U.S.  While this scenario is unlikely, there is no doubt that an interpretation of the first sale doctrine which limits secondary market sales of goods produced abroad could result in higher manufacturing costs to produce finished goods that are in compliance with this heightened standard.  Another possible consequence is that domestic manufacturers will be further incentivized to increase overseas manufacturing of their goods as a means of limiting the distribution of their products through secondary markets.

Gray Market Importations

Regardless of the outcome in Kirtsaeng, it is important to note that U.S. Customs and Border Protection (“CBP”) affords companies gray market protection for their items.  Such protections can include CBP seizing imports of genuine products for which importation into the U.S. has not been authorized by the trademark holder.

We will continue to follow the developments in this precedential case, but encourage U.S. resellers of imported merchandise to check the U.S. Customs and Border Protection Intellectual Property Rights e-Recordation database to determine if the copyright or trademark holder of the imported product(s) has requested gray market protection through CBP.  Failure to do so could result in the seizure of the products.

Furthermore, businesses attempting to protect unauthorized distributors from reselling their goods in domestic markets should record their trademarked or copyrighted material with CBP and designate gray market protection for these items.  It is a fairly inexpensive process that allows CBP to enforce the copyright and trademark protection at the border and enables owners to submit reports of possible violations and violators.  Most importantly, recordation serves as evidence of a businesss desire to keep its goods off of the gray market while also informing individuals operating in secondary markets that importation of such goods carries significant business risks.

Fourth Circuit Court of Appeals Upholds Federal Ban on Trafficking of Certain “Culturally Significant Articles”

On October 22, 2012, the United States Court of Appeals for the 4th Circuit affirmed a Federal District Court decision that a federal ban on the trafficking of certain culturally significant articles was proper and did not unfairly prevent the importation of rare coins from China and Cyprus.

Historically, the United States has taken significant steps to thwart the theft, excavation, and illicit export of culturally significant articles into and out of other countries. In 1970, the United Nations Educational, Scientific, and Cultural Organization (“UNESCO”) held a conference in which it developed an international system to protect countrys culturally significant articles. The Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (the “Convention”) was spawned from this conference. The Convention promulgated rules that afforded state parties the ability to request that other signatories to the Convention implement import and export controls to protect the requesting states cultural property from theft and illicit export.

The U.S. Congress subsequently ratified these rules in 1972, and ten years later under President Reagan, domestically implemented the Convention through the Cultural Property Implementation Act (“CPIA”). The CPIA give the U.S. government the authority to place import restrictions on certain articles of cultural property at the request of a Convention signatory. The scope of these restrictions is limited under 19 U.S.C. §2601 to, among other criteria, “archeological or ethnological material of the State Party” that “was first discovered within, and is subject to export control by, the State Party” requesting import restrictions. The authority to determine and list restricted articles initially resided with the President and Secretary of Treasury, but has since been delegated to the Assistant Secretary of State for Educational and Cultural Affairs.

The CPIA provides the following exceptions for articles being imported into the United States that have been determined to be covered by the Act:

  1. the articles are accompanied by formal documentation certifying that the item was lawfully exported;
  2. there is satisfactory evidence that the article was exported from a State Party at least ten years prior to arriving to the United States and the importer owned it for less than one year before it arrived in the United States; or
  3. there is satisfactory evidence that the article was exported from the State Party before the import restrictions took effect.

Also, if the date of export from the State Party is not known, a statement expressing belief that the article meets one of the exemptions may suffice.

In September 1998, Cyprus formally requested the imposition of import restrictions on certain categories of articles that jeopardize the national cultural patrimony of Cyprus. The import restrictions were permitted and further extended to include certain coins of Cypriot origin in 2007. In May 2004, China also made formal requests to the United States for the imposition of import restrictions on categories of Chinese archeological material from the Paleolithic to the Qing Dynasty. The United States also permitted these restrictions and in 2009 extended said restrictions to certain types of Chinese coins.

In April of 2009, after these restrictions had taken effect, the Ancient Coin Collectors Guild (the “Guild”) purchased twenty-three (23) ancient Chinese and Cypriot coins from a London dealer. According to the dealers documentation, the coins were minted in China or Cyprus and each coin had no recorded provenance. The coins were subsequently detained by U.S. Customs and Border Protection (“CBP”) for allegedly violating CPIA and associated regulations. Interestingly enough, rather than attempting to establish that the coins were lawfully admitted under one of CPIAs exceptions, the Guild decided not to provide CBP with any supporting documentation and, in the alternative, waited until forfeiture proceedings were initiated to bring a claim against CBP and the U.S. Department of State in Federal District Court.

What was initially an import/export dispute with CBP quickly turned into a dispute regarding the balance of powers between the different branches of the federal government. In its court filings, the Guild claimed that both CBP and the Department of State acted ultra vires, a Latin phrase that means “beyond the powers” and which has been coined (no pun intended) in the legal context to describe actions where an entity exceeds the authority which it has been expressly granted. The Guild based its ultra vires claims on the fact that both agencies overstepped their authority by not including a more detailed accounting of specific items covered under the CPIA import restrictions in violation of the Administrative Procedures Act (“APA”), and First and Fifth Amendments of the U.S. Constitution.

Unfortunately for the Guild, the Fourth Circuit recognized that it is well settled, with respect to foreign affairs, that the federal judiciary is generally not empowered to second-guess the Executive Branch. The court also found that, with respect to these types of import restrictions, the Executive Branch has broad discretion in negotiating agreements with foreign states under 19 U.S.C. §2602(a). Based upon the broad powers of the Executive and the agencies proper compliance with the APA, the court affirmed the district courts dismissal of the Guilds claims on these arguments.

Additionally, the Fourth Circuit pointed out that Congress had provided administrative procedures through which importers could challenge CPIA seizures and forfeitures under § 2609. In its case, the court ruled that the Guild was not stripped of its due process rights, but rather decided to purposely forego its potential administrative remedies in order to challenge the governments claims and prove that the coins were not subject to forfeiture.

Furthermore, as a legal strategy, it may have been of greater value for the Guild to focus its efforts on trying to prove that the coins were outside of the confines of the CPIA import restrictions. Generally, importers of antiques and culturally significant items are advised to assemble formal documentation of lawful entry prior to import and to complete significant due diligence into their prospective imports origin, age, and chain of custody to avoid possible import violations. The court noted in its opinion that proving the coins are beyond the scope of CPIA in the administrative process may be the Guilds only remaining legal recourse.

Here at FIDJ our attorneys have significant experience in disputing seizures of cultural items, antiques and artifacts. If you believe that your importation of culturally significant or ethnological materials has been improperly seized or may qualify for one of the CPIA exemptions, feel free to contact the Customs and Trade Law practice group at FIDJ.

Proposed Medicare Settlement Clarifies CMS’s Position on “Skilled Maintenance Services”

On October 16, 2012, in the case of Jimmo v. Sebelius, Case No. 5:11-CV-17 (D. Vt. October 16, 2012), a class of Medicare beneficiaries and the United States Department of Health and Human Services agreed to a proposed settlement which clarifies the standards by which skilled nursing and therapy services for Medicare beneficiaries are to be covered and paid for by Medicare. Although the position of the government is that the settlement only clarifies existing Medicare policies and guidelines for payment by its contractors, the practical effect is that long term skilled maintenance care for beneficiaries with little to no restorative potential will now be covered. As a result, home health agencies and skilled nursing facilities will be able to care for beneficiaries suffering from chronic illnesses without fear of subsequent audits and overpayment findings based on lack of medical necessity. A copy of the proposed settlement agreement can be read here.

The Jimmo case centers on the so-called “Improvement Standard” which plaintiffs in the case, a class of Medicare beneficiaries with chronic illnesses, alleged affects coverage determinations for skilled nursing and therapy services. More specifically, according to the plaintiffs, under the Improvement Standard policy, coverage of skilled services was based on the presence or absence of a beneficiarys potential for improvement. Phrased differently, the plaintiffs alleged that Medicare coverage of skilled services was blanketly denied by Medicare contractors on the basis that a beneficiary was not improving, without an individualized assessment of the beneficiarys condition or the medical reasonableness and necessity of the treatment provided.

Plaintiffs further alleged that neither the Medicare Act nor its implementing regulations require that beneficiaries demonstrate restorative potential in order for skilled services to be covered. Rather, plaintiffs alleged that so long as the services provided have been ordered by a physician and are medically reasonable, coverage cannot be denied on the basis of restorative potential alone.

In reaching a proposed settlement, the Centers for Medicare & Medicaid Services (“CMS”), the agency with HHS that administers the Medicare Program, has agreed to revise the Medicare Benefit Policy Manual to clarify that coverage of skilled services should not be based on a beneficiarys potential for improvement. Instead, the manual will be revised to make clear that it is the beneficiarys need for skilled care.

As explained in the proposed settlement agreement:

The manual revisions will clarify that, under the [Skilled Nursing Facility], [Home Health Agency], and [Outpatient Therapy] maintenance coverage standards, skilled therapy services are covered when an individualized assessment of the patients clinical condition demonstrates that the specialized judgment, knowledge, and skills of a qualified therapist are necessary for the performance of a safe and effective maintenance program. Such a maintenance program to maintain the patients current condition or to prevent or slow further deterioration is covered so long as the beneficiary requires skilled care for the safe and effective performance of the program.

See Proposed Settlement Agreement at ¶ 6(a). The Proposed Settlement Agreement provides for a similar clarification for skilled nursing services. See Proposed Settlement Agreement at ¶ 7(a). Additionally, CMS has also agreed to certain accountability measures to ensure that the new guidance policy is followed by its fiscal intermediaries, the entities through which the Secretary performs the audit and payment functions of the Medicare program. For example, CMS has agreed to develop protocols for reviewing sample coverage decisions to determine overall trends and identify problems in the application of the maintenance coverage standards. See Proposed Settlement Agreement at ¶ 17.

Skilled nursing facilities and home health agencies which participate in the Medicare program as providers should take notice of CMSs clarified position. Under the Improvement Standard, beneficiaries with chronic debilitating conditions who rely on skilled services to maintain their current condition and prevent further deterioration are often left without providers because of the providers fear that payment for “maintenance” skilled services would be denied by Medicare contractors. With the impending policy change, so long as a beneficiary meets the requirements for home health or skilled nursing coverage, providers should be able to provide the skilled maintenance services needed by their patients.

FIDJ will continue to monitor these developments. If you have questions pertaining to the Medicare Act or its implementing regulations and how to ensure that your business maintains regulatory compliance at both the state and federal levels, please contact us at contact@fidjlaw.com.

FDA Issues Draft Guidance and 510(k) Submission Checklist

On August 13, 2012, the U.S. Food and Drug Administration (“FDA“) issued a Draft Guidance document entitled “Refuse to Accept Policy for 510(k)s” (“the Guidance”). The Guidance outlines the procedures and criteria FDA uses to assess whether a 510(k) submission meets the minimum threshold to be accepted for substantive review. If finalized, the Draft Guidance will supersede the 1993 guidance entitled “Center for Devices and Radiological Healths Premarket Notification (510(k)) Refuse to Accept Policy” and the 1994 guidance entitled “510(k) Refuse to Accept Procedures (K94-1).”

The FDA requires that 510(k)s be submitted in an organized, tabulated document that provides sufficient information for the FDA to be able to determine whether the device is substantially equivalent (“SE”) to a predicate device. The FDA estimates that the average 510(k) submission is about 35 pages; although others may be 100 pages or more depending on the complexity of the device. The FDA has not implemented a standard 510(k) form.

The purpose of the Draft Guidance is to provide device sponsors with clarification regarding what should be included in 510(k) submissions in order to enhance the quality of submissions and improve overall FDA review time. Detailed in the Draft Guidance is an “Acceptance Checklist” that contains the criteria the FDA will use to conduct an acceptance review to ensure that 510(k) submissions are administratively complete.

According to the Draft Guidance, within 15 days of receipt of a 510(k), the FDA will conduct a review to assess whether the submission should be accepted. If one of more of the items on the Acceptance Checklist is not present, the 510(k) submission will not be accepted and will receive a Refuse to Accept (“RTA”) designation. The FDA will notify the device sponsor in writing that the submission has not been accepted and will provide a copy of the completed checklist indicating which items are the basis for the RTA designation. The 510(k) submitter may respond by providing the missing information identified in the checklist. Only when all the missing information is submitted will the 510(k) be accepted and the FDA will conduct a substantive review evaluating the quality of the content to determine if the device should be cleared.

The Draft Guidance is one of the FDAs attempts to improve its medical device application review times in order to meet the performance goals set forth in the Medical Device User Fee Modernization Act (“MDUFMA”). For more information regarding the FDAs attempts to improve review times, please see our previous report regarding the medical device pre-submission (“Pre-Sub”) program.

Some members of the medical device industry are concerned that the acceptance review of a 510(k) may be potentially time consuming and counterproductive to the FDA goals to improve review times. In a letter to the FDA, the Advanced Medical Technology Association (“AdvaMed”) on behalf of industry reasons that it may be difficult for reviewers conducting the acceptance review to determine whether certain elements are present without conducting a substantive review. Also in an effort to improve review times, AdvaMed urged the FDA to lower the bar for the acceptance criteria described in the Draft Guidance, and limit the acceptance review to allow for an effective substantive review.

The FDAs review of medical devices is complex. Fuerst Ittleman David & Joseph PL has extensive experience successfully navigating medical devices through FDA review. For more information on FDAs review of medical devices, please contact us at contact@fidjlaw.com.

FDA Issues Warning Letters to Manufacturers of Misrepresented Conventional Foods and Dietary Supplements

As we have previously reported here and here, manufacturers of conventional food products and dietary supplements have often been the target of U.S. Food and Drug Administration (“FDA“) Warning Letters for allegedly misrepresenting their products. Pursuant to Section 201(ff)(2)(B) of the Federal Food, Drug, and Cosmetic Act [21 U.S.C. 321(ff)(2)(B)], if a product is represented as a conventional food, the product cannot also be marketed as a dietary supplement. However, categorizing conventional foods and dietary supplements can be complicated.

The FDA defines conventional foods as “foods that are not dietary supplements.” All ingredients in conventional foods must be pre-approved by the FDA as a food additive or meet the requirements of the “Generally Recognized as Safe” (“GRAS”) provisions. Dietary supplements are defined as products “intended for ingestion that contain a Ëœdietary ingredient intended to add further nutritional value to (supplement) the diet,” dietary supplements may be in forms such as tablets, capsules, softgels, gelcaps, liquids, or powder, and may be one, or a combination, of the following substances: vitamins, minerals, herbs or botanicals, amino acids, concentrates, metabolites, constituents, or extracts.

Prior to 2009, the FDA determined if a product was a conventional food or dietary supplement based on the labeling pursuant to the Dietary Supplements Health & Education Act (“DSHEA“). For example, conventional foods were required to have a “Nutrition Facts” panel on their labels, and dietary supplements were required to have a “Supplement Facts” panel. However in 2009, the FDA issued the draft guidance document “Factors that Distinguish Liquid Dietary Supplements from Beverages, Considerations Regarding Novel Ingredients, and Labeling for Beverages and Other Conventional Foods” that changed the factors that the FDA relies on to determine a products category. The 2009 draft guidance states that the FDA considers a products name, packaging, serving size, and recommended conditions of use, as well as other representations about the product, to be important determinants of whether the product is a conventional food or dietary supplement.  If the product is a conventional food or dietary supplement but marketed as the other, the product could be deemed by the FDA to be misbranded or adulterated in violation of 21 U.S.C. § 331(a) and 21 U.S.C. 342(a)(2)(C).

The FDA issued 13 Warning Letters to companies that misrepresented their products as either conventional foods or dietary supplements prior to the issuance of the 2009 draft guidance and has issued 7 Warning Letters subsequently. In 2011, an FDA spokesman reportedly stated that the FDA had not been more aggressive with enforcement actions due to competing priorities and limited resources available to the FDA. The 2 most recently issued Warning Letters were made public on May 23, 2012 and July 20, 2012, and can be found here and here.

FDA Warning Letters notify recipients and the public that the FDA believes that a particular firm has violated federal law. Thus, given the bad publicity that these letters generate, it is advantageous for firms to correct possible violations as quickly as possible. The recipients of Warning Letters have 15 days to address the issues presented by the Warning Letter and to develop specific corrective actions. Failure to do so may put the recipient in jeopardy of facing product seizures or formal legal action by the FDA. Please see our previous reports here and here, discussing whether, and if so how, the recipients of these Warning Letters may respond or challenge the Warning Letters in court in light of the United States Supreme Courts recent ruling in Sackett v. EPA.

Fuerst Ittleman David & Joseph, PL will continue to monitor the regulation of conventional foods and dietary supplements. The attorneys in the Food, Drug, and Life Sciences practice group are well-versed in the complex FDA regulatory framework. For more information, please email us at contact@fidjlaw.com or call us at (305) 350-5690.

Medical Device Contract Manufacturers and Contract Sterilizers Now Required to Register and List

Establishments involved in the production and distribution of medical devices intended for use in the United States are required to register annually with the U.S. Food and Drug Administration (“FDA“). 21 C.F.R. § 807.20. Most establishments are also required to list the devices that are made at their facilities and the activities that are performed on those devices. Id. The process is known as establishment registration and listing. Those firms required to register and list are also required to pay the associated user fee.

Effective October 1, 2012, the requirements for medical device establishment registration and listing will change. On August 2, 2012, the FDA issued “Medical Device Establishment Registration and Listing – Notice of Changes for FY 2013” and a final rule to implement the requirements enacted in Section 321 of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (“Bioterrorism Act“), and Section 207 of the Medical Device User Fee and Modernization Act (“MDUFMA”). The notice and final rule require all registered medical device establishments to pay the annual registration fee, regardless of the type or activities conducted. In addition, certain establishments must comply with additional registration and listing requirements.

The most notable change contained in the final rule requires all contract manufacturers and contract sterilizers to register the devices they manufacture and sterilize with the FDA. Previously, contract manufacturers and contract sterilizers were exempt from registration and listing requirements pursuant to 21 C.F.R. 807.20(c)(1)-(2). However, the final rule eliminates the exemption for contract manufacturers and contract sterilizers, thus requiring those who were previously exempt to register, list, and pay the user fee. This change significantly expands the scope of establishments subject to the annual establishment registration and listing requirements. As a result, the FDA estimates that the new rule will increase the number of establishments paying the user fee from 16,000 to 22,000.

Other changes to medical device registration and listing requirements resulting from this new final rule include:

  • All registration and listing submissions must be made to the FDA through electronic means rather than paper forms;
  • Foreign establishments must identify all known importers and the name of each person who imports or offers to import the foreign establishments device into the United States; and
  • All establishments must pay a registration fee when they initially register with the FDA and for each annual registration thereafter.

On September 12, 2012, the FDA released a document entitled “Frequently Asked Questions about the New Device Registration and Listing Requirements.” The list of FAQs is designed to assist medical device establishments with under the new registration and listing requirements. The FAQs address issues such as: updating existing registration information, proprietary (brand) names, combination products, medical device excise tax, foreign establishments, exporters, importers, and contract manufacturers and sterilizers.

An establishments failure to register and list as required by the final rule will cause the firms medical device to be deemed to be misbranded by the FDA pursuant to 21 U.S.C. § 352(o). Thus, establishments should ensure that they properly register and list with the FDA.

For information on how Fuerst Ittleman David & Joseph PL can assist your firm with registering and listing your medical device with the FDA pursuant to the new requirements, please contact us at contact@fidjlaw.com.