The US Supreme Court’s decision in Loper Bright Enterprises v. Raimondo and Relentless v. Department of Commerce, which overrules the longstanding Chevron doctrine that required federal courts to defer to administrative agencies’ interpretations of ambiguous or broad statutes, represents a fundamental change in administrative law that will have a substantial impact on all regulated industries. Because life sciences is one of the most highly regulated industries, we have prepared this LawFlash focused on many of the issues that life sciences companies may be facing in light of Loper Bright.
For the past 40 years, federal courts have played a limited role in reviewing administrative agencies’ rules and orders—with the premise that, where a statute is ambiguous, federal administrative agencies have a primary role in interpreting and enforcing them. In Chevron U.S.A. v. Natural Resources Defense Council, the US Supreme Court previously held that administrative agencies’ interpretations of federal statutes must not be disturbed unless the agency has adopted an unreasonable or impermissible position, or alternatively has violated another statutory obligation, such as the procedure used to adopt a decision or rule. As a practical matter, the Chevron doctrine shielded many agency interpretations, including agency-issued regulations and other agency actions and adjudications, from judicial challenge and from being reversed by courts.
However, through last week’s decision in Loper Bright Enterprises v. Raimondo and Relentless v. Department of Commerce (collectively Loper Bright), the Supreme Court overruled the Chevron doctrine, concluding that it was inconsistent with the Administrative Procedure Act (APA) and the constitutional and judicial principle that the interpretation of the law is solely within the ambit of the courts. Now, a court reviewing an agency rule or order “shall decide all relevant questions of law” and “interpret constitutional and statutory provisions” in alignment with the APA. Though courts may consider an agency’s perspective or position, in most cases they “must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”
For a more in-depth analysis of the Court’s decision in Loper Bright, see our Law Flash on the decision. Also, for further information regarding the impact of the decision across the legal sectors impacting the life sciences industry, see our Chevron landing page. Morgan Lewis attorneys stand ready to assist on these and other related issues.
Food and Drug Administration Regulation
Because FDA review, approval, and licensure activities can be central to the medical products developed and ultimately marketed by life sciences companies, and given the complex statutory, regulatory, and subregulatory framework employed by the FDA in this context, the impacts of Loper Bright on FDA regulation are expected to be broad and deep. Many of these impacts will be general in nature and are likely to include the following:
Regulatory Uncertainty
Given the typically long and costly product development, review, and approval timelines, relative regulatory stability from the FDA has served in many ways to encourage investment in medical product development and allowed the life sciences industry to pursue innovative development strategies. With the Loper Bright decision, regulatory uncertainty may increase because both the FDA and the courts will have a significant say in the regulations and practices ultimately adopted by the agency and because of the broader scope of judicial challenges that are likely to be brought. This may have the impact of disincentivizing investment and development and increasing the cost and timeline of medical product development, review, and approval.
Fact v. Law
Loper Bright takes a bifurcated approach to the level of deference that agencies are afforded as between determinations of law and fact, with agency findings of fact afforded more deference. Accordingly, when undertaking rulemaking and making product-specific decisions, FDA will likely be inclined to focus on fact finding rather than legal interpretations. This distinction will also be important for any company interacting with the agency or challenging an agency action. Still, distinguishing between law and fact will not always be an easy task as the Court itself acknowledges in Loper Bright that mixed questions of law and fact can raise complex issues. This may be considered in further litigation.
Timely and Transparent Agency Actions
Timely and transparent interactions between FDA and regulated industry are critical to the medical product development, review, and approval processes. As a result of Loper Bright, FDA resources may be diverted to prevent and defend against more frequent challenges, which will have the general impact of slowing down the agency as it takes greater care to ensure that the decisions are less vulnerable to dispute and are positioned as findings of fact rather than interpretations of law. Further, FDA may be less likely to lean into what might be seen as riskier interpretations of its statutory authority to address, for example, a public health need or to develop policies around emerging technologies or science. Finally, in light of Loper Bright, FDA may have fewer incentives to engage in rulemaking and may increasingly rely on enforcement actions and adjudications directly on an issue-specific basis. Such actions are typically a less transparent form of regulation, devoid of notice-and-comment processes, among other things.
Guidance Documents
Across product areas, FDA heavily relies on the use of subregulatory guidance documents to communicate the agency’s interpretation of the applicable statutory and regulatory standards. This is especially true with respect to technical or scientific issues, including areas of technological advancement, such as cell and gene therapies and human cell and tissue products (HCT/Ps), for which there is little specific statutory direction and a relatively short regulatory history. Even before the Loper Bright decision, these guidance documents were not legally binding on the agency or industry, even if the recommendations that they provide are frequently followed, in practice, by industry and FDA alike. Loper Bright, however, does not directly address the standard of review applicable to guidance documents interpreting statutory legal requirements. Nonetheless, following Loper Bright, they may be easier to challenge.
Future Congressional Focus
With Loper Bright, there is likely to be a shift of regulatory attention to Congress as the decision may necessitate that legislation become increasingly detailed. As legislation comes up in the normal course, including in the context of reauthorizations of FDA user fee programs, or as issues are otherwise taken up by Congress, there may be a shift in in the congressional approach to life sciences related legislation. Whether resulting legislation will be more detailed, provide greater clarity on congressional intention, or provide for greater specificity of delegations of authority (so-called express delegations) to FDA and other federal agencies remains to be seen.
Opportunities to Challenge FDA Actions
The decision will also likely provide greater opportunities to challenge unfavorable regulations or decisions in the courts, whether broadly unfavorable to industry or to particular companies facing specific circumstances, including FDA enforcement actions and inspectional findings. Areas that may be subject to challenge may include:
Drugs and Biologics
Within the drug and biologic spaces certain areas tend to be more frequently litigated or subject to dispute, which may make them more subject to judicial challenge. These areas also frequently heavily rely on agency interpretations of the Federal Food, Drug, and Cosmetic Act (FFDCA), which, depending on the circumstances, could squarely place agency decisions within the Loper Bright framework. Some such areas include the Hatch-Waxman Act, orphan drug designations, regulatory exclusivities, voucher decisions, the accelerated approval pathway, promotion and advertising requirements, and product classification decisions.
Orange Book Listings
Some aspects of the FDA regulatory framework, which are relevant not only to FDA regulation but also in other areas (such as pharmaceutical antitrust cases and competitor challenges), could be open to reevaluation. For instance, the FDA’s position that its role in reviewing Orange Book listings is purely ministerial has been upheld under Chevron. FDA’s interpretation of what patents are listable in the Orange Book may also be subject to challenge.
Good Manufacturing Practice (GMP) Regulation/Potential to Revisit Utah Medical
FDA’s regulations on GMPs for drugs, biologics, and medical devices, due to their intended application across a variety of products within a specific product category, are drafted to provide manufacturers with broad guiding principles to ensure that products meet the applicable quality standards. FDA has historically added further detail to these requirements via guidance and through product-specific enforcement actions that interpret the broad legal and regulatory standards.
Historically, these GMP requirements have not been met with much challenge. However, in 2005, the medical device manufacturer Utah Medical Products successfully challenged FDA’s allegations of noncompliance with the Quality System Regulation (QSR), which sets forth the GMPs for medical devices (due to be replaced in 2026 with the Quality Management System Regulation or QMSR). At the time, the decision was generally considered to be an aberration, given the typical deference provided by the courts to highly technical regulatory requirements. In the wake of Loper Bright, whether and to what extent courts may pull back on deference to FDA for QSR/QMSR/GMP issues more broadly remains to be seen. Nonetheless, industry stakeholders facing FDA enforcement, or concerned about the burdens and costs of FDA’s ever-changing GMP requirements (including, in the case of medical devices, converting to the new QMSR requirements), may be more apt to challenge the agency in a post-Loper Bright environment.
Laboratory Developed Tests
As described in our May 6, 2024 LawFlash, earlier this year FDA issued its final rule for the regulation of laboratory-developed tests (LDTs), marking the end of a decades-long policy of enforcement discretion. Although FDA established several new, more limited policies of enforcement discretion for specific types of LDTs, the LDT final rule has been met with much opposition from the clinical laboratory industry. Soon after the LDT final rule was published, the American Clinical Laboratory Association (ACLA) announced that it had initiated a lawsuit against FDA to challenge the final rule on LDTs, asserting that “FDA has exceeded its statutory authority and acted arbitrarily and capriciously in violation of the Administrative Procedure Act.” The Supreme Court’s decision to overrule Chevron will likely work in ACLA’s favor, raising the question of the future of FDA’s new LDT framework, although success is not guaranteed.
Clinical Decision Support Software
In September 2023, FDA issued its final guidance document on clinical decision support (CDS) software, which describes “FDA’s current thinking” regarding the statutory exemption for CDS software under the FFDCA. Software that meets the specific criteria set forth in the statute are excluded from the definition of a “device” under the FFDCA and exempt from FDA oversight. After FDA issued this final guidance, it was widely criticized as attempting to limit the scope of the exemption in a manner inconsistent with the statutory text. FDA was also criticized for including new, significant limitations in the final guidance that were not included in either of the prior draft versions issued in 2017 and 2019, thus denying stakeholders the opportunity to comment on such limitations prior to finalization.
Significantly, the statute does not expressly delegate authority to FDA to issue regulations or guidance interpreting the CDS software exemption. However, the statute does include a “claw back” mechanism that FDA can use should the agency decide that certain CDS software functions should not be excluded from its regulatory oversight. This “claw back” process requires FDA to find that the CDS software functions “would be reasonably likely to have serious adverse health consequences” and to issue an order in the Federal Register using a process similar to notice-and-comment rulemaking. FDA’s decision to attempt to limit the scope of the CDS exemption through guidance, rather than follow the “claw back” process set forth in the statute, likely leaves FDA vulnerable to a legal challenge, particularly in the wake of Loper Bright.
Device Classification Decisions
Perhaps one of the most critical decisions FDA makes regarding medical devices is the device regulatory classification (Class I, Class II, Class III, or unclassified). The classification has a significant impact on the timeline and costs for authorization and on post-market resources necessary to maintain the device authorization. For example, a device manufacturer may reasonably believe its medical device and use falls squarely within a Class II device classification, requiring only a 510(k) premarket notification, only to later learn that FDA disagrees. The disagreement may force the applicant to use a more burdensome pathway, modify the device’s technical features, or significantly limit the device’s claims and indications for use. In a post-Loper Bright environment, applicants may be more willing to challenge FDA’s classification decisions.
Because court challenges impacting broadly applicable regulations, policies, and practices are likely to increase in frequency and success, it will be increasingly important for companies in the life sciences space to work with counsel to stay on top of court decisions as well as FDA regulatory determinations to understand how any particular product or area may be impacted.
Healthcare and Product Reimbursement
Medicare and Medicaid
Medicare and Medicaid are critical to ensuring that some of the country’s most vulnerable patient populations have access to affordable and quality healthcare. These statutes set forth a myriad of complex requirements regarding coverage, items and services, pricing calculations, price reporting obligations, and how, when, and by whom items and services may be furnished. The Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) have implemented a complex set of rules, regulations, and other guidance that define these critical areas, and courts have, in the past, afforded deference to such rules, regulations, and guidance when disputes have arisen.
Some of these areas include annual updates CMS adopts to implement Medicare policy changes to reimbursement rates for hospitals, physicians, and other providers or to implement supplemental payments and adjustments enacted by Congress. In addition, CMS regulatory practices for the pricing of prescription drugs and for the evaluation of new coverage areas have traditionally been subject to substantial deference by courts. Without deference under Chevron, manufacturers, hospitals, and other entities in the Medicare and Medicaid ecosystems may be able to challenge rate and reimbursement limits, services, and coverage determinations with greater success.
Drug Price Negotiations Under the Inflation Reduction Act
One of the more critical issues currently facing pharmaceutical drug manufacturers is the federal government’s focus on the imposition of pharmaceutical drug price and reimbursement limitations and/or caps. Most recently, under the Inflation Reduction Act (IRA), the federal government set out to negotiate price limits, referred to as the maximum fair price, on the 60 highest Medicare spend drugs over the next several years. However, agency rules, regulations, and guidance have underpinned the drug selection and negotiation processes and how drug price ceilings will be calculated. While numerous manufacturers filed suit challenging the drug pricing provisions of the IRA, going forward, these or other challenges may be impacted or supplemented by issues implicated by Loper Bright.
Administrative Oversight and Enforcement
The Medicare and Medicaid programs have been the focus of extensive scrutiny by the Office of Inspector General (OIG) and Department of Justice (DOJ), with agency regulations or guidance often serving as the enforcement baseline. See below for a summary on the potential impact of Loper Bright on government investigations and litigation in the healthcare and life sciences industry.
White Collar Enforcement and Investigations
False Claims Act (FCA)
In FCA cases, and particularly those cases predicated on Stark Law or Anti-Kickback Statute (AKS) violations, it was fairly common for courts, relying on Chevron, to defer to agency interpretations when assessing whether a defendant’s conduct was lawful. This has historically included assessments of whether conduct constituted a “referral” under the Stark Law, AKS, and safe harbors, what constitutes “items and services” under the FCA, and what qualifies as a discount under the AKS “discount” exception. Outside of the AKS/Stark Law context, courts have similarly relied on agency interpretations when analyzing FCA cases. For instance, courts have deferred to agency interpretation regarding the criteria a product must meet to fall within the definition of “covered part D drug.”
Loper Bright is poised to materially change this, opening the door for litigants—both defendants and the DOJ/relators—to argue that courts are prohibited from affording any deference to agency interpretations. While courts may—and likely will—still consider an agency’s perspective or position, under Loper Bright, they will be required to “exercise their independent judgment” and could reach a conclusion materially at odds with an agency’s. This could result in defendants being more willing, and having more opportunities, to challenge the government’s view that their conduct resulted in the submission of a false or fraudulent claim. Ultimately, whether Loper Bright impacts the outcomes of these cases, however, is yet to be seen.
Government Program Participation Conditions
Relatedly, courts have relied on Chevron to conclude that various certifications or other conditions for participation in federal programs are valid and can form the basis for FCA liability. This includes requirements such as provider certification of AKS compliance as a precondition for Medicare payment, as well as the definition of “applicable reconciliation” under the Affordable Care Act’s (ACA’s) overpayment rule. Loper Bright calls this prior approach into question, while not overruling prior precedent, and could allow defendants to challenge the validity of program requirements that are based on agency interpretations of federal statutes.
Agency Guidance
As explained above, Loper Bright may also impact how companies—and courts—view agency guidance. Companies assessing the legality and compliance risks of proposed programs, defendants and government regulators in enforcement proceedings, and courts all routinely cite to HHS, OIG guidance, and advisory opinions. Although, courts historically analyzed certain of these materials through a different framework that arguably remains unaltered, as discussed above, the Loper Bright ruling may nonetheless call into question the weight that these materials should be afforded because, without an express delegation of authority by Congress, courts are no longer obligated to defer to agencies on interpretation of the legal frameworks under which they operate.
Intellectual Property
US Patent and Trademark Office (USPTO)
The USPTO is the agency that issues all patents in the United States and administers post-grant review proceedings; therefore, it is an important agency for any life sciences company looking to protect its intellectual property. Under a prior ruling in the Federal Circuit, it was established that the USPTO’s interpretations of substantive patent law were not subject to deference because the agency was never granted substantive rulemaking authority by Congress. Instead, USPTO interpretations of substantive patent law have been reviewed de novo on appeal. Therefore, Loper Bright will not impact how substantive patent law is interpreted at the USPTO. Nor will the decision affect cases where the Federal Circuit holds that there is no statutory ambiguity, which has frequently been the case. However, Loper Bright will likely impact how the Federal Circuit treats the USPTO’s interpretations of its own ambiguous procedural statutes, as the USPTO previously enjoyed deference in those instances. There may, accordingly, be an increase in challenges at the Federal Circuit with respect to how the USPTO implements its procedural requirements, including while administering inter partes review.
International Trade Commission (ITC)
The ITC is a popular venue for life sciences patent litigation given the speed with which it decides cases and the available remedies, including injunctive relief and cease-and-desist orders. There will likely be challenges in this space based on Loper Bright. Previously, the Federal Circuit accorded deference to the ITC, including with respect to the ITC’s interpretation of 19 U.S.C. § 1337, the statute granting jurisdiction to the ITC to hear intellectual property disputes. However, this issue will likely be revisited soon in a pending challenge to the ITC’s authority at the Federal Circuit. As courts are no longer bound to defer to the ITC’s interpretation of its governing statute, it is possible that there could be a change in the ITC’s jurisdiction and degree of authority.
Federal Trade Commission (FTC) and Antitrust Enforcement
Limited Historic Use of Chevron
The FTC plays the leading role in federal antitrust enforcement related to the life sciences sector. The FTC Bureau of Competition and DOJ Antitrust Division have not historically relied on Chevron deference for antitrust enforcement. Accordingly, there is limited immediate or direct impact on antitrust enforcement efforts from Loper Bright.
Hart-Scott-Rodino (HSR)
Pharmaceutical companies engaging in certain types of transactions are subject to notification and filing obligations under the HSR Act and corresponding rules. The Loper Bright ruling may impact the types of future challenges the FTC faces to the HSR premerger notification rules, as well as how it responds to those challenges. The D.C. Circuit previously relied on Chevron to uphold challenged HSR regulations. However, the HSR Act also contains congressional delegation giving the FTC the authority, for example, to “define . . . terms” and “prescribe such other rules as may be necessary and appropriate.” Where such delegations exist, some deference may still be afforded to the FTC with respect to HSR matters.
FTC Enforcement Related to Other Regulatory Frameworks
As noted above, following Loper Bright, some of FDA’s Orange Book regulations and practices that are relevant to pharmaceutical antitrust cases could be open to reevaluation. Such regulations and practices may face renewed challenges from litigants. Successful challenges to FDA’s interpretation of what patents are listable in the Orange Book may also alter the FTC’s approach to its campaign with respect to listings that it deems to be improper or inaccurate.
International Trade and National Security Regulation
Trade and National Security Generally
In the area of international trade and national security, the Loper Bright decision’s impact on the life sciences industry will be nuanced and crucial to compliance, licensing, enforcement, and policy decisions. Some areas in import, export, and foreign direct investment will be viewed as settled whereas other areas are now open to legal challenges that will be addressed first administratively and then in the courts.
One clear takeaway is that this decision provides lawyers with the tools to find creative, strategic ways to challenge agency action in the trade arena, which may have a deterrent effect on future agency action, as well as force agencies to build a better administrative record to withstand judicial challenges. Moreover, the Court’s subsequent opinion in Corner Post v. Board of Governors of the Federal Reserve System, which extended the statute of limitations for certain actions, opens the door to an increased flow of lawsuits challenging agency action in the international trade-related area as well.
Product Import
Pharmaceutical companies often encounter import challenges, including those related to country-of-origin requirements and marking issues. Previously, if a company sought a ruling from US Customs and Border Protection (CBP) on these areas, such rulings did not receive Chevron deference under the Court’s holding in United States v. Mead. The present Loper Bright decision discusses the Mead case and leaves open the issue of whether those rulings will continue to receive a lesser level of deference. In any case, CBP decisions may continue to be challenged for other reasons such as an abuse of discretion, vagueness, or constitutional infirmities.
Product Export
Life sciences companies face export restrictions for certain biological agents, vaccines, related technology, software, and equipment, which require authorizations from US government agencies, such as the Department of Commerce (Department) under the Export Administration Regulations (EAR). The Export Control Reform Act of 2018, which is the current EAR statutory authority, outlines the authorities allocated to the Department, including establishing and maintaining the control lists, prohibiting exports of controlled items to foreign persons and for end uses determined to threaten U.S. national security or foreign policy, and requiring licenses or other authorizations for exports of controlled items. Regardless of the clarity of these delegations, parties remain free to challenge the discretionary decisions the Department makes (e.g., adding licensing requirements, changing performance characteristics of controlled items, identifying gaps in EAR processes). Each of these presents the potential for legal challenges.
Foreign Investment
Finally, US life sciences companies, particularly startups, have recently seen a significant increase in foreign investment. Where such foreign investment presents certain national security concerns, including where the investment comes from countries that the United States has deemed foreign adversaries, the Committee on Foreign Investment in the United States (CFIUS or the Committee) has the authority to block or unwind the transaction. The Foreign Investment Risk Review Modernization Act of 2018, the most recent substantive statute authorizing CFIUS, outlines with some granularity the various definitions, processes, and review standards to be exercised by CFIUS, and delegates to the Committee the authority to review foreign investment transactions for national security concerns.
As was seen in Ralls Corp. v. CFIUS, even in circumstances where national security forms the foundation for an agency action, the courts review legal infirmities in this area. The national security underpinning does not represent a complete bar to judicial review and the current opinion may provide an opportunity to revisit the precise scope of court deference. The decision may lead to a revisiting of the appropriate deference that results when the government invokes national security or foreign policy, especially given the expansion of those concepts in recent years. The Court’s overruling of Chevron is likely to leave open the door for challenges that may or may not arise on the basis of constitutional deficiencies, due process gaps, or other reasons related to an agency’s discretionary actions.
Public Company Disclosures
Disclosure Requirements Generally
Many life sciences companies seek initial public offerings to provide additional funding for the development of their products. Public companies across all industries are subject to significant disclosure requirements in public offerings of securities and on an ongoing basis. The Securities Act of 1933, as amended, explicitly grants the US Securities and Exchange Commission (SEC) broad authority to determine the information required in registration statements and prospectuses that is “necessary or appropriate in the public interest or for the protection of investors.” Similarly, the Securities Exchange Act of 1934, as amended (Exchange Act), also grants the SEC broad authority to determine what information is required in Exchange Act filings, such as periodic reports on Form 10-K and Form 10-Q. The present decision acknowledges the various ways in which Congress can delegate authority to federal agencies, including the authority to implement rules and regulations that are “appropriate” or “reasonable,” and the Court’s decision does not automatically upend those concepts. However, as discussed elsewhere in this LawFlash, even express delegations of authority may be subject to additional scrutiny in the wake of Loper Bright.
Climate Disclosures
The SEC has an aggressive rulemaking agenda and recent rulemaking may significantly increase the cost and administrative burdens on public companies, which could be particularly challenging for pre-revenue life sciences companies. With respect to recent controversial, disclosure-based rulemakings, such as the climate-related disclosure rules that were implemented by the SEC based on the broad delegation provided in the statutes, challenges to the SEC’s authority to date have been focused on the agency’s process rather than ambiguity in the statute itself. The Loper Bright decision may chip away at the range of the SEC’s delegated authority by opening the door to additional claims regarding the legitimacy of an agency’s rulemaking endeavors under its express authority but does not necessarily mean that all such controversial disclosure-based rules are immediately thrown out.
With respect to the consolidated legal challenges regarding the climate-related disclosure rulemaking, reviewing courts may find that Loper Bright provides additional fodder to challenge the agency’s views.
Environmental Regulation
Environmental Discharges of PFAS Chemicals
While the Environmental Protection Agency (EPA) generally defers to the FDA for issues related to per- and polyfluoroalkyl substances (PFAS) that may be present in drugs and medical devices as well as food products (including dietary supplements, baby formula, etc.), it falls under EPA’s umbrella if any of those products get into the environment through various waste streams (air, water, soil, solid waste). Recent rulemaking by EPA that would set maximum contaminant levels (MCLs) in drinking water and make drinking water providers test and treat for certain of those chemicals may be more vulnerable to challenge following Loper Bright, as the selection of certain PFAS chemicals and the associated use of a “hazard index” as a regulatory threshold were based on EPA’s interpretation of potentially ambiguous statutory language. Drinking water providers have already started looking “upstream” to sources of PFAS in their water supplies, which sources can include life science manufacturing operations. In addition, these MCLs can become de facto cleanup standards for Superfund cleanup sites.
New Toxic Substances Control Act (TSCA) Bans
EPA is currently evaluating and restricting or banning usage of certain chemicals, as directed by the 2016 amendments to the TSCA. These actions will have numerous impacts on companies, including (1) placing an increased importance on companies understanding environmental aspects of their supply chains and (2) necessitating that companies engage with the EPA throughout the rulemaking process with respect to substances within their products that may be under review.
Specifically with respect to this second item, under Loper Bright, companies should ensure the EPA administrative record includes all epidemiological and toxicological evidence supporting the use of the applicable chemical substances, as it is likely courts will conduct a more searching review of the administrative record should any particular EPA action be challenged. Some specific substances currently being reviewed by EPA that may impact the life sciences industry include formaldehyde, 1-bromopropane, TBBPA, triphenyl ester (TPP), phthalic anhydride, and TCEP (tris(2-carboxyethyl)phosphine).
Government Contracting
US Government Sales and Collaborations
Life science companies routinely enter agreements with the US government to sell products, collaborate for research and development, or accept federal funding. These agreements, whether in the form of procurement contracts, grants, cooperative agreements, or other transaction authorities, contain a host of clauses that often result from agency rulemaking. This rulemaking is often the result of statutory directives from Congress to impose certain requirements on government contractors, from socioeconomic requirements to cybersecurity and sourcing obligations. Over the years, some life science companies have struggled to implement these requirements when imposed in their agreements, but Loper Bright presents the opportunity that the rulemaking underlying many of the agreements that life science companies hold with the US government could be challenged in and ultimately resolved by a court.
Bayh-Dole Act and March-in Rights
Many life science companies are closely tracking the US government’s recent efforts to expand march-in rights under the Bayh-Dole Act, which is a statute that governs the allocation of IP rights under federally funded research agreements. As we previously discussed in our May 17, 2024 As Prescribed blog, the National Institute of Standards and Technology (NIST) is working toward finalizing guidance for agencies that would purport to permit the exercise of march-in rights based on the price of a drug product covered by the Bayh-Dole Act. By exercising march-in rights, the agency would grant a license to the patent covered by the Bayh-Dole Act to a third party to manufacture the drug without the patent owner’s consent.
Notably, this guidance relies on an interpretation of the Bayh-Dole Act's definition of "practical application." Although that definition nowhere refers to the price of a product and the National Institutes of Health has repeatedly refused in the past to march-in based on price, NIST appears to rely on the definition’s reference to the product being "available to the public on reasonable terms" to permit price to be considered as a basis for march-in. Although focused on agency rules and orders, Loper Bright could present an expanded opportunity to challenge NIST’s interpretation of the scope of march-in rights set forth in subregulatory guidance (see above for a discussion of the approach to subregulatory guidance), as well as subsequent agency action exercising march-in authority.
Business Transactions
Adjusted Deal Risk Analysis
As noted above, there is likely to be increased regulatory uncertainty in the life sciences industry in the wake of Loper Bright, including potential changes to the processes and timelines for the development and approval of products in the United States. However, the expanded ability to raise challenges to unfavorable policies, decisions, or actions of the FDA and other federal regulatory agencies could present new strategic opportunities for companies and investors to advance products that may previously have had limited pathways for success. The balance of these considerations may vary based on the circumstances. While the impact of the Loper Bright decision on the life sciences industry generally may take time to fully manifest, companies and investors should be proactive and strategic in considering any adjustments to their risk analysis as they look to structure and negotiate M&A, collaboration, licensing, and other strategic transactions amidst the evolving post-Chevron legal and regulatory landscape.
Recalibration of Financial Models
As the life sciences industry navigates changes to the regulatory and legal environment in the wake of Loper Bright, companies and investors should also be prepared for a corresponding shift in the cost basis associated with the development and commercialization of life sciences products in the United States. For example, development costs for life sciences products may increase because of additional regulatory uncertainty, regulatory compliance burdens, or potential changes to timelines for regulatory approval. Life sciences companies and investors may also incur additional costs as they look to pursue new opportunities to advance products via expanded litigation and congressional lobbying efforts. Accordingly, financial models for the development and commercialization of life sciences products should be carefully recalibrated to account for such shifting costs, including with respect to the structuring of royalties, milestones, and other considerations in strategic transactions.
Litigation
Past precedent
As explicitly stated in Loper Bright, the decision does not itself give cause to unsettle past judicial precedent that relied on Chevron in support of agency action. That said, new challenges to existing rules or standards impacting life sciences companies may be pursued, especially given the Court’s holding in Corner Post v. Board of Governors of the Federal Reserve System, which (as noted elsewhere in this LawFlash) found that the statute of limitations to challenge a regulation under the APA runs from the date of actual injury, not issuance of the regulation itself. This could open up the field to expanded challenges to agency regulations, potentially reaching back decades in some instances. Moreover, we can expect to see more agency decisions challenged as agency policies evolve and change.
APA litigation
There will be an uptick in APA litigation, which, depending on any particular company’s posture, may present opportunities to challenge unfavorable agency actions. Life sciences companies will need to grapple with APA actions brought by competitors that may seek to undo favorable agency actions. Depending on whether Congress has explicitly delegated interpretive authority to any particular agency, an agency’s interpretation of statutes may still be taken into account by the courts, but the evidentiary burden and approach to interpreting statutes post-Loper Bright now places a heftier burden on the government as a litigant and will require more detailed attention by the lower courts. This may increase the likelihood of a challenger succeeding in an APA regulatory action and may make companies more likely to engage in such litigation.
State Court and Private Litigation
Loper Bright does not disturb state court precedent coextensive with Chevron, including many of the state statutes under which class action litigation is frequently brought. Loper Bright, however, may be a harbinger of things to come at the state level, inciting litigation over the power of state agencies to interpret their own statutes. Similarly, with respect to nongovernment litigation, Loper Bright has no express or direct impact, but there may be an effect. Litigants will likely use the decision affirmatively and defensively in matters that involve agency actions, rules, and guidance. By way of example, when defending against product liability actions based on alleged improper or misleading pharmaceutical or device product marketing, companies may be able to challenge underlying requirements or findings that heavily rely on agency interpretation of statutory legal requirements.
Procedural Matters
Under the Loper Bright decision, life sciences companies may be able to challenge inspections and requests for documents stemming from agencies that are not expressly permitted by statute and seek injunctive relief, preventing such activities from occurring and disrupting their businesses. The decision could also impact evidence in motion practice, hearings, and trial and in jury instructions, including what agency actions will be admissible and instructions regarding the weight to be afforded to those regulatory actions in private plaintiff actions.
Inconsistency Across the Circuits
Especially in the near term, multiple lower courts may end up having to decide the same or similar issues, setting the courts up for circuit splits in how life sciences issues are addressed, including in APA litigation or litigation involving private plaintiff or qui tam litigation that relies on regulations to support claims (e.g., federal and state false claims, product liability mass claims, etc.). Given that Loper Bright did not articulate a clear standard for review going forward, it will likely take some time and several cases before there is a clear approach and consensus for how courts should review agency action in a post-Chevron world.
As can be seen from the above discussion, the Loper Bright decision has the potential to impact all aspects of a life sciences company’s business and presents many complexities that companies will need to consider. The decision expands and opens new pathways for companies to challenge agency actions, but also introduces greater uncertainty into the regulatory landscape. Our team stands ready to assist life sciences companies as they carefully review and consider the issues facing their businesses and to help as they take Loper Bright and the new regulatory landscape into account when considering the best options for their business.
For the latest on evolving developments around the Chevron decision and its impact on companies, subscribe to our Chevron Doctrine mailing list.
If you have any questions or would like more information on the issues discussed in this LawFlash, please reach out to any of the contacts below or any member of our Chevron Task Force.