NRA Seeks Swift Confirmation of Interior Secretary Nominee TUESDAY, JANUARY 24, 2017 Renewed Call In Wake of Obama's Final Attack on Gun Owners Fairfax, Va.-- The National Rifle Association today called on the U.S. Senate to swiftly confirm Congressman Ryan Zinke as secretary of the interior. The renewed call for confirmation follows a final act of contempt for America's gun owners by the Obama administration. During the president's last hours in office, his administration issued an order attacking gun owners' and sportsmen's rights. "It is more important than ever that we have a secretary of the interior who respects the Second Amendment and will stand up for our rights," said Chris W. Cox, executive director of the National Rifle Association's Institute for Legislative Action. "On behalf of the NRA's five million members, I urge the Senate to swiftly confirm President Trump's nominee for secretary of the interior, Congressman Ryan Zinke." Director's Order No. 219, issued on January 19, directs the U.S. Fish and Wildlife Service (USFWS) to phase in a ban on the use of traditional lead ammunition and fishing tackle for all activities on national wildlife refuge lands and waters. This unilateral action was taken without scientific evidence to support it and without consulting state fish and wildlife agencies. In addition, the ban would impose a considerable financial hardship on hunters and anglers who use traditional lead ammunition, by forcing them to use more expensive alternatives. "The NRA looks forward to working with the Trump administration to reverse this government overreach," concluded Cox. Established in 1871, the National Rifle Association is America's oldest civil rights and sportsmen's group. More than five million members strong, NRA continues to uphold the Second Amendment and advocates enforcement of existing laws against violent offenders to reduce crime. The Association remains the nation's leader in firearm education and training for law-abiding gun owners, law enforcement and the armed services. Be sure to follow the NRA on Facebook at NRA on Facebook and Twitter @NRA. THE SECRETARY OF THE INTERIOR WASHINGTON ORDER NO. 3346 Subject: Revocation of the United States Fish and Wildlife Service Director?s Order No. 219 (Use of Nontoxic Ammunition and Fishing Tackle) Sec. 1 Purpose. This order revokes Director?s Order No. 219 (Use of Nontoxic Ammunition and Fishing Tackle). Sec. 2 Background. On January 19, 2017, the Director of the US. Fish and Wildlife Service (FWS) signed Director?s Order No. 219 (Use of Nontoxic Ammunition and Fishing Tackle). The Order stated that it was effective immediately until incorporated into the FWS Manual, or until amended, superseded, or revoked. Sec. 3 Authority. This Order is issued under the authority provided by Section 2 of Reorganization Plan No. 3 of 1950 (64 Stat. 1262), as amended, and other applicable authorities. The Secretary retains all authority delegated to the FWS Director, including those listed in the Director?s Order. See 200 DM 1.9. Sec. 4 Determination. After reviewing the Order and the process by which it was promulgated, I have determined that the Order is not mandated by any existing statutory or regulatory requirement and was issued without signi?cant communication, consultation, or coordination with affected stakeholders. Given these facts, I conclude that the Order should be withdrawn. Accordingly, the FWS Director?s Order No. 219 (Use of Nontoxic Ammunition and Fishing Tackle) is hereby revoked. Sec. 5 Implementation. The Director of WS is directed to take all actions necessary to effectuate the revocation of Director?s Order No. 219. Sec. 6 Effective Date. This Order is effective immediately. Date? MAR 02 2017 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Protecting the Privacy of Customers of Broadband and Other Telecommunications Services ) ) ) ) ) WC Docket No. 16-106 JOINT PETITION FOR STAY Ross J. Lieberman Senior Vice President, Government Affairs American Cable Association 2415 39th Place, N.W. Washington, D.C. 20007 Rick Chessen Senior Vice President, Law & Regulatory Policy NCTA - The Internet & Television Association 25 Massachusetts Avenue, NW, Suite 100 Washington, DC 20001 Rebecca Murphy Thompson EVP & General Counsel Competitive Carriers Association 805 15th Street NW, Suite 401 Washington, DC 20005 Joshua Seidemann Vice President, Policy NTCA – The Rural Broadband Association 4121 Wilson Boulevard, Suite 100 Arlington, VA 22203 Tom Power Senior Vice President & General Counsel CTIA 1400 16th Street, NW, Suite 600 Washington, DC 20036 Jonathan Banks Senior President – Law & Policy United States Telecom Association 14th Street, NW, Suite 400 Washington, DC 20005 Michael J. Jacobs Vice President, Regulatory Affairs ITTA – The Voice of Mid-Sized Communications Companies 1101 Vermont Avenue, NW, Suite 501 Washington, DC 20005 Stephen E. Coran Wireless Internet Service Providers Association 4417 13th Street, #317 St. Cloud, FL 34769 January 27, 2017 Derrick Owens Vice President of Government Affairs WTA – Advocates for Rural Broadband 400 7th Street, NW, Suite 406 Washington, DC 20004 TABLE OF CONTENTS INTRODUCTION AND SUMMARY ........................................................................................... 2 I. PETITIONERS ARE LIKELY TO PREVAIL ON THE MERITS OF THEIR PETITIONS FOR RECONSIDERATION ........................................................................... 10 A. The Commission Lacks the Legal Authority to Adopt the Rules Under Section 222.................................................................................................................. 11 B. Adoption of the Notice and Choice Rules was Arbitrary and Capricious. ................. 15 C. The Broadband Privacy Rules Are Impermissible Under the First Amendment........ 19 D. The Flaws in the Order’s Data Breach and Data Security Obligations Warrant Reconsideration........................................................................................................... 21 II. ISPs WILL SUFFER IRREPARABLE HARM ABSENT A STAY .................................... 23 III. A STAY WILL NOT INJURE OTHER PARTIES AND WILL FURTHER THE PUBLIC INTEREST ............................................................................................................................ 31 CONCLUSION ............................................................................................................................. 34 Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of Protecting the Privacy of Customers of Broadband and Other Telecommunications Services To: ) ) ) ) ) WC Docket No. 16-106 The Commission JOINT PETITION FOR STAY The American Cable Association (ACA), the Competitive Carriers Association (CCA), CTIA, ITTA – The Voice of Mid-Sized Communications Companies (ITTA), NCTA – The Internet & Television Association (NCTA), NTCA – The Rural Broadband Association, the United States Telecom Association (USTelecom), the Wireless Internet Service Providers Association (WISPA), and WTA – Advocates for Rural Broadband (together “Petitioners”), pursuant to Sections 1.41, 1.43, and 1.44(e) of the Commission’s rules, respectfully request that the Commission stay the rules adopted on October 27, 2016 in the above-captioned proceeding,1/ 1/ Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, Report and Order, FCC 16-148 (rel. Nov. 2, 2016) (“Order”). A summary of the Order and rules adopted therein was published in the Federal Register on December 2, 2016. Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, 81 Fed. Reg. 87,274 (Dec. 2, 2016) (amending 47 C.F.R. § 64.2001 et seq.). pending resolution of their respective Petitions for Reconsideration of the Order,2/ as well as the Petitions for Reconsideration filed by several other parties.3/ INTRODUCTION AND SUMMARY Eleven parties filed petitions for reconsideration of the Commission’s privacy, data breach, and data security rules for broadband Internet access service (BIAS) providers. These petitions raise significant questions about the legal basis for the rules and their potentially deleterious impact on consumers, competition, and innovation. Notably, several petitions were filed on behalf of companies not even directly subject to the rules but that are nonetheless impacted by them due to the adverse effects of the rules on the digital economy,4/ thereby highlighting the potential for tangible harm to the public from moving forward with the rules. Other petitions were filed by associations representing small broadband providers that face disproportionate burdens arising from the rules adopted in the Order. Broadband consumers should receive consistent and uniform protection of the privacy of their personal information from all entities in the online ecosystem that come into contact with such data as it transits the Internet. As the Commission itself has recognized, the “importance of privacy protection is certainly not new to the nation’s largest broadband providers, all of which have publicly available privacy policies, describing their use and sharing of confidential 2/ The following Petitioners submitted Petitions for Reconsideration in WC Docket No. 16-106 on January 3, 2017: NCTA (“NCTA Petition”); CTIA (“CTIA Petition”); United States Telecommunications Association (“USTelecom Petition”); WISPA (“WISPA Petition”); Competitive Carriers Association (“CCA Petition”); ITTA (“ITTA Petition”); American Cable Association (“ACA Petition”). Consistent with the positions set forth in NCTA and CTIA’s Petitions for Reconsideration, while Petitioners seek a stay of the rules as they apply to BIAS customer data, they do not object to the rules to the extent they replace and update the existing CPNI rules applicable to voice telephony service. See NCTA Petition at n.5; CTIA Petition at 2. 3/ See Petitions for Reconsideration filed in WC Docket No. 16-106 by Association of National Advertisers, et al. (“ANA Petition”); Consumer Technology Association (“CTA Petition”); Level 3 Communications, LLC (“Level 3 Petition”); and Oracle Corporation (“Oracle Petition”). 4/ See, e.g., ANA Petition; Oracle Petition; CTA Petition. 2 customer information.”5/ Petitioners’ member companies have considerable experience in safeguarding broadband service information and strong business incentives to secure and strengthen the trust of the customers with whom they share an ongoing business relationship by serving as responsible stewards of their personal information. Indeed, Internet Service Providers (ISPs) have released a voluntary set of privacy and data security principles that are predicated upon the core tenets of transparency, consumer choice, and security that undergird the Federal Trade Commission’s (FTC) well-known and highly successful privacy framework.6/ As set forth more fully in the Petitions for Reconsideration filed by Petitioners, which are incorporated by reference herein, the rules imposed in the Order governing ISP use and sharing of BIAS customer data are unsound as a matter of both law and policy. Petitioners seek a stay in order to undo the Order’s dramatic departures from the FTC’s privacy framework, which effectively balances the twin objectives of providing consumers control over their personal information while preserving opportunities for beneficial uses of data that lead to innovation, new products and capabilities, customized services, and growth in the digital economy. Staying the Order would allow the Commission to consider the Petitions for Reconsideration without causing significant disruption to businesses and creating confusion for consumers. The Petitions aim to restore the proven and effective approach of protecting consumers’ privacy rights through the consistent and uniform application of a single set of privacy obligations applicable across the Internet to all companies that come into contact with broadband consumer data. As detailed below, Petitioners satisfy the applicable standard for grant of a stay. 5/ Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, Notice of Proposed Rulemaking, WC Docket No. 16-106, FCC 16-39, ¶ 10 (rel. April 1, 2016). 6/ See “ISP Privacy Commitments” (attached as Appendix A). 3 The above principles, as well as ISPs’ continued compliance with various federal and state privacy laws, will protect consumers’ privacy, while also encouraging continued investment, innovation, and competition in the Internet ecosystem. Altice USA American Cable Association AT&T Charter Communications Citizens Telephone and Cablevision Comcast Cox Communications CTIA Dickey Rural Networks Inland Telephone Company d/b/a Inland Networks ITTA – The Voice of Mid-Sized Communications Companies NCTA – The Internet & Television Association Northeast Louisiana Telephone Co., Inc. (NortheastTel) NTCA – The Rural Broadband Association SCTelcom T-Mobile USTelecom Verizon VTX1 Companies Wheat State Telephone, Inc. Wireless Internet Service Providers Association WTA – Advocates for Rural Broadband 3 Federal Communications Commission FCC 17-19 Before the Federal Communications Commission Washington, D.C. 20554 In the Matter of Protecting the Privacy of Customers of Broadband and Other Telecommunications Services ) ) ) ) WC Docket No. 16-106 ORDER GRANTING STAY PETITION IN PART Adopted: March 1, 2017 Released: March 1, 2017 By the Commission: Commissioner O’Rielly issuing a statement; Commissioner Clyburn dissenting and issuing a statement. I. INTRODUCTION 1. On October 26, 2016, the Commission adopted the 2016 Privacy Order.1 By January 3, 2017, the Commission had received eleven separate timely petitions to reconsider that order.2 On January 27, 2017, nine trade associations filed a petition for stay of those rules.3 We grant the Stay Petition in part, and accordingly stay on an interim basis only one aspect of the requirements adopted in the 2016 1 Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, Report and Order, 31 FCC Rcd 13911 (2016) (2016 Privacy Order or Order). 2 Petition of American Cable Association for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/10104075594979/ACA_Privacy_Petition_for_Reconsideration_01032017_2.pdf; Petition of the Association of National Advertisers et al. for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/1010300614650/Petition%20for%20Reconsideration%201.3.2017_2.pdf; Petition of CTIA for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/101033094013829/160103%20CTIA%20Petition%20for%20Reconsideration%20WC%2 016-106_2.pdf; Petition of the Competitive Carriers Association for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/10103178455609/CCA%20Privacy%20Order%20Petition%20for%20Reconsideration%2 0(010317)%20_2.pdf; Petition of Consumer Technology Association for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/10103091472650/CTA_FCC_Privacy_Petition_for_Reconsideration_2.pdf; Petition of ITTA for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/10103777424694/ITTA%20Broadband%20Privacy%20PFR%20As%20Filed%20010317 _2.pdf; Petition of Level 3 Communications, LLC, for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/10103280069637/Level%203%20Petition%20for%20Reconsideration%20(1.3.2017)_2.p df; Petition of NCTA for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/1010310468995/NCTA%20Recon%20Petition%20WC%2016-106_2.pdf (NCTA Reconsideration Petition); Petition of Oracle Corp. for Reconsideration, WC Docket No. 16-106 (filed Dec. 21, 2016), https://ecfsapi.fcc.gov/file/1221003408004/Oracle_Broadband_Privacy_Petition_for_Reconsideration.pdf; Petition of the United States Telecom Association for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/1010364854858/Privacy_PFR_01.03.17_lf_krs%20_2.pdf; Petition of the Wireless Internet Service Providers Association for Reconsideration, WC Docket No. 16-106 (filed Jan. 3, 2017), https://ecfsapi.fcc.gov/file/101032162706335/WISPA%20Petition%20for%20Reconsideration%3B%20WC%20Do cket%20No.%2016-106_2.pdf. 3 See Joint Petition of American Cable Association et al. (Petitioners) for Stay, WC Docket No. 16-106 (filed Jan. 27, 2017), https://ecfsapi.fcc.gov/file/101270254521574/012717%20Petition%20for%20Stay.pdf (Stay Petition). Federal Communications Commission FCC 17-19 Privacy Order related to data security, which are those aspects of the rule scheduled to become effective on March 2, 2017. This interim stay extends until the Commission can act on the petitions for reconsideration pending in this proceeding. We do not take action at this time on Petitioners’ request for stay of other provisions of the 2016 Privacy Order, in particular, the new notice requirements, customer approval requirements, and data breach notification requirements, which are all subject to Office of Management and Budget approval under the Paperwork Reduction Act.4 The Commission should be able to resolve the petitions for reconsideration before those rules become effective. Additionally, this Order does not address those rules that became effective before the Stay Petition was filed. II. BACKGROUND 2. In March 2016, the Commission “propose[d] to apply the traditional privacy requirements of the Communications Act to . . . broadband Internet access service (BIAS).”5 Seven months later, in October 2016, the Commission somewhat shifted its approach and adopted new notice requirements, customer approval requirements, data security requirements, and data breach notification requirements.6 3. With respect to data security, the Order requires BIAS providers and other telecommunications carriers to “take reasonable measures to protect customer [proprietary information] from unauthorized use, disclosure, or access.”7 It states that “the reasonableness of a provider’s data security practices will depend significantly on context” and identifies factors that a provider must consider, specifically, the nature and scope of its activities; the sensitivity of the data it collects; its size; and technical feasibility.8 The Order describes practices that the Commission “presently consider[s] exemplary of a reasonable and evolving standard of data security.”9 It also identifies that “existing privacy and data security laws, best practices, and public-private initiatives” are each “a potential source of guidance on practices that may be implemented to protect the confidentiality of customer [proprietary information].”10 Finally, the Order adopts harmonized data security requirements for BIAS providers and telecommunications carriers that were subject to the Commission’s predecessor customer proprietary network information rules.11 These data security requirements are scheduled to become effective on March 2, 2017. 4. The Stay Petition contends that the Commission should stay many of the rules adopted in the Order until the Commission acts upon the petitions for reconsideration filed in this proceeding, which the Stay Petition incorporates by reference.12 As to data security, Petitioners argue that although the Order “appropriately adopts a ‘reasonable measures’ standard,” its articulation of that standard’s meaning “substantially widen[s] the uncertainty and compliance burdens imposed upon ISPs relative to all other Internet entities and heighten[s] the risks of different interpretations.”13 Similarly, the NCTA 4 See generally Stay Petition; 2016 Privacy Order, 31 FCC Rcd at 14080, Appx. A (Sections 64.2003, 64.2004, 64. 2006, 64.2011(b)). 5 Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, Notice of Proposed Rulemaking, 31 FCC Rcd 2500, 2501, para. 2 (2016). 6 See generally 2016 Privacy Order, 31 FCC Rcd at 13911. 7 47 CFR § 64.2005(a). 8 2016 Privacy Order, 31 FCC Rcd at 14009, para. 242. 9 Id. at 14013, para. 248. 10 Id. 11 Id. at 14018-19, paras. 256-60. 12 See Stay Petition at 1-3. 13 Id. at 22-23. 2 Federal Communications Commission FCC 17-19 Reconsideration Petition asserts that the Order erred in that “there is no specific mechanism to ensure that the FCC interprets th[e] test in the same manner as the” Federal Trade Commission (FTC) and that “[t]o the contrary, the Order expresses its intention to look beyond the FTC’s administration of that [reasonable measures] test.”14 5. Petitioners argue that they will bear substantial costs and burdens complying with the new rules, and that these costs and burdens constitute irreparable harm and are contrary to the public interest because they will not be recoverable in the event that the Commission grants the pending petitions for reconsideration.15 With respect to the new data security requirements, they also represent that ISPs “have relied on a voluntary set of privacy and data security principles that are consistent with the FTC’s long-standing framework, and have committed to continue adhering to these obligations.”16 These “ISP Privacy Principles” include a commitment to take reasonable measures to protect customer information from unauthorized use, disclosure, or access, taking into account the nature and scope of their activities, the sensitivity of the data, the size of the ISP, and technical feasibility. The signatories to these principles include Altice, AT&T, Charter, Citizens Telephone and Cablevision, Comcast, Cox, Dickey Rural Networks, Inland Telephone Company, Northeast Louisiana Telephone, SCTelcom, T-Mobile, Verizon, VTX1, Wheat State Telephone, and the following associations: ACA, CTIA, ITTA, NCTA, NTCA, USTelecom, WISPA, and WTA.17 6. On February 3, 2017, eleven organizations filed an opposition to the Stay Petition.18 The Opposition argues that Petitioners are not likely to succeed on the merits of the petitions for reconsideration, because their arguments “have previously been presented and considered by the Commission.”19 As to the data security and other requirements of the rules, it contends that a stay would harm consumers “because they will not be able to exercise effective options to protect their private information.”20 It asserts that the FTC cannot require ISPs to comply with their voluntary privacy policies; that ISPs lack the market incentives to protect customer information; and that Petitioners’ claims of irreparable harm are theoretical, grossly exaggerated, or routine costs associated with compliance.21 III. DISCUSSION 7. Section 1.429(k) of the Commission’s rules permits the Commission for good cause to stay the effective date of a rule pending a decision on a petition for reconsideration.22 It is well-settled that in determining whether to stay the effectiveness of one of its Orders, the Commission applies the traditional four-factor test established by the U.S. Court of Appeals for the District of Columbia Circuit 14 NCTA Reconsideration Petition at 25. 15 Stay Petition at 24 & n.91, 32-33; see also para. 7, infra. 16 Id. at 32. 17 Id. Appx. A. 18 See Joint Opposition of National Priorities Consumer Action et al. to Petition for Stay, WC Docket No. 16-106 (filed Feb. 3, 2017), https://ecfsapi.fcc.gov/file/10204239884547/Opposition%20to%20Petition%20for%20Stay%20-%20Final.pdf (Opposition). The additional opposition filed in this proceeding on February 8 is untimely and will be disregarded. See 47 CFR § 1.45(d) (“Oppositions to a request for stay of any order or to a request for other temporary relief shall be filed within 7 days after the request is filed.”); Opposition of Curtis J. Neely to Frivolous Joint Petition for Stay, WC Docket No. 16-106 (filed Feb. 8, 2017), https://ecfsapi.fcc.gov/file/10208985919369/16106_Opposition%20to%20Stay.pdf. 19 Opposition at 5. 20 Id. at 7. 21 Id. at 7, 12. 22 47 CFR § 1.429(k). 3 Federal Communications Commission FCC 17-19 (“D.C. Circuit”).23 To qualify for a stay, a petitioner must show that: (1) it is likely to prevail on the merits; (2) it will suffer irreparable harm absent the grant of preliminary relief; (3) other interested parties will not be harmed if the stay is granted; and (4) the public interest would favor grant of the stay. The Commission’s consideration of each factor is weighed against the others, with no single factor dispositive.24 Thus, “injury held insufficient to justify a stay in one case may well be sufficient to justify it in another, where the applicant has demonstrated a higher probability of success on the merits.”25 8. We find that Petitioners meet the test for a stay with respect to the data security requirements (new Section 64.2005) in the 2016 Privacy Order. For the reasons explained below, Petitioners are uniquely likely to succeed on the merits of their claim on reconsideration with respect to these requirements, and they would be entitled to a stay pending Commission action on that claim given their showing with respect to the other three factors. But we believe they would be entitled to a stay even if they had not demonstrated “a higher probability of success on the merits.” Consistent with action in similar contexts where petitions for reconsideration of Commission rulemaking orders are pending,26 we determine that it is in the public interest for the Commission to address and resolve, prior to the to rule taking effect, the parties’ claims that the data security requirements need to be clarified or reconsidered, so that (1) consumers are not subject to two different privacy regimes, vitiating their uniform expectation of online privacy, and (2) BIAS providers and other telecommunications carriers do not incur substantial and unnecessary compliance costs while the possibility of changes to the requirements still exist. On our own motion, we also stay the application of new Section 64.2005 to non-BIAS carriers because the same reasoning that justifies a stay to BIAS applies equally to other telecommunications services.27 A. Likelihood of Success on the Merits 9. With respect to data security requirements, the Order expressly states that the Commission will look beyond the FTC’s interpretation of “reasonable measures” and take into account the requirements of other privacy regimes such as the Health Insurance Portability and Accountability Act (HIPAA) and the Gramm Leach Bliley Act (GLBA), as well as best practices and public-private initiatives.28 In this case, Petitioners are uniquely likely to succeed on their claim on reconsideration that 23 See Washington Metro. Area Transit Comm’n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977) (Holiday Tours); Virginia Petroleum Jobbers Ass’n v. Federal Power Comm’n, 259 F.2d 921, 925 (D.C. Cir. 1958) (VA Petroleum Jobbers). 24 AT&T Corp. v. Ameritech Corp., 13 FCC Rcd 14508, para. 14 (1998); Cuomo v. NRC, 772 F.2d 972, 974 (D.C. Cir. 1985) (“Probability of success is inversely proportional to the degree of irreparable injury evidenced. A stay may be granted with either a high probability of success and some injury, or vice versa.”). 25 VA Petroleum Jobbers, 259 F.2d at 925; accord Holiday Tours, 559 F.2d at 844. 26 See Billed Party Preference for InterLATA 0+ Calls, Order, 13 FCC Rcd 12576 (CCB 1998); Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC’s Local Exchange Area and Policy and Rules Concerning the Interstate, Interexchange Marketplace, Order, 13 FCC Rcd 6427 (CCB 1998); Revision of the Commission’s Rules to Ensure Compatibility with Enhanced 911 Emergency Calling Systems, Order, 12 FCC Rcd 15313 (WTB 1997). 27 The Stay Petition focuses on the application of the 2016 Privacy Order to BIAS providers. See Stay Petition at 2 n.2. 28 Stay Petition at 23; see also 2016 Privacy Order, 31 FCC Rcd at 14012-13, para. 248 (“[T]he requirement to engage in reasonable data security practices is set against a backdrop of existing privacy and data security laws, best practices, and public-private initiatives. Each of these is a potential source of guidance on practices that may be implemented to protect the confidentiality of customer [proprietary information].”); 2016 Privacy Order, 31 FCC Rcd at 14012-13, para. 248 n.714 (citing, as examples of existing privacy and data security laws, the FTC Act, HIPAA, GLBA, and four states’ data security laws); 2016 Privacy Order, 31 FCC Rcd at 14012-13, para. 248 n.715 (citing, as examples of best practices, the 2015 FTC Security Guide for Business and FCC Communications Security, Reliability, and Interoperability Council Best Practices); 2016 Privacy Order, 31 FCC Rcd at 14012-13, (continued….) 4 Federal Communications Commission FCC 17-19 this requirement sweeps too broadly and too vaguely, “substantially widening the uncertainty and compliance burdens imposed upon ISPs relative to all other Internet entities and heightening the risks of different interpretations.”29 The data security requirements, as they currently stand, would subject ISPs to more burdensome regulation than other participants in the Internet ecosystem are subjected to by the FTC. 10. Moreover, a majority of the current Commission dissented from the 2016 Privacy Order because it did not agree with such an approach. Then-Commissioner Pai explained that the Order should have “paralleled the FTC’s framework as closely as possible,” thereby avoiding “unique rules on ISPs that do not apply to all online actors that collect and use consumer data.”30 Similarly, Commissioner O’Rielly in his dissent expressed concerns about the departure of the adopted rules from the FTC’s framework, as well about providing insufficient time for providers to come into compliance with the new data security rules. He specifically noted that “there has been no evidence of any privacy harms, and “no benefit to be gained from increased regulations,” while the Order “places substantial, unjustified costs on businesses and consumers.”31 In these circumstances, we find that Petitioners have a substantial likelihood of success on the merits of the new data security rules being subject to revisions. 11. Further, contrary to the Opposition’s assertion that the Commission’s authority to grant petitions for reconsideration is limited to those which rely on facts or arguments which have not been previously presented to the Commission,32 the Commission’s rules simply permit the dismissal or denial of a petition that relies “on arguments that have been fully considered and rejected by the Commission within the same proceeding.”33 The rules do not require such a dismissal or denial. Moreover, the Commission as it is currently constituted has not considered and rejected any arguments pertaining to the data security rule raised in the Petitions for Reconsideration. B. The Balance of the Equities Also Favors Petitioners 12. As noted above, in this context the very strong likelihood of success on the merits of the petitions for reconsideration militates heavily in favor of a stay of the data security requirements of the rules. But the remaining VA Petroleum Jobbers factors also warrant a stay of those requirements. 13. Several general principles govern the irreparable injury inquiry. First, “the injury must be both certain and great; it must be actual and not theoretical.”34 A petitioner must also “substantiate the claim that the irreparable injury is ‘likely’ to occur. . . . Bare allegations of what is likely to occur are of no value since the court must decide whether the harm will in fact occur.”35 While the general rule is that costs of compliance with a regulatory scheme do not constitute irreparable injury,36 we conclude in these circumstances that the public interest would not be served by requiring BIAS providers to incur excessive costs of compliance when (1) there is an inability to recoup those costs, (2) such costs would be of (Continued from previous page) para. 248 n.716 (citing, as an example of a public-private initiative, the National Institute of Standards and Technology Cybersecurity Framework). 29 Stay Petition at 23. 30 2016 Privacy Order, 31 FCC Rcd at 14121 (Statement of Commissioner Pai). 31 Id. at 14129 (Statement of Commissioner O’Rielly). 32 Stay Opposition at 13. 33 47 CFR § 1.429(l)(3). 34 Wisconsin Gas Co. v. FERC, 758 F.2d 669, 674 (D.C. Cir. 1985). 35 Id. at 674. 36 See American Hospital Ass’n v. Harris, 625 F.2d 1328, 1331 (7th Cir. 1980). 5 Federal Communications Commission FCC 17-19 questionable additional benefit, and (3) there is substantial likelihood that Petitioners may persuade the Commission on reconsideration to revisit such requirements.37 14. We disagree with the Opposition’s general assertion that the economic harms described by Petitioners are either theoretical, grossly exaggerated, or routine costs associated with compliance.38 The 2016 Privacy Order outlines a number of practices that companies should consider implementing in order to comply with the new data security rule.39 These recommended practices include changes to a company’s internal business structure, potential modifications to its customer authentication methods, and changes to its information handling practices to incorporate data minimization practices.40 Petitioners explain that BIAS providers will need to take substantial technical measures to reconfigure datacollection and data-use protocols; establish new internal business rules; and modify employee training programs. Some companies, such as small rural providers, must hire additional employees or procure the services of third parties to manage the transition to new rules.41 Requiring these companies to incur additional costs and allocate significant resources toward implementing requirements that the Commission is reasonably likely to revise upon reconsideration is wasteful and counterproductive to the public interest. This is particularly the case from a consumer perspective because those resources could be better spent developing new offerings, upgrading networks, or improving security (and, relatedly, because the rule’s implementation would create a bifurcated privacy regime contrary to consumers’ uniform expectation of online privacy). 15. Further, Petitioners demonstrate that providers already are incurring costs associated with analyzing the changes to their network operations and businesses practices that the new rules necessitate.42 For example, “many thousands of company personnel [will need to be] trained” and “small rural providers, must hire additional employees or procure the services of third parties” to comply.43 To the extent that the Commission ultimately decides to substantially revise the data security rule adopted in the Order, these implementation costs will be unrecoverable and will be compounded by additional costs associated with reverting back to practices permitted prior to establishment of the vacated or revised obligations. 16. The weighting of “data security requirements under HIPAA, GLBA, and other relevant statutory frameworks”44 and other indicia of reasonable data security required by the Order would be resource-intensive, and providers could not be sure that they would weigh the factors in the same manner as this or any future Commission. The fact that the Order contains no specific mechanism to ensure that the Commission will interpret the “reasonable measures” standard in the same manner as the FTC undermines the Commission’s goals regarding the importance of consistent application of the “reasonable measures” standard across the Internet ecosystem, heightens the risk of different interpretations, and thereby increases the uncertainties and associated costs regarding compliance.45 Petitioners are also 37 See Central Valley Chrysler-Plymouth v. California Air Resources Bd., 2002 WL 34499459 (E.D. Cal. June 11, 2002), at *7; Texas Food Industry v. Dept. of Agriculture, 842 F.Supp. 254, 260–61 (W.D. Tex. 1993); see also National Medical Care, Inc. v. Shalala, 1995 WL 465650 (D.D.C. 1995) (“[G]iven the overwhelming likelihood that the Plaintiffs will eventually succeed on the merits of their retroactivity claim, it would be absurd to allow the Defendant to impose these costs [of compliance] upon the Plaintiffs at all.”). 38 Stay Opposition at 12. 39 See 2016 Privacy Order, 31 FCC Rcd at 14012-018, paras. 248-55. 40 Id. 41 Stay Petition at 25. 42 Id. at 27. 43 Id. 44 2016 Privacy Order, 31 FCC Rcd at 14015, 4para. 250. 45 See NCTA Petition for Reconsideration at 25. 6 Federal Communications Commission FCC 17-19 correct that this represents a departure from the status quo, in which BIAS providers have long operated under the FTC’s interpretations of the FTC Act’s Section 5 prohibition against unfair or deceptive acts or practices, and other telecommunications carriers have operated under the Commission’s existing rules addressing data security.46 Thus, the resources that BIAS providers and other telecommunications carriers would be required to devote to assessing the interplay between these and other privacy regimes and their existing data security practices are substantial. BIAS providers and other telecommunications carriers would also be required to potentially institute technical and operational measures to alter existing practices to be consistent with these other regimes, which could require substantial staff and resources and may impose hardships on small providers. 17. Conversely, granting Petitioners’ request for a stay of the data security rule will maintain a status quo that has been in place for nearly two years with respect to BIAS providers—since the Commission reclassified BIAS as a telecommunications service—and nearly a decade with respect to other telecommunications carriers, with the Commission’s adoption of heightened authentication requirements in 2007. While BIAS providers have not been subject to specific implementing rules for nearly two years now, they have been obligated to comply with Section 222 of the Communications Act of 1934, as amended; the Commission’s interim guidance; and other applicable federal and state privacy, data security, and breach notification laws.47 The record contains no evidence of harm to consumers as a result. Furthermore, as noted above, BIAS providers have released a voluntary set of “ISP Privacy Principles” that are consistent with the FTC’s long-standing framework, and have committed to continue adhering to these obligations regardless of whether the Commission’s broadband privacy rules are stayed, thereby further minimizing the risk of harm to other parties.48 The Opposition’s arguments about ISPs’ “economic incentives”49 fail to differentiate among the various privacy rules, the vast bulk of which are not the subject of this Stay Order, and also fail to demonstrate that BIAS providers have not complied with these commitments or why they would be likely not to do so during the pendency of the stay. For other telecommunications carriers, our existing rules governing data security—which address, among other things, employee training, supervisory review processes, and customer authentication requirements—will remain in place.50 18. The Opposition argues that “[i]f it were true” as “Petitioners suggest, that different regulatory standards for different types of entities inherently create competitive disadvantages, granting a stay would necessarily harm edge providers.”51 But creating and eliminating regulatory asymmetries are not the same. An agency tasked with promoting competition cannot treat as cognizable a “harm” that results simply from removing a regulatory disparity. Moreover, to the extent that consumers have a uniform expectation of privacy when they go online, removing such disparities and creating a level regulatory framework better serves their interests. 19. In the foregoing circumstances, we conclude that preserving the status quo pending further examination of whether to uphold the Order’s deviation from the FTC’s successful data security framework would benefit consumers, competition, innovation and the digital economy—and thus further the public interest. Therefore, the public interest disfavors compelling BIAS providers and other 46 See 47 CFR §§ 64.2009, 64.2010. 47 Stay Petition at 8. For this reason, consumers will retain multiple avenues to raise objections to data security practices, contrary to the Opposition’s assertions. Cf. Opposition at 6 (stating that a stay “would mean that consumers would have essentially no protections”); Opposition at 7 (asserting that a stay will leave consumers with no redress). 48 Stay Petition at 32. 49 Opposition at 7-8. 50 47 CFR § 64.2009(a), (b), (d), (f); 47 CFR § 64.2010. 51 Opposition at 9. 7 Federal Communications Commission FCC 17-19 telecommunications carriers to incur substantial costs and burdens to implement the data security rule pending our reconsideration of that rule. 20. For these reasons, we grant in part the Stay Petition and stay on an interim basis the data security requirements established by the Order, i.e., new section 64.2005, until the Commission has decided the petitions for reconsideration pending in this proceeding. The Order states that “until the new privacy rules are effective and implemented with respect to voice services, the existing rules remain in place.”52 Accordingly, services that were subject to the Commission’s preexisting data security requirements remain subject to those rules—specifically, such services remain subject to Section 64.2010 and subsections 64.2009(a)-(b), (d), and (f) of the Commission’s rules as they existed prior to the Order.53 The Order eliminated the specific compliance recordkeeping and annual certification requirements in preexisting Sections 64.2009(c) and (e), and therefore those provisions are no longer applicable to any entity.54 IV. ORDERING CLAUSES 21. Accordingly, IT IS ORDERED that, pursuant to Sections 1, 2, 4(i)-(j), 201, 202, 222, 303(b), 303(r), 316, 338(i), 631, and 705 of the Communications Act of 1934, as amended, and Section 706 of the Telecommunications Act of 1996, as amended, 47 U.S.C. §§ 151, 152, 154(i)-(j), 201, 202, 222, 303(b), 303(r), 316, 338(i), 551, 605, 1302, and Section 1.429(k) of the Commission’s rules, 47 CFR § 1.429(k), this Order IS ADOPTED. 22. IT IS FURTHER ORDERED that the Joint Petition of American Cable Association et al. for Stay IS GRANTED IN PART to the extent described herein. 23. IT IS FURTHER ORDERED that this Order SHALL BE EFFECTIVE upon release, in accordance with section 1.102(b)(1) of the Commission’s rules, 47 CFR § 1.102(b)(1). FEDERAL COMMUNICATIONS COMMISSION Marlene H. Dortch Secretary 52 2016 Privacy Order, 31 FCC Rcd at 14044, para. 316; id. at 14042, para. 310 (“Until these rules become effective, Section 222 applies to all telecommunications services, including BIAS, and our current implementing rules continue to apply to telecommunications services other than BIAS and to interconnected VoIP.”). 53 In construing the pre-Order rules, the definitions in 47 CFR § 64.2003 as it existed prior to adoption of the Order remain applicable. 54 See 2016 Privacy Order, 31 FCC Rcd at 14005, para. 234; Wireline Competition Bureau Announces Effective Dates of Broadband Privacy Rules, Public Notice, 31 FCC Rcd 13170, 13170-11 (WCB 2016) (“[T]he 2016 Privacy Order relieved telecommunications carriers and interconnected VoIP providers of the specific compliance recordkeeping and annual certification requirements in existing section 64.2009, specifically subsections (c) and (e). Thus, once the Order becomes effective on January 3, 2017, telecommunications carriers and interconnected VoIP providers no longer will be required to comply with the requirements in subsections (c) and (e) of section 64.2009.”); see also Voice on the Net (VON) Coalition Comments, WC Docket No. 16-106, at 4-5 (Feb. 3, 2017) (asking the Commission not to reinstate the preexisting compliance recordkeeping and annual certification requirements); Letter from Nicholas G. Alexander, Associate General Counsel, Level 3 Communications, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 16-106 (filed Feb. 10, 2017); Letter from Christopher L. Shipley, Attorney & Policy Advisor, INCOMPAS, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 16-106 (filed Feb. 10, 2017). 8 Federal Communications Commission FCC 17-19 STATEMENT OF COMMISSIONER MICHAEL O’RIELLY Re: Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, WC Docket No. 16-106. I support this decision to stay the broadband data security rules while the Commission and Congress consider an appropriate resolution of the broader Net Neutrality proceeding. To be clear, I think the law and Commission precedent are quite straightforward: the FCC lacks authority to adopt data security rules for any type of provider. Data security is not mentioned anywhere in the Communications Act, and other statutes and legislative efforts that have addressed the topic do not afford the FCC any role. I consistently objected to the prior Commission’s unlawful attempts to freelance in this area long before the Net Neutrality Order and Privacy Order were adopted. I also pointed out that the Commission’s attempts to saddle the communications sector with experimental regulations could conflict with well-established FTC precedents that have served as a predictable road map for businesses and consumers alike. Finally, I appreciate the opportunity to vote on this order at the Commission level. While I welcome greater participation by the full Commission in general, I think that Commission-level action on significant decisions like this one are particularly helpful to provide a clear and final statement of the agency’s position, which promotes transparency and certainty for all interested parties. 9 Federal Communications Commission FCC 17-19 DISSENTING STATEMENT OF COMMISSIONER MIGNON L. CLYBURN Re: Protecting the Privacy of Customers of Broadband and Other Telecommunications Services, WC Docket No. 16-106. On the very same day a major content distribution network revealed that the private data of millions of users from thousands of websites had been exposed for several months, the FCC announced its intention to indefinitely suspend rules requiring broadband providers to protect users’ private data. The irony here is inescapable. With a stroke of the proverbial pen, the Federal Communications Commission—the same agency that should be the “cop on the beat” when it comes to ensuring appropriate consumer protections—is leaving broadband customers without assurances that their providers will keep their data secure. It is for this reason, that I must issue this unequivocal dissent. In this Order, the majority fells a tree to ostensibly prune a branch. Rather than interpret a dulyadopted, flexible rule in a manner that would be consistent with the majority’s understanding of its proper scope, they have chosen to gut the rule entirely. If the problem with the data security rule is, for example, the ability of the Commission to look to other Congressional mandates for guidance, then simply issue interpretive guidance that narrows the scope of the rule. In another context, the majority allowed rules to go into effect with a letter of intent not to enforce until the rules were modified. So my question is why does the same approach not work here? The painful answer is this: Because with the new FCC, the ends justify the means. This Order is but a proxy for gutting the Commission’s duly adopted privacy rules—and it does so with very little finesse. First, the Order alleges deleterious divergence from FTC standards, when in actuality there is little daylight between the approaches taken by the two agencies. Both agencies require only reasonable data security measures, with caveats for the sensitivity of the data, size of the company and technical feasibility. Even the voluntary framework that providers submit with their stay request, which the Order cites approvingly, uses the exact text from the FCC rule as the baseline for broadband provider compliance efforts. This view was reiterated last week by FTC Commissioner Terrell McSweeny who stated that “[t]he rules the FCC adopted conform to long standing FTC practice and provide clear rules on how broadband companies should protect their customers’ personal information.” Further, the FCC gave helpful guidance, stressed that the standards it set out were not the only way to comply with the rule, and stated unequivocally that the rules were not a strict liability standard. The Order wrongly cites these as additional requirements imposed on broadband providers. Second, the Order alleges significant harm to service providers, but cites absolutely nothing to prove it. In fact, the stay request does not even begin to estimate the costs associated with compliance. Contrast this with the stay requests for the 2015 Open Internet Order, where providers offered affidavits involving allegations of specific harms. There, the Commission denied those stay petitions, finding that the harms alleged were insufficient to meet the high bar of a stay. Here, petitioners do not even attempt to quantify the costs associated with all of the privacy rules, much less the data security rule. Again, the rule adopted requires only reasonable data security. It does not put providers at a competitive disadvantage, it does not require massive reporting obligations, nor does it even really require providers to change their existing conduct. The outcome of this Order is not relief of regulatory burdens, as is evidenced by providers seeking a stay using the text of the FCC’s rule as the basis for their voluntary code of conduct. What it actually does is permit providers to shift the costs for corporate negligence onto private citizens. Because of the 9th Circuit decision that seriously called into question the ability of the FTC to regulate any business that has a common carrier component, the Commission’s action today means that a voluntary 10 Federal Communications Commission FCC 17-19 industry code is the only comprehensive federal protection for broadband data security. If a provider simply decides not to adequately protect a customer’s information and does not notify them when a breach inevitably occurs, there will be no recompense as a matter of course. The only recourse for customers will be individual forced arbitration before an entity of their service provider’s choosing. Rather than the Commission being able to spearhead an investigation and remuneration for consumers, each individual will have to discover the breach and prosecute it on their own. This is the antithesis of putting #ConsumersFirst. Finally, I must express my disappointment that the Chairman even entertained this item being adopted on delegated authority. This would have marked the first time in which the Wireline Competition Bureau actually granted a petition for stay. Thankfully, my request to have this considered by the Commission preserved some degree of procedural integrity at the FCC. Thank you to the staff of the Wireline Competition Bureau. While I dissent, I continue to appreciate your efforts. 11 February 17, 2017 VIA EMAIL AND FEDEX Gregory Gould, Director Office of Natural Resources Revenue Bldg 53, Entrance E-20 Denver Federal Center Sixth Ave. and Kipling St. Denver, CO 80225 Re: Request to Postpone Implementation of ONRR Oil, Gas, and Coal Valuation Rule Dear Director Gould: Pursuant to 5 U.S.C. § 705, the National Mining Association, the Wyoming Mining Association, and the American Petroleum Institute, each on behalf of their respective members, and Cloud Peak Energy Inc., Black Hills Corporation, Tri-State Generation and Transmission Association, Inc., Basin Electric Power Cooperative, and Western Fuels-Wyoming, Inc. (collectively, “Petitioners”) respectfully request that the U.S. Department of the Interior, Office of Natural Resources Revenue (“ONRR”), postpone implementation of the Consolidated Federal Oil & Gas and Federal & Indian Coal Valuation Reform Final Rule, 81 Fed. Reg. 43,338 (July 1, 2016) (the “Final Rule”). The Petitioners have sought judicial review of the Final Rule through multiple Petitions filed in the United States District Court for the District of Wyoming.1 The Final Rule is first effective as to royalty reporting due February 28, 2017 for oil, gas, and coal production in January 2017. For the reasons set forth below and in the Petitioners’ court filings and submitted comments on ONRR’s proposed rule, which mirrors the Final Rule, postponement of the Final Rule’s implementation is necessary in the interests of justice. Petitioners initiated the challenge to the Final Rule because it adopts new royalty reporting and payment requirements that are impracticable, and in some cases impossible, for Petitioners and many other federal and Indian lessees to comply with by the February 28, 2017 royalty reporting due date. A federal or Indian lessee’s failure to properly report and pay its royalties exposes the lessee to potential knowing or willful civil penalties. In contrast, by its own analysis in the Final Rule, ONRR’s delayed implementation of the Final Rule would have no significant revenue impact to the lessors, and in the interim would continue regulations that have functioned adequately for more than 25 years. Under the Administrative Procedure Act (“APA”), “[w]hen an agency finds that justice so requires, it may postpone the effective date of an action taken by it, pending judicial review.” This provision gives federal agencies broad discretion to postpone the effect of agency action 1 Cloud Peak Energy Inc., et al. v. USDOI, Case No. 16-cv-315 (filed Dec. 29, 2016); American Petroleum Institute v. USDOI, Case No. 16-cv-316 (filed Dec. 29, 2016); Tri-State Generation and Transmission Ass’n, Inc., et al. v. USDOI, Case No. 16-cv-319 (filed Dec. 29, 2016). February 17, 2017 Page 2 while litigation is ongoing. This temporary postponement under 5 U.S.C. § 705 to preserve the status quo will afford ONRR sufficient time and opportunity to determine how to proceed regarding the Final Rule. At the same time, it would avoid the expenditure of further resources of the Petitioners and ONRR on implementing a rule under which compliance is infeasible or impossible, and which may be declared invalid by the Court or modified by ONRR. The Final Rule features a number of fundamental problems that gave rise to the regulated community’s detailed rulemaking comments and currently pending litigation. The three Petitions filed against the Final Rule, as well as the detailed sets of comments submitted on the nearly identical proposed rule (available on the rulemaking docket at regulations.gov), are incorporated by reference in this letter. As more fully explained therein, the Final Rule in its current form is unlikely to survive judicial review because it exceeds ONRR’s authority under applicable statutes, including the Mineral Leasing Act of 1920, the Federal Coal Leasing Amendments Act of 1976, and the Outer Continental Shelf Lands Act, and applicable lease terms, and is arbitrary and capricious under the APA. Some Final Rule provisions demand the impossible from lessees; others manufacture arbitrary and unconstrained “discretion” by ONRR. The problematic provisions in the Final Rule include, but are not limited to:  A new “default” valuation provision whereby ONRR may unilaterally establish royalty value in the first instance under numerous, broadly defined circumstances, undermining the certainty of even a lessee’s arm’s-length sales prices as value, and creating the risk that ONRR may impose a higher royalty value many years after production and initial payment;  Mandatory valuation of coal production via an inherently unreliable “netback” method that courts and the Department have historically used only as a “last resort” if no other methodology, such as comparable sales, is available to establish a reasonable value at or near the mine;  Inadequately defined transportation allowances particularly for coal sold for ultimate delivery at distant locations;  Requirement that coal cooperatives and vertically integrated lessees use a novel and untested method to value coal based on the sales price of electricity generated by the coal, an entirely different commodity, and apply generation and transmission allowances summarily imported from geothermal resource valuation with no analysis of their applicability to coal-fired electric generation. This ignores the value added by all activities converting coal to electricity between the mine and the end use customer’s switch, the multiple resale tiers prior to end use, the variety of retail prices paid by end use customers, and the fact that the fuel component of a retail electricity price includes non-coal energy sources from the February 17, 2017 Page 3 royalty payors’ complete portfolios of natural gas, hydro, wind and solar, effectively making the Final Rule’s required valuation impossible to calculate;  For all coal not sold by the lessee at arm’s length, failure to provide any index or other option to use reliable alternative valuation methods established near the lease like those available for oil and gas valuation;  Blanket denial, artificial limitation, and termination of allowances to which lessees are legally entitled, undermining ONRR’s longstanding recognition of valuation at or near the lease;  Unsupported singling out of coal cooperatives for special treatment, including royalty valuation calculations that are impossible to perform, and disregard of well-established legal principles governing “affiliated” entities;  Sudden reversal of longstanding subsea transportation allowances for offshore oil and gas;  Refusal to recognize for valuation purposes any contract for the sale of oil, gas, or coal that is legally enforceable yet may be unwritten or unsigned by all parties; and  Requirement to pay royalty on unattainable index prices for federal gas. The Final Rule proffered no evidence or compelling justification for promulgating the wholesale changes to ONRR’s well-established royalty valuation regulations. Rather, ONRR ignored the many comments pointing out the multiple shortcomings in the rule ONRR proposed and then finalized the rule essentially unchanged. Moreover, ONRR failed to sufficiently analyze and disclose the overall negative economic impacts of its Final Rule. Federal and Indian coal lessees and federal oil and gas lessees face significant hardship and uncertainty in the face of their upcoming first reporting deadline under the Final Rule. As noted above and previously, many lessees simply cannot conform to the terms of the Final Rule, which requires calculations that are infeasible to perform and information that is impossible to obtain. Industry efforts to obtain adequate guidance from ONRR thus far have been unsuccessful, as the agency has provided no substantive responses to several inquiries over multiple months. Exacerbating the harms to lessees is their exposure to enforcement actions, including significant knowing or willful civil penalties, if they are unable to report and pay their royalties in accordance with the Final Rule’s stated requirements. The Final Rule also allows ONRR to impermissibly recoup more financial consideration from federal and Indian lessees than ONRR is entitled to receive. Yet, if the Final Rule challenge is successful, ONRR has no authority to compensate lessees for their substantial costs of compliance (including their creation February 17, 2017 Page 4 and implementation of new accounting systems) or with interest on any royalty overpayments. This reality defeats ONRR’s purported goal in the Final Rule to provide “greater simplicity, certainty, clarity, and consistency in product valuation for mineral lessees.” Postponement of the Final Rule’s implementation pending judicial review, consequently with no risk of retroactive application, would avoid the above harms, and also serve the public interest. The regulated community stands to suffer the most harm absent a postponement, while postponement and continued application of regulations that have been in effect for over 25 years would not harm ONRR or any member of the public. Postponement also serves the public interest by obviating costly and time-consuming individual enforcement and corresponding appeals simultaneous with the present litigation against the Final Rule. Finally, the public interest is served by proper application of regulations consistent with ONRR’s statutory authority, in contrast to the present Final Rule. Sincerely, Peter J. Schaumberg James M. Auslander BEVERIDGE & DIAMOND, P.C. 1350 I Street, NW, Suite 700 Washington, D.C. 20005-3311 Phone: (202) 789-6009 pschaumberg@bdlaw.com jauslander@bdlaw.com Attorneys for National Mining Association, Wyoming Mining Association, American Petroleum Institute, and Black Hills Corporation ___________________________________ John F. Shepherd Walter F. Eggers, III Tina Van Bockern HOLLAND & HART LLP 555 Seventeenth Street, Suite 3200 Post Office Box 8749 Denver, Colorado 80201-8749 Phone: (303) 295-8000 jshepherd@hollandhart.com weggers@hollandhart.com trvanbockern@hollandhart.com Attorneys for Cloud Peak Energy Inc. _________________________________________ Rex E. Johnson Brian D. Artery SHERARD, SHERARD, ARTERY & JOHNSON 602 10th Street Wheatland, WY 82201 Phone: (307) 332-5555 rex@ssjwyolaw.com bartery@ssjwyolaw.com Attorneys for Basin Electric Power Cooperative and Western Fuels-Wyoming, Inc. ___________________________________ Gail L. Wurtzler Kathleen C. Schroder DAVIS, GRAHAM & STUBBS LLP 1550 Seventeenth Street, Suite 500 Denver, CO 80202 Phone: (303) 892-9400 Gail.Wurtzler@dgslaw.com Katie.Schroder@dgslaw.com Attorneys for Tri-State Generation and Transmission Association Inc. February 17, 2017 Page 5 cc: K. Jack Haugrud, Acting Secretary of the Interior Matt Wheeler, Office of the Solicitor, U.S. Department of the Interior Rebecca Jaffe, U.S. Department of Justice Nick Vasallo, Office of the U.S. Attorney, Wyoming United States Department of the Interior OFFICE OF NATURAL RESOURCES REVENUE Washington, DC 20240 FEB 2 2 2017 Peter J. Schaumberg James M. Auslander Beveridge Diamond, PC 130 I Street, NW, Suite 700 Washington, DC. 20005-3311 Dear Mr. Schaumberg and Mr. Auslander: Thank you for your letter dated February 2017, requesting that the Of?ce of Natural Resources Revenue (ONRR) postpone implementation of the Consolidated Federal Oil Gas and Federal Indian Coal Valuation Rule (Rule) under Section 705 of the Administrative Procedure Act (APA). As you know, the Rule was published in the Federal Register on July 1, 2016 and took effect on January 1, 2017. The ?rst reports under the Rule are due by February 28, 2017. While we do not agree with all legal conclusions in your letter, in light of the pending litigation and for the following reasons, ONRR will postpone the effective date of the Rule until the issues raised in the judicial actions challenging it have been de?nitively resolved. First, while ONRR believes that the Rule was properly promulgated, we agree that you have raised serious questions concerning the validity of certain provisions in the Rule. Given this legal uncertainty, we believe that it is critical to maintain the status quo until the litigation is resolved. Second, we believe that the stay will enhance the lessees? ability to timely and accurately report and pay royalties. Many lessees, including the petitioners, have raised legitimate questions concerning how to properly report and pay royalties under the Rule. Given these judicial and administrative uncertainties, relying on the previous regulatory system will reduce uncertainty and enhance ability to collect and verify natural resource revenues while the litigation is pending, which is in the best interest of the States, Tribes, individual Indian lessors, and the general public. Third, a postponement will avoid the substantial cost to both the regulated community and ONRR of retroactively correcting and verifying all revenue reports if the Rule is invalidated as a result of the pending litigation. We realize that those lessees that have already updated their accounting systems to report and pay royalties under the Rule will incur a cost to reconvert the systems to report and pay royalties under the previous rule. But the cost of reconverting those systems now is less than what that cost would be if the Rule is invalidated and lessees must reconvert their accounting systems and correct all royalty reports submitted under the invalidated Rule. Finally. the United States will suffer no signi?cant harm from postponing the el?t'ective date ol? the Rule while the litigation is pending. As you noted. the Rule is not expected to have a signi?cant impact on the economy. 8] FR 43338. 43368 (July 1. 2016). Thus, postponing the effective date ofthc Rule will not cause any appreciable economic harm to the general public. In fact. we believe the regulatory certainty provided by the postponement will enhance mission to collect and verify natural resource revenues. which is in the best interest ol'the royalty bene?ciaries and the United States. ONRR will publish a Federal Register notice postponing the effective of the Rule under Section 705 of the APA as soon as possible. ONRR will also issue a Dear Reporter that noti?es lessees ot'the postponement and provides guidance on how to report. Sincerely Gregory J. Gould Director GUI Gail L. Wurtzler Kathleen C. Schroder Davis. Graham :52 Stubbs 1550 Seventeenth Street. Suite 500 Denver. Colorado 30202 John F. Shepherd Walter Ii. 11] Tina Van Bockern Holland l-lart 555 Seventeenth Street. Suite 3200 Post Office Box 8749 Denver. Colorado 80201-8749 Rex E. Johnson Brian D. Artery Sherard. Sherard. Artery Johnson 602 10111 Street Wheatland. Wyoming 82201 American January 25, 2017 Exploration Mining A I AT Mr. Donald Benton White House Liaison Environmental Protection Agency William Jefferson Clinton Building 1200 Ave., NW Mail Code21101A Washington, DC 20460 Benton.Donald@epa. gov Re: Request for 120-Day Extension of Comment Period Relating to Proposed ?Financial Responsibility Requirements Under CERCLA 108(b) for Classes of Facilities in the Hardrock Mining Industry,? 82 Fed. Reg. 3388 (Jan. 11, 2017). Dear Mr. Benton: American Exploration Mining Association (AEMA) respectfully requests an extension of 120 additional days, or until July 10, 2017, to the 60?day public comment period currently established by EPA for its proposal, ?Financial Responsibility Requirements Under CERCLA 108(b) for Classes of Facilities in the Hardrock Mining Industry,? which was published in the Federal Register on January 11, 2017 (82 Fed. Reg. 3388). AEMA (formerly Northwest Mining Association) is a 122-year old, 2,000 member national association representing the minerals industry with members residing in 42 states. AEMA is the recognized national voice for exploration, the junior mining sector, and maintaining access to public lands, and represents the entire mining life cycle, from exploration to reclamation and closure. More than 80% of our members are small businesses or work for small businesses. Most of our members are individual citizens. AEMA participated as a Small Entity Representative (SER) in the highly ?awed SBREFA SBAR Panel process for this proposed rule. More time is required to allow for meaningful public comment on sweeping regulatory proposal. proposed rule is a major rulemaking by any measure. In its Regulatory Impact Analysis EPA estimates the proposed rule will require hardrock mining companies to incur up to $171 million per year in new financial assurance costs. Preliminary analysis by our members indicates that this estimate is far too low, and that the cost of compliance will likely lead to the loss of signi?cant minerals production, thousands of jobs and substantial investment capital in the hardrock?mining sector for years to come. 10 N. Post St. Suite 305 - Spokane, WA 99201-0705 - 509.624.1158 - miningomericoorg Donald Benton January 25,2017 Page 2 proposed rule also is extraordinarily and complex. The proposal spans 124 pages in the Federal Register. Background documents in the docket for the rule comprise more than 2,000 additional pages, and the universe of relevant materials is far larger because EPA has cross?referenced additional documents in the index to the docket that now total 75, 000 more pages (more than 20,000 were added today). Moreover, expert analyses are required to evaluate many aspects of the proposed rule, including the validity of the complex statistical model that EPA has used to generate a formula for determining financial assurance obligations, the appropriateness of the credit criteria EPA has proposed for its ?nancial assurance formula, and the availability of ?nancial instruments to satisfy the proposed requirements. For all of these reasons, EPA quite correctly has designated this rulemaking as a ?Tier 1? rule?a category reserved for ?the most important, complex, precedent setting and scrutinized rules.? Declaration of Barnes Johnson ll 34 (?Johnson In re Idaho Conservation League, No. 14-1149, Doc. #1523367 (Nov. 19,2014). Yet EPA has provided only 60 days for public comment on this major proposal. EPA typically provides such a limited comment window only for noncontroversial proposals that do not involve a significant number of background documents (if any).1 By contrast, EPA typically affords the public significantly more time to comment on major proposed rulemakings like this one, and has often granted liberal extensions. For example, EPA provided the public with 165 days to comment on its Clean Power Plan rule to regulate carbon emissions from power plants, granting a 45-day extension to a 120-day initial comment period.2 And EPA recently ?solicited comments for over 200 days? on a rulemaking to redefine ?waters of the United States? for purposes of the Clean Water Act.3 Certainly, far more than 60 days are required to comment on a proposal that (1) is built on tens of thousands of pages of background documents, (2) has as its centerpiece a complex statistical model for calculating financial assurance, and (3) will unquestionably impose many hundreds of millions of new costs annually on the hardrock mining industry. EPA should therefore extend the comment period an additional 120 days until July 10, 2017, to allow for meaningful comment on its far-reaching proposal. Sincerely, g?we ura Skaer Executive Director 1 See, Hazardous Waste Export?Import Revisions, 80 Fed. Reg. 63,284 (proposed Oct. 19, 2015) (providing 60 days for comment on proposed rule to update existing regulations concerning the import and export of hazardous wastes); Hazardous Waste Generator Improvements, 80 Fed. Reg. 57,918 (proposed Sept. 25, 2015) (providing 60 days for comment on a proposed rule to update hazardous waste generator regulations). 2 Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units, 80 Fed. Reg. 64,662, 64,707 (Oct. 23, 2015). 3 Clean Water Rule: Definition of "Waters of the United States,? 80 Fed. Reg. 37,054, 37,057 (Jun. 29, 2015). United States Environmental Protection Agency Search EPA.gov News Releases Contact Us Share Share News Releases from Headquarters EPA Extends Comment Period on Hard Rock Mining Proposed Rule 02/24/2017 Contact Information:  U.S. EPA Media Relations (press@epa.gov) WASHINGTON -- The Environmental Protection Agency today issued a 120-day extension of the comment period related to proposed financial responsibility requirements for the hard rock mining industry. The Agency has received dozens of requests to extend the comment period. EPA estimates predict the implementation of these requirements would cost American businesses up to $171 million a year. A court has ordered EPA to act on this new regulation by December 1, 2017, and the Agency fully intends to act consistent with the court’s order. “As I said to EPA staff on Tuesday, we are here to listen, and by extending this comment period we are demonstrating that we are listening to miners, owners and operators all across America and to all parties interested in this important rule,” EPA Administrator Scott Pruitt said as he directed the Agency to extend the comment period. February 7, 2017 Authorité des Marchés Financiers Autorité de Contrôle Prudentiel et de Résolution (ACPR) Authoriteit financiele markten Bank of England Bank of Italy Bank of Spain Board of Governors of the Federal Reserve System Commodity Futures Trading Commission De Nederlandsche Bank Department of the Treasury/Office of the Comptroller of the Currency European Banking Authority European Central Bank European Commission European Insurance & Occupational Pensions Authority European Securities and Markets Authority Farm Credit Administration Federal Deposit Insurance Corporation Federal Financial Supervisory Authority (BaFin) Federal Housing Finance Agency Financial Conduct Authority Japan Financial Services Agency Office of the Superintendent of Financial Institutions Re: Uncleared Swap Margin Requirements – Request for Forbearance from March 1, 2017 Variation Margin Implementation Ladies and Gentlemen, The International Swaps and Derivatives Association (“ISDA”), the Global Financial Markets Association, including its Global FX Division (“GFMA”), The Investment Association (“IA”), Financial Services Roundtable (“FSR”), The ABA Securities Association (“ABASA”), and The American Council of Life Insurers (“ACLI”) (together, the “Associations”) are writing on behalf of their members to request regulatory forbearance in respect of the March 1, 2017 compliance 1 date for the exchange of variation margin (“VM”) under the regulations (the “VM regulations”), and/or pursuant to the oversight, of the authorities to which this letter has been addressed. We respectfully request that all jurisdictions with a March 1, 2017 effective date for their VM regulations provide a transitional period during which market participants can continue to execute new derivatives transactions while they complete the necessary steps towards regulatory compliance for the relevant transactions. To ensure the most liquid and orderly markets and to minimize the operational complexity and risk associated with achieving a seamless transition to the new standards, we urge the global regulatory community to take swift actions to adopt a transitional period which is uniform with respect to both the length and the associated conditions. It is worth noting that the majority of counterparty pairs for whom we are seeking forbearance already exchange VM, even though their current agreements may not cater to all regulatory mandated terms (though this is less the case for FX, where more counterparties have not traditionally collateralized). Based on data from a survey conducted by ISDA, amongst firms that were able to provide a breakdown of the number of CSAs that need to be amended or replaced vs. those that need to be newly executed (because the existing relationship does not include the exchange of VM), less than 12% of the total number of agreements will establish new VM exchanges. Thus the risk of under-collateralization during a transition period is limited in scope. This is quite different to the phase 1 initial margin (“IM”) implementation where the majority of in-scope counterparties did not already post IM to one another. While the systemic risk implications of granting forbearance are low, it is clear to the Associations that the documentation and operational challenges that are necessary to comply with the VM regulations by March 1st are high, despite concerted and continuing effort by our members and other market participants. A few weeks ago, ISDA began conducting a weekly survey of a core group of its members, most of whom are phase 1 dealers for regulatory IM exchange. The results of the survey confirmed anecdotal feedback that the execution of regulation compliant VM credit support annexes (“CSAs”) and the operationalization of the corresponding data is currently so limited that even if substantial progress is made in the next few weeks, a substantive portion of trading relationships will be interrupted. 2 SPEECHES & TESTIMONY Statement of CFTC Acting Chairman J. Christopher Giancarlo Concerning No­Action Relief for March 1, 2017 Implementation of Variation Margin on Uncleared Swaps February 13, 2017 “The CFTC remains committed to the March 1 date, agreed with its fellow US and overseas regulators, for posting of variation margin on swaps transactions between swaps dealers and their financial end­user customers. Nevertheless, the facts on the ground cannot be ignored that as much as ninety percent of those end­users are not ready to meet the new requirements despite their best efforts to do so. “Global systemic risk is not reduced by the abrupt cessation of risk hedging activity by American life insurance companies and retirement funds at a time of enormous changes in financial rates and global asset values. This action by the CFTC does not change the scheduled time of arrival for the agreed margin implementation. It just foams the runway to ensure a safe landing.” Last Updated: February 13, 2017 CLEAN WATER RULE FARM BUREAU SUPPORTS CLEAN WATER BUT OPPOSES EPA'S CLEAN WATER RULE The California Farm Bureau Federation supports regulatory reform that ensures a clean water supply for agriculture and the environment, but we oppose EPA's unnecessary expansion of federal jurisdiction of "Waters of the United States" under the Clean Water Act. We are disappointed that the final Clean Water Rule did not address our concerns. Implementation will be economically harmful for California agriculture. UNCERTAINTY o While EPA claims that the Clean Water Rule provides greater certainty to farmers, the truth is the Final Rule leaves the definition of "waters of the United States" subjective and unpredictable, and fails to put regulated parties on notice of when their conduct violates the law. o Agencies will be able to identify a water of the United States even if invisible to the landowner and even if it no longer exists on the landscape. o Mapping for delineation purposes is problematic and not preferred, and publicly-accessible maps are not as detailed as those the government uses for delineations of property, further placing farmers at a disadvantage. COMPLEX PERMITTING PROCESS o By broadening the definition of what is jurisdictional, even dry low spots or depressions on farmland could trigger the need to obtain a Clean Water Act permit. o Despite the rhetoric of a farming exemption for normal and routine activities, those who began farming near wetlands or ephemeral storm water paths after 1977 without a Section 404 permit would be considered in violation of the Clean Water Act for any dredge or fill activities. o Many farmers will not qualify for an exemption and will face permitting requirements and potentially devastating enforcement liability as a result of this rule. ECONOMIC BURDEN ON AGRICULTURE o EPA may impose civil penalties of $37,500 per discharge, per day, per offense, on a landowner even if the landowner lacked any knowledge that a jurisdictional water is on the property. o In order to comply with the regulation, farmers and ranchers will become increasingly reliant on attorneys and consultants, making farming the land more difficult and costly. o Under the Final Rule, farmers, ranchers, and other landowners would face a tremendous roadblock to ordinary landuse activities that are near waters of the United States, from building a fence to treating for or pulling weeds to controlling insects. These "roadblocks" are both costly and time consuming. o Many farmers and ranchers will now have to obtain jurisdictional determinations and permits in order to continue to be able to farm their properties. An individual permit application averages over $270,000 to prepare and takes over two years to obtain. A nationwide permit, if a farmer is eligible, averages almost $30,000 to prepare and takes almost a year to obtain. o Third-party lawsuits have become the new norm for regulating farmers. Even if farmers protect water quality and comply with the law, they could be forced to defend themselves in court. Farmers simply want to continue to farm and be stewards of the land, leaving it in better shape for future generations. Federal Policy: Erin Huston, ehuston@cfbf.com Legal: Kari Fisher, kfisher@cfbf.com FOR IMMEDIATE RELEASE February 28, 2017 THE WHITE HOUSE Office of the Press Secretary EXECUTIVE ORDER - - - - - - RESTORING THE RULE OF LAW, FEDERALISM, AND ECONOMIC GROWTH BY REVIEWING THE "WATERS OF THE UNITED STATES" RULE By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows: Section 1. Policy. It is in the national interest to ensure that the Nation's navigable waters are kept free from pollution, while at the same time promoting economic growth, minimizing regulatory uncertainty, and showing due regard for the roles of the Congress and the States under the Constitution. Sec. 2. Review of the Waters of the United States Rule. (a) The Administrator of the Environmental Protection Agency (Administrator) and the Assistant Secretary of the Army for Civil Works (Assistant Secretary) shall review the final rule entitled "Clean Water Rule: Definition of 'Waters of the United States,'" 80 Fed. Reg. 37054 (June 29, 2015), for consistency with the policy set forth in section 1 of this order and publish for notice and comment a proposed rule rescinding or revising the rule, as appropriate and consistent with law. (b) The Administrator, the Assistant Secretary, and the heads of all executive departments and agencies shall review all orders, rules, regulations, guidelines, or policies implementing or enforcing the final rule listed in subsection (a) of this section for consistency with the policy set forth in section 1 of this order and shall rescind or revise, or publish for notice and comment proposed rules rescinding or revising, those issuances, as appropriate and consistent with law and with any changes made as a result of a rulemaking proceeding undertaken pursuant to subsection (a) of this section. (c) With respect to any litigation before the Federal courts related to the final rule listed in subsection (a) of this section, the Administrator and the Assistant Secretary shall promptly notify the Attorney General of the pending review under subsection (b) of this section so that the Attorney General may, as he deems appropriate, inform any court of such review and take such measures as he deems appropriate concerning any such litigation pending the completion of further administrative proceedings related to the rule. Sec. 3. Definition of "Navigable Waters" in Future Rulemaking. In connection with the proposed rule described in section 2(a) of this order, the Administrator and the Assistant Secretary shall consider interpreting the term "navigable waters," as defined in 33 U.S.C. 1362(7), in a manner consistent with the opinion of Justice Antonin Scalia in Rapanos v. United States, 547 U.S. 715 (2006). Sec. 4. General Provisions. (a) Nothing in this order shall be construed to impair or otherwise affect: (i) the authority granted by law to an executive department or agency, or the head thereof; or (ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals. (b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations. (c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person. DONALD J. TRUMP THE WHITE HOUSE, February 28, 2017. FOR IMMEDIATE RELEASE Contact: Chip Anderson, Executive Director Direct 414.332.9306, ext. 1 chip@nafa.com NAFA Files Emergency Motion for Injunction in Continued Fight to Stay DOL Rule WASHINGTON (Dec. 1, 2016) — NAFA, the National Association for Fixed Annuities, announced Tuesday that it has filed an emergency motion for an injunction pending appeal with the U.S. Court of Appeals for the District of Columbia Circuit. The appeal is from an order and memorandum opinion of the federal district court issued Nov. 4 denying NAFA’s application for a preliminary injunction and motion for summary judgement in NAFA’s lawsuit against the Department of Labor’s fiduciary rule, and a subsequent district court order issued Nov. 23 denying NAFA’s motion for an injunction pending appeal. “We are aggressively moving forward with our appeal of the lower court’s decision, but our immediate concern is to stay the rule’s implementation date set for April 10, 2017. With every passing day NAFA members are incurring excessive and unrecoverable expenses as they attempt to navigate the rule’s byzantine compliance regime. Moreover, we are extremely concerned about how quickly consumers may face an environment in which they no longer have access to the products and professional advice needed to retire with confidence,” said Chip Anderson, NAFA’s Executive Director. NAFA originally filed suit against the DOL’s fiduciary rule on June 2, 2016. District of Columbia federal judge Randolph D. Moss then presided over an Aug. 25 hearing before issuing his Nov. 4 ruling. In addition to the NAFA case, there are three additional lawsuits challenging the DOL rule in various federal district courts – Kansas, Minnesota and the Northern District of Texas. NAFA’s latest efforts to stay the rule’s implementation date were made in order to avoid the “irreversible and irreparable harm” the suit claims its members will incur before the appellate court can hear NAFA’s appeal on its merits. “Without this injunction, even if NAFA ultimately prevails on the merits of the case, a win on appeal will only be a Pyrrhic victory. The DOL’s dangerous overreach and creation of such an unworkable regulatory landscape poses a glaring and immediate threat to NAFA membership - more - and those it serves as they struggle to address a sea of unknowns and the potential for an environment fraught with private action,” stated Anderson. “Continued record sales of fixed and fixed indexed annuities underscore their ability to protect consumers from outliving their assets, a very real concern for the thousands of baby boomers retiring every day, as well as those in subsequent generations. Despite the staggering demand for the only product on the market that allows individuals to accumulate retirement savings, protect those savings from market losses, and guarantee income for life and those advisors who offer it, implementation of this onerous regulation stands to upend an already well-regulated marketplace and jeopardize the future of American retirement,” Anderson added. ### About NAFA NAFA, the National Association for Fixed Annuities, is the premier trade association exclusively dedicated to fixed annuities. Our mission is to promote the awareness and understanding of fixed annuities. We educate annuity salespeople, regulators, legislators, journalists, and industry personnel about the value of fixed annuities and their benefits to consumers. NAFA’s membership represents every aspect of the fixed annuity marketplace covering 85% of fixed annuities sold by independent agents, advisors and brokers. NAFA was founded in 1998. For more information, visit www.nafa.com. THE WHITE HOUSE Office of the Press Secretary FOR IMMEDIATE RELEASE February 3, 2017 February 3, 2017 MEMORANDUM FOR THE SECRETARY OF LABOR SUBJECT: Fiduciary Duty Rule One of the priorities of my Administration is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college, and to withstand unexpected financial emergencies. The Department of Labor's (Department) final rule entitled, Definition of the Term "Fiduciary"; Conflict of Interest Rule -- Retirement Investment Advice, 81 Fed. Reg. 20946 (April 8, 2016) (Fiduciary Duty Rule or Rule), may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my Administration. Accordingly, by the authority vested in me as President by the Constitution and the laws of the United States of America, I hereby direct the following: Section 1. Department of Labor Review of Fiduciary Duty Rule. (a) You are directed to examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice. As part of this examination, you shall prepare an updated economic and legal analysis concerning the likely impact of the Fiduciary Duty Rule, which shall consider, among other things, the following: (i) Whether the anticipated applicability of the Fiduciary Duty Rule has harmed or is likely to harm investors due to a reduction of Americans' access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice; (ii) Whether the anticipated applicability of the Fiduciary Duty Rule has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; and (iii) Whether the Fiduciary Duty Rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services. (b) If you make an affirmative determination as to any of the considerations identified in subsection (a) -- or if you conclude for any other reason after appropriate review that the Fiduciary Duty Rule is inconsistent with the priority identified earlier in this memorandum -- then you shall publish for notice and comment a proposed rule rescinding or revising the Rule, as appropriate and as consistent with law. Sec. 2. General Provisions. (a) Nothing in this memorandum shall be construed to impair or otherwise affect: (i) the authority granted by law to an executive department or agency, or the head thereof; or (ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals. (b) This memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations. (c) This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person. (d) You are hereby authorized and directed to publish this memorandum in the Federal Register. DONALD J. TRUMP ### Homepage › Press Releases › NMA Strongly Opposes Interior Department’s Duplicative Stream Rule NMA Strongly Opposes Interior Department’s Duplicative Stream Rule December 19, 2016 Trade group seeks prompt congressional action to spare more job losses WASHINGTON, DC—The National Mining Association (NMA) today expressed its strong opposition to the Interior Department’s stream rule, calling on Congress to swiftly pass a Congressional Review Act resolution of disapproval and the president to sign it without delay. The rule, which the Trump Administration has said it opposes and will act to rescind, provides no discernable environmental benefits while duplicating and interfering with extensive existing environmental protections at both the federal and state levels—duplication and interference which is expressly prohibited under the Surface Mining Control and Reclamation Act (SMCRA). “The decision to promulgate this duplicative rule at this stage is post­election midnight regulation and therefore obstructionism at its worst,” said Hal Quinn, NMA’s president and CEO. “This is after the agency failed in its obligation to engage mining states in the rule’s development and ended up with a massive rulemaking that is a win for bureaucracy and extreme environmental groups, and a loss for everyday Americans.”  Quinn said the rule’s primary purpose appears to be to support the environmental lobby’s “keep it in the ground” platform, locking away important U.S. domestic coal reserves, while putting tens of thousands of Americans out of work, raising energy costs for millions of Americans, and preserving the agency’s regulatory mission that is diminished with the declining number of coal mines. The rule:  • Disregards State Authority and Expertise. Eight out of 10 states that originally signed on as state cooperating agencies withdrew from their agreements after a four­year period without any dialogue because OSM ignored its legal obligation to consult with the states during the rule’s development.  o Nineteen states have written letters to OSM urging the agency to comply with congressional mandates and re­engage with the states. • Duplicates, Contradicts and Creates Confusion Around Established State and Federal Regulations. Extensive environmental protections are currently administered by the Environmental Protection Agency, the Army Corps of Engineers, the Fish and Wildlife Service and the states’ regulatory authorities. SMCRA expressly prohibits rulemaking that creates regulatory overlap resulting in uncertainty through inconsistent requirements. • Harms U.S. Jobs. A technical analysis of the impact of the proposed rule shows that at least a third of coal related jobs are now at risk owing to the massive volumes of coal that would be uneconomic to mine. The final rule closely tracks the proposal, so similar impacts are anticipated. Estimated job losses are based upon an independent analysis performed at 36 operating surface and underground mines across the country. By contrast, OSM’s analysis of economic impacts relied upon “hypothetical mines.” • Blocks Access to Important American Resources. Under the rule, up to 64 percent of total U.S. coal reserves could be off limits to mining nationwide—a result at direct odds with SMCRA, which directs regulatory policies to encourage surface and underground mining. • Reduces Much­Needed Tax Revenues in Coal Communities and States. Coal mining contributes more than $18.5 billion annually in state and federal tax revenues. The rule is expected to reduce these revenues by between 15 and 35 percent, devastating communities that have already been hit hard by job losses and reduced mining activity. These revenues are a vital source of financing for education, infrastructure, and emergency services in many states which would be forced to find alternate funding or forgo services. H. J. Res. 38 One Hundred Fifteenth Congress of the United States of America AT T H E F I R S T S E S S I O N Begun and held at the City of Washington on Tuesday, the third day of January, two thousand and seventeen Joint Resolution Disapproving the rule submitted by the Department of the Interior known as the Stream Protection Rule. Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Office of Surface Mining Reclamation and Enforcement of the Department of the Interior relating to the ‘‘Stream Protection Rule’’ (published at 81 Fed. Reg. 93066 (December 20, 2016)), and such rule shall have no force or effect. Speaker of the House of Representatives. Vice President of the United States and President of the Senate. (/)       API: NEW SEC TRANSPARENCY RULE PUTS AMERICA AT COMPETITIVE DISADVANTAGE Sabrina Fang   202.682.8114   fangs@api.org (mailto:fangs@api.org) Washington, June 27, 2016 – API Director of Tax and Accounting Policy Stephen Comstock said the U.S. Securities and Exchange Commission’s new rule to implement Section 1504 of the Dodd­Frank Act fails to strike the right balance between informing foreign citizens of government revenues and protecting the competitiveness of American companies.   “There appears to be no meaningful difference between this rule and the previous rule struck down by the Courts, so our concerns remain the same. The SEC’s rule forces U.S. companies to disclose proprietary information to its competitors while foreign entities do not. This can give some large industry players an advantage on future business projects, and can fundamentally harm American jobs.  “The SEC ignored industry efforts to disclose information, but to do so in a way that doesn’t give competitors an unfair advantage. The industry actively supports the Extractive Industries Transparency Initiative which takes a global approach and already includes 51 countries that promote transparency and puts all companies on equal footing.    “We need to take a closer look at the impact of the new rule on our operations and determine our next steps. The prior court case held that the SEC’s initial rule was arbitrary and capricious.”   API is the only national trade association representing all facets of the oil and natural gas industry, which supports 9.8 million U.S. jobs and 8 percent of the U.S. economy. API’s more than 650 members include large integrated companies, as well as exploration and production, refining, marketing, pipeline, and marine businesses, and service and supply firms. They provide most of the nation’s energy and are backed by a growing grassroots movement of more than 30 million Americans.  © Copyright 2017 – API. All Rights Reserved. H. J. Res. 41 One Hundred Fifteenth Congress of the United States of America AT T H E F I R S T S E S S I O N Begun and held at the City of Washington on Tuesday, the third day of January, two thousand and seventeen Joint Resolution Providing for congressional disapproval under chapter 8 of title 5, United States Code, of a rule submitted by the Securities and Exchange Commission relating to ‘‘Disclosure of Payments by Resource Extraction Issuers’’. Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Securities and Exchange Commission relating to ‘‘Disclosure of Payments by Resource Extraction Issuers’’ (published at 81 Fed. Reg. 49359 (July 27, 2016)), and such rule shall have no force or effect. Speaker of the House of Representatives. Vice President of the United States and President of the Senate. APPAR IN   LGAL & LGILATION   NW Grandma Got Run Over  Oama: A Finalize New Gun Prohiition Rule FRIDAY, DCMR 23, 2016 On Monda, arack Oama’ ocial ecurit Adminitration (A) iued the ῍�nal verion of a rule that will doom ten of thouand of law-aiding (and vulnerale) diailit inurance and upplemental ecurit Income (I) recipient to a lo of econd Amendment right under the guie of re-characterizing them a “mental defective.” �e A, for the ῍�rt time in it hitor, will e coopted into the federal government’ gun control apparatu, e�ectivel requiring ocial ecurit applicant to weigh their need for ene῍�t againt their fundamental right when appling for aitance aed on mental health prolem  arack Oama’ political part and the preidential candidate he peronall endored and campaigned for u�ered perhap the mot dramatic reuke in the hitor of American politic with the election of Donald J. Trump. Far from eing humled or chatened, however, Oama i pending the waning da of hi preidenc releaing dul convicted felon from prion, making low-level appointment, and puhing pet polic project, all to do omething, anthing, to leave hi tamp a搈�er a lackluter tenure.  �e ocial ecurit rule i the ῍�nal verion of a propoal that we reported on earlier thi ear. Pulic outcr againt the propoed rule wa ῍�erce, and the comment period drew over 91,000 repone, the vat majorit of them oppoing the plan.   �e NRA itelf umitted detailed comment, taking the propoed rule to tak for it man legal prolem, it lack of empirical upport, and the wa it would politicize the A’ function and tigmatize it ene῍�ciarie.   �e A, however, eentiall ignored the NRA’ comment and the ten of thouand of other pointing out prolem with the plan and iued a ῍�nal rule that in mot ke repect track the original propoal.  For example, the A did not attempt to anwer mot of the legal quetion raied aout it authorit, intead deferring to an overroad and prolematic ATF regulation de῍�ning who count under the federal Gun Control Act a a “mental defective” and to Department of Jutice guidance on reporting. �e A did not explain wh, ome two decade a搈�er the federal ackground check tem came online, it wa revering it earlier determination aout it reporting reponiilitie and onl now aerting a mandate to do o.   Incredil, the A alo ruhed aide empirical evidence the NRA umitted uggeting that the propoed rule would have no pulic afet ene῍�t. “We are not attempting to impl a connection etween mental illne and a propenit for violence, particularl gun violence,” the A wrote. “Rather, we are compling with our oligation under the NIAA, which require u to provide information from our record when an individual fall within one of the categorie identi῍�ed in 18 U..C. 922(g).” �i would eem to e the ver de῍�nition of the ort of aritrar and capriciou rulemaking prohiited  the Adminitrative Procedure Act.   �e A alo inited that it wa not tigmatizing thoe who receive diailit inurance or I for mental health condition, arguing that the name of the ene῍�ciarie reported to NIC would not e made pulic. What the adminitration ignore i that it would tigmatize the entire categor of ene῍�ciarie uject to reporting.  �e adminitration further acknowledge that the rule would not provide thoe uject to it term the ailit to defend their uitailit to poe ῍�rearm efore the actual lo of right took place. In other word, it o�er no due proce on the quetion of loing econd Amendment right.   Intead, the rule force a�ected ene῍�ciarie to ῍�le a petition for “retoration” of right and to omehow prove their poeion of ῍�rearm would not harm pulic afet or the pulic interet, even though the government never etalihed, or tried to etalih, the contrar. Regarding the expene of the pchological and medical evaluation required for thi purpoe, the adminitration claim it hould e “reaonale,” although it doe not and cannot claim it will actuall e a�ordale to thoe who are a�ected  the rule.  �e major parameter of the ῍�nal rule are the ame a thoe we detailed in an earlier alert on the propoal. It will a�ect thoe who receive I or diailit inurance ecaue of a lited mental health impairment and who have een aigned a repreentative paee to manage the ene῍�t ecaue of the peron’ mental condition. �e ottom line, however, i that ten of thouand of completel harmle, law-aiding people will loe their right ever ear under the rule, a premie the A did not even tr to refute.   �e NRA ha alread prepared propoal for corrective action, and we certainl hope the will e given favorale conideration  the incoming adminitration.  In the meantime, thi i one more reminder of the pett, partian politic of arack Oama, and one more reaon to e thankful that in a few hort week, he will no longer wield the power of the preidenc againt the nation’ law-aiding gun owner. IN THI ARTICL OAMA ADMINITRATION   OCIAL CURITY ADMINITRATION   MNTAL HALTH   ACKGROUND CHCK/NIC H. J. Res. 40 One Hundred Fifteenth Congress of the United States of America AT T H E F I R S T S E S S I O N Begun and held at the City of Washington on Tuesday, the third day of January, two thousand and seventeen Joint Resolution Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by the Social Security Administration relating to Implementation of the NICS Improvement Amendments Act of 2007. Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Social Security Administration relating to Implementation of the NICS Improvement Amendments Act of 2007 (published at 81 Fed. Reg. 91702 (December 19, 2016)), and such rule shall have no force or effect. Speaker of the House of Representatives. Vice President of the United States and President of the Senate. https://www.uschamber.com/press-release/us-chamber-statement-sec-pay-ratio-rule U.S. Chamber Statement on SEC Pay Ratio Rule Wednesday, August 5, 2015 - 11:30am WASHINGTON D.C.--U.S. Chamber of Commerce Center for Capital Markets Competitiveness President and CEO David Hirschmann today issued the following statement in regards to the final pay ratio rule released by the Securities and Exchange Commission (SEC): "Congress added this disclosure to Dodd-Frank as a favor to union lobbyists who misguidedly think it will help their organizing efforts. When disclosure is used to advance special interest agendas rather than provide investors with better information, it is a step in the wrong direction. "At best, pay ratio is a misleading, politically-inspired, and costly disclosure that fails to provide investors with useful, comparable data. For example, a domestic company might have a better pay ratio than a multinational company due to legal, currency or cost of living differences, creating a situation that is like trying to compare baseball to basketball stats when it's a whole different ballgame. "While the SEC and Congress have acknowledged that disclosures need to be modernized, this only exacerbates the problem and makes the public markets less attractive to investors and companies. This rule is more harmful than helpful, and we are disappointed that the SEC ignored suggestions for improvement. We will continue to review the rule and explore our options for how best to clean up the mess it has created." Since its inception in 2007, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets. The U.S. Chamber of Commerce is the world's largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations. (C) The U.S. Chamber of Commerce https://www.uschamber.com/press-release/us-chamber-report-finds-sec-woefully-underestimated-impact- proposed-pay-ratio-rule U.S. Chamber Report Finds SEC Woefully Underestimated Impact of Proposed Pay Ratio Rule Thursday, May 22, 2014 - 9:00am White Paper Concludes Compliance Costs Could Exceed $700 Million WASHINGTON, D.C.--The U.S. Chamber of Commerce's Center for Capital Markets Competitiveness (CCMC) released a white paper today examining the Securities and Exchange Commission's (SEC) Pay Ratio Rule; which requires corporations to calculate the ratio between their CEO's compensation and that of their median worker. The paper, prepared by Capital Policy Analytics, analyzes survey data from more than 100 companies, and finds there is strong evidence that the current cost-benefit analysis by the SEC woefully underestimated direct costs by 870% and the time that companies will spend complying with the rule by 560%. "The pay ratio is the poster child of ineffective disclosure. We believe it is important for the SEC to get this rule right to ensure investors have access to information that helps not hinders the investor decision making process," said Tom Quaadman, vice president of CCMC. "Unfortunately, ratios will vary widely from company to company or industry to industry depending on corporate structures, providing little comparable use to investors but rather adding to the complexity of the decision making process and giving adversaries a new target. Rather than providing useful information to investors, the Pay Ratio will simply be used as a scarlet letter." The white paper, titled "The Egregious Costs of SEC's Pay Ratio Disclosure Regulation," notes that the ratio would be a fundamentally misleading and flawed statistic as it does not shed additional information on company performance, investor protection, or even income inequality. In fact, the ratio would be driven by industry and corporate structure. "We hope the SEC finds this data useful as they finalize the rule in such a way that contributes to effective disclosure for investors while not placing undue burdens on American businesses," said Ike Brannon, president of Capital Policy Analytics. "As it stands, the rule offers no discernible benefits for investors, businesses, or the broader economy and it is hard to understand the economic or logical argument behind it." The full white paper is available here. Since its inception in 2007, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets. The U.S. Chamber of Commerce is the world's largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations. (C) The U.S. Chamber of Commerce U.S. SECURITIES AND Search SEC.gov EXCHANGE COMMISSION ABOUT DIVISIONS ENFORCEMENT COMPANY FILINGS REGULATION EDUCATION | MORE SEARCH OPTIONS FILINGS NEWS Public Statement Comments Received Reconsideration of Pay Ratio Rule Implementation Acting Chairman Michael S. Piwowar Feb. 6, 2017 The Commission adopted the pay ratio disclosure rule in August 2015 to implement Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule requires a public company to disclose the ratio of the median of the annual total compensation of all employees to the annual total compensation of the chief executive offcer. Based on comments received during the rulemaking process, the Commission delayed compliance for companies until their frst fscal year beginning on or after January 1, 2017. Issuers are now actively engaged in the implementation and testing of systems and controls designed to collect and process the information necessary for compliance. However, it is my understanding that some issuers have begun to encounter unanticipated compliance diffculties that may hinder them in meeting the reporting deadline. In order to better understand the nature of these diffculties, I am seeking public input on any unexpected challenges that issuers have experienced as they prepare for compliance with the rule and whether relief is needed. I welcome and encourage the submission of detailed comments, and request that any comments be submitted within the next 45 days. I have also directed the staff to reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate. I understand that issuers need to be informed of any further Commission or staff action as soon as possible in order to plan and adjust their implementation processes accordingly. I encourage commenters and the staff to expedite their review in light of these unique circumstances. Modified: Feb. 6, 2017 STAY CONNECTED 1 Twitter 2 Facebook 3 RSS 4 YouTube 5 Flickr 6 LinkedIn 7 Pinterest 8 Email Updates HOME CASES SUPREME COURT PARTY LITIGATION NEWS & EVENTS ABOUT SEARCH Home > NAM, Chamber of Commerce, and BRT v. U.S. Securities and Exchange Commission (SEC) NAM, CHAMBER OF COMMERCE, AND BRT V. U.S. SECURITIES AND EXCHANGE COMMISSION (SEC) D.C. Circuit Panel Reaffirms that SEC's Conflict Minerals Rule Violates First Amendment U.S. Chamber's Position: The U.S. Chamber of Commerce joined a broad-based business coalition including the National Association of Manufacturers (NAM) and the Business Roundtable (BRT) to challenge the SEC's "Conflict Minerals Rule." The coalition's opening brief on the merits explains: CASE DETAILS Status: Victory Court: U.S. Court of Appeals for the District of Columbia Circuit Docket Number: 1:13-cv-00635-RLW, 12-1422; 13-5252 The Securities and Exchange Commission's (SEC's) "conflict minerals" rule may have been motivated by good intentions--to reduce funding to armed groups and help end the terrible conflict in the Democratic Republic of the Congo (DRC). As the dissenting Commissioners pointed out, however, good intentions are no substitute for rigorous analysis, and the Commission's analysis here was woefully inadequate. Indeed, the Commission admitted it did not determine whether the rule will provide any benefits to the people of the DRC, and a number of commenters warned that the rule could unintentionally make the humanitarian situation worse. At the same time, the Commission found that the rule will impose staggering costs on American businesses: $3 to $4 billion for initial compliance, and an additional $200 to $600 million per year for ongoing compliance, making this one of the costliest rules in SEC history. Some commenters calculated that costs would be substantially higher still. By imposing extraordinary costs without showing they will achieve any benefits, the SEC violated the Administrative Procedure Act (APA) and the agency's heightened obligation under the Securities Exchange Act of 1934 to analyze the economic impact of its rules. Of course, the Commission had to follow the congressional directive to impose a rule. But Congress did not mandate these massive costs. The pertinent statutory provisions are brief and general, imposing certain requirements and leaving the remainder to the Commission's rulemaking process. And in that process, the Commission both misconstrued those statutory requirements and acted arbitrarily in filling the gaps that remained. By refusing to create a de minimis exception, requiring companies to undertake an onerous "reasonable country of origin inquiry," expanding the rule's scope to non-manufacturers, and providing for an irrational transition period, the Commission greatly multiplied the rule's unprecedented burden on U.S. companies, with no showing of benefits to the Congolese people. Furthermore, the rule's authorizing statute itself violates the First Amendment by compelling companies to indicate publicly that their products contribute to human rights abuses in the DRC--a statement, for most companies, as unfounded as it is politically charged. Case Outcome: A divided three-judge panel of the U.S. Court of Appeals for the D.C. Circuit reaffirmed the panel's prior judgment that a public disclosure provision of the SEC's "Conflict Minerals Rule" violates the First Amendment by compelling companies to declare that their products might contribute to human rights abuses in the Democratic Republic of Congo and the surrounding region--a politically controversial and non-factual message. The U.S. Chamber, along with the National Association of Manufacturers and the Business Roundtable, prevailed in April 2014 before the same panel on the same ground, but the panel granted petitions for rehearing in light of an intervening en banc decision of the D.C. Circuit in American Meat Institute v. USDA. Notwithstanding American Meat Institute, the panel reaffirmed its prior judgment. Futhermore, a petition for rehearing en banc was denied in November 2015. Procedural History: Petition for review filed 10/19/12. Opening merits brief filed 1/16/13. Motion to transfer granted 5/2/13. Argued 7/1/13. Decided 7/23/2013. Issue: Securities Law, Capital Markets, & Corporate Governance, Free Speech, Administrative Law & Regulatory Litigation Sub-Issue: Cost-Benefit Analysis in Financial Regulation, Cost Benefit Analysis, Administrative Procedure Act (APA) Industry: Technology, Basic Materials Sub-Industry: CASES RELATED BY THIS ISSUE FTC v. LeadClick Media, LLC Strougo v. Barclays PLC Chamber of Commerce, Murray Energy Corporation, et al. v. EPA (2015 Ozone NAAQS) Kindred Nursing Centers East, LLC, fka Specialty Healthcare v. NLRB, et al. Chamber of Commerce v. IRS The U.S. Chamber appealed the District Court's decision on 8/12/2013. Decided 4/14/2014. In light of the D.C. Circuit's en banc decision in American Meat Institute v. U.S. Department of Agriculture, which expanded the situations in which a more limited scrutiny standard applies, a rehearing petition was granted on 11/18/2014. Decided 8/18/2015. Petition for rehearing en banc filed 10/2/2015. Denied 11/9/2015. Case Documents: Petition for Review -- NAM and Chamber of Commerce, et al. v. U.S. Securities and Exchange Commission (SEC) (D.C. Circuit).pdf Scheduling Order -- NAM and Chamber of Commerce v. SEC (D.C. Circuit).pdf Amnesty International brief - NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Agency Docketing Statement -- NAM and Chamber of Commerce, et al. v. U.S. Securities and Exchange Commission (SEC) (D.C. Circuit).pdf Combined Certificate and Conflict -- NAM and Chamber of Commerce, et al. v. U.S. Securities and Exchange Commission (SEC) (D.C. Circuit).pdf Corporate Disclosure Statement -- NAM and Chamber of Commerce, et al. v. U.S. Securities and Exchange Commission (SEC) (D.C. Circuit).pdf Petitioners Consent Motion to Expedite -- NAM and Chamber of Commerce, et al. v. U.S. Securities and Exchange Commission (SEC) (D.C. Circuit).pdf Preliminary Statement of Issues -- NAM and Chamber of Commerce, et al. v. U.S. Securities and Exchange Commission (SEC) (D.C. Circuit).pdf Statement of Intent to Utilize Deferred Joint Appendix -- NAM and Chamber of Commerce, et al. v. U.S. Securities and Exchange Commission (SEC) (D.C. Circuit).pdf Briefing Schedule -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Certified Index -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Clerk's Order -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Petitioners Opening Merits Brief -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Industry Coalition Amici Brief in Support of Petitioners -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Experts on the Democratic Republic of the Congo amicus brief -- NAM and Chamber of Commerce v. SEC (D.C. Circuit).pdf Order scheduling oral argument -- NAM and Chamber of Commerce v. SEC (D.C. Circuit).pdf Respondent's Brief -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Global Witness and Former Members of the UN Group of Experts on the Democratic Republic of the Congo -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Amicus of Congressman McDermott et al. in support of respondent -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Brief of Intervenor for Respondent -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Better Markets amicus brief -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Reply Brief -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Final Brief of Intervenor for Respondent -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Final Respondents Brief -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Final Opening Brief of Petitioners -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Final Reply Brief of Petitioners -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Order cancelling oral argument -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Motion to Transfer -- NAM, Chamber of Commerce and BRT v. SEC (D.C. Circuit).pdf Order granting motion to transfer -- NAM, Chamber of Commerce, and BRT v. SEC (D.C. Circuit).pdf Order -- NAM, Chamber of Commerce, and BRT v. SEC (D.C. District).pdf Joint Status Report -- NAM, Chamber of Commerce, and BRT v. SEC (D.C. District).pdf Letter to The Honorable Robert L. Wilkins -- NAM, Chamber of Commerce, and BRT v. SEC (D.C. District).pdf Notice of Supplemental Authority re API v. SEC -- NAM, Chamber of Commerce and BRT v. SEC (D.C. District).pdf Decision -- NAM, Chamber of Commerce and BRT v. SEC (D.C. District).pdf Notice of Appeal -- NAM, Chamber of Commerce and BRT v. SEC (D.C. District).pdf Motion to Expedite -- NAM, Chamber of Commerce and BRT (D.C. Circuit).pdf U.S. SECURITIES AND Search SEC.gov EXCHANGE COMMISSION ABOUT DIVISIONS ENFORCEMENT COMPANY FILINGS REGULATION EDUCATION | MORE SEARCH OPTIONS FILINGS NEWS Public Statement Reconsideration of Confict Minerals Rule Implementation Comments Received Acting Chairman Michael S. Piwowar Jan. 31, 2017 Today, I directed the staff to reconsider whether the 2014 guidance on the confict minerals rule is still appropriate and whether any additional relief is appropriate. Since May 2014, the Commission has partially stayed compliance with the rule, after the U.S. Court of Appeals for the D.C. Circuit found that the rule violated the First Amendment. This partial stay has done little to stem the tide of unintended consequences washing over the Democratic Republic of the Congo and surrounding areas. While visiting Africa last year, I heard frst-hand from the people affected by this misguided rule. The disclosure requirements have caused a de facto boycott of minerals from portions of Africa, with effects far beyond the Congo-adjacent region. Legitimate mining operators are facing such onerous costs to comply with the rule that they are being put out of business. It is also unclear that the rule has in fact resulted in any reduction in the power and control of armed gangs or eased the human suffering of many innocent men, women, and children in the Congo and surrounding areas. Moreover, the withdrawal from the region may undermine U.S. national security interests by creating a vacuum flled by those with less benign interests. Given these facts on the ground, I believe that it is essential to hear from interested persons on all aspects of the rule and guidance. A comment page regarding reconsideration of the confict minerals rule and guidance has been created -- submit detailed comments. *** More Information: Statement of Acting Chairman Piwowar on the Commission's Conflict Minerals Rule Modified: Jan. 31, 2017 300 New Jersey Avenue, NW Suite 800 Washington, DC 20001 Telephone 202.872.1260 Facsimile 202.466.3509 Website brt.org February 22, 2017 The Honorable Gary D. Cohn Director, National Economic Council The White House 1600 Pennsylvania Avenue, NW Washington, DC 20500 Dear Mr. Cohn: Jamie Dimon JPMorgan Chase & Co. Chairman David M. Cote Honeywell Vice Chair Marillyn A. Hewson Lockheed Martin Vice Chair Andrew N. Liveris The Dow Chemical Company Vice Chair Joshua Bolten President & CEO Jessica Boulanger Senior Vice President Marian Hopkins Senior Vice President William C. Miller, Jr. Senior Vice President LeAnne Redick Wilson Senior Vice President Maria Ghazal General Counsel President Trump has made clear his intent to consider the cumulative impact of federal regulations on the U.S. economy to identify whether certain regulatory burdens can be reduced without undermining critical protections for consumer health, safety and the environment. Business Roundtable recently conducted a survey of its members to identify recent regulations that are of most concern across all our business sectors. The majority of these regulations directly and negatively impact economic growth. While some of the listed regulations in isolation may not appear significant to growth, their cumulative effect has drained resources from innovation and job creation and directed them to non-value adding administrative and bureaucratic activities. I have attached this "Top Regulations of Concern" list, along with recommendations to mitigate their impact. It is important to note that Business Roundtable is not proposing that all regulations on this list be repealed, although some are so deficient they cannot easily be fixed. Others can be improved, however, by providing additional compliance flexibility, which will help to reduce unnecessary costs and compliance burdens. While addressing existing regulations that are unduly burdensome is vitally important to help jump-start American business investment and job creation, Business Roundtable believes that fundamental regulatory process reforms are key to ensuring long-term success. In addition to our Top Regulations of Concern, I am attaching a list of administrative actions that can be implemented immediately to improve the efficiency and effectiveness of the existing regulatory process. Other recommendations, including codification and improvement of the cost/benefit analysis required by Executive Order 12866, will require legislation, which will take time. Lastly, as the Administration considers new policies with regard to immigration or the expansion of "Buy America" requirements, Business Roundtable stands ready to assist to prevent unintended consequences that would inhibit the ability for U.S. companies to drive economic growth and be globally competitive. February 22, 2017 Page 2 Please feel free to contact us if you have any questions or if we can be helpful in any way. Sincerely, Mark J. Costa Chairman and Chief Executive Officer Eastman Chemical Company Chair, Smart Regulation Committee Business Roundtable Attachment (1) C: Reince Priebus, The White House Business Roundtable's Top Federal Regulations of Concern, by Topic Energy and Environment Regulation Ozone NAAQS Implementation rules guidance and policies Clean Power Plan Clean Water Rule: Definition of "Waters of the United States" Description and/or Recommendation In lowering the national ambient air quality standards (NAAQS) for ground-level ozone in 2015, the Environmental Protection Agency hampered economic growth in vast sections of the country without delivering additional, meaningful health benefits. The Administration should delay the final implementation rule to allow a more accurate consideration of the impact of background ozone levels on the ability of states to meet the new standard. It should also consider how such a standard would affect the ability of industry to expand production in the United States. The EPA has proposed new source performance standards for electric utilities that prevent new coal-fired units from being built unless equipped with carbon capture and control technology; existing plants would also face stringent new limits. Currently blocked by the federal judiciary, the Clean Power Plan should be recrafted to address concerns about EPA overreach infringing on state authority, while providing maximum flexibility for compliance. The EPA's 2015 "Waters of the United States" rule vastly expanded federal jurisdiction over state waters, with serious implications for local economic development. Currently under review by the federal judiciary, this rule should be pulled back by the EPA. Health Care Regulation Description and/or Recommendation The Affordable Care Act's reporting requirements apply to all employers with 50 Employer reporting or more full-time or equivalent employees, imposing significant administrative requirements under the ACA costs. BRT supports streamlining or eliminating ACA employer reporting requirements. The Equal Employment Opportunity Commission (EEOC) has proposed standards Equal Employment Opportunity for employer-sponsored wellness plans that differ needlessly from those Commission (EEOC) actions established under the Affordable Care Act. Business Roundtable supports an regarding wellness programs Administration-wide, coordinated, consistent policy with respect to ACAencouraged, employer-sponsored wellness plans. Under Section 49801 of the Affordable Care Act, if the aggregate cost of "applicable employer-sponsored coverage" provided to an employee exceeds a statutory dollar limit, which is revised annually, the excess is subject to a 40 Excise tax on health care percent excise tax. The broad application of the 40 percent excise tax means benefits under the Affordable that, over time, the health benefit plans of all major U.S. employers will be Care Act (ACA) subject to the tax. The impact of the eventual tax liability resulting from this provision is staggering and will distort the employer-sponsored health care marketplace, leading to dramatic changes in the benefits offered to employees. Business Roundtable supports eliminating the excise tax. 1 Tax Regulation Treasury Department's Debt/Equity Final and Temporary Regulations under Sec. 385 of the Internal Revenue Code Description and/or Recommendation In 2016, the U.S. Treasury Department issued regulations under Sec. 385 of the Internal Revenue Code that would reclassify certain related-party debt instruments as equity for U.S. tax purposes and impose new documentation requirements on related-party debt. Business Roundtable urges the Trump Administration to withdraw Treasury's Oct. 13, 2016 final and temporary Sec. 385 regulations. Significant policy changes, such as those proposed in the Sec. 385 regulations, should be addressed via tax reform legislation, not regulation. Workforce Regulation Overtime Regulations Fair Pay and Safe Workplaces Executive Order (EO 13673) EEOC's Revised Employer Information Report Internet Regulation Regulation FCC Open Internet Order Description and/or Recommendation New final regulations under the Fair Labor Standards Act (FLSA) will increase the annual salary threshold used to determine which employees are eligible for overtime pay from $23,660 to $47,476. The regulations affect longstanding employment models and impose additional costs that would hurt employers' ability to hire more workers. Business Roundtable is particularly concerned with the implications of giving the U.S. Department of Labor authority to automatically increase the salary threshold to salary levels, whether based on inflation or using a 40 percentile threshold indexed to the weekly earnings of all full-time salaried workers nationwide. At the same time, the new regulations failed to remove complexities and uncertainties that would have made the rules easier for employees and employers. Federal regulations that would implement a 2014 Executive Order (Fair Pay and Safe Workplaces) unnecessarily burdens the federal contracting process, would add $474 million in regulatory costs, and will increase litigation while pressuring employers to settle meritless claims. BRT requests the President sign H.J. Res. 37, a resolution of disapproval under the Congressional Review Act that would invalidate these regulations. The Equal Employment Opportunity Commission's (EEOC) requirement that employers submit pay data on revised report forms beginning in 2018 imposes sizable compliance burdens on businesses while failing to yield useful information on discrimination. The policy was not established through formal rulemaking, so the new EEOC Chairman should review the policy and the commission should rescind it if warranted. Description and/or Recommendation The FCC's Open Internet Order imposed on the nation's broadband providers is based on outdated utility regulations that will slow investment and innovation. Business Roundtable supports both congressional and FCC action to protect net neutrality without the unworkable rules designed for the last century's marketplace and technology. 2 National Security/Controlled Exports Regulation Description and/or Recommendation Export Controls Executive Branch agencies should expedite the approval process and eliminate unnecessary and onerous administrative requirements for exports to allies and parties in support of U.S. national security policy. Corporate Governance and Financial Services Regulation Description and/or Recommendation Shareholder Proposal Process In too many cases, activist investors with insignificant stakes in public companies make shareholder proposals that pursue social or political agendas unrelated to the interests of the shareholders as a whole. BRT released specific recommendations on ways to reform the shareholder proposal process to tighten eligibility and enable more exclusions of proposals and repeat submissions. BRT can accomplish most of its goals through SEC rulemaking, interpretation and guidance but pressure from Congress, including potential legislative action would encourage the SEC to move forward. CEO Pay Ratio Disclosure The Dodd-Frank Act directed SEC to promulgate rules that would require companies to calculate and disclose CEO pay as a ratio of average employee pay. The pay ratio rule, which requires chief executives to certify what is an arbitrary and often meaningless number, provides no material information to shareholders or investors. In addition, for global companies with multiple categories of employees, reliable information is difficult to gather. Business Roundtable supports both reconsideration of the rule by the SEC and full repeal by Congress. Conflict Minerals Disclosure The Dodd-Frank Act directed SEC to promulgate rules to require public Rule companies to annually disclose if their products contain "conflict minerals" originating in the Congo or adjoining nations. These rules impose extraordinary compliance costs while failing to demonstrate humanitarian benefits in Africa. Business Roundtable supports both reconsideration of the rule by the SEC and full repeal by Congress. Margin Requirements for The Dodd-Frank Act directed U.S. regulators to require market participants to Uncleared Swaps exchange margin when transacting in over the counter (OTC) derivatives. Regulators should provide a transitional period for compliance with variation margin requirements taking effect March 1. 3 Federal Regulatory Process Reforms Supported by BRT Member Companies Regulatory Process Reform Description of Legislative or Administrative Action Cost-benefit analysis for independent regulatory agencies Expand EO 12866 (which requires cost/benefit analysis to be conducted on "major" rules) to apply that requirement to independent regulatory agencies. Encouraging greater use of advance notices Encourage early public engagement in rulemaking through greater use of advance notices of proposed rulemaking (before a proposed rule has been written) or through a notice of initiation. Improving retrospective review Improve retrospective review by requiring all new major rules to include a retrospective review plan. Reducing agency deference (Chevron) Reduce or eliminate the amount of deference that courts give to agency interpretations of laws or regulations. Requiring agencies to post current information Require agencies to post current information on all potential regulations, including expected timing and costs, online. Setting more rigorous standards for guidance documents Set more rigorous standards for guidance documents, such as notice and comment for significant guidances. 4 February 21, 2017 Scott Pruitt Administrator Environmental Protection Agency Office of the Administrator 1101A 1200 Pennsylvania Avenue, N.W. Washington DC 20460 Attention: Docket ID No. EPA-HQ-OAR-2015-0827 RE: Petition for Reconsideration and Request to Withdraw Final Determination on the Appropriateness of the Model Year 2022-2025 Light-duty Vehicle Greenhouse Gas Emissions Standards under the Midterm Evaluation (January 12, 2017) Dear Administrator Pruitt: The Association of Global Automakers, Inc. (Global Automakers)1 respectfully petitions the United States Environmental Protection Agency (EPA) to reconsider its final Determination on the Appropriateness of the Model Year 2022-2025 Light-duty Vehicle Greenhouse Gas Emissions Standards under the Midterm Evaluation (the “Determination”), and requests that the Determination be withdrawn. As explained below, EPA’s premature Determination suffers from a multitude of procedural and substantive flaws. Most importantly, it is inconsistent with the coordinated process to which EPA committed in 2012 to ensure the development of “One National Program” to regulate fuel economy and greenhouse gas (GHG) emissions in coordination with the National Highway Traffic Safety Administration (NHTSA). Consequently, we are requesting that EPA withdraw the Determination and reopen the record so that EPA’s rulemaking concerning GHG emission standards for model years (MY) 2022-2025 can be aligned with fuel economy rulemaking currently underway at NHTSA for those years. 1 The Association of Global Automakers represents international motor vehicle manufacturers, original equipment suppliers, and other automotive-related trade associations. Our member companies have invested $56 billion in U.S.-based facilities, directly employ nearly 100,000 Americans, and sell 47 percent of all new vehicles purchased annually in the country. Combined, our members operate more than 300 production, design, R&D, sales, finance and other facilities across the United States. Working with industry leaders, legislators, and regulators in the United States, Global Automakers aims to create public policies that improve motor vehicle safety, encourage technological innovation, and protect our planet. Our goal is to foster an open and competitive automotive marketplace that encourages investment, job growth, and development of vehicles that can enhance Americans’ quality of life. For more information, please visit www.globalautomakers.org. A. Background On January 12, 2017—just one week before the end of the previous administration—EPA published its final Determination concerning whether the GHG emissions standards currently on the books for MY 2022-2025 remain appropriate. This Determination was part of a “Midterm Evaluation” of those standards, a key protective mechanism that was included, at the insistence of the auto industry as a condition of its support of these regulations, in the 2012 joint EPA and NHTSA rule setting fuel economy and GHG emission standards covering MY 2017 through 2025.2 Given that NHTSA is statutorily prevented from promulgating fuel economy standards governing more than a five-year period, and that the EPA standards were being set more than ten years into the future, having an objective and data-driven Midterm Evaluation is necessary to ensure that the future standards are feasible, cost-effective, and achieve the goals of the two relevant statutes under the One National Program. Throughout the process of the Midterm Evaluation, both EPA and NHTSA made several commitments to the stakeholders. First, the agencies promised to remain aligned from both a procedural and substantive standpoint.3 As was the case with the 2012 rulemaking, during the Midterm Evaluation the agencies were to jointly issue a proposed rulemaking/determination and a final rulemaking/ determination. This was necessary to ensure that One National Program is maintained and to protect manufacturers from having to comply with multiple inconsistent standards. Second, EPA and NHTSA consistently stated that the final NHTSA rule and EPA determination were expected by April 1, 2018,4 with a proposed rule and a proposed determination expected in the summer of 2017.5 This timeline would allow the agencies to account for the most up-to-date and robust information concerning the light-duty fleet and the costs and effectiveness of the technologies needed to meet the standards. In developing information for the record, in allocating scarce automotive engineering 2 3 4 5 See 2017 and Later Model Year Light-Duty Vehicle Greenhouse Gas Emissions and Corporate Average Fuel Economy Standards, 77 Fed. Reg. 62,624 (Oct. 15, 2012). The State of California has its own GHG emission standards for light duty vehicles, but has amended its regulations to include a “deemed-to-comply” provision whereby automakers could show compliance with its state GHG emission standards by complying with EPA GHG regulations. Together, the California regulations and the EPA/NHTSA standards are referred to as the “One National Program.” See 77 Fed. Reg. at 62,633 (stating that EPA and NHTSA will act jointly in their proposed and final rulemaking in the Midterm Evaluation “[i]n order to align the agencies’ proceedings for MYs 2022–2025 and to maintain a joint national program.”) Id. See https://www.epa.gov/sites/production/files/2016-10/documents/grundler-sae-naipc-2015-09-17-presentation.pdf at 24 (indicating that the EPA Proposed Determination and NHTSA notice of proposed rulemaking would be released mid-2017 and the final determination made in April 2018). 2   resources, and in the expenditure of considerable sums, the industry relied upon this schedule and these repeated representations. Finally, both EPA and NHTSA committed to a collaborative process that would fully account for the input of all stakeholders. To achieve this, the agencies stated that they would provide periods of public comment on the draft Technical Assessment Report (TAR) that EPA and NHTSA compiled in collaboration with the California Air Resources Board (CARB), and a separate period of comment with respect to EPA’s and NHTSA’s proposals concerning the MY 2022-2025 standards.6 Given that the agencies’ actions on this matter would affect billions of dollars of investments on the part of automakers as well as the types of vehicles that would be made available to customers for years (if not decades) to come, it is critically important that the agencies get it right. Despite this carefully constructed (and fully promised) process, EPA unilaterally reversed course 22 days after the Presidential Election. On November 30, 2016, EPA abruptly announced that it was abandoning its previously committed-to plan on the Midterm Evaluation and published a lengthy “Proposed Determination” concerning the appropriateness of the MY 2022-2025 GHG standards. Signaling its new intent to rush through a final Determination before the end of the Obama Administration, EPA provided stakeholders with just 30 days from the release of the Proposed Determination on EPA’s website to provide comments (which was only 24 days from the date the Proposed Determination was published in the Federal Register7). EPA was informed by many stakeholders that this comment period was far too short for an action of this magnitude and included a holiday period when many automakers are closed. Nevertheless, EPA’s Final Determination was released on January 12, 2017. When EPA announced the Proposed Determination, it styled its action as a “proposed adjudicatory determination.”8 EPA therefore took the position that its Determination could escape both the procedural requirements of Section 307 of the Clean Air Act9 and the rulemaking provisions of the Administrative Procedures Act (APA).10 In the Final Determination and Response to Comment, EPA rejected the argument made by Global Automakers and many other stakeholders that the Determination amounted to a rulemaking because it is a prospective action setting agency policy.11 Consistent with its position that the Determination is not a rulemaking, EPA has not published the Determination in the Federal Register. 6 77 Fed. Reg. at 62,784. 81 Fed. Reg. 87,927 (Dec. 6, 2016). 8 See Proposed Determination at ES-2 and 2 n.2. 9 42 U.S.C. § 7607(d) 10 5 U.S.C. § 553 11 See EPA Final Determination on the Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards under the Midterm Evaluation at 11, n.20. 7 3   B. EPA Has Ample Authority to Reconsider the Determination Regardless of whether the Final Determination is considered a rule or an adjudication, this EPA has the authority to withdraw and reconsider it. In the event that the Determination is an adjudication (as the prior EPA claimed), then the agency has inherent authority to reconsider that decision. “It is widely accepted that an agency may, on its own initiative, reconsider its interim or even its final decisions, regardless of whether the applicable statute and agency regulations expressly provide for such review.”12 This is especially true where the underlying determination has “serious procedural and substantive deficiencies.”13 Unless a statute expressly limits an agency’s authority to reconsider its decisions—which is not the case here—then the agency may freely do so as long as reconsideration occurs within a reasonable time after the first decision and notice of the agency’s intent to reconsider is given to the parties.14 In the event that the Determination did amount to a rulemaking, then it is subject to withdrawal and reconsideration for two separate and independent reasons. First, the Federal Register Act requires that all documents of “general applicability and legal effect” be published in the Federal Register.15 The EPA Final Determination has not been published in the Federal Register in contravention of this clear requirement. Thus, under President Trump’s Memorandum for the Heads of Executive Departments and Agencies; Regulatory Freeze Pending Review,16 if viewed as a rule the Final Determination can and should be withdrawn by the new Administration. Second, an agency has inherent power to withdraw and reconsider a rule that suffers from fatal legal and procedural flaws.17 Adhering to the proper procedures is a fundamental prerequisite for valid rulemaking.18 Here, the Determination is invalid as a rule because EPA did not follow any of the procedural requirements set forth in Section 307(d) of the Clean Air Act. EPA did not convene a hearing to allow interested persons to comment on the Proposed Determination, and did keep the record of the proceedings open for 30 days to provide an opportunity for interested persons to submit rebuttal and supplementary information to the 12 Dun & Bradstreet Corp. Found. v. United States Postal Serv., 946 F.2d 189, 193 (2d Cir. 1991). See also ConocoPhillips Co. v. United States EPA, 612 F.3d 822, 832 (5th Cir. 2010) (“Embedded in an agency's power to make a decision is its power to reconsider that decision.”); Gun South, Inc. v. Brady, 877 F.2d 858 (11th Cir. 1989) (holding that Bureau of Alcohol, Tobacco, and Firearms had the implied authority to correct the erroneous approval of firearms import application). 13 Belville Mining Co. v. United States, 999 F.2d 989, 998 (6th Cir. 1993). 14 Dun & Bradstreet, 946 F.2d at 193. 15 44 USC 1505(a)(2). 16 82 Fed. Reg. 8346 (Jan. 24, 2017). 17 Citizens Against the Pellissippi Parkway v. Mineta, 375 F.3d 412, 416 (6th Cir. 2004) 18 United States v. Utesch, 596 F.3d 302, 312 (6th Cir. 2010) (stating that a “reviewing court must focus not merely on the ultimate rule but on the process of an administrative rulemaking; otherwise, an agency could always violate the APA's procedural requirements based on the representation that it would have adopted the same rule had the proper process been followed.”) 4   record.19 Presumably, the prior EPA ignored these requirements because to follow them would have prevented the agency from finalizing the Determination before the end of the Obama Administration. But politics is not a reason for running roughshod over important procedural protections found in the Clean Air Act. C. EPA Should Withdraw the Determination and Reopen the Rulemaking Record to Maintain the One National Program EPA Promised EPA’s Determination is a significant action by the agency that will have far-reaching ramifications for the industry and the automobile driving public. EPA readily concedes that the MY 2022-2025 standards will increase the prices of new motor vehicles by a substantial amount (according to EPA’s own estimates), and will impact the types of vehicles sold in the U.S. An action of this magnitude requires a thoughtful and collaborative decision-making process. Here, however, EPA opted for political expediency instead, and jammed through a Final Determination in the waning days of the lame-duck Administration. The EPA Determination suffers from many procedural and substantive flaws, any one of which would justify withdrawing the rule and reopening the rulemaking record. Among them are:  Failure to follow EPA regulations requiring coordination with NHTSA. The Midterm Evaluation was designed so that the actions of EPA and NHTSA would be carefully coordinated every step of the way. As explained in the preamble to the 2012 rulemaking, “[i]order to align the agencies’ proceedings for MYs 2022–2025 and to maintain a joint national program, if the EPA determination is that its standards will not change, NHTSA will issue its final rule concurrently with the EPA determination.”20 This requirement is codified at 40 C.F.R. § 86.1818-12(h)(1)(vii), which requires EPA’s Midterm Evaluation to account for “[t]he impact of the greenhouse gas emission standards on the Corporate Average Fuel Economy standards and a national harmonized program.” Without providing any justification for its doing so, EPA violated this central tenet of the Midterm Evaluation by finalizing its Determination more than a year before NHTSA’s rulemaking is expected to be completed and acted contrary to its own regulations. NHTSA is currently in the middle of its rulemaking process for MY 2022-2025 fuel economy standards, and its decision will be based on more up-to-date information than EPA’s. Consequently, there is a risk that NHTSA will reach a different conclusion from EPA concerning appropriate standards for MY 2022-2025. This is the antithesis of the One National Program that EPA agreed to.  Needlessly accelerating the timeline for the GHG Midterm Evaluation. Prior to November 2016, EPA had repeatedly represented that it would propose its determination/rulemaking in the summer of 2017 and finalize its actions by April 2018. Based on these representations, Global Automakers and other 19 20 42 U.S.C. § 307(d)(5). 77 Fed. Reg. at 62,633. 5   members of the auto industry commissioned several studies concerning the baseline light duty fleets and the technologies necessary to meet the current MY 2022-2025 standards. EPA was informed that these studies will be important for its determination but would not be complete until the promised mid-2017 timeframe. Additionally, EPA was urged to delay its actions so that it could account for the most up-to-date information concerning the technologies needed to meet the standards, their costs, and their impacts on consumers—as NHTSA is doing with its rulemaking. EPA ignored these calls and finalized its determination based on a record that was far from complete solely to rob the incoming Administration of an opportunity to have input on this important matter.  Failure to provide an adequate period for public comment. The Proposed Determination and the accompanying Technical Support Document consisted of almost 1,000 pages, and cited almost 1,100 references, many of which are new or significantly revised since the earlier Draft TAR. Additionally, EPA conducted 102 new runs of the computer models it uses to assess the effectiveness of fuel saving technologies. Thirty days is an insufficient time period for stakeholders to fully review, analyze, and prepare detailed comments on an action as significant and complex as EPA’s Determination – especially in light of the intervening national holidays. EPA offered no reasoned explanation as to why it was shortcircuiting the comment period on such an important agency action.  Failure to address the GHG emission program as a whole. In its rush to finalize its Determination, EPA answered only half the question, i.e., whether the numeric standards expressed in the footprint-based curves remain appropriate. However, the GHG regulations also include program flexibilities that automakers rely on to meet the standards. These flexibilities provide incentives for the early adoption of advanced fuel-saving technologies and help manufacturers smooth out annual variability in compliance over several model years. They are an important aspect of the One National Program, and they provide real and lasting environmental benefits. EPA’s failure to look at the entire program as a whole was inconsistent with the very purpose of the Midterm Evaluation.  Failure to respond adequately to comments concerning consumer acceptance, cost and technology effectiveness. EPA received more than 100,000 public comments on the Proposed Determination.21 Many of the comments from industry focused on the extent to which lack of consumer acceptance may impact the ability to achieve the standards, as well as the costs and effectiveness of the necessary technologies. The fact that EPA finalized its Determination a mere 13 days after the close of the comment period demonstrates that the agency could not have adequately responded to all of these comments. Indeed, a review of the final Determination and the Response to Comments reveals that EPA did not provide adequate responses to the many comments given. 21 See Determination at 1. 6   EPA’s determination as to the appropriateness of the GHG emission standards for MY 2022 through 2025 was a significant action that will have wide-ranging implications for the automobile industry and the carbuying public. It was therefore important that EPA reach its decision based on an open and collaborative process, and only after fully considering all of the most up-to-date information concerning the costs and feasibility of the technologies necessary to meet the standards. Rather than adhering to such a process that it had agreed to and promised in 2012, EPA rushed through a Final Determination at the very end of the previous Administration. Therefore, we respectfully request that EPA: (a) withdraw the Determination, (b) reopen the record on the Midterm Evaluation, and (c) reset the timetable for EPA’s actions so that they align with NHTSA’s rulemaking. Thank you for your prompt consideration of this matter. Sincerely, John Bozzella President and CEO Association of Global Automakers cc: Secretary Elaine Chao, DOT Kevin Green, DOT Bill Charmley, EPA Chris Grundler, EPA Michael Olechiw, EPA Rebecca Yoon, NHTSA James Tamm, NHTSA Alberto Ayala, CARB 7   A A IA 803 7th Street N.W., Suite 300 Washington, DC 20001 I VI IN OVAT 202.326.5500 I February 21, 2017 G. Scott Pruitt Administrator US. Environmental Protection Agency 1200 Avenue, NW. Mail Code 1101A Washington, DC. 20460 RE: Final Determination on the Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards under the Midterm Evaluation Dear Administrator Pruitt, 1 write on behalf of the Alliance of Automobile Manufacturers (Alliance), an association representing twelve leading manufacturers of cars and light trucks,1 to request that the US. Environmental Protection Agency (EPA) withdraw the Final Determination on the Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards under the Midterm Evaluation (Final Determination) which was announced on January 13, 2017 but never published in the Federal Register. For the auto industry, the Final Determination may be the single most important decision that EPA has made in recent history. The Alliance requests that EPA withdraw the Final Determination and resume the Midterm Evaluation, in accordance with its original timetable, to remedy the severe procedural and substantive defects that have infected the process to date. We explain, in more detail below, authority to withdraw the Final Determination and why that withdrawal is appropriate and essential. 1. EPA Should Exercise Its Authority to Withdraw the Final Determination As you know, on January 20, the White House issued a memorandum to the heads of all executive departments and agencies instituting a freeze on regulatory activity, pending review by the Of?ce of Management and Budget (OMB) Director.2 The Alliance urges EPA to withdraw the Final Determination on its own initiative in accordance with the regulatory freeze. Irrespective of whether EPA considers the Final Determination a rule or an adjudication, the Final Determination should be reviewed 1 Alliance members are BMW Group, FCA US LLC, Ford Motor Company, General Motors Company, Jaguar Land Rover, Mazda, Mercedes-Benz USA, Mitsubishi Motors, Porsche Cars North America, Toyota, Volkswagen Group of America, and Volvo Car USA. 2 See Memorandum for the Heads of Executive Departments and Agencies, Jan. 20, 2017, and?agencies. BMW Group @Meroades-Benz panama:- Tove-m VOLKSWAGEN m' ?nun-nu . ?awn-in and withdrawn. As the Alliance has noted, a wealth of precedents con?rm that the Final Determination is a rule, and all rules not yet published in the Federal Register are subject to the regulatory freeze.3 Even if EPA continues to construe the Final Determination as an adjudication, however, it is still subject to the regulatory freeze as an ?agency statement of general applicability and future effect ?that sets forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statutory or regulatory issue.? The Final Determination reaf?rms and reinstates industry?wide greenhouse gas emissions standards for all light vehicles sold in America for MY 2022- 2025, and thereby establishes a policy on a regulatory issue of central importance to the auto industry. Furthermore, EPA has ample authority to withdraw the Final Determination on its own initiative, irrespective of whether EPA considers it a rule or an adjudication. If the Final Determination is a rule, it is clearly a nonfmal one, because it has not been published in the Federal Register. See 5 U.S.C. 553(d); Kenneeott Utah Copper Corp. v. US. Dep?t? oflnterior, 88 F.3d 1191, 1209 (DC. Cir. 1996). And, as a nonfinal rule, EPA can readily withdraw the Final Determination without engaging in notice- and-comment rulemaking. Kennecott, 88 F.3d at 1206. Even if EPA continues to endorse the view that the Final Determination is an adjudication, however, EPA has broad inherent power to reconsider its decision ?within the period available for taking an appeal.? Am. Methy! Corp. v. EPA, 749 F.2d 826, 835 (DC. Cir. 1984). Agencies have long exercised this power to ?x determinations like this one that suffer from ?serious procedural and substantive de?ciencies.? BeZviZle Min. Co. v. United States, 999 F.2d 989, 998 (6th Cir. 1993). Regardless ofhow EPA classi?es the Final Determination, EPA should withdraw it in light of the many procedural and substantive ?aws described below. 2. EPA Has Abrogated Its Commitment to a Robust Midterm Evaluation As the Supreme Court has recognized, regulatory efforts to address greenhouse gases have already produced ?the single largest expansion in the scope of the [Clean Air Act] in its history.??4 In 2009, EPA issued an Endangerment Finding that motor vehicle greenhouse gas emissions contribute to climate change and thereby threaten public health and welfare. Thereafter, EPA and the National Highway Traffic Safety Administration (NHTSA) began jointly setting greenhouse gas emissions and fuel economy standards for new light-duty motor vehicles, starting with Model Year (MY) 2012-2016. Then, in 2012, EPA and NHTSA took the unprecedented step of 3 See Alliance Comments on Proposed Determination on Appropriateness of the Model Year 2022-2025 Light-Duty Vehicle Greenhouse Gas Emissions Standards under the Midterm Evaluation at 11-13, Dec. 30, 2016, Docket ID No. Memorandum for the Heads of Executive Departments and Agencies, Jan. 20, 2017. 4 Utitity Air Regzdatory Group v. EPA, 134 S. Ct. 2427, 2436 (2014) (internal quotation marks omitted). 20f6 setting joint greenhouse gas and fuel economy standards over a decade in advance for MY 2022-2025 vehicles. 77 Fed. Reg. 62,628 (Oct. 15, 2012). No agency ever had set emissions standards so far into the future, and all stakeholders understood that no one could accurately project the circumstances affecting the technological and economic feasibility of these standards. The Alliance supported these efforts?but only on the condition that EPA and NHTSA would reassess standards as data became available to test their feasibility. That commitment was essential because of the great uncertainty regarding the feasibility of the future standards. Based on the projections in the 2012 rule, manufacturers must achieve an average 54.5 miles per gallon equivalent across their new vehicle ?eets by 2025. Even today, no conventional vehicle today meets that target, and conventional vehicles comprise 96.5% of the new light-duty vehicle ?eet. Only some non- conventional vehicles hybrid, plug-in electric, and fuel~ce11 vehicles), which comprise fewer than 3.5% of today?s new vehicles, currently can do 80.5 Even under optimistic estimates, the automotive industry will have to spend a staggering $200 billion between 2012 and 2025 to comply, making these standards many times more expensive than the Clean Power Plan.6 EPA and NHTSA committed to a robust Midterm Evaluation that would take a fresh look at these standards by April 2018. The agencies promised that this review would be collaborative, so that the industry could offer the agencies real-life data to adjust their model-driven forecasts. The agencies also committed to developing greenhouse gas emissions standards and fuel economy standards in tandem? And they repeatedly represented that they would not complete the Proposed Determination/Notice of Proposed Rulemaking until mid-2017 at the earliest.8 The industry took the agencies at their word, commissioning complex studies critical to assessing the MY 2022-2025 standards and the processes used by EPA in its analysis, that we had expected to add to the administrative record for the Midterm Evaluation in 2017. On November 30, 2016, EPA abruptly abrogated these commitments. EPA issued a Proposed Determination that the MY 2022-2025 standards should go into force 5 ?Light-Duty Automotive Technology, Carbon Dioxide Emissions, and Fuel Economy Trends: 1975 through 2016,? at 118. US. Environmental Protection Agency. Nov. 2016. ?5 See EPA Regulatory Impact Analysis for 2012-2016 rule (EPA-420-R-10-009, Apr. 2010) at duty-vehicle; EPA Regulatory Impact Analysis for 2017?2025 rule (EPA-420-R-12-016, Aug. 2012) at light-duty-vehicle. 7 See 40 CPR. 77 Fed. Reg. 62,784 (Oct. 15, 2012), 40 C.F.R. 81 Fed. Reg. 49,219 (July 27, 2016). 8 See Alliance Comments on Proposed Determination at 10, Dec. 30, 2016, Docket ID No. EPA-HQ- OAR-2015-0827. 3of6 without modi?cation. EPA issued the Proposed Determination without coordinating with NHTSA. EPA demanded comments by December 30, 2016, even though the Proposed Determination was not published in the Federal Register until December 6. The public and industry had a mere 24 days, spanning a major national holiday, to comment on nearly 1,000 pages of documents, plus additional cited documents and computer modeling, regarding requirements that will profoundly affect the automobile industry and the more than 900,000 American workers it directly employs.9 After EPA denied requests by various stakeholders to extend the abbreviated comment period, we did our best to ?le substantive comments. EPA received more than 100,000 public comments, including 63 sets of comments from various organizations spanning hundreds of pages.10 Many objected that the comment period was inadequate. EPA denied all requests to extend the abbreviated comment period and yet EPA issued the Final Determination on January 13, 2017, just 14 days after the comment period closed. EPA brushed aside objections to its procedural shortcuts and never justi?ed the need for such an abbreviated comment period. EPA also rejected commenters? substantive and technical concerns by resting on its earlier analysis. 3. EPA Should Withdraw the Final Determination Immediately The Final Determination is the product of egregious procedural and substantive defects and EPA should withdraw it.11 In rush to promulgate the Final Determination before the new administration took of?ce, EPA bypassed required procedures, failing for instance to provide an adequate period for meaningful notice and comment. The Final Determination asserts that there was no need for more time because the Proposed Determination did not include much new material. But that contention is belied by acknowledgement that the Proposed Determination adjusted a number of EPA assumptions in response to commenters who pointed out errors at earlier stages. The industry also had an unacceptably short period to try to ascertain why EPA rejected many of its objections.12 These procedural defects are signi?cant irrespective of whether the Final Determination constitutes rulemaking or adjudication. unilateral announcement of its Final Determination also constitutes a failure to harmonize its greenhouse gas emissions standards with fuel- economy standards, contrary to the letter and intent of own regulations. NHTSA has not yet reached a determination on its fuel economy standards and continues its 9 US. Department of Labor, Bureau of Labor Statistics, 2015, US. Vehicle and Equipment Manufacturing Employment equaled 909,700 people. 1? Final Determination, Response to Comments at 1-3. See Alliance Comments on Proposed Determination, Dec. 30, 2016, Docket ID No. EPA-HQ-OAR- 2015-0827. 12 See Final Determination, Response to Comments at 7. 4of6 Midterm Evaluation rulemaking activities. failure to act in coordination with NHTSA also casts serious dOubt on the legitimacy of data and conclusions, given the substantial discrepancies between and analysis of the technologies and costs associated with the MY 2022-2025 standards.13 Furthermore, inal Determination that the MY 2022-2025 greenhouse gas standards should remain unchanged, is riddled with indefensible assumptions, inadequate analysis, and a failure to engage with contrary evidence. Here are just a few examples: 0 EPA estimated that these standards will cost the industry at least $200 billion. But EPA underestimated the burden. Contrary to assumptions, manufacturers will have to rely on much more expensive electri?ed technologies hybrids and plug-ins), driving up vehicle prices and depressing auto sales. 0 EPA refused to conduct an analysis of consumer acceptance and technology affordability needed for compliance, claiming this was too dif?cult. 0 EPA refused to analyze substantively the economic impact of the MY 2022-2025 standards, instead making cursory assertions that downplayed the impact of its mandate on auto sales and employment. 0 EPA refused to consider many of the Alliance?s technical concerns even when supported by an outside consultant?, asserted the Alliance provided insuf?cient data, and then refused further meetings for clari?cation. 4. Studies and Data Highly Relevant to the Midterm Evaluation Have Not Been Submitted to EPA Because They Still Are Pending It is particularly critical that EPA withdraw the current Final Determination and reopen the Midterm Evaluation process because analysis commissioned according to original timetable is ongoing and the Alliance expects that new information relevant to the Final Determination?s underlying assumptions and resulting analysis will soon emerge. rushed timetable, coupled with its about-face on the timing of the Midterm Evaluation, prevented consideration of this information. ?3 See Alliance Comments on US EPA, US DOT, California?s Air Resources Board Draft Technical Assessment Report of Greenhouse Gas Emissions and Fuel Economy Standards for Model Year 2022-2025 Cars and Light Trucks at Sept. 26, 2016, Docket ID No. EPA-HQ-OAR-2015-0827, costs are approximately 42% higher than (NHTSA Table ES-2 v. EPA ES-4 Table '4 See Novation Analytics Comments on Draft Technical Assessment, Sept. 26, 2016; Docket ID No. EPA-HQ-OAR-2015-0827. Sof6 We urge EPA to reconsider imposing such a far-reaching mandate on an entire industry without adequately considering the consequences, and without giving stakeholders a meaningful opportunity to comment. The MY 2022-2025 standards threaten to depress an industry that can ill afford Spiraling regulatory costs. If left unchanged, those standards could cause up to 1.1 million Americans to lose jobs due to lost vehicle sales.'5 And low-income households would be hit the hardest.16 The Alliance is not asking EPA to make a different Final Determination at this time. All we are asking is that EPA withdraw the Final Determination and resume the Midterm Evaluation, in conjunction with NHTSA, consistent with the timetable embodied in own regulations. We believe that, if carried out as intended, the Midterm Evaluation can lead to an outcome that makes sense for all affected stakeholders and for society as a whole. The Alliance welcomes the opportunity for further dialogue about ways to rekindle the industry?s longstanding cooperation with EPA on these issues. Sincerel Mitch Bainwol President and CEO Cc: Secretary Elaine Chao, DOT Kevin Green, DOT Bill Charmley, EPA Chris Grundler, EPA Michael Olechiw EPA Rebecca Yoon, NHTSA James Tamm, NHTSA Mike McCarthy, CARB Annette Hebert, CARB ?5 McAlinden, Sean, et al., The Potential Effects of the 2017?2025 Economy Mandates on the US. Economy, Center for Automotive Research (Sep. 2016) at 49. Referring to the $3.00 per gallon gasoline price $6,000 technology cost scenario. '6 Walton, Tom, et al., The Impact of Fuel Economy Standards on Low Income Households, Defour Group LLC (Sep. 2016); Walton, Tom, et al., Defoar Group Response to EPA Rejoinders to Defeat Group Alliance of Automobile Manufacturers Submission Regarding the Regressivity/A?ordability of EPA ?5 Proposed tiel Economy Standards, (Dec. 2016). 60f6 February 8, 2017 Division of Dockets Management Food and Drug Administration Room 1061, HFA-305 5630 Fishers Lane Rockville, MD 20852 PETITION TO STAY AND FOR RECONSIDERATION On behalf of the Medical Information Working Group (MIWG), the Pharmaceutical Research and Manufacturers of America (PhRMA), and the Biotechnology Innovation Organization (BIO), we respectfully submit the following Petition to Stay and for Reconsideration (Petition). I. Decision Involved This Petition challenges the final rule entitled Clarification of When Products Made or Derived From Tobacco Are Regulated As Drugs, Devices, or Combination Products; Amendments to Regulations Regarding “Intended Uses” (Final Rule), which was published in the Federal Register on January 9, 2017. 1 In particular, this Petition challenges the amendments that the Final Rule would make to Food and Drug Administration (FDA) regulations defining the legal concept of “intended use.” 2 II. Actions Requested A. Pursuant to 21 C.F.R. § 10.35(b), the MIWG respectfully requests that the Commissioner of Food and Drugs (Commissioner) indefinitely stay the Final Rule. B. Pursuant to 21 C.F.R. § 10.33(b), the MIWG respectfully requests that the Commissioner reconsider the Final Rule and direct FDA staff to promulgate final definitions of intended use that are consistent with the proposed definitions set out in the notice of proposed rulemaking dated September 25, 2015. 3 1 See 82 Fed. Reg. 2193, 2217 (Jan. 9, 2017). 2 See 21 C.F.R. §§ 201.128, 801.4. 3 See 80 Fed. Reg. 57756, 57764-65 (Sept. 25, 2015). Page 2 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 III. Statement of Grounds A. Background This Petition arises out of FDA’s unexpected decision in January 2017 to revise the definitions of “intended use” for drugs and medical devices in 21 C.F.R. §§ 201.128 and 801.4 to include a new “totality of the evidence” standard. FDA’s revisions were not communicated to the public prior to the Final Rule published on January 9, 2017, which deprived stakeholders of fair notice and an opportunity to be heard in violation of the Administrative Procedure Act (APA). Moreover, if allowed to take effect, the revisions would run contrary to the settled interpretation of both the statutory definitions that turn on “intended use” in the Federal Food, Drug, and Cosmetic Act (FDCA) and the requirement that drug and device labeling include “adequate directions for use.” 1. Intended Use Under The FDCA The “intended use” of a product is a core operational principle around which the FDCA is organized. 4 The concept of an intended use has its origins in the Pure Food and Drugs Act (1906 Act), which had defined the term “drug” to include both those drugs listed in the official compendia and any other “substance or mixture of substances intended to be used for the cure, mitigation, or prevention of disease.” 5 Through this definition Congress ensured that the labeling and purity requirements of the 1906 Act would not be “confine[d] . . . to any definition of ‘drug’ found in dictionaries or pharmacopoeias.” 6 Congress was specifically concerned to ensure that the law apply to “proprietary” medications that were not listed in any compendia but were marketed subject to claims of therapeutic value. 7 From the outset, the “intended use” prong of the drug definition related to the manufacturer’s claims for its products. Mundane articles were deemed drugs when marketed with therapeutic claims, 8 and when manufacturers sought to claim the benefit of drug status for 4 See, e.g., 21 U.S.C. § 321(g)(1)(B)-(D) (defining drugs); id. § 321(h)(2)-(3) (defining devices); id. § 321(i)(1)-(2) (defining cosmetics); id. § 321(s) (defining food additives); id. § 321(w) (defining animal feed); id. § 321(ff)(1) (defining dietary supplements); id. § 321(rr) (defining tobacco products). 5 Ch. 3915, § 6, 34 Stat. 768, 769 (June 30, 1906) (emphasis added). 6 Bradley v. United States, 264 F. 79, 81 (5th Cir. 1920). 7 See Hearing on H.R. 3109 before the S. Comm. on Manufactures, 57th Cong., 4 (Jan. 20, 1903); see generally Hearings on S. 198 Before the S. Comm. on Manufactures, 58th Cong. (Jan. 6, 1904). 8 See, e.g., Bradley, 264 F. at 80 (water deemed to be a drug when marketed with therapeutic claims); Goodwin v. United States, 2 F.2d 200, 200 (6th Cir. 1924) (same). Page 3 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 their products, 9 they were often unsuccessful unless they could show that their products had been marketed with therapeutic claims. 10 When the FDCA was enacted in 1938, its sponsors made clear that intended use would turn on representations by the manufacturer. 11 Committee reports in 1934 and 1935 likewise explained that The manufacturer of the article, through his representations in connection with its sale, can determine the use to which the article is to be put. For example, the manufacturer of a laxative which is a medicated candy or chewing gum can bring his product within the definition of drug and escape that of food by representing the article fairly and unequivocally as a drug product. 12 As another example, “soaps sold only for ordinary toilet or household use . . . [would] not be subject to the definition of drug, [but] soaps for which claims concerning disease are made or which are sold as pharmacopoeial articles will come within the definition of drug and will thus be subject to regulation.” 13 Courts have treated this legislative history as authoritative. For instance, in United States v. 46 Cartons . . . Fairfax Cigarettes, the district court relied on it to hold that cigarettes marketed with therapeutic claims were properly categorized as drugs. 14 In United States v. 9 At the time, drugs were frequently subject to less stringent regulation than other classes of products. See, e.g., Peter Barton Hutt, Government Regulation of Health Claims in Food Labeling and Advertising 41 Food and Drug L.J. 3, 5 n.8 (1986) (“Because food misbranding could be proved merely by showing a ‘misleading’ statement, it was more difficult for FDA to win a drug misbranding case than a food misbranding case.”). 10 See, e.g., Jury Instructions, United States v. Four Boxes of Mulford’s Wintergreens (N.D.N.Y. 1914) (“Now, gentleman, wintergreen they tell you is a drug. A stick of wintergreen candy which you buy for your child you would hardly call a drug. . . . However, gentlemen, . . . if that was the purpose in its manufacture and sale, even though a large amount of sugar and but a trifle of this essence or oil it, why, then, of course, it would at once . . . take its place in the category of drugs”), reprinted in Otis H. Gates, Decisions of Courts in Cases under the Federal Food and Drugs Act, 593 (1934); see also Savage v. Scovell, 171 F. 566, 567 (E.D. Ky. 1908) (“Plaintiff is in no position to complain of his article being treated as what he calls it.”); Commonwealth v. Marzynski, 21 N.E. 228, 229 (Mass. 1889) “[T]here was no evidence in the present case that the cigars which the defendant sold were used, or were intended to be used, as a medicine.”) (emphasis added). 11 See, e.g., Hearings on S. 2800 before the Comm. on Commerce, 73d Cong., 517-18 (Feb. 27 to Mar. 3, 1934) (colloquy between Senator Royal S. Copeland and Walter G. Campbell) (explaining that a chiropractor’s table would not be subject to the act unless the manufacturer “were to ship that table into interstate commerce, and say that that table would cure various ills”). 12 S. Rep. 493, 73d Cong. 2d Sess., 3 (Mar. 15, 1934); S. Rep. 361, 74th Cong., 1st Sess., 4 (1935) (same). 13 S. Rep. 361, 74th Cong., 1st Sess., at 3-4. 14 United States v. 46 Cartons . . . Fairfax Cigarettes, 113 F. Supp. 336, 337 (D.N.J. 1953). Page 4 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 Article of 216 Cartoned Bottles, “Sudden Change,” the Second Circuit relied on the same history to hold that a cosmetic lotion was a drug because “labeling and promotional claims show intended uses that bring it within the drug definition.” 15 In NNFA v. FDA, the Second Circuit relied on the legislative history to conclude that FDA had erred in attempting to regulate vitamins as drugs in the absence of therapeutic claims. 16 In ASH v. Harris, the D.C. Circuit relied on this legislative history when it upheld FDA’s decision that cigarettes were not medical products in the absence of therapeutic claims. 17 The D.C. Circuit found that the claims-based understanding of intended use had been accepted “as a matter of statutory interpretation.” 18 In other words, courts “have always read . . . the statutory definitions employing the term ‘intended’ to refer to specific marketing representations.” 19 The Fourth Circuit subsequently observed— twice—that “no court has ever found that a product is ‘intended for use’ or ‘intended to affect’ within the meaning of the [FDCA] absent manufacturer claims as to that product’s use.” 20 Indeed, in 2002 and again in 2004, FDA itself echoed that conclusion. 21 2. FDA’s Intended Use Definition As described above, section 502(f)(1) of the FDCA states that a drug or device is misbranded unless its labeling “bears adequate directions for use.” 22 Although Congress amended section 503(b)(2) of the FDCA in 1951 to provide that 502(f)(1) does not apply to prescription drugs, 23 FDA promulgated a regulation in 1952 that purported to exempt prescription drugs from section 502(f)(1) only if, among other things, the prescription drug’s labeling contains “adequate information” regarding any “use for which [the drug] is intended.” 24 The 1952 regulation also created the first ever regulatory definition of intended use. According to FDA: The words “intended uses” or words of similar import . . . refer to the objective intent of the persons legally responsible for the labeling of 15 United States v. Article of 216 Cartoned Bottles, “Sudden Change,” 409 F.2d 734, 736, 739 & n.3 (2d Cir. 1969). 16 NNFA v. FDA, 504 F.2d 761, 789 & n.35 (2d. Cir. 1974). 17 ASH v. Harris, 655 F.2d 236, 238-39 (D.C. Cir. 1980). 18 Id. at 239. 19 American Health Products Co., Inc. v. Hayes, 574 F. Supp. 1498, 1505 (S.D.N.Y. 1983) (emphasis added). 20 Sigma-Tau Pharms., Inc. v. Schwetz, 288 F.3d 141, 146-47 (4th Cir. 2002) (emphasis added); Brown & Williamson Tobacco Corp. v. FDA, 153 F.3d 155, 163 (4th Cir. 1998) (same), aff’d 529 U.S. 120 (2000). 21 See Letter from Daniel E. Troy, Chief Counsel, FDA to Jeffrey N. Gibbs, Esq., 3 (Oct. 17, 2002); Citizen Petition Response, Docket No. 2003P-0321, 23-24 (Apr. 6, 2004) (Ribavirin Petition Response). 22 See 21 U.S.C. § 352(f)(1). 23 See id. § 353(b)(2). 24 21 C.F.R. § 201.100(c)(1). Page 5 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 drugs and devices. The intent is determined by such persons’ expressions or may be shown by the circumstances surrounding the distribution of the article. This objective intent may, for example, be shown by labeling claims, advertising matter, or oral or written statements by such persons or their representatives. It may be shown by the circumstances that the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised. The intended uses of an article may change after it has been introduced into interstate commerce by its manufacturer. If, for example, a packer, distributor, or seller intends an article for different uses than those intended by the person from whom he received the drug, such packer, distributor, or seller is required to supply adequate labeling in accordance with the new intended uses. But if a manufacturer knows, or has knowledge of facts that would give him notice, that a drug or device introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a drug which accords with such other uses to which the article is to be put. 25 The above definition of intended use became codified at 21 C.F.R. § 201.128 (for drugs) and at 21 C.F.R. § 801.4 (for medical devices) where it remained in place without substantive revision until the events at issue in this Petition.26 FDA’s intended use definition has always been problematic, particularly the last sentence regarding a manufacturer’s knowledge of actual uses and the corresponding obligation to “provide adequate labeling.” Manufacturers specifically objected in 1952 to the possibility that misbranding liability could be based on a known, but not manufacturer-recommended, use. They objected, as well, to any obligation to provide labeling regarding such a use. 27 Courts also have questioned FDA’s intended use definition. In 1998, FDA published a rule purporting to require manufacturers of approved drugs “to provide adequate labeling” regarding the use of their products in children, even if pediatric use was neither claimed nor 25 Id. § 1.106(o) (1955 ed.) (emphasis added). 26 See 40 Fed. Reg. 13996 (Mar. 27, 1975); 41 Fed. Reg. 6896 (Feb. 13, 1976). 27 See, e.g., Letter from John L. Hammer, Vice President, Smith, Kline & French Labs. to Hearing Clerk, Federal Security Agency (Mar. 4, 1952) (objecting that, under the new intended use regulation, if a manufacturer’s “market research department learns that 20% of the purchasers use the preparation as a sedative . . . [and] he inserts in his label directions for use as a sedative . . . he is forced into the position of recommending his product for a use of which he heartily disapproves and for which his drug may be largely ineffective”). Page 6 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 recommended. 28 Citing 21 C.F.R. § 201.128, FDA contended that an approved drug’s intended uses include “the actual uses of the drug of which the manufacturer has, or should have, notice, even if those uses are not promoted by the manufacturer.” 29 That reasoning was rejected by the court in Association of American Physicians and Surgeons, Inc. v. FDA, which ruled that FDA “may only regulate claimed uses of drugs, not all foreseeable or actual uses.” 30 The court found the agency’s reliance on 21 C.F.R. § 201.128 particularly unavailing because “‘no order or regulation issued by an administrative agency can confer on it any greater authority than it has under the statute.’” 31 More recently, medical product manufacturers have challenged FDA’s intended use definition as an unconstitutional restraint on protected speech regarding unapproved uses of approved medical products. A lawsuit brought by Allergan, Inc. in 2009 alleged that FDA’s intended use regulations had chilled speech regarding methods to minimize the risks and improve the quality of patient care related to a particular off-label use. 32 Similarly, a lawsuit brought by Par Pharmaceuticals, Inc. in 2011 alleged that the government had chilled speech by purporting to find a new, unapproved intended use based on the identity of the audience hearing the plaintiff’s speech related to an approved indication. 33 FDA settled both cases before the district court could rule, but made representations in each case limiting how it would interpret and apply 21 C.F.R. § 201.128. In the Allergan case, FDA stated that “not all speech or actions by a manufacturer regarding an unapproved use is [sic] taken by FDA to be evidence of intended use.” 34 FDA further stated that, contrary to the last sentence of 21 C.F.R. §§ 201.128 and 801.4, the agency “usually” does not rely on a manufacturer’s knowledge to infer an intended use. 35 Similarly, during oral argument in Caronia, the court asked whether a crime is committed if a person “hasn’t promoted but he sent [a drug] out knowing and perhaps intending that it be used for something other than an on-label use.” The government counsel replied: “I believe not, your Honor, I don’t think that would be a crime.” 36 28 63 Fed. Reg. 66632 (Dec. 2, 1998). 29 Id. at 66658. 30 Ass’n of Am., Physicians & Surgeons, Inc. v. FDA, 226 F. Supp. 2d 204, 217-18 (D.D.C. 2002). 31 Id. at 215 n.17 (quoting Office of Consumers’ Counsel v. FERC, 655 F.2d 1132, 1149 n. 32 (D.C. Cir. 1980)). 32 See Compl., Allergan, Inc. v. United States, No. 09-1879 Dkt. 1-2, ¶¶ 94, 132-33, 135 (D.D.C. filed Oct. 1, 2009). 33 See Compl., Par Pharm., Inc. v. United States, No. 11-1820, Dkt. 1, ¶ 85 (D.D.C. filed Oct. 14, 2011). 34 Def. Mem. in Support of Mot. to Dismiss or For Summary Judgment, Allergan, Inc. v. United States, No. 09-1879 Dkt. 18, 22 (D.D.C. filed Dec. 11, 2009). 35 Id. at 22. 36 Tr. of Oral Arg. At 10, United States v. Caronia, No. 09-5006 (2d Cir. Dec. 2, 2010). Page 7 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 3. The Rulemaking At Issue FDA’s intended use definition also has been the subject of at least two citizen petitions. First, a petition submitted in 2001 requested that FDA strike the last sentence of 21 C.F.R. § 201.128 (regarding a manufacturer’s knowledge or notice of actual use) because it was inconsistent with “the general regulatory scheme for review and approval of products based on claims made by the sponsor.” 37 FDA has never addressed that petition on its merits. Second, in September 2013, the MIWG submitted a petition urging the agency to conduct a comprehensive review of its regulations in view of the limitations imposed by the Fifth and First Amendments. Among other things, the MIWG specifically requested that FDA strike the last sentence of 21 C.F.R. §§ 201.128 and 801.4 concerning knowledge. 38 In June 2014, FDA granted the MIWG’s citizen petition and committed to “a comprehensive review of the regulatory regime governing communications about medical products.” 39 In December 2014, FDA reiterated that taking action on the issues raised by the MIWG’s petition were among FDA’s “highest priorities” for 2015. 40 a. FDA’s Proposed Rule Would Have Acknowledged Key Limits on the Scope of “Intended Use.” In September 2015, FDA published a notice of proposed rulemaking that appeared to grant the relief requested by both the MIWG and the 2001 petition. FDA explained that changes to 21 C.F.R. §§ 201.128 and 801.4 were needed “to reflect how the agency currently applies them to drugs and devices.” 41 Citing its own briefing from the Allergan case, FDA stated that it will no longer “regard a firm as intending an unapproved new use for an approved or cleared medical product based solely on that firm’s knowledge that such product was being prescribed or used by doctors for such use.” 42 Accordingly, FDA proposed the following alterations to the intended use definitions: The words intended uses or words of similar import … refer to the objective intent of the persons legally responsible for the labeling of drugs. The intent is determined by such persons’ expressions or may be shown by the circumstances surrounding the distribution of the article. This objective intent may, for example, be shown by labeling claims, 37 Citizen Petition, Docket Nos. FDA-2001-P-0521, 01P-0228, 2 (May 8, 2001). 38 Citizen Petition, Docket No. 2013-P-1079, 4, 15-19 (Sept. 3, 2013). 39 Citizen Petition Response, Docket Nos. FDA-2011-P-0512 and FDA-2013-P-1079, 2 (June 6, 2014). 40 Letter from FDA re: Docket Nos. FDA-2011-P-0512 and FDA-2013-P-1079, 2 (Dec. 22, 2014). 41 80 Fed. Reg. at 57756. 42 Id. at 57761. Page 8 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 advertising matter, or oral or written statements by such persons or their representatives. It may be shown by the, for example, by circumstances thatin which the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised. The intended uses of an article may change after it has been introduced into interstate commerce by its manufacturer. If, for example, a packer, distributor, or seller intends an article for different uses than those intended by the person from whom he received the drug, such packer, distributor, or seller is required to supply adequate labeling in accordance with the new intended uses. But if a manufacturer knows, or has knowledge of facts that would give him notice, that a drug introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it, he is required to provide adequate labeling for such a drug which accords with such other uses to which the article is to be put. 43 FDA asserted that, in light of the positions taken in the Allergan case, the deletion of the last sentence in the intended use definition “would not reflect a change in FDA’s approach regarding evidence of intended use for drugs and devices.” 44 Notably, the preamble to the proposed rule included no discussion of any alternative approaches, options, or proposals regarding the intended use definition. FDA originally provided stakeholders 60 days to submit written comments on the proposed rule, through November 24, 2015. 45 In response to a request for an extension, FDA held the docket open for comments through December 30, 2015. 46 FDA received nearly 2,000 comments on the proposal, most of which did not directly address the revisions to 21 C.F.R. §§ 201.128 and 801.4. The comments that did discuss those revisions generally lauded FDA’s proposal, although some proposed additional changes to make the intended use definition more consistent with the language of the statute and/or constitutional requirements. 47 For its part, the 43 See id. at 57764-65. 44 Id. at 57761. 45 Id. at 57756. 46 80 Fed. Reg. 74737 (Nov. 30, 2015). 47 See, e.g., 510(k) Coalition, Comment to Docket. No. FDA-2015-N-2002, 1 (Nov. 23, 2015); American Association of Tissue Banks – Tissue Policy Group, Comment to Docket. No. FDA-2015-N-2002, 1 (Nov. 24, 2015); Washington Legal Foundation, Comment to Docket. No. FDA-2015-N-2002, 10 (Nov. 24, 2015); Pharmaceutical Research and Manufacturers of America, Comment to Docket. No. FDA-2015-N-2002, 1 (Nov. 24, 2015); Musculoskeletal Transplant Foundation, Comment to Docket. No. FDA-2015-N-2002, 1 (Nov. 25, 2015); AdvaMed, Comment to Docket. No. FDA-2015-N-2002, 1 (Dec. 18, 2015). One comment did object to the fact that FDA’s proposal to amend 21 C.F.R. §§ 201.128 and 801.4 had been “buried” in what was “primarily a Tobacco rule making docket.” See Jason Williams, Comment to Docket No. FDA-2015-N-2002 (Mar. 2, 2016). Page 9 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 MIWG understood that FDA’s proposal to strike the last sentence of sections 201.128 and 801.4 was part of FDA’s effort to take action on the MIWG’s 2013 petition, which had been granted in June 2014. 48 After proposing to strike the last sentence of the old intended use definition, FDA finally took administrative action on the 2001 citizen petition. As discussed, that petition had requested precisely the same relief as was proposed by FDA in the September 2015 notice. 49 Just before the deadline for comments on that proposal, FDA sent a letter to the successor of the law firm that had filed the 2001 citizen petition. FDA’s letter stated that “the petition ha[d] been inactive for many years” and suggested that the petition had become moot in light of the proposed rule.50 Two months later, after the comment period had closed, FDA unilaterally deemed the 2001 petition to have been withdrawn. 51 b. The Final Rule Unexpectedly Expanded the Understanding of Intended Use. On January 9, 2017, however, FDA dramatically shifted gears. Rather than delete the final sentence of the intended use definition, the agency replaced it with an entirely new sentence that created an open-ended “totality of the evidence” standard: But ifAnd if the totality of the evidence establishes that a manufacturer knows, or has knowledge of facts that would give him notice,objectively intends that a drug introduced into interstate commerce by him is to be used for conditions, purposes, or uses other than the ones for which he offers it is approved (if any), he is required to provide, in accordance with section 502(f) of the Federal Food, Drug, and Cosmetic Act, or, as applicable, duly promulgated regulations exempting the drug from the requirements of section 502(f)(1), to provide for such drug adequate labeling for such a drug whichthat accords with such other intended uses to which the article is to be put. 52 The Final Rule did not claim that this “totality of the evidence” standard had been mentioned as part of the proposed rulemaking. Nor did the Final Rule claim that the new “totality” standard 48 See MIWG, Comments to Docket No. FDA-2015-N-2002, 1 (Nov. 24, 2015). The MIWG also explained that, contrary to FDA’s position, ongoing government investigations continued to assert that intended use could be shown through knowledge of actual use. See id. at 2. 49 Citizen Petition, Docket Nos. FDA-2001-P-0521, 01P-0228, 2 (May 8, 2001). 50 Letter from Nan Kim, FDA to Terry S. Coleman, Ropes & Gray (Dec. 22, 2015). 51 Memorandum from Office of Regulatory Policy, FDA to Division of Dockets Management, FDA re: Docket No. FDA-2001-P-0521 (Feb. 1, 2016). 52 82 Fed. Reg. at 2217. Page 10 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 had been proposed by any of the numerous comments submitted. Instead, FDA claimed that certain, unidentified comments had “misunderstood FDA’s proposal” to delete the last sentence of sections 201.128 and 801.4. 53 FDA claimed that it had sought in the proposed rule to clarify that knowledge of an actual use did not “automatically trigger obligations for the manufacturer to provide labeling,” but had not meant to suggest that knowledge would be “eliminate[d] . . . altogether as a source of evidence of intended use.” 54 FDA therefore concluded that its goals would “be better achieved by amending the last sentence of each regulation, rather than deleting them.” 55 B. Argument The Final Rule published on January 9, 2017 should be stayed indefinitely and reconsidered for two independent reasons. First, the Final Rule was promulgated in violation of the APA because it failed to give parties subject to potentially significant and far-reaching liability fair notice or a meaningful opportunity to comment. Second, while the agency claims that the Final Rule was merely a clarification of law, it in fact adopted a new “totality of the evidence” standard for finding an intended use that is not found in the FDCA or the case law addressing the intended use question. 1. The Final Rule Violated The Fair Notice Requirements of the Administrative Procedure Act. The notice-and-comment provisions of the APA “are designed (1) to ensure that agency regulations are tested via exposure to diverse public comment, (2) to ensure fairness to affected parties, and (3) to give affected parties an opportunity to develop evidence in the record to support their objections to the rule and thereby enhance the quality of judicial review.” 56 To fulfill these goals, an agency must “make its views known to the public in a concrete and focused form so as to make criticism or formulation of alternatives possible.” 57 The agency must “describe the range of alternatives being considered with reasonable specificity,” 58 and “set out [the agency’s] thinking,” so that parties can respond with an “adversarial critique of the agency.” 59 Thus, although a final rule need not be identical to the proposed rule, 60 the two “may 53 Id. at 2205. 54 Id. at 2206. 55 Id. 56 Int’l Union, United Mine Workers of Am. v. Mine Safety & Health Admin., 407 F.3d 1250, 1259 (D.C. Cir. 2005). 57 HBO, Inc. v. FCC, 567 F.2d 9, 36 (D.C. Cir. 1977). 58 Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 549 (D.C. Cir. 1983). 59 HBO, 567 F.2d at 36, 55. 60 Small Refiner, 705 F.2d at 546. Page 11 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 differ only insofar as the latter is a ‘logical outgrowth’ of the former.” 61 If the agency wishes to pursue an alternative that is not a logical outgrowth of the original proposed rule, the agency must provide a supplemental notice of proposed rulemaking and provide an additional opportunity for comment. 62 As to the intended use definitions in 21 C.F.R. §§ 201.128 and 801.4, the Final Rule was a stark reversal of the proposed rule and, therefore, violated the APA’s notice-and-comment provisions. While the proposed rule would have helped to address substantial concerns regarding FDA’s intended use definitions, the Final Rule instead exacerbates those concerns. As discussed, regulated entities have long argued that it is inappropriate to impose liability based solely on knowledge of actual use. Industry representatives have requested revisions to FDA’s intended use regulations in comments dating back to 1952 and also filed formal citizen petitions requesting that FDA reconsider its approach. The 2015 proposed rule appeared to be responsive to those concerns by striking the final sentence of the intended use regulations entirely. Deleting the last sentence from 21 C.F.R. §§ 201.128 and 801.4 would have altered FDA’s intended use definitions in two important respects. First, it would have deleted the only command found in either regulation—namely, the command that manufacturers “provide adequate labeling” for known, but not recommended, uses. Second, it would have resulted in a streamlined definition focusing on certain types of claims attributable to the manufacturer. Specifically, the proposed rule would have left three operative sentences providing that The intent is determined by such persons’ expressions or may be shown by the circumstances surrounding the distribution of the article. This objective intent may, for example, be shown by labeling claims, advertising matter, or oral or written statements by such persons or their representatives. It may be shown, for example, by circumstances in which the article is, with the knowledge of such persons or their representatives, offered and used for a purpose for which it is neither labeled nor advertised. 63 These sentences would have limited the definition of intended use to manufacturers’ “expressions” (most notably labeling and advertising) and sales and marketing activities (how the product is both “offered and used”). Thus, the definition in the proposed rule would have turned solely on the manufacturer’s promotional statements. 61 Envtl. Integrity Project v. EPA, 425 F.3d 992, 996-97 (D.C. Cir. 2005). 62 See United Steelworkers of Am., AFL-CIO-CLC v. Schuylkill Metals Corp., 828 F.2d 314, 317-18 (5th Cir. 1987). 63 80 Fed. Reg. at 57764. Page 12 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 The Final Rule significantly altered course, changing the definition of intended use by introducing a new, and overly broad, “totality of the evidence” standard that is not found in the FDCA and allows FDA to consider any evidence, including knowledge. Furthermore, the Final Rule restores to the regulations the command that manufacturers provide “adequate labeling.” These changes were not hinted at in FDA’s proposed rule, which promised only a modest clarification to the agency’s intended use regulations. The agency therefore failed to give regulated parties fair notice of a fundamental change to the regulatory scheme for drugs and devices. 64 The revisions contained within the Final Rule thus violate the fundamental principle that agencies may not “use the rulemaking process to pull a surprise switcheroo.” 65 The comments submitted on the 2015 proposed rule further demonstrate that the Final Rule violates the logical outgrowth doctrine. Although close to 2,000 comments were received on the proposed rule, the overwhelming majority pertained to the tobacco regulations covered in the proposal; only a relative few even addressed the intended use definitions applicable to drugs and medical devices. If FDA had provided medical product manufacturers with notice that it was considering retaining the command in the last sentence of 21 C.F.R. §§ 201.128 and 801.4 and expanding the definition of intended use to include a new totality of the evidence standard, then FDA “would doubtless have triggered an avalanche of comments, in contrast to the mere [handful of] pages that . . . actually” addressed intended use. 66 For instance, if given an opportunity, stakeholders surely would have challenged FDA’s decision to use a “totality” approach as an FDCA linchpin. As the Supreme Court has observed, a “totality” standard is “not a test at all but an invitation to make an ad hoc judgment.” 67 The Court also previously invalidated a “totality” approach in the patent context on the ground that it was “unnecessarily vague” and failed to provide inventors with “a definite standard” to guide their decisions. 68 These concerns about overbreadth and vagueness take on special weight where, as here, FDA is purporting to define the scope of its own jurisdiction. 69 Indeed, the ad 64 That industry lacked notice of the change is clear from both these circumstances and from FDA’s claim that stakeholder comments reflected confusion about the import of the proposed revision. 82 Fed. Reg. at 2205-2206 (referring to comments that “misunderstood FDA’s proposal”). 65 Envtl. Integrity Project, 425 F.3d at 996. 66 Allina Health Servs. v. Sebelius, 746 F.3d 1102, 1108 (D.C. Cir. 2014). 67 City of Arlington v. FCC, 133 S. Ct. 1863, 1874 (2013); see also ABC, Inc. v. Aereo, Inc., 134 S. Ct. 2498, 2517 (2014) (Scalia, J., dissenting) (“th’ol’ totality-of-the-circumstances test . . . is not a test at all but merely assertion of an intent to perform test-free, ad hoc, case-by-case evaluation”). 68 Pfaff v. Wells Elecs., 525 U.S. 55, 65-66 & n.11 (1988); see also United States v. Rivera-Rodriguez, 318 F.3d 268, 276 (1st Cir. 2003) (explaining that the Sentencing Commission had amended the guideline for a departure based on aberrant behavior to overrule the “totality of circumstances” approach adopted by the First Circuit and other courts on the ground that it was “overly broad and vague”). 69 FDA’s statements in the final rule’s accompanying preamble—which are binding statements of official agency policy according to the agency’s own regulations, 21 C.F.R. § 10.85(k)—demonstrate the breadth of the new “totality” standard. The preamble states that FDA will define intended use based on “evidence of a manufacturer’s Page 13 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 hoc approach endorsed in the Final Rule would allow qui tam relators and prosecutors to predicate claims or charges against a manufacturer on the entirely legitimate activity of accurately forecasting demand for products (which typically includes a mix of approved and unapproved uses) and then scaling production to meet that demand. Neither the statute nor the decades of case law construing it justify such a sweeping approach to the intended use inquiry. 70 Moreover, as discussed below, exposing companies to potential liability based on an ad hoc totality standard raises significant constitutional questions. The APA requires that industry be provided notice and a meaningful opportunity to comment before the agency promulgates a regulation with such profound consequences. The proposed rule did not provide such notice. The proper recourse to remedy this absence of notice is for the agency to stay the Final Rule and promulgate a revised rule consistent with the notice of proposed rulemaking published in September 2015. 2. “Totality Of The Evidence” Is A New And Unjustified Legal Standard. In the preamble to the Final Rule, FDA argues that the new “totality of the evidence” standard has “solid support” in the law because courts allegedly have allowed FDA to consider “any relevant source” of evidence, including “a variety of direct and circumstantial evidence” such as the “circumstances surrounding the manufacture and distribution of a medical product.” 71 FDA further asserts that the “totality” standard is inconsequential and does not reflect a change in the law or in the agency’s practices. 72 These arguments lack merit. There is no support in existing law for the totality standard, and it would represent a substantial change with significant constitutional and public health ramifications. marketing plans,” 82 Fed. Reg. 2207, “evidence of a manufacturer’s . . . directions to its sales force,” id. at 2207, 2208, “evidence of the well-known uses and abuses of its products,” id. at 2207, “circumstantial evidence relating to the sale and distribution of the product,” id., evidence that a product “contain[s] a pharmacological ingredient,” id. at 2208, “internal firm documents and circumstances surrounding the sale of products,” id., “consumer intent,” id., evidence of claims that were never communicated to the public, id., and the “overall circumstances.” Id. 70 Cf. Nat’l Nutritional Foods Ass’n (NNFA) v. Mathews, 557 F.2d 325, 334-35 (2d Cir. 1977) (“The determination that an article is properly regulated as a drug [or device] is not left to the Commissioner’s unbridled discretion to act to protect the public health but must be in accordance with the statutory definition[s].”); Health Prods. Co. v. Hayes, 574 F. Supp. 1498, 1507 (S.D.N.Y. 1983) (“[A] court’s responsibility to construe the [FDCA] in accord with its protective purposes does not confer a license to ignore congressional judgments reflected in the classification scheme.”), aff’d on other grounds, 744 F.2d 912 (2d Cir. 1984). 71 See 82 Fed. Reg. at 2206; see also id. at 2195-96, 2199, 2202, 2208. 72 See, e.g., id. at 2204. Page 14 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 a. The totality standard has no basis in existing law. FDA’s claim that the totality standard is a mere clarification that tracks existing law is incorrect. The FDCA does not contain the phrase “totality of the evidence,” and the courts have not endorsed that approach to intended use. Moreover, the first and only FDA document to assert that intended use should be assessed according to a “totality” standard appears to be a final guidance published in November 2013 regarding in vitro diagnostic (IVD) products. 73 The draft IVD guidance published in 2011 was highly controversial, and it drew objections from both industry and Congress regarding FDA’s approach to intended use. 74 Tellingly, however, the 2011 draft IVD guidance did not include the “totality” standard, which was seemingly created out of thin air for the final guidance in 2013. 75 In short, the Final Rule is attempting to codify a highly controversial standard that is inconsistent with the statute and case law and has never been subjected to public scrutiny. In addition, the “totality” standard set out in the Final Rule is directly contrary to the case law constraining FDA’s ability to rely on “circumstantial” evidence. In NNFA v. FDA, the Second Circuit indicated that a vitamin product could be found a drug under the statutory definition even without label claims of a product’s therapeutic value, but such a finding would have to be based on “something more than demonstrated uselessness” as a non-therapeutic product “for most people.” 76 A few years later, the Second Circuit indicated that FDA might establish a “drug” intended use by showing that the vitamins had been “used almost exclusively for therapeutic purposes.” 77 After a remand, the Second Circuit then held in NNFA v. Mathews that FDA could not discharge its burden. The court found that, because the agency failed to show that therapeutic use “far outweighed [the products’] use as dietary supplements,” and because none of the promotional materials cited by the agency were attributable to the manufacturers, the agency could not show that the vitamins were intended to be used as drugs. 78 Following the NNFA cases, the D.C. Circuit held in ASH v. Harris that “consumers must use the 73 According to that document, the intended use of a product “may be determined by looking at the totality of circumstances surrounding the distribution of the article.” FDA, Guidance for Industry and FDA Staff: Distribution of In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only, 9 (2013). 74 See, e.g., AdvaMed, Comment to Docket No. FDA-2011-D-0305, 2 (Aug. 26, 2011); Mayo Clinic, Comment to Docket No. FDA-2011-D-0305, 1 (Aug. 29, 2011); see also Letter from Members of the Congressional Subcommittee on Health to Margaret A. Hamburg, Commissioner, FDA, 1 (Mar. 19, 2012) (“The Draft Guidance Document appears to represent a disregard of current law on ‘intended use.”). 75 See generally FDA, Draft Guidance for Industry and FDA Staff: Commercially Distributed In Vitro Diagnostic Products Labeled for Research Use Only or Investigational Use Only: Frequently Asked Questions (2011). 76 NNFA v. FDA, 504 F.2d at 789. 77 NNFA v. Weinberger, 512 F.2d 688, 703 (2d Cir. 1975) (emphasis added). 78 NNFA v. Mathews, 557 F.2d at 336 (emphasis added). Page 15 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 product predominantly—and in fact nearly exclusively—with the appropriate intent before the requisite statutory intent can be inferred.” 79 We are aware of exactly one case where this exacting test was effectively met. In 2001, a district court found that sellers of nitrous oxide balloons at a rock concert in Washington, D.C. intended for the gas to be used as a drug despite the government’s inability to introduce any labeling or advertising materials into evidence. 80 In that case, “[t]he government argue[d] that the Court should . . . view the totality of the circumstances” to find an intended drug use for the nitrous oxide balloons.81 But the court did not actually endorse the government’s “totality” argument as its own view. Instead, the court followed ASH v. Harris and stated that evidence of “‘consumer intent’” could be relevant if it is “‘strong enough to justify an inference as to the vendor’s intent.’” 82 The court then held that, under the “obviously unique” facts of that case, “the sellers did not need to label or advertise their product” because the “environment provided the necessary information between buyer and seller.” 83 These cases do not reflect a totality standard, but rather establish that FDA may rely on circumstantial evidence of consumer intent only when its probative value is sufficient to negate any explanation other than the intended use of the product as a drug or device. Under a totality standard, however, FDA would be free to determine where the balance of evidence lies and to ascribe whatever probative value it chooses to circumstantial evidence, or at least could argue that another fact finder could do so. Under such a scheme, facts of even marginal relevance can be considered as part of a larger mix of circumstances, even if the probative force of each fact is relatively weak. That would be a substantial change in the law. 84 79 ASH v. Harris, 655 F.2d at 240 (emphasis added). 80 See United States v. Travia, 180 F. Supp. 2d 115, 118-19 (D.D.C. 2001). 81 Id. at 118 (emphasis added). 82 Id. at 119 (quoting ASH v. Harris, 655 F.2d at 239). 83 Id. The preamble to the Final Rule also cites United States v. 789 Cases, More or Less, of Latex Surgeons’ Gloves, an Article of Device, 799 F. Supp. 1275, 1285 (D. Puerto Rico 1992), as a purported example of a court finding an intended use based on the circumstances surrounding the product’s sale. Any commentary to that effect in Surgeons’ Gloves is dicta. The manufacturer in that case had “represented that its gloves were to be used as surgeons gloves or as dental examination gloves.” Id. at 1280. Because the manufacturer had “created a market for [its] product to be used as a device,” the district court refused to entertain the manufacturer’s post hoc assertions that “the product has a different—and non-regulated use.” Id. at 1285. 84 FDA claims that it previously “relied on circumstantial evidence of intended use” to target “street drug alternatives” and/or counterfeit drugs that had been deliberately mislabeled. 82 Fed. Reg. at 2208. The examples provided in the preamble to the Final Rule were not accompanied by citation to any judicial decision, and most of the examples appear to be referring to FDA warning letters or similar correspondence. See, e.g., Warning Letter to Global Vision Product (Apr. 3, 2003); Warning Letter to Legal Gear and Affordable Supplements (Mar. 8, 2006); Warning Letter to Kanec USA, Inc. (Oct. 8, 2010). Warning letters and other agency correspondence are, however, merely statements by FDA employees and are not subject to judicial review. See Holistic Candlers & Consumers Page 16 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 Similarly, the preamble to the Final Rule indicates that the totality standard is meant to allow FDA to scrutinize internal company documents to find an intended use, even if those documents have not been published to the marketplace. 85 FDA relies primarily on an in limine ruling from the district court in United States v. Vascular Solutions, Inc., a case in which the government stated that it would rely “on promotional speech . . . alone,” but where the court nevertheless addressed the admissibility of a hypothetical bumper sticker locked in a briefcase and never made public. 86 While touting a pre-trial ruling concerning hypothetical facts, FDA failed to discuss an Eighth Circuit case that dealt with that scenario in real terms—and reached a contrary conclusion. In United States v. Articles of Drug for Veterinary Use, the Eighth Circuit upheld a jury verdict for the defendant and held that the government could not rely on written materials stored in a warehouse as evidence of intended use because the government failed to establish that they “were promotional in nature” or “were ever distributed in relation to the six products seized.” 87 The omission of cases that do not support FDA’s preferred interpretation shows that the Final Rule is trying to change the law and settle difficult legal issues in the agency’s favor without even acknowledging contrary precedent. Further, FDA misunderstands the case law suggesting that the government can consider “any relevant source” in assessing the manufacturer’s intended use. 88 Those cases merely state that any relevant source of claims is potentially relevant to the intended use inquiry. The phrase has its roots in United States v. 3 Cartons . . . “No. 26 Formula GM,” where the manufacturer had attempted to avoid regulation as a drug by omitting and even disclaiming therapeutic uses in the label for its product. 89 The court rejected that argument, finding authority to consider “any source which discloses the intended use.” 90 In particular, the court relied on the “literature” disseminated by the manufacturer, which had “consistently represented these products as efficacious in the treatment, mitigation, and prevention of many ailments including some of the most serious that afflict mankind.” 91 Ass'n v. FDA, 664 F.3d 940, 941-42 (D.C. Cir. 2012). Those letters are not the law, and they provide no support for FDA’s proposal to expand intended use by adding a new totality standard to 21 C.F.R. §§ 201.128 and 801.4. See, e.g., Sottera, Inc. v. FDA, 627 F.3d 891, 897 (D.C. Cir. 2010) (“FDA’s claimed authority” in a warning letter was irrelevant because it was “never challenged or adjudicated in court.”). 85 See 82 Fed. Reg. at 2207-08. 86 See United States v. Vascular Solutions, Inc., 181 F. Supp. 3d 342, 346 (W.D. Tex. 2016). 87 United States v. Articles of Drug for Veterinary Use, 50 F.3d 497, 501 (8th Cir. 1995). 88 See 82 Fed. Reg. at 2206 (“FDA’s longstanding position is that, in determining a product’s intended use, the Agency may look to any relevant source of evidence. This position has solid support in the case law.”). 89 See United States v. 3 Cartons . . . “No. 26 Formula GM,” 132 F. Supp. 569, 573 (S.D. Cal. 1952). 90 Id. at 574. 91 Id. at 573. Page 17 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 Virtually all of the cases cited by FDA follow the same pattern. Thus, in V.E. Irons, Inc. v. United States, the First Circuit stated that it could “look at all relevant sources” in response to an argument that the intended use analysis should be “confined to the labels on the drug or the ‘labeling.’” 92 The court found that the relevant sources were “all of appellants’ literature as well as the oral representations made by [its president] at his lectures or by authorized sales distributors.” 93 At no point did the court consider evidence beyond the manufacturer’s affirmative representations regarding its products. The Second Circuit’s decision in Sudden Change provides still more confirmation that FDA’s totality approach has no basis in the law. In that case, the court coined the phrase that “the intended use of a product may be determined from its label, accompanying labeling, promotional material, advertising and any other relevant source.” 94 In explaining this test, the court made clear that it applies only to certain types of promotional claims: Regardless of the actual physical effect of a product, it will be deemed a drug for purposes of the Act where the labeling and promotional claims show intended uses that bring it within the drug definition. . . . Thus, Congress has made a judgment that a product is subject to regulation as a drug if certain promotional claims are made for it. 95 Indeed, every one of the nine cases cited in the Sudden Change opinion considered only promotional claims. 96 92 V.E. Irons, Inc. v. United States, 244 F.2d 34, 44 (1st Cir. 1957). 93 Id. 94 Sudden Change, 409 F.2d at 739. 95 Id. (emphases added). That “any relevant source” is limited to sources of promotional claims like labeling and advertising also is confirmed by the canon of ejusdem generis—when general words like “any other relevant source” follow specific words (here, “labeling, promotional material, and advertising”), the general words are said to embrace “only objects similar in nature to those objects enumerated by the preceding specific words.” Yates v. United States, 135 S. Ct. 1074, 1086 (S. Ct. 2015) (citations omitted). 96 United States v. Article of Drug Designed B-Complex Cholinos Capsules., 362 F.2d 923, 925-26 (3d Cir. 1966) (“radio broadcasts” that included “advertisements . . . presented as commercials” established intended uses); United States v. Articles of Drug . . 250 Jars “Cal’s Tupelo Blossom U.S. Fancy Pure Honey,” 344 F.2d 288, 289 (6th Cir. 1965) (“a reading of the booklets and mailing leaflets resulted in the inescapable conclusion that such honey was intended to be used as a drug”); United States v. Millpax, Inc., 313 F.2d 152, 154-55 (7th Cir. 1963) (prior customer “testimonials” published in a magazine and an oral recommendation to a potential customer showed that a “cancer cure” was a drug notwithstanding a disclaimer sent by the defendant’s attorney); Nature Food Ctrs., Inc. v. United States, 310 F.2d 67, 69-70 (1st Cir. 1962) (“lectures” and “notes” distributed by company representatives “made fulsome claims as to the preventative and curative qualities of [the] various products”); United States v. Hohensee, 243 F.2d 367, 370 (3d Cir. 1957) (“oral representations to users and prospective users” were “no less relevant than labeling because “[b]oth show that the products shipped were to be used as drugs”); Bradley, 264 F. at 82 (water held to be a drug under the 1906 Act when marketed subject to therapeutic claims); United States v. 354 Bulk Page 18 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 Later cases, including those cited by FDA, also relied on promotional claims to find an intended use rather than an ad hoc, “totality” approach. For example, the district court decisions in both Hanson v. United States and United States v. Undetermined Quantities of an Article of Drug Labeled as “Exachol,” incorporated the same language and citations from Sudden Change, and also relied on explicit promotional claims to find an intended use. 97 Similarly, the district court decisions in United States v. Lane Labs-USA, Inc. and United States v. Kasz Enterprises, Inc. also relied on explicit claims to find intended drug uses. 98 Even as to the specific question of manufacturer knowledge, the Final Rule represents a change in FDA’s own position. The agency itself has previously argued that awareness of an actual use cannot be used to show an intended use, even if there is corroborating evidence. 99 In several instances, FDA has argued that the product’s labeling determines its intended uses. 100 Codifying a totality of the evidence standard in 21 C.F.R. §§ 201.128 and 801.4 would change that position without addressing FDA’s prior contrary interpretations. FDA’s citation to United States v. Storage Spaces Designated Nos. 8 and 49 is particularly inapposite. FDA claims that the Ninth Circuit relied on “‘the overall circumstances’” to find an intended use for drugs that were “innocuously labeled” but actually contained imitation cocaine. 101 However, the phrase “overall circumstances” appears only in a Cartons Trim Reducing-Aid Cigarettes, 178 F. Supp. 847, 851 (D.N.J. 1959) (“Claimant readily concedes that its product is intended to affect the structure and functions of the human body by reducing the appetite for the ingestion of food and thereby achieving a reduction in the body’s weight.”); Fairfax Cigarettes, 113 F. Supp. at 339 (“The clear import of the leaflet is at least that the smoking of the cigarettes will make it less likely that the smoker will contract colds or other virus infections.”); 26 Formula GM, 132 F. Supp. at 573-74 (considering “claimant’s literature”). 97 Hanson v. United States, 417 F. Supp. 30, 35 (D. Minn. 1976) (“The promotional materials . . . make similar claims” that “the ingestion of laetrile results in the ‘prevention, control, arrest and minimization of cancerous tissue growths.’”), aff’d, 540 F.2d 947 (8th Cir. 1976) (per curiam); United States v. Undetermined Quantities of an Article of Drug Labeled as “Exachol,” 716 F. Supp. 787, 792 (S.D.N.Y. 1989) (“The claims clearly identify a product which is intended to prevent cholesterol deposits and thereby to mitigate the possibility of coronary thrombosis.”). 98 United States v. Lane Labs-USA, Inc., 324 F. Supp. 2d 547, 568 (D.N.J. 2004) (“many of the materials at issue in this action blatantly claimed that the given product was an effective treatment for cancer or HIV/AIDS”); United States v. Kasz Enters., Inc., 855 F.Supp. 534, 540 (D.R.I. 1994) (“The promotional materials accompanying Solutions 109 are replete with claims (testimonials) that hair growth has occurred and hair loss prevented with use of these products.”). 99 Sigma-Tau, 288 F.3d at 145. 100 See id. at 146 (“The FDA determined the intended use for [the] generic drugs by relying primarily upon the proposed labeling provided by the companies.”); Spectrum Pharms., Inc. v. Burwell, 824 F.3d 1062, 1067 (D.C. Cir. 2016) (“FDA responds that it need look no further than the use indicated in [the abbreviated new drug application] . . . We agree with FDA . . . .”); see also Ribavirin Petition Response, supra note 21, at 22 (“Here, the proposed labeling would be the most relevant and compelling, if not exclusive, manifestation of the objective intent of the ANDA applicant legally responsible for that proposed generic ribavirin capsule drug product.”). 101 82 Fed. Reg. at 2208. Page 19 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 footnote rebutting the defendants’ arguments that their products’ labels should be controlling as to the products’ intended uses. 102 In the main text, the court determined that the products were intended for use as drugs based on “leaflets,” a “flyer,” and “catalogs and advertisements,” all of which claimed “that the products could produce stimulation, as cocaine does.” 103 The Agency’s reliance on United States v. An Article of Device Toftness Radiation Detector is also misplaced. The Seventh Circuit had no occasion to evaluate the sufficiency of the evidence of intended use presented at trial, much less the propriety of a “totality of evidence” standard, because the defendants did not challenge the evidence. In fact, they introduced much of the evidence themselves, and argued that it showed that their device “was not intended to be used as the sole means of diagnosing patients” and that their device was “intended only for research.” 104 The court determined that both arguments failed as a matter of law, explaining that an “instrument need not be the only agent in an allegedly curative process to be a device within the definition,” and that “the Act and its regulations do not except instruments involved in research from the definition of ‘device.’” 105 Finally, FDA cites the D.C. Circuit’s opinion in ASH v. Harris, but that case holds that “the crux of FDA jurisdiction over drugs lay in manufacturers’ representations as revelatory of their intent” and that this “understanding has now been accepted as a matter of statutory interpretation.” 106 Far from embracing the totality standard that FDA posited, the D.C. Circuit rejected the argument that the intended use of cigarettes should be inferred from the circumstances surrounding their manufacture and distribution. 107 b. The totality standard would introduce significant constitutional concerns. As explained in the prior section, the cases interpreting “intended use” under the FDCA do not allow the agency to consider any and all categories of evidence, without limits, to show an intended use. Instead, cases hold that intended uses “must be determined from objective evidence in promoting, distributing, and selling the [drug or] device.” 108 In particular, a manufacturer must make an explicit promotional claim before FDA may find a new intended use. 102 United States v. Storage Spaces Designated Nos. 8 and 49, 777 F.2d 1363, 1366 n.5 (9th Cir. 1985). 103 Id. at 1366. 104 United States v. An Article of Device Toftness Radiation Detector, 731 F.2d 1253, 1257 (7th Cir. 1984) (emphasis added). 105 Id. at 1258. 106 ASH v. Harris, 655 F.2d at 238-39. 107 Id. at 239-40. 108 United States v. One Unlabeled Unit, More or Less of an Article of Device and Promotional Brochures, 885 F. Supp. 1025, 1028 (N.D. Ohio 1995) (emphasis added). Page 20 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 FDA’s totality standard not only departs from existing law, but also raises serious constitutional concerns. To be sure, the traditional claims-based interpretation of intended use, which predated the development of contemporary commercial speech case law, raises challenging First Amendment questions. 109 Moreover, a vague standard allowing the prosecution of manufacturers for misbranding violations based merely on inferences of promotional claims drawn from the “totality of circumstances” violates the Due Process clause of the Fifth Amendment by failing to provide regulated parties “fair notice of conduct that is forbidden or required.” 110 These concerns are heightened when the lack of clarity chills protected speech. 111 FDA’s new “totality of the evidence” test all but guarantees significant constitutional harms will result. For instance, the Final Rule exacerbates the already intolerable uncertainty that FDA’s regulations and enforcement actions have created with respect to the boundaries of criminal liability. As the MIWG explained in its 2013 citizen petition, the Due Process Clause of the Fifth Amendment requires that the government regulate with “precision” in this arena and provide fair notice to regulated industry as to the conduct that can (and cannot) lead to potential liability. 112 As the MIWG also explained, the lack of a priori rules clearly defining and limiting the government’s ability to allege an intended use under 21 C.F.R. §§ 201.128 and 801.4 violates those due process principles because the open-ended intended use regulations leave manufacturers unable to evaluate, in advance, the lawfulness of proposed business practices. 113 Experience has shown that prosecutors (and the private qui tam bar) have relied on 21 C.F.R. §§ 201.128 and 801.4 to allege after the fact that business practices have misbranded a product because they provide circumstantial evidence of an intended use, even if that use was in no way promoted by the defendant. Codifying a “totality” standard in the intended use regulations will 109 In United States v. Caronia, the court held that truthful and non-misleading promotional claims are protected by the First Amendment, and invoked the canon of constitutional avoidance to adopt a construction of the FDCA that obviated a collision between FDA’s implementation of the statute and important constitutional restrictions on the agency’s power to regulate manufacturer communications. See 703 F.3d 149, 160, 162 (2d Cir. 2012); see also Amarin Pharm., Inc. v. FDA, 119 F. Supp. 3d 196, 225 & n.56 (S.D.N.Y. 2015). FDA currently is engaged in a “comprehensive review” of its regulatory scheme, which has involved a public hearing and, more recently, the agency’s publication of a lengthy memorandum reflecting its perspective on the application of First Amendment principles to its regulatory authorities under the FDCA. See Manufacturer Communications Regarding Unapproved Uses of Approved or Cleared Medical Products; Public Hearing; Request for Comments, 81 Fed. Reg. 60,299 (Sept. 1, 2016); FDA Memorandum, Public Health Interests and First Amendment Considerations Related to Manufacturer Communications Regarding Unapproved Uses of Approved or Cleared Medical Products, Docket No. FDA-2016-N1149 (Jan. 2017). 110 FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012). 111 Id. at 2318 (fair notice principles operate with greater force “when applied to . . . regulations that touch upon ‘sensitive areas of basic First Amendment freedoms’”) (quoting Baggett v. Bullitt, 377 U.S. 360, 372) (1964)). 112 Citizen Petition, Docket No. FDA-2013-P-1079, at 8 (Sept. 3, 2013). 113 Id. at 15-19. Page 21 Docket Nos. FDA-2016-N-1149, FDA-2015-N-2002, 2013-P-1079, FDA-2011-P-0512 February 8, 2017 only make these problems worse. Under a totality standard, no one will be able to know, in advance, what evidence (or even types of evidence) a prosecutor might consider sufficient to deem an actual use to be an intended use, raising significant Fifth Amendment concerns. Similarly, and as discussed below, the new “totality” standard would not only risk the restriction of truthful and non-misleading promotional speech, but also chill non-promotional speech that FDA has consistently recognized as beneficial to the public health. c. The totality standard would negatively impact the public health by chilling valuable scientific speech. Under a “totality of the evidence” standard, everything may be considered to establish a product’s intended use. This standard would allow FDA to rely even on non-promotional scientific exchange as evidence of intended use. Such evidence could include speech with significant public health benefits, including a firm’s distribution of reprints, clinical practice guidelines, or reference texts regarding unapproved uses of approved/cleared medical products; its responses to unsolicited requests for information about such uses; its presentation of truthful and non-misleading scientific information about unapproved uses at medical or scientific conferences; and its discussions of such uses with third-party payers. Although FDA has issued non-binding guidance documents or draft guidance documents concerning some of these activities, any such statements appear to be trumped by the binding totality standard codified at 21 C.F.R. §§ 201.128 and 801.4. The chilling effect of such a standard is difficult to overstate. For example, if a company engages in scientific exchange about off-label use, forecasts on- and off-label sales, and scales production to meet the combined demand, a prosecutor could decide that this evidence reflects an off-label intended use. Combined with the substantial penalties and resulting pressure companies face to settle criminal misbranding cases, the new intended use rule exposes manufacturers to a significant risk of liability for conduct that is entirely lawful and beneficial to the public health. The result of the Final Rule is therefore that speech regarding valuable scientific and medical information will be chilled, negatively impacting the public health. IV. Conclusion For the foregoing reasons, reconsideration should be granted, the Final Rule published on January 9, 2017 should be indefinitely stayed, and FDA staff should promulgate final intended use definitions consistent with the definitions set out in the September 2015 notice of proposed rulemaking. Paul E. 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