After Acetris Decision, Trade Agreements Act Compliance Questions Abound: Contractors Need Guidance

Merle M. DeLancey Jr., Jay P. Lessler, and James R. Staiger

The Federal Circuit’s recent decision in Acetris has left many contractors scratching their heads and asking questions. To recap, on February 10, 2020, the Federal Circuit held that, under the Federal Acquisition Regulation (“FAR”), to qualify as a “U.S.-made end product” under the Trade Agreements Act (“TAA”), a drug must be either “manufactured” in the United States or “substantially transformed” in the United States. (See Federal Circuit Holds Generic Drugs Manufactured in the U.S. from API Produced in India Qualify for Sale to U.S. under Trade Agreements Act (Acetris Decision).) This is a stark change from the Government’s long-held position that manufacturing and substantial transformation were one in the same.

As a result of the Acetris decision, federal contractors seeking to comply with or maintain compliance with the TAA are facing many questions. Some of the more prominent questions are below. Continue reading “After Acetris Decision, Trade Agreements Act Compliance Questions Abound: Contractors Need Guidance”

Federal Circuit Holds Generic Drugs Manufactured in the U.S. from API Produced in India Qualify for Sale to U.S. under Trade Agreements Act (Acetris Decision)

Merle M. DeLancey Jr., Jay P. Lessler, and James R. Staiger

Earlier today, the United States Court of Appeals for the Federal Circuit issued a decision that is sure to send shockwaves through the generic drug industry. In Acetris, the Federal Circuit held that a generic drug manufactured in the United States complied with the Trade Agreements Act (“TAA”) and could be sold to the Department of Veterans Affairs. The court made this determination even though the drug’s active pharmaceutical ingredient (“API”) came from a non-designated country, India. In reaching its decision, the court broke away from longstanding Customs and Border Protection (“CBP”) precedent that the country where the API was produced dictated the location of “substantial transformation” and thus the country of origin for any resulting drug. The court held that under the Federal Acquisition Regulation (“FAR”), to qualify as a “U.S.-made end product” under the TAA, a drug must be either “manufactured” in the United States or “substantially transformed” in the United States—but not be both.

For years, generic drug manufacturers that manufacture drugs in the United States from API produced in India and China have been precluded from selling their drugs to the U.S. Government under the TAA. The Federal Circuit’s Acetris decision opens up the U.S. Government market for generic drugs manufactured in the U.S. from API produced in India and China.

 

 

Top 10 Trends and Compliance Obligations in the Evolving World of Commercial Item Procurement

Blank Rome Partner Justin A. Chiarodo will be a presenter at BDO’s Winter 2019 Marketplace Outlook Update for Government Contractors, “Top 10 Trends and Compliance Obligations in the Evolving World of Commercial Item Procurement.” This live webinar will take place Thursday, February 28, 2019, from 12:30 to 1:30 p.m. EST.

For more information, please visit our website.

Trade Agreements Act Enforcement Loses a Couple More Teeth

Merle M. DeLancey Jr.

Two recent judicial decisions involving the Trade Agreements Act (“TAA”) build on a trend reflecting a more favorable enforcement climate for contractors grappling with domestic preference regimes. Earlier this year, the U.S. District Court for the District of Columbia dismissed a qui tam action that alleged fraud in connection with country of origin requirements imposed by the TAA. United States ex rel. Folliard v. Comstor Corp., 308 F.Supp.3d 56 (D.D.C. 2018) (finding the relator failed to adequately plead that the alleged TAA noncompliance was “material” to the Government’s payment decision). The decision marked a welcome early defeat of a False Claims Act case based on the enhanced materiality and scienter requirements of the Escobar decision (as we wrote about here).

Two recent federal court decisions appear to extend the trend of taking some of the bite out of TAA enforcement, and potential exposure for alleged noncompliance. Despite this welcome news, domestic preference programs remain a key legal obligation for government contractors (and an area likely to remain under scrutiny with the Administration’s professed focus on Buy American and Hire American initiatives). Continue reading “Trade Agreements Act Enforcement Loses a Couple More Teeth”

Buy American, Hire American: Will It Impact a Government Contractor’s Ability to Store Data Offshore?

Merle M. DeLancey Jr. and Lyndsay A. Gorton

Buy American and hire American. The concept is easy, but the implementation can be far more complicated, particularly in the current government contracting world where waivers to those requirements have become common. In an attempt to strengthen the commitment to buying American and hiring American, on January 26, 2018, a bipartisan group of ten Senators sent a letter to President Trump urging him to “keep the promises” that he had made in April 2017 to buy American and hire American. The letter follows Senators Rob Portman (R-OH), Sherrod Brown (D-OH), Lindsey Graham (R-SC), and Chris Murphy’s (D-CT) introduction of the bipartisan BuyAmerican.gov Act of 2018 on January 9, 2018. This new legislation seems to be an effort to codify President Trump’s April 18, 2017, Buy American and Hire American Executive Order (the Executive Order), and slow what the BuyAmerican.gov Act Press Release calls the “excessive number of waivers” to the Buy American laws. Since President Trump signed the Executive Order, much has been written about the potential effects of that Executive Order. However, the potential impacts on government contractors who maintain or store data relating to their performance of federal government contracts have been largely disregarded. Continue reading “Buy American, Hire American: Will It Impact a Government Contractor’s Ability to Store Data Offshore?”

Navigating Violations in the Export Controls Minefield (Part 3 in a Series)

David Yang

In the first two parts of this series, we covered companies’ obligations under U.S. export control laws, such as the Export Administration Regulations (“EAR”) governed by the Department of Commerce, Bureau of Industry and Security (“BIS”), and military or defense exports governed by the International Traffic in Arms Regulations (“ITAR”) under the auspices of the State Department’s Directorate of Defense Trade Controls (“DDTC”), and common ways to mitigate your organization’s risk against violations. Unfortunately, no compliance program can prevent all violations, and this final part of our series addresses the key considerations your organization should keep in mind in the event you discover that an apparent violation may have occurred. How your company addresses apparent violations are as important as anything else, because they end up determining the repercussions that your organization may face from these and other enforcement agencies. Continue reading “Navigating Violations in the Export Controls Minefield (Part 3 in a Series)”

Risk Management in the Export Controls Minefield (Part 2 in a Series)

David Yang

As the recent Bright Lights USA case demonstrates, export violations continue to be met by aggressive enforcement actions by U.S. government authorities. In Bright Lights USA, the U.S. State Department’s Directorate of Defense Trade Controls (“DDTC”) charged and fined a small manufacturer $400,000 for violating the International Traffic in Arms Regulations (“ITAR”) by exporting, without obtaining a license, engineering designs and drawings abroad for minor vehicle spare parts (such as rubber seals, gaskets and grommets, etc.) in connection with bids sent to foreign manufacturers to produce the parts for Bright Lights to resell to its commercial and public sector customers. Although the parts were commercial items and many other similar parts in the category in which Bright’s Lights conducted business had transitioned off of the U.S. Munitions List, the company had failed to update its list for parts that were still controlled. The DDTC found that the violations had occurred in large part due to the company’s “significant training and compliance program deficiencies.” Continue reading “Risk Management in the Export Controls Minefield (Part 2 in a Series)”