Nicopure Labs, LLC v. Food and Drug Administration et al.

Stacy L. Ehrlich and James William Woodlee

Why It Made the List

Nicopure Labs, LLC v. Food and Drug Administration et al.¹ is the latest decision in a string of industry challenges to aspects of the U.S. Food and Drug Administration’s (FDA’s) implementation of the Family Smoking Prevention and Tobacco Control Act of 2009 (TCA). In this case, the plaintiffs objected to FDA’s so-called “Deeming Rule” as applied to electronic nicotine delivery system (ENDS) products, including e-cigarettes and e-liquids. The ENDS product category is a relatively new entrant to the tobacco product marketplace, and it includes innovative products viewed as lower-risk alternatives to combustible tobacco products such as cigarettes.

Indeed, exactly one week after the district court’s decision in the Nicopure case, the then-recently-installed FDA Commissioner, Dr. Scott Gottlieb, announced a new comprehensive plan for tobacco and nicotine regulation intended to “strike an appropriate balance between regulation and encouraging development of innovative tobacco products that could reduce the public health harms caused by cigarette smoking.”² Dr. Gottlieb stated that “we must recognize the potential for innovation to lead to less harmful products, which, under FDA’s oversight, could be part of a solution” to the death and disease caused by combustible cigarettes.³ The public health question at the core of the Nicopure case is whether the Deeming Rule strikes an appropriate balance in regulating ENDS products in the same manner (or, arguably, in a more stringent manner) as the more harmful category of cigarettes.

Discussion

Background

Upon its effective date, the TCA immediately subjected to FDA’s authorities under Chapter IX of the Federal Food, Drug, and Cosmetic Act (FDCA or Act) cigarettes, cigarette tobacco, roll-your-own tobacco, smokeless tobacco, and components, parts, and accessories of such products.⁴ The TCA further provided that for other categories of “tobacco products”—defined as “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part, or accessory of a tobacco ^{product)5—FDA} may issue regulations “deeming” them to be subject to its tobacco product authorities.⁶ On May 10, 2016, FDA issued a final rule deeming all products meeting the statutory definition of “tobacco product” (except accessories of such products) to be subject to Chapter IX of the Act (Deeming Rule).⁷

Nicopure, a manufacturer of ENDS products and e-liquids, brought a challenge in the United States District Court for the District of Columbia on the basis that the Deeming Rule exceeded the agency’s statutory authority, violated the Administrative Procedure Act (APA), violated the First and the Fifth Amendments to the U.S. Constitution, and was not supported by the requisite cost-benefit analysis. In a separate action, the Right to be Smoke Free Coalition (RSF), along with several other industry trade associations, challenged the Deeming Rule on similar grounds. The district court consolidated the two cases and both sides filed for summary judgment.

In its summary judgment brief, Nicopure claimed that FDA’s action to regulate ENDS products “will crush the vaping industry.” This assertion stemmed in large part from the FDCA’s requirement that a company obtain prior FDA authorization to market “new tobacco products,” defined to include any product not commercially marketed in the United States “as of” February 15, 2007, or modified in any physical respect since that date. As FDA has conceded, virtually all ENDS products so qualify. Under policies announced and refined since the issuance of the Deeming Rule, FDA has permitted the continued marketing of ENDS products that qualify as “new tobacco products” that were on the U.S. market on the Deeming Rule’s effective date of August 8, 2016. However, these policies would eventually require the submission of expensive and uncertain marketing applications for such products, removal from the market of any product not covered by a timely filed application, and removal from the market of any product covered by a timely filed application for which FDA’s review concludes without issuance of a marketing authorization. In her opinion, U.S. District Court Judge Amy Berman Jackson stated that she “wishes to reassure the many worried vapers who followed these proceedings closely that this case is not about banning the manufacture or sale of the devices.”⁸ Yet the Deeming Rule’s potentially significant impact on the ENDS marketplace is very much at the heart of the plaintiffs’ challenge.

The Court’s Ruling

On July 21, 2017, the U.S. District Court for the District of Columbia issued its opinion on the parties’ summary judgment motions, finding in favor of FDA on all counts. In its decision, the court largely deferred to FDA and noted that the plaintiffs’ concerns were primarily policy arguments more appropriately directed to Congress.

What is a Tobacco Product?

The court first rejected the plaintiffs’ assertions that FDA exceeded its statutory authority when taking the position that it may regulate as tobacco products open system vaping devices that do not contain e-liquid and e-liquids that do not contain nicotine.⁹ The plaintiffs contended that the devices themselves could not be tobacco products because they are not made or derived from tobacco and are not intended for human consumption. Likewise, the plaintiffs argued that nicotine-free e-liquids are not made or derived from tobacco. However, the court noted that Nicopure “repeatedly quote[d] just a portion of the statutory definition of ‘tobacco product’” and omit[ted] the portion [of the definition] that includes any “component” or “part.”¹⁰ In the Deeming Rule, FDA defined the terms “component or part” to mean “any software or assembly of materials intended or reasonably expected: (1) to alter or affect the tobacco product’s performance, composition, constituents, or characteristics; or (2) to be used with or for the human consumption of a tobacco product.”¹¹ The court found this definition to be consistent with the statutory definition of “tobacco product” and that FDA’s application of this definition to separately sold elements of an open ENDS product was based on a permissible construction of the TCA.

In particular, FDA asserted that the definition of “component” covers both empty vaping devices and e-liquids that are “intended or reasonably expected to be used with or for the human consumption of a tobacco product (e.g., liquid nicotine).”¹² With respect to the device, which contains the heating element and the battery, the court stated that, at the very least, it is a “component”: “ . . . [A] consumer cannot use a vaping device for its primary purpose without adding the liquid, and there is nothing to do with the liquid without the device.”¹³ The court further opined: “Indeed, it might be fair to say that the device is the electronic nicotine delivery system.”¹⁴

With respect to e-liquids, the court first rejected the government’s arguments that: (1) the plaintiffs lacked standing to make this claim because they did not demonstrate that their e-liquids are subject to the Deeming Rule and (2) the claim was not ripe because the plaintiffs did not yet know if FDA will initiate enforcement action against their nicotine-free e-liquids. The court found that because Nicopure manufactures nicotine-free liquids it had standing, even if the plaintiffs “have not specified whether their nicotine-free liquids are or are not intended to be mixed with liquid nicotine, since the agency has already specifically stated that it is not bound to take manufacturers at their word.”¹⁵ The court also held the challenge to this aspect of the rule to be ripe because “the question in this case is not about whether the regulation will apply to a particular nicotine-free e-liquid; the challenge is whether nicotine-free e-liquids can be regulated at all.”¹⁶ The court ultimately agreed with FDA that it can regulate e-liquids that are reasonably expected to be mixed with liquid nicotine because those liquids would be “components or parts” of a tobacco product.¹⁷ In particular, it observed that, “if an ENDS device with nicotine or a tobacco derivative in it is, as plaintiffs acknowledge, a tobacco product, then a nicotine-free liquid that gets added to the mix – to provide flavor or make the inhalation experience less harsh – becomes a ‘component’ of the tobacco product when it is added.”¹⁸

FDA’s Decision to Deem ENDS Products to Be Subject to Chapter IX of the Act

The plaintiffs next alleged that FDA’s decision to subject ENDS products to its tobacco product authority was arbitrary and capricious in violation of the APA. The court first noted that the language of the deeming provision, which uses the terms “may” and “deem,” is “the kind of language that, even if judicial review is permitted, ‘fairly exudes deference.’”¹⁹ It then identified the reasons the agency cited to support its determination that regulating ENDS products, and particularly requiring premarket review of new tobacco products and modified risk claims, would benefit public health. “First and foremost, [FDA found that] nicotine is indisputably harmful.”²⁰ Second, FDA stated that adolescents are particularly vulnerable to the effects of nicotine and there has been, as described by FDA, an “alarming” rise in use of ENDS products by teens. Finally, the agency claimed to have found significant inconsistency in the concentration of chemicals delivered by various ENDS products in the marketplace.

The court therefore concluded that there is a rational relationship between the facts articulated by FDA in support of the rulemaking and the choice to include ENDS products in the Deeming Rule. The court additionally observed that the Congressional findings in the TCA itself buttress this conclusion, noting that the legislative history of the statute indicates that “Congress was well aware of the advent of e-cigarettes at the time that the TCA was passed.”²¹ In upholding the validity of the Deeming Rule under the APA, the court rejected the plaintiffs’ arguments that the decision to deem ENDS products was arbitrary and capricious because: (1) regulating them under the Chapter IX controls would undermine the TCA’s core goal of reducing death and disease caused by tobacco products and (2) the agency failed to consider alternatives that would avoid a “significant degree of product exit” as a result of the onerous regulatory requirements for ENDS products to remain on the market. Discounting these arguments, including those that asserted that the agency should have exercised enforcement discretion in implementing the statutory premarket review requirements for products introduced after February 15, 2007, the court expressed the view that the plaintiffs’ concerns were “better directed to Congress than the FDA.”²²

The plaintiffs additionally argued that the Deeming Rule was invalid under the APA because the agency’s cost-benefit analysis was insufficient. As a fundamental matter, the court found that FDA was not required to undertake a cost-benefit analysis when it implemented the statutory deeming provision. It distinguished the statutory language of the Clean Air Act in Michigan v. EPA,²³ cited by the plaintiffs, from the deeming language in the TCA. The Clean Air Act required the Environmental Protection Agency (EPA) to regulate power plant emissions “if the Administrator finds such regulation is appropriate and necessary after considering the results of the study.”²⁴ In light of the use of the term “appropriate and necessary,” the Supreme Court ruled that EPA’s decision to not consider cost at all was unreasonable. The TCA, in contrast, does not contain language that would indicate a requirement that FDA take cost into account when it exercises its deeming power.

The court further held that, even if the agency was required to conduct an analysis of costs, its cost-benefit analysis was adequate and was not “a clear error of judgment.” It stated, “Here, the administrative record reflects that the agency expressly considered both the burdens the decision would impose on the vaping industry and the benefits to the public.”²⁵ Citing D.C. Circuit precedent that “cost-benefit analyses epitomize the types of decisions that are most appropriately entrusted to the expertise of an agency,”²⁶ the court concluded that the balance that the agency struck, as documented in its Regulatory Impact Analysis, was reasonable, despite the fact that FDA explicitly acknowledged that it could not “quantify the benefits of the final rule due to lack of information and substantial uncertainties associated with estimating its effects.”²⁷

The court also rejected the plaintiffs’ arguments that FDA violated the Regulatory Flexibility Act (RFA)²⁸ by failing to consider significant alternatives to the Deeming Rule and by failing to appropriately balance the costs and benefits of the rule for small businesses. Noting that the RFA’s requirements are “purely procedural,” the court held that the fact that FDA completed a Regulatory Impact Analysis that “contains a discussion of all of the required topics” was sufficient to satisfy the statute.²⁹

Constitutional Claims

Under their constitutional claims, the plaintiffs first argued that the TCA’s premarket review requirements violated RSF’s right to due process under the Fifth Amendment to the Constitution. In particular, RSF asserted that, because Congress created a premarket review system that RSF believes manufacturers will never be able to satisfy, the provision lacked a rational basis as applied to ENDS products. The court disagreed, concluding that the provision does not violate the their substantive due process rights because Congress articulated a number of rational reasons for the premarket review requirement in the purposes section of the TCA. The plaintiffs additionally alleged that two provisions of the Deeming Rule violated their right to free speech under the First Amendment: (1) the ban on free samples and (2) the pre-approval requirement for modified risk claims. As an initial matter, the plaintiffs asserted that, under the Supreme Court’s decision in Sorrell v. IMS Health,³⁰ the TCA’s restrictions on speech are subject to heightened First Amendment scrutiny because they are content- and speaker-based restrictions.³¹ The Sorrell opinion specifically noted that “‘fear that people would make bad decisions if given truthful information’ cannot justify content-based burdens on speech.”³² The district court, however, rejected the plaintiffs’ argument, holding that “the Sorrell opinion did not alter or replace the Central Hudson [intermediate] scrutiny standard” in this context.³³

With respect to the free sample ban, the plaintiffs argued that courts have unanimously recognized that distributing free samples qualifies as protected speech.³⁴ The district court took issue with this conclusion, holding that “[e]ven if the Court were to view the distribution of free samples as inherently expressive – ‘try this!’ – that limited message is not a ‘significant element’ of the conduct being regulated.”³⁵ The court also dismissed the plaintiffs’ argument that free samples allow sellers to “inform consumers about a product’s characteristics and quality,” and are an “effective means of communicating and encouraging consumers ‘to try different and new . . . products,’” noting that “coupons and promises of lower prices do the same.” ³⁶ The court therefore determined that the ban regulates conduct not speech.

In any event, the court held that the free sample ban does not violate the First Amendment because the ban satisfies the Central Hudson test: the government has a substantial interest in eliminating youth access to tobacco products, and the ban directly and materially advances, and is not more extensive than necessary to serve, that interest.³⁷ In particular, the court noted the plaintiffs’ concession that FDA asserted a substantial interest to “eliminate a pathway for youth access to [t]obacco products”³⁸ and that the government produced “substantial evidence that its free sample ban will directly reduce access to vaping products by minors.”³⁹

With respect to whether the free sample ban was a “reasonable fit,” the plaintiffs argued that it is more extensive than necessary because there are a number of less restrictive alternatives to achieve the government’s interest such as “(1) limiting of free samples to adults at qualified-adult only facilities, (2) prohibiting samples from leaving store premises, and (3) prohibiting the distribution of free samples at public events.”⁴⁰ The court summarily dismissed these arguments, deferring to FDA’s assertion that it does not believe that it could achieve the same results with these alternatives and noting that there are other ways in which sellers could deliver information about ENDS products to “an appropriate adult audience, such as by discounting sample kits sold in stores to curious adults [and] inform[ing] consumers via demonstrations, promotional literature, and other advertising.”⁴¹

Finally, the court held that the modified risk provisions of the TCA do not violate the First Amendment. The TCA requires that manufacturers obtain prior approval of any claim that represents that a tobacco product is less harmful than other tobacco products or contains a reduced level of, or  reduces exposure to, a substance. The plaintiffs argued that this provision bars them from making truthful and non-misleading claims without FDA approval, a process which is so onerous that FDA has not yet approved even one modified-risk claim.

In reviewing this assertion, the court relied on the Discount Tobacco case in which the Sixth Circuit upheld the TCA’s modified risk provision as applied to cigarettes based on the cigarette industry’s long history of misleading marketing campaigns, finding that prior approval by FDA is appropriate because “in the context of a deadly and highly addictive product, it would be a virtual impossibility to unring the bell of misinformation after it has been rung.”⁴² The Nicopure court’s analysis did not, however, distinguish between cigarettes and ENDS products, which, as new entrants to the marketplace, do not have such a marketing history and are, as FDA acknowledges, less harmful to the individual user. Rather, the court concluded that, under the TCA, the “need to protect the public from unsubstantiated health claims applies with equal force no matter how the nicotine is being delivered.”⁴³

The court also rejected the plaintiffs’ assertion that the modified-risk-claim requirements are more extensive than necessary because FDA could have instead simply required appropriate disclaimers, citing Congress’s finding that “consumers have misinterpreted advertisements in which one product is claimed to be less harmful than a comparable product, even in the presence of disclosures and advisories intended to provide clarification.”⁴⁴ The court summarized its view as follows: “ . . . [T]his provision does not ban truthful statements about health benefits or reduced risks; it simply requires that they be substantiated.”⁴⁵

Impact

The Nicopure case was the first court opinion on the validity of FDA’s Deeming Rule.⁴⁶ Although as part of its July 28, 2017, announcement of a comprehensive nicotine plan (as well as based on some technical issues that subsequently arose), FDA delayed the implementation of many of the rule’s requirements,⁴⁷ all of the provisions of the Deeming Rule as applied to ENDS products currently remain in force. The issues raised in the Nicopure case are therefore still of great concern to the ENDS industry, as well as a number of members of the public health community, who strongly believe that consumers should have ready access to and accurate information about lower-risk alternatives to cigarettes and that FDA regulation should be consistent with those objectives.

Importantly, the plaintiffs have appealed this case to the D.C. Circuit, continuing to assert their arguments that (1) the modified risk provisions violate the First Amendment; (2) the free sample ban violates the First Amendment; and (3) FDA violated the TCA and the APA when it failed to tailor the premarket review requirements for ENDS products. Amicus curiae briefs in support of the plaintiffs have been filed with the appellate court by the State of Iowa (led by Attorney General Tom Miller), NJOY LLC (an ENDS company), the Consumer Advocates for Smoke-Free Alternatives Association (an ENDS consumer advocacy organization), the Washington Legal Foundation (WLF, a nonprofit public-interest law firm and policy center that focuses on First Amendment issues), and a group of public health advocates and tobacco policy authorities that includes the former Director of the United Kingdom’s Action on Smoking in Health, a former Associate Commissioner of FDA, and a number of professors and research scientists at academic institutions. In addition to reviewing the district court’s rulings in this case, the court of appeals will likely address the question of whether the Supreme Court’s decision in Sorrell requires a new approach to regulation of commercial speech in these circumstances, an issue of first impression for the D.C. Circuit. In this regard, WLF has asked the court to apply the same strict scrutiny to speaker- and content-based restrictions on commercial speech that courts routinely apply in any other speech setting. The resolution of this issue could land the Nicopure case back on the list of top cases for 2018, so stay tuned.

Stacy L. Ehrlich is a partner in the Washington, DC, law firm Kleinfeld Kaplan & Becker LLP.  Her practice focuses on representing pharmaceutical, food, dietary supplement, cosmetic, tobacco product, and medical device companies on regulatory matters.

James William Woodlee is a partner at Kleinfeld, Kaplan & Becker LLP. His practice focuses on counseling and advocating on behalf of food, dietary supplement, cosmetic, pharmaceutical, medical device, tobacco, and consumer product companies on regulatory and advertising law matters.

1. 266 F. Supp. 3d 360 (D.D.C. 2017).
2. FDA’s Plan for Tobacco and Nicotine Regulation (July 28, 2017), https://www.fda.gov/‌TobaccoProducts/NewsEvents/ucm568425.htm.
3. Protecting American Families: Comprehensive Approach to Nicotine and Tobacco, July 28, 2017, Remarks by Scott Gottlieb, M.D., https://www.fda.gov/NewsEvents/Speeches/ucm569024.htm.
4. 21 U.S.C. § 387a(b).
5. 21 U.S.C. § 321(rr).
6. 21 U.S.C. § 387a(b).
7. Deeming Tobacco Products to be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Restrictions on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products, 81 Fed. Reg. 28,974 (May 10, 2016).
8. Nicopure Labs, LLC v. FDA, 266 F. Supp. 3d 360, 367 (D.D.C. 2017). Consumers fill open-system devices with e-liquid(s) of their choosing.
9. The court did not address the issue of whether the agency may lawfully regulate e-liquids that contain synthetic nicotine or nicotine derived from non-tobacco sources. See Nicopure, 266 F. Supp. 3d at 391, n.25.
10. Id. at 380, n. 19.
11. 81 Fed. Reg. 28,974, 29,015 (May 10, 2016); 21 C.F.R. § 1100.3.
12. Nicopure, 266 F. Supp. 3d at 386.
13. Id. at 383.
14. Id. (emphasis in original).
15. Id. at 387.
16. Id. at 389 (emphasis in original).
17. Id. at 391.
18. Id.
19. Id. at 393.
20. Id. at 393-94.
21. Id. at 395, n. 26.
22. Id. at 398.
23. Michigan v. EPA, 135 S. Ct. 2699 (2015)
24. Nicopure, 266 F. Supp. 3d at 401.
25. Id. at 403.
26. Id.
27. Id. at 404.
28. 5 U.S.C. § 601 et seq.
29. Nicopure, 266 F. Supp. 3d at 408.
30. Sorrell v. IMS Health, 564 U.S. 552 (2011).
31. Nicopure, 266 F. Supp. 3d at 411.
32. Sorrell, 564 U.S. at 555.
33. Nicopure, 266 F. Supp. 3d at 411.
34. See, e.g., Discount Tobacco City & Lottery, Inc. v. United States, 674 F.3d 509, 538 (6th Cir. 2012) (holding that sampling is protected speech because it is a “promotional method[] that convey[s] the twin messages of reinforcing brand loyalty and encouraging switching from competitors’ brands”); Bailey v. Morales, 190 F.3d 320, 321, 325 (5th Cir. 1999) (restrictions on “promotional gifts and items” offered by chiropractors violated the First Amendment); Rockwood v. City of Burlington, Vt., 21 F. Supp. 2d 411, 415, 421–22 (D. Vt. 1998) (distribution of free samples was protected speech).
35. Nicopure, 266. F. Supp. 3d at 413.
36. Id. at 415.
37. Id. at 418.
38. Id.at 416 (citing Discount Tobacco for the proposition that free samples of cigarettes were an “easily accessible source of the[] products to young people”).
39. Id. at 417.
40. Id. at 418.
41. Id. at 418.
42. Id. at 420.
43. Id. at 420, n. 38.
44. Id. at 420-21 (citing Tobacco Control Act § 2(41)).
45. Id. at 421.
46. A number of challenges to the deeming regulation are pending in various jurisdictions. See Cigar Ass’n of America et al v. U.S. Food and Drug Administration, No. 1:16-cv-01460 (D.D.C.); Cyclops Vapor 2, LLC et al v. U.S. Food and Drug Administration et al, No. 2:16cv556-MHT (M.D. Ala.); En Fuego Tobacco Shop LLC, et al. v. U.S. Food & Drug Administration, 4:18-cv-00028 (E.D. Tex.); Hoban et al v. Food and Drug Administration et al, No. 0:18-cv-0026 9-JNE-LIB (D. Minn.); Jooce et al v. Food and Drug Administration, No. 1:18-cv-00203-CRC (D.D.C.); Lost Art Liquids, LLC v. Food and Drug Administration et al., No. 2:16-cv-03468 (C.D. Ca.); Rave Salon Inc. v. Gottlieb et al, 3:18-cv-0 0237-G (N.D. Tex.).
47. For instance, FDA extended the deadline for premarket submissions for deemed “new tobacco products” on the market on the Deeming Rule’s effective date to August 8, 2021, for combustible products and August 8, 2022, for non-combustible products (including ENDS products), and announced a compliance policy to permit such products to remain on the market until the applicable deadline for premarket submissions (and thereafter if a submission is timely filed and remains under review). See Extension of Certain Tobacco Product Compliance Deadlines Related to the Final Deeming Rule: Guidance for Industry (November 2017).