Amending Away Federal Jurisdiction: Supreme Court Holds That Federal Jurisdiction Can Be Divested by Amendment
Federal courts can adjudicate state-law claims arising out of the same facts as federal-law claims under 28 U.S.C. § 1367, but what happens if, after removal, the plaintiff amends her complaint to remove the federal questions supporting jurisdiction? Until recently, the circuit courts that had addressed the issue unanimously concluded that, as a general rule, a post-removal amendment does not automatically divest a federal court of jurisdiction.[1] That changed in July 2023, when the Eighth Circuit created a split by reaching the opposite conclusion.
In a recent decision, the Supreme Court unanimously adopted the Eighth Circuit’s view, holding that federal courts lose jurisdiction over state law claims if a plaintiff amends away her federal law claims. Justice Elena Kagan made clear that “[w]hen an amendment excises the federal-law claims that enabled removal, the federal court loses its supplemental jurisdiction over the related state-law claims.”
Royal Canin bounced around before ending up before the Supreme Court. It began as a state court antitrust class action brought under the Missouri Antitrust Law, the Missouri Merchandising Practices Act, and common law principles of unjust enrichment under Missouri law. The named plaintiff alleged that a consortium of pet food manufacturers, retailers, and veterinary clinics created a system by which prescriptions were needed to purchase certain varieties of dog and cat food. This practice allegedly led consumers to believe that the prescription pet food was healthier and better for their pets than “ordinary” pet food — and they thereby overpaid for the prescription pet food — when, in reality, the prescription pet food was no different than ordinary pet food.
The defendants removed the case to the Western District of Missouri under 28 U.S.C. § 1331, which provides for federal question jurisdiction, and the Class Action Fairness Act (CAFA). Although the plaintiff did not explicitly assert any federal claim, the removing defendant argued that the court had federal question jurisdiction because (1) the state law claims explicitly and necessarily turn on an interpretation of the Federal Food, Drug, and Cosmetic Act (FDCA); and (2) the plaintiffs sought an injunction requiring the defendants to adhere to federal law.
The district court initially remanded the case to state court because the state law claims did not “necessarily implicate” federal law to support federal question jurisdiction, and because the parties were not minimally diverse to support CAFA jurisdiction. The remand was appealed to the Eighth Circuit, which decided that the case belonged in federal court on federal question grounds. Once back at the district court, the plaintiff amended her complaint to remove references to federal law and the state antitrust and unjust-enrichment claims. The district court later granted the defendants’ motion to dismiss for failure to state a claim, and the case ended up back before the Eighth Circuit. That court determined that “there [was] nothing federal about” the amended complaint, vacating and remanding the case to the district court with directions to remand it to Missouri state court.
The Supreme Court affirmed and announced a bright-line rule that dismissing federal issues ends federal jurisdiction. The Court recognized that the answer to the questions before it was “certain,” noting that “[w]hen a plaintiff, after removal, cuts out all her federal-law claims, federal-question jurisdiction dissolves.” Consequently, “with any federal anchor gone, supplemental jurisdiction over the residual state claims disappears as well.” A district court considering a complaint devoid of original and supplemental jurisdiction must remand the case to state court. The Court rooted its decision in the text of Section 1367 and its non-removal precedents that found that amending away federal issues removes federal jurisdiction in cases originally filed in federal court.
Royal Canin provides a clean answer to a common issue, though that answer may require some nuance in future cases. Questions remain at the periphery of supplemental jurisdiction. For example, can a district court retain jurisdiction over state law claims after dismissing or granting summary judgment on federal law claims? And what happens when a plaintiff’s amendment is less absolute than the amendment in Royal Canin? Crafty plaintiffs may try to avoid federal court while also keeping as many paths to recovery open as they can. The Royal Canin plaintiffs got a clean rule because they made a clean cut of all their federal issues. Will a plaintiff cutting less get the same result? These, and many other, issues remain to be fleshed out.
There is a broader lesson here as well. The circuits were nearly unanimous in rejecting (or at least not adopting) the bright-line rule that the Supreme Court unanimously adopted in Royal Canin. While the Court’s decision is not altogether unexpected or earth shattering, it is a reminder that important matters of procedure are not always as settled as they seem. Just because the circuits have done things a certain way and more or less agreed on it does not mean that the Supreme Court will go along.
Notes
[1] E.g., Ching v. Mitre Corp., 921 F. 2d 11, 13 (1st Cir. 1990); In Touch Concepts, Inc. v. Cellco P’ship, 788 F.3d 98, 101–02 (2d Cir. 2015); Collura v. Philadelphia, 590 F. App’x 180, 184 (3d Cir. 2014) (per curiam); Harless v. CSX Hotels, Inc., 389 F. 3d 444, 448 (4th Cir. 2004); Louisiana v. Am. Nat. Prop. Cas. Co., 746 F.3d 633, 636–38 (5th Cir. 2014); Harper v. AutoAlliance Int’l, Inc., 392 F. 3d 195, 210–211 (6th Cir. 2004); In re Burlington N. Santa Fe Ry. Co., 606 F.3d 379, 380 (7th Cir. 2010); Broadway Grill, Inc. v. Visa, Inc., 856 F.3d 1274, 1277 (9th Cir. 2017); Behlen v. Merrill Lynch, 311 F. 3d 1087, 1095 (11th Cir. 2002).
Half-Baked: Proposal to Reform Alabama Medical Cannabis Licensing Seems Poised to Go Up in Smoke
Advocates and stakeholders in the medical cannabis world of Alabama are desperate. And as it is so often when we are faced with a desperate situation, we make well-intentioned but ultimately flawed decisions.
Alabama Senate Bill 72 dropped last week. It would, among other things, (1) expand the total number of integrated licenses from five to seven; (2) shift the authority of issuing licenses from the AMCC to a consultant; and (3) shield the decision from any judicial review.
As a practical matter, this means that a single consultant would choose the seven integrated license winners and that decision would automatically become the decision of the AMCC as a matter of law. It further means that Alabama courts will not be permitted to entertain any challenges to the process or the consultant’s decision, no matter how flawed or egregiously wrong it may be. And it means that we’re another year away from any finality.
What Does This Mean?
Sigh. This means a few things, none of which are good.
First, let’s be clear: It’s difficult to view this than as yet another bite at the apple for disappointed applicants. And I’m afraid to say that at this point there may not be much more apple to eat. After all, this would be the fourth attempt to issue integrated facility licenses. Enough is enough.
Second, the proposal is illegal. A law cannot prohibit any judicial review. While it’s arguably appropriate to remove the licensing process from the Administrative Procedures Act, it is not permissible to entirely remove the legal process from the issuance of a government license. I actually applaud the notion of a law that minimizes litigation or the scope of reviewable issues. After all, expansive and long-running litigation is why we’re in this position. And while it would be permissible to narrow the scope of arguments made in litigation, it is simply not permissible to remove the judicial system entirely.
Third, the notion that the decision-making authority would be placed in the hands of a “consultant” shielded from any judicial review is contrary to the letter and spirit of the law on the books for the last four years. The AMCC is a body appointed by elected officials and should have accountability for the selection – and subsequent actions – of licensees. But if the AMCC is not responsible for choosing licensees, it doesn’t seem fair to look to them when seeking accountability. Accountability will rest with a faceless “consultant” who will certainly skip town as soon as the decision is announced.
I want to be clear about one particular aspect of this discussion. While I believe this is a flawed bill with certain particularly cynical provisions, I do not attribute blame to its sponsors – Sens. Tim Melson, David Sessions, and Greg Albritton. I have always believed they have the best of intentions and are amenable to reasonable amendments to get Alabama’s medical cannabis program off the ground. I’m afraid, however, that in this instance, most unfortunately, they have been poorly advised.
Likelihood of Senate Bill 72 Becoming Law
In my opinion, this bill has little chance of becoming law as drafted. I base that on my opinion that the Alabama Legislature has little interest in revisiting cannabis proposals at this time, my conversations with various stakeholders (including well-heeled applicants that employ influential governmental affairs specialists), and by the knowledge that it is easier to defeat legislation than it is to pass it.
For what it’s worth, I do believe the Legislature would pass a bill if all of the relevant stakeholders agreed it was the right way forward. Unfortunately, and this is inherent in any limited license situation, we are operating in a zero-sum game where there will be winners and there will be losers and those who believe a proposal will end in their defeat will fight tooth and nail to stop it.
Maybe I just can’t shake the litigator in me, but I continue to believe courts may provide the best and more efficient option at this stage. To paraphrase Harry Dunne, played effortlessly by the genius Jeff Daniels, just when I think this process couldn’t possibly get any dumber…
One thing I can promise is that we’ll stay on top of this legislative proposal – and any other notable cannabis legislation in Alabama – so that you don’t have to.
CISA and FDA Sound Alarm on Backdoor Cybersecurity Threat with Patient Monitoring Devices
Last week, the U.S. Cybersecurity and Infrastructure Security Agency (“CISA”) and the U.S. Food and Drug Administration (“FDA”) released warnings about an embedded function they found in the firmware of the Contec CMS8000, which is a patient monitoring device used to provide continuous monitoring of a patient’s vital signs, including electrocardiogram, heart rate, temperature, blood oxygen and blood pressure.1 Healthcare organizations utilizing this device should take immediate action to mitigate the risk of unauthorized access to patient data, to determine whether or not such unauthorized access has already occurred, and to prevent future unauthorized access.
Contec Medical Systems (“Contec”), a global medical device and healthcare solutions company headquartered in China, sells medical equipment used in hospitals and clinics in the United States. The Contac CMS800 has also been re-labeled and sold by resellers, such as with the Epsimed MN-120.
The three cyber security vulnerabilities identified by CISA and FDA include:
An unauthorized user may remotely control or modify the Contec CMS8000, and it may not work as intended.
The software on the Contec CMS8000 includes a “backdoor,” which allows the device or network to which the device has been connected to be compromised.
The Contec CMS8000, once connected to the internet, will transmit the patient data it collects, including personally identifiable information (“PII”) and protected health information (“PHI”), to China.
Mitigation Strategies
Healthcare organizations should take an immediate inventory of their patient monitoring systems and determine whether their enterprise uses any of the impacted devices. Because there is no patch currently available, FDA recommends disabling all remote monitoring functions by unplugging the ethernet cable and disabling Wi-Fi or cellular connections if used. FDA further recommends that the devices in question be used only for local in-person monitoring. Per the FDA, if a healthcare provider needs remote monitoring, a different patient monitoring device from a different manufacturer should be used.
Healthcare providers that are not using impacted devices should still take the time to conduct an audit of their patient monitoring and other internet-connected devices to determine the risk of potential security breaches. Organizations should use this opportunity to evaluate, once again, their incident response plans, continue to conduct periodic risk assessments of their technologies, and evaluate whether their organization’s policies, procedures, and plans enable them to fulfill cybersecurity requirements.2
[1] See CISA, Contec CMS800 Contains a Backdoor (January 30, 2025); FDA, Cybersecurity Vulnerabilities with Certain Patient Monitors from Contec and Epsimed: FDA Safety Communication (January 30, 2025).
[2] See e.g., Polsinelli’s discussion of cybersecurity compliance in 2025.
Utah Introduces New Bill With “Unique” Definition for Ultra-Processed Foods in Schools
On February 4, 2025, Utah’s state legislature introduced H.B. 402, “Foods Available at Schools Amendments,” a bill aimed at amending the types of foods available in public schools. This bill specifically targets the prohibition of certain food additives, utilizing a unique definition of “ultra-processed foods” (UPFs), a category of foods yet to be formally defined by law or regulation.
The bill attempts to define UPFs as foods or beverages containing one or more of the following ingredients: brominated vegetable oil, potassium bromate, propylparaben, titanium dioxide, and various artificial dyes such as blue dye 1, blue dye 2, green dye 3, red dye 3, red dye 40, yellow dye 5, and yellow dye 6. We note that both bromated vegetable oil and red dye 3 have had their market authorizations revoked by FDA.
—The definition of UPFs as presented is entirely focused on artificial dyes and a few specific additives that does not encompass the broader range of ingredients and processes that typically characterize UPFs under the academic classifications that are in circulation.
The bill’s definition seems to reduce UPFs to a list of artificial dyes and a few other additives, demonstrating the confusion surrounding this issue, and the potential for policymaking not grounded in science.
“Non-UPF Verified” Certification Launched by Non-GMO Project
The Non-GMO Project has introduced a logo that would highlight foods that do not contain “ultra-processed” ingredients, called “Non-UPF Verified.” The program was created by the Non-GMO Project’s newly established Food Integrity Collective. The founder and CEO of the Non-GMO Project and the Food Integrity Collective, Megan Westgate, alleged that “[t]he Standard American Diet has become one of the leading risk factors for death worldwide, yet navigating today’s food landscape can feel like an impossible task.”
The new certification will complement the Butterfly seal, intended to help consumers choose foods that the Non-GMO Project believes promote food that is not ultra-processed. According to the organization, “Non-UPF Verified” will set clear standards and encourage food manufacturers to offer more minimally processed options, based on an “8-Petal Framework for Food Integrity.”
The term “ultra-processed food” is not formally defined, which raises questions as to how the certification program defines the term and whether the logo will be meaningful. For example, the National Institute of Health (NIH) defined “ultra-processed foods” in 2019 as foods that modify the nutritional content of their ingredients to boost their profitability, convenience, and shelf life. However, other definitions vary and there is no consensus.
The new certification program will launch its pilot phase in Spring 2025 and food manufacturers interested in the certification can learn more at: www.nonultraprocessed.org.
Monday Morning (Advertising) Quarterback – Unprecedented Hims & Hers Super Bowl Ad Has Legislators Concerned
The Super Bowl is not just the biggest game of the year for football fans, but it is also one of advertising’s biggest nights.
One commercial started gaining buzz even before kick-off. On Friday, Senators Richard Durbin (D-IL) and Roger Marshall (R-KS) asked the FDA to throw a penalty flag to stop Hims & Hers from marching down the field with their “life-changing” weight-loss solutions ad. According to the letter sent to FDA acting Commissioner Sara Brenner, the senators expressed concern that the Hims & Hers ad “risks misleading patients by omitting any safety or side effect information,” about the compounded weight loss drugs that it promotes.
Like other telehealth companies, Hims & Hers utilizes its internet platform to connect consumers to telehealth providers who issue prescriptions in appropriate cases for GLP-1 drugs, which are filled by compounding pharmacies at markedly lower prices than FDA-approved brand name products. GLP-1s are a class of medications that mimic gut hormones that regulate blood sugar and suppress appetite and are known for their weight loss benefits. However, due to insurance restrictions and the high retail price of these medications, they are not easily accessible for individuals seeking to utilize these products for weight loss.
Compounders have taken advantage of the popularity of these medications, which have been on FDA’s drug shortage list for several years. When a drug is on the shortage list, pharmacies are permitted to make compounded copies of the drug if they meet specific regulatory requirements outlined in sections 505A and 505B of the Federal Food, Drug, and Cosmetic Act (FD&C Act). By complying with these conditions, compounded drugs are exempted from several requirements, such as FDA approval and certain labeling conditions. This enables online pharmacies and telehealth companies to produce and sell cheaper versions of the same active ingredient without having to go through the costly FDA approval process.
As compounded drugs are not “approved” by FDA, these drugs technically have no approved label, indications, or uses. Therefore, pharmacies are exempted from section 502(f)(1) of the FD&C Act requiring adequate directions for use. Similarly, compounded drugs are exempt from the prescription drug advertisement rules outlined in 21 C.F.R. 202.1, which require, among other things, that all advertisements contain a fair balance between information relating to side effects and contraindications and information relating to the effectiveness of the drug. See 21 C.F.R. 202.1(2)(iii).
However, this does not give pharmacies and telehealth companies a “free pass” to run up the score in any way they want, as they are still restricted from making claims related to the therapeutic safety and effectiveness of the drug to remain within this exemption. Online pharmacies are also governed by the same general misbranding provisions under the FD&C Act and Federal Trade Commission rules that prohibit false and deceptive advertising. Therefore, considering the popularity of these platforms and FDA’s outspoken concerns regarding compounded GLP-1 drugs,1 companies should still consult with regulatory experts before disseminating expensive marketing campaigns in this space.
With the recent change in administration and Robert F. Kennedy, Jr.’s flip-flopping positions on the use of GLP-1s for weight loss, it is unclear whether FDA will seek to rein in telehealth companies promoting GLP-1 drugs. However, just like the “Brotherly Shove” that guided the Eagles to Super Bowl victory, you can either love it or hate it, but until the regulators modify the rules, the Polsinelli lawyers, upon further review, are calling no flag on the play.
[1] See FDA, FDA’s Concerns with Unapproved GLP-1 Drugs Used for Weight Loss (Dec. 18, 2024).
Trending in Telehealth: January 6 – 27, 2025
Trending in Telehealth highlights state legislative and regulatory developments that impact the healthcare providers, telehealth and digital health companies, pharmacists, and technology companies that deliver and facilitate the delivery of virtual care.
Trending in the past weeks:
Provider training
Telepharmacy
Licensure exceptions
A CLOSER LOOK
Proposed Legislation & Rulemaking:
In Ohio, the Department of Mental Health and Addiction Services proposed amendments to the mobile response and stabilization services (MRSS) rule. The changes would clarify when telehealth is a “clinically appropriate” modality for delivering MRSS, such as when a clinician requests a mobile response and that clinician is not available to respond in person as part of the MRSS team.
New York’s FY 2026 budget includes legislation to join the Nurse Licensure Compact (NLC). Joining the NLC would make it easier for certain categories of nurses licensed in other states to practice in New York either physically or through telemedicine, and for New York providers to offer virtual care to their patients who travel to other states.
Also in New York, Senate Bill 1430 passed the Senate and was referred to the Assembly. The proposed legislation would establish the New York state abortion clinical training program within the Department of Health. The curriculum would include training on the delivery of abortion and other reproductive healthcare services through telehealth.
Vermont’s Office of Professional Regulation proposed amendments to the Administrative Rules of the Board of Pharmacy that further elaborate on the state’s telepharmacy practicing and licensure requirements. Under the proposed rules, telepharmacists would be subject to the same rules and standards applicable to all modalities of pharmacy practice. The proposed rule also provides that pharmacists licensed in other jurisdictions who wish to provide only telepharmacy services from outside of Vermont to individuals located in Vermont may apply for an out-of-state telepharmacist license.
Finalized Legislation & Rulemaking Activity:
North Dakota adopted rule amendments that provide exceptions to physician licensure for telehealth providers licensed in another state, including for continuation of care for an established patient, care while the patient is located within the state temporarily, preparation for a scheduled in-person visit, practitioner-to-practitioner consultations, and emergency circumstances.
The Ohio governor signed Senate Bill 95 into law. The legislation provides an exception to current state law that prohibits pharmacists from dispensing dangerous drugs through telehealth or virtual means.
The Texas Medical Board repealed 22 Tex. Admin. Code § 170, which included regulations concerning the electronic prescribing of controlled substances. The board also repealed 22 Tex. Admin. Code § 174, concerning telemedicine generally, and replaced it with the new 22 Tex. Admin. Code § 175. These regulations state that a physician may not provide telemedicine medical services to patients in Texas unless the physician holds a full Texas medical license or an out-of-state telemedicine license as of September 1, 2022. The regulations also set parameters for the provision of telemedicine services and requirements for prescribing via telemedicine. Notably, 22 Tex. Admin. Code § 175.3 specifies requirements for prescribing for chronic pain via telemedicine, and states that a physician must use audio and video two-way communication for prescribing for chronic pain unless certain criteria are met.
Why it matters:
States continue to recognize the importance of training providers on the delivery of services via telehealth. New York’s inclusion of telehealth in its proposed provider training programs not only affirms telehealth as an effective care delivery method, but also illustrates an understanding of the modern trend of healthcare delivery through alternate means. Ohio’s proposed rule amendments designating telehealth as a “clinically appropriate” care delivery modality for MRSS further underscores these principles.
Increased demand for telepharmacy services has prompted states to reevaluate their laws and regulations. The legislation in Ohio and regulatory amendments and proposals in Texas and Vermont illustrate states’ necessary responses to the increased demand for telepharmacy services.
States continue to enact legislation reflecting the importance of the ability to provide telehealth services across state lines. While telemedicine is often viewed as an option for care delivery, it is important for states to recognize that in some instances, telemedicine is the optimal or exclusive modality available. North Dakota’s adopted rule amendments and New York’s proposal to join the NLC are prime examples of states recognizing the utility and periodic necessity of virtual care delivery.
Telehealth is an important development in care delivery, but the regulatory patchwork is complicated.
DOJ Narrows FCPA Enforcement Focus
Attorney General (AG) Pam Bondi has issued a directive that both: (1) effectively shifts the DOJ’s FCPA enforcement focus towards those cases related to foreign bribery involving cartels and transnational criminal organizations (TCOs); and (2) expands the DOJ’s ability to prosecute certain types of FCPA violations.
Questions around how and to what extent FCPA enforcement will be impacted under the current Trump administration have been swirling. While early into President Trump’s second term, his administration has already taken steps aimed at implementing substantive changes throughout the Executive Branch, reforming the DOJ, as well as reducing the size of the federal workforce. This has led many to anticipate the potential scaling back of FCPA enforcement efforts in the near future.
Shift in FCPA Enforcement Focus
AG Bondi has recently issued fourteen memos, addressed to all DOJ employees, detailing new policies and priorities for the DOJ across a range of enforcement activities. The FCPA was specifically named in the “Total Elimination of Cartels and Transnational Criminal Organizations” directive (the “Directive”). The Directive provides more insight as to the DOJ’s priorities around FCPA enforcement going forward.
Specifically, the Directive states that “[t]he Criminal Division’s FCPA Unit shall prioritize investigations related to foreign bribery that facilitates the criminal operations of Cartels and TCOs, and shift focus away from investigations and cases that do not involve such a connection.”
The Directive also overrides certain sections of the Justice Manual, as it relates to foreign bribery involving cartels or TCOs, that required FCPA cases to be either conducted by Fraud Section prosecutors or approved by the Criminal Division. In other words, U.S. Attorney Offices are now empowered to also pursue criminal FCPA cases involving foreign bribery and cartels or TCOs – no longer requiring approval to bring such matters – having provided 24 hours notice to the Criminal Division before proceeding.
FCPA Background
The FCPA is a two-pronged federal statute that contains anti-bribery provisions as well as accounting provisions; the accounting provisions address both internal controls (e.g., maintaining robust internal systems designed to prevent and identify corrupt activities) and books and records (e.g., maintaining accurate records that make it challenging to hide improper payments). The DOJ and SEC have dual enforcement authority over the FCPA, with the DOJ pursuing criminal violations of the FCPA and the SEC handling civil matters pertaining to publicly traded companies.
Since the FCPA was enacted in 1977, enforcement has focused on targeting corporate corruption where companies – including through, indirectly or directly, their third-party intermediaries (e.g., consultants, distributors, sales agents, etc.) – have improperly gained or retained unfair business advantages in exchange for providing something of value to foreign government officials. With the current shift in FCPA enforcement priorities, the DOJ is anticipated to redirect efforts away from targeting bribery in the context of legitimate corporate industries to focusing on bribery schemes in connection with organized crime and cartels.
It will be interesting to see how objectives under the Directive play out, given the logistics of the FCPA. For instance, the FCPA’s scope covers issuers (publicly traded companies with securities listed on a national securities exchange in the U.S.), domestic concerns (U.S. companies or U.S. persons), as well as any other persons that engage in acts furthering corruption while in the U.S. These limitations may exclude many individuals and entities involved in cartels or TCOs. In other words, the FCPA’s design – considering its jurisdictional reach and entity-focus – may limit its effectiveness as a tool against organized crime.
Why Compliance Still Matters
While DOJ’s FCPA enforcement priorities may be shifting under the Trump Administration to focus on cartels and TCOs, this should not be read as DOJ will no longer pursue other forms of foreign corruption. The Directive does not suggest any plans to repeal or even weaken the FCPA, rather the Directive refocuses DOJ’s FCPA enforcement priorities.
For nearly two decades, the FCPA has been a cornerstone of DOJ’s corporate enforcement efforts. This continued focus has resulted in steady and substantial financial recoveries – with penalties exceeding one billion dollars in some cases – over the course of several presidential terms spanning both Democratic and Republican leadership, including President Trump’s first term. Precedent suggests that FCPA enforcement is an entrenched priority for the DOJ and SEC, transcending individual administrations and political affiliations. Further, several countries have also enacted similar anti-bribery and anti-corruption regulations. When pursuing FCPA resolutions, international cooperation between the U.S. and foreign authorities has been essential in order to navigate the complexities of FCPA cases, which usually involve international transactions, multiple actors, and diverse legal frameworks.
Regarding corporate compliance programs, the DOJ will frequently give credit when considering the appropriate resolution, monetary penalty, and subsequent compliance obligations, if the company is able to demonstrate it has a robust and well-designed compliance program, including having made improvements to the program in response to the investigated misconduct. In other words, a company may be able to secure a more favorable outcome if it maintains a strong compliance program, which may ultimately result in the DOJ determining not to prosecute.
There are other benefits for companies that invest in their compliance programs:
Risk Management: Robust compliance programs help prevent potential compliance issues before they occur. Further, early detection of potential violations allows for timely intervention, remediation, and disclosure, if necessary.
Informed Decision-Making: Companies are better positioned to make strategic business decisions with a strong compliance foundation. This includes evaluating and responding to potential enforcement-related situations.
Long-Term Business Integrity: Maintaining high compliance standards fosters a culture of ethical business practices, which can enhance a company’s reputation and promote stakeholder confidence.
Adaptability to Regulatory Changes: A well-designed and effective compliance program is more easily adaptable to shifting regulatory landscapes and emerging risks, enabling companies to more efficiently respond to new enforcement trends.
Takeaway
Regardless of the DOJ’s FCPA enforcement priorities shifting, companies will continue to meaningfully benefit from maintaining and investing in their compliance programs. Further, the Directive does not impact SEC enforcement of FCPA violations; in other words, issuers that fall under the SEC’s jurisdiction will need to continue to comply with the FCPA regardless of DOJ’s shift in FCPA enforcement focus. Moreover, the applicable statute of limitations for FCPA violations generally extends beyond the current administration. Ultimately, companies would be well advised to continue to ensure that their compliance programs are effective and well-resourced in order to mitigate risks.
Not Cool, Man: Senate Proposal to Expand 280E Taxes on Cannabis Businesses Even if Rescheduled
Anyone who thought that the momentum towards federal liberalization of marijuana would be a straight line found themselves with a cold dash of water to the face. Late last week Republican senators filed a bill, entitled the “No Deductions for Marijuana Businesses Act,” which would preserve a punitive federal tax policy that bars cannabis companies from taking ordinary business deductions, regardless of whether marijuana’s status as a Schedule I substance is ever changed.
Courtesy of Kyle Jaeger at Marijuana Moment:
Two GOP senators have introduced a bill that would continue to block marijuana businesses from taking federal tax deductions under Internal Revenue Service (IRS) code 280E — even if it’s ultimately rescheduled.
Sens. James Lankford (R-OK) and Pete Ricketts (R-NE) filed the “No Deductions for Marijuana Businesses Act” on Thursday to maintain the tax barrier for the industry, which has been eagerly following the ongoing administrative process of moving cannabis from Schedule I to Schedule III of the Controlled Substances Act (CSA) in large part because it would address their 280E challenges under current law.
While rescheduling isn’t a guarantee, and Drug Enforcement Administration (DEA) hearings on the proposal have been delayed, the senators are aiming to preemptively take the wind out of the industry’s sails.
The bill would amend the IRS code to say that, in addition to all Schedule I and Schedule II drugs, businesses that work with marijuana specifically would be barred from taking tax deductions that are available to other industries.
If enacted into law, this could be a fatal blow to a number of cannabis businesses that have ordered their business models around no longer having to pay 280E taxes following the presumptive rescheduling of marijuana.
Let’s be clear, I don’t think this legislation will become law. But friends should be honest with each other. There will not be some panacea that absolves marijuana operators of their tax burdens without a tremendous fight. And operators should, in my opinion, pay their taxes when due. The failure to do so could cause them tremendous pain down the road.
Proposed FDA Rule May Require Stricter Testing for Talc in Cosmetic Products
Recent federal developments may soon require cosmetic companies to adopt stringent precautions to ensure that talc-containing products are free of asbestos, further safeguarding consumers from potential asbestos exposure. On December 26, 2024, the U.S. Food and Drug Administration (FDA) proposed a rule to establish standardized testing methods for detecting and identifying asbestos in talc-containing cosmetic products. This proposal is part of the FDA’s efforts to meet the requirements outlined in Section 3505 of the Modernization of Cosmetics Regulation Act of 2022 (MoCRA).
The four key provisions of the Proposed Rule include:
Mandatory Testing MethodsManufacturers using talc in their products must test representative samples of each batch or lot of talc-containing cosmetics. The FDA proposes the use of new forms of microscopy technology imaging systems to ensure consistent and reliable asbestos detection.
Supplier CertificationAlternatively, manufacturers may rely on certificates of analysis from qualified talc suppliers, provided the suppliers use the FDA-specified testing methods. Manufacturers must periodically verify the accuracy of these certificates through independent testing to ensure ongoing compliance.
Recordkeeping RequirementsManufacturers are required to maintain detailed records of all testing procedures and results. These records must be readily available to demonstrate compliance during FDA inspections or audits.
Enforcement ProvisionsProducts found to violate the testing or recordkeeping requirements would be deemed adulterated under the Federal Food, Drug, and Cosmetic Act (FD&C Act). Additionally, any detection of asbestos in talc-containing cosmetic products would render them automatically adulterated under the FD&C Act, regardless of the concentration.
Context and Implications
The FDA’s proposed rule comes amid longstanding concerns over the risk of asbestos contamination in talc, a naturally occurring mineral that is often mined near asbestos deposits. While the cosmetic industry has long been aware of these risks, the FDA is seeking to establish consistent and transparent standards to address potential cross-contamination.
Between 2021 and 2024, laboratory analyses sponsored by the FDA, including testing of more than 150 cosmetic products containing talc, found no detectable asbestos. However, these results do not eliminate the possibility of contamination in the broader market or during manufacturing processes.
Public Comment Period
As of this writing, the FDA has entered a 90-day public comments period following the proposed rule’s publication in the Federal Register. Industry stakeholders, consumer advocacy groups, and members of the public are encouraged to submit comments to shape the final rule.
The FDA proposes that this rule take effect 30 days after its publication in the Federal Register or by March 27, 2025.
Broader Regulatory Trends
This proposed rule reflects a growing trend toward stricter oversight of cosmetic products, aligning with broader consumer safety initiatives under MoCRA. Companies in the cosmetics industry should anticipate increased scrutiny and take proactive measures to ensure compliance with forthcoming regulations.
Recommendations for Manufacturers:
Manufacturers should review and augment existing supply chains by collaborating with talc suppliers to ensure their testing protocols align with FDA specifications.
Manufacturers can implement testing programs which include but are not limited to establishing internal testing capabilities or partner with accredited laboratories to verify product safety.
Manufactuers can prepare for any potential FDA audits by documenting all testing procedures and supplier certifications in detail, basically triple-checking record keeping policies to ensure they are robust.
By taking the above steps now to proactively address regulatory risks, cosmetic companies can ensure compliance with evolving FDA standards. The implementing of robust testing and compliance strategies early not only reinforces a commitment to consumer safety but also positions companies ahead of regulatory developments.
Key Takeaways on New U.S. Tariffs on Canada, China and Mexico Imports
On Feb. 1, 2025, the White House published new executive orders imposing tariffs on goods imported from Canada, Mexico and China citing national security threats of illegal immigration and drugs and statutory authority under the International Emergency Economic Powers Act (IEEPA).
Specifically, the executive orders impose a 10 percent tariff on imports from China and a 25 percent tariff on imports from Mexico and Canada, excluding Canadian energy imports, which will carry a 10 percent tariff. Below are initial highlights from the orders and from the Federal Register notices published shortly after the orders:
The effective date and time of the tariff actions is on or after 12:01 a.m. Eastern time on Feb. 4, 2025, except for tariffs on Mexico and Canada, which have been deferred for one month, until March 4, 2025.
The IEEPA tariffs appear to cover every imported commodity from Canada, Mexico, and China, with the exception of limited statutory exclusions on personal communications, donated articles, informational materials (e.g., certain publications, films, and artwork), and transactions ordinarily incident to travel
The executive orders are silent on whether there will be a product exclusion process, akin to the exclusions for Section 301 and Section 232 tariffs
The executive orders include a retaliation clause that should Canada/Mexico/China retaliate against the U.S. in response (i.e. tariffs on U.S. exports), then the “President may increase or expand in scope the duties imposed under this Executive Order to ensure the efficacy of this action.”
Drawback (refund) claims and the $800 de minimis exclusion are not available under these IEEPA tariffs
In a prior post on potential tariffs, we had noted the possible use of IEEPA to impose immediate tariffs. No president has used IEEPA to impose tariffs, although President Richard Nixon used a predecessor statute to IEEPA to impose a 10 percent tariff on all imports in 1971.
What does this all mean, and what is next for importers and stakeholders affected by these tariffs? Below are a few issues and questions to keep in mind:
What exactly will be the U.S. response to the announcement of retaliatory measures? Canada announced tariffs of 25 percent on $155 billion worth of American goods. These tariffs target products such as orange juice, peanut butter, wine, spirits, beer, coffee, appliances, apparel, footwear, motorcycles, cosmetics, and pulp and paper. Mexico initially announced plans to impose retaliatory measures. But since that time, Mexico and Canada have agreed to take action at the border, resulting in a one-month deferral of the application of IEEPA duties against Mexico and Canada and suspension of any reciprocal tariffs.
IEEPA tariffs on China are 10 percent, but these are on top of existing Section 301 tariffs that are 25 percent on most goods from China. Interestingly, there will now be a smaller group of products from China that are subject to lower Section 301 duties (List 4A, 7.5 percent) or even no Section 301 duties. Thus, if the suspended Canada and Mexico tariffs ultimately go into effect, imports of those products from China may actually be subject to lower duties than imports of the same products from Canada and Mexico.
For China, the Federal Register is silent on the applicable rule of origin, although it is anticipated that “substantial transformation” will be the applicable rule. For Canada, there will actually be two applicable rules of origin for IEEPA tariffs – USMCA marking rules of origin and the “substantial transformation” legal standard. This will have particularly interesting implications for importers of goods produced in Canada from Chinese-origin materials. Indeed, an FAQ released by the White House states that IEEPA tariffs will be in addition to any other tariffs imposed under other authorities.
Tayo Osuntogun, Michelle Rosario, and Yusra Siddique contributed to this article
Finally, FDA’s Final Word on Unapproved Use Communications
On January 7, 2025, the U.S. Food and Drug Administration (“FDA” or “Agency”) released a long-awaited guidance titled, “Communications From Firms to Health Care Providers Regarding Scientific Information on Unapproved Uses of Approved/Cleared Medical Products: Questions and Answers” (the “Guidance”).[1] The Guidance is a finalized version of the draft guidance released in 2023 (the “Draft Guidance”), which we covered here, and updates FDA’s collection of guidances on the topic, including its 2014 draft guidance titled, “Distributing Scientific and Medical Publications on Unapproved New Uses — Recommended Practices” (the “2014 Draft Guidance”)[2] and its 2009 guidance titled, “Good Reprint Practices for the Distribution of Medical Journal Articles and Medical or Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices” (the “2009 Guidance”).[3]
This is a long time coming, and the changes from the Draft Guidance appear to be a step toward a more permissive policy that facilitates critical scientific exchange within the life sciences industry. In the Guidance just issued, FDA updates its framework for communicating scientific information about unapproved uses of approved or cleared medical products to healthcare providers (“HCPs”) and outlines its enforcement policy and recommendations to ensure that such communications are informative, truthful, and non-misleading.
Background on FDA’s Regulation of SIUU Communications
HCPs often prescribe FDA-cleared and/or -approved products for uses other than the intended use cleared and/or approved by FDA for the product (i.e., “off-label” uses) when medically appropriate for specific patients, especially when no proven alternative treatments exist – and under the Food, Drug, and Cosmetics Act (the “FDCA”), they’re free to do so. However, the FDCA generally prohibits manufacturers of FDA-cleared and/or -approved drugs, devices, and biologics from promoting these products for any off-label use. Therefore, FDA is tasked with protecting public health by balancing HCPs’ need for information on unapproved uses with its general prohibition against the promotion of medical products for off-label uses.
In the 2009 Guidance and subsequent 2014 Draft Guidance, FDA established a narrow exception to its general prohibition against off-label promotion for scientific information – including scientific or medical reference texts, and/or clinical practice guidelines – that discusses off-label uses for FDA-cleared or -approved products provided by manufacturers to HCPs. In the 2009 Guidance and 2014 Draft Guidance, FDA outlined then-current parameters and best practices for providing scientific information to HCPs in a compliant manner under the FDCA.
The Draft Guidance further revised these previous guidances, most notably by expanding the scope, and clarifying important definitions, including scientific information on unapproved uses of a medical product (“SIUU”).
The final Guidance largely reflects the best practices for disseminating SIUU established throughout the prior guidances, but makes important changes that ease certain requirements and clarify definitions and parameters of FDA’s policy.
Key Changes in Final Guidance
The recent Guidance largely mirrors the Draft Guidance, with some significant revisions and additions penned in response to important criticisms raised during the Draft Guidance’s comment period. For example, commenters encouraged FDA to limit the scope of its enforcement policy and refrain from suggesting that early stage clinical trial data is insufficient to support SIUU communications, alleging that these features of the guidance may have a chilling effect on the communication of truthful, scientific information from manufacturers to HCPs.
In response to these and other comments, FDA adjusted and more clearly defined the scope of the final Guidance. Perhaps more significantly, FDA also modified its stance on the use of clinical trial data in SIUU communications. In the Draft Guidance, FDA stated that SIUU communications should be “based on studies and analyses that are scientifically sound and provide clinically relevant information,” and cautioned against using early-stage clinical data in SIUU communications,[4] specifically citing instances in which Phase 3 results diverged from Phase 2 results, illustrating that Phase 2 data used in SIUU communications could be misleading or inaccurate. However, in the new Guidance, FDA loosened its standard, requiring only that SIUU communications be based on studies and analyses that are “statistically sound” (but omitting the clinical relevance requirement set forth in the Draft Guidance). Moreover, FDA clarified that data from a properly-conducted, early-phase clinical study may be used to form a so-called “scientifically sound” source publication for an SIUU communication, removing its previous discourse on divergent results altogether. These changes signify a marked change in tone for FDA that gives manufacturers greater freedom in sourcing supporting information for SIUU communications.
Additionally, FDA clarified that so-called “persuasive marketing techniques” – which are not allowed in SIUU communications – include emotional appeals unrelated to the scientific content, jingles, and promotional tag lines. We have previously noted FDA’s apparent grudge against dancing in advertising and promotion[5] and jingles appear to be FDA’s newest gripe with respect to more whimsical product promotion.
Further, FDA clarified that SIUU communications should be separated from promotional materials and excluded from specific media platforms. Notably, online platforms with character limitations could restrict a manufacturer from fully disclosing all necessary information in a SIUU communication. However, despite these SIUU-specific limitations, FDA identifies some of the same themes as it has in guidances for other types of drug and device promotion, such as sufficient disclosure and balancing of competing interests.
An important addition to the final Guidance is communicated through a footnote and essentially allows for the sharing of SIUU communications to HCPs by anyone with specialized training.[6] Significantly, sharing SIUU communications is not limited to someone in scientific or medical affairs – allowing any representative from a firm to share so long as they have the requisite training in providing truthful, non-misleading scientific information about unapproved uses of the firm’s approved medical products and training in handling potential questions that might arise from the information shared, including directing HCPs to the best qualified to respond.
Finally, in the new final Guidance, FDA included a glossary of defined terms, as well as more detailed examples of compliant SIUU communications, including reprints, clinical practice guidelines, reference texts, and manufacturer-generated presentations.
Takeaways
While both the Draft Guidance and the new final Guidance aim to guide manufacturers in their communications with HCPs regarding off-label uses of FDA-cleared or -approved medical products, the new final Guidance establishes a more permissive approach to SIUU communications, addressing the First Amendment concerns about chilling speech that were raised in numerous comments from industry stakeholders.
Interestingly, FDA seems to have significantly backed off on the hardline stances it had previously taken regarding the types of data it deems sufficient to support SIUU communications. By permitting, in certain circumstances, the use of “early-phase clinical data” and/or “preliminary scientific data,” and eliminating the “clinically relevant” requirement, FDA is being more permissive with the type of support manufacturers may use to back their communications with HCPs. Here, FDA is not holding manufacturers to produce clinical findings that live up to the standard needed to, for example, be granted approval to market a drug; rather, FDA has whittled its expectation down to the “scientifically sound” standard. Based on the changes between the Draft and final Guidance, manufacturers may consider expanding their SIUU communications policies to include statements supported by early-stage clinical trial data, even if the data is not “clinically relevant,” as long as it is “statistically sound.”
Furthermore, FDA has opened up to firms the option of having any personnel share these SIUU communications with HCPs, requiring only that those who share the information have specialized training. These expanded options comport with FDA’s overall more liberal tone to the final Guidance, but, firms should still take care to ensure that those sharing SIUU communications are properly trained in providing truthful, non-misleading information, and handling questions that might arise about the information. What this training looks like will largely be driven by internal discussions between legal, compliance, and business stakeholders.
However, FDA hasn’t let the reins go completely. As reflected in the new Guidance, FDA continues to plainly restrict certain SIUU communications, such as the use of emotional appeal language, and – of course – SIUU communications must still be informative, truthful, and not misleading. Ultimately, manufacturers should continue to approach SIUU communications with caution, taking care to ensure that the source publications in SIUU communications are scientifically sound and avoiding the use of crafty, emotionally-driven marketing techniques.
FOOTNOTES
[1] Guidance, Communications From Firms to Health Care Providers Regarding Scientific Information on Unapproved Uses of Approved/Cleared Medical Products: Questions and Answers | FDA, FDA (Jan. 2025).
[2] Draft Guidance, Distributing Scientific and Medical Publications on Risk Information for Approved Prescription Drugs and Biological Products—Recommended Practices, FDA (June 2014).
[3] Guidance, Good Reprint Practices for the Distribution of Medical Journal Articles and Medical or Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices, FDA (Jan. 2009).
[4] See Draft Guidance, supra FN 2, at FN 27.
[5] Key Takeaways From FDA’s Latest Social Media Warnings, Law360 (Dec. 2024).
[6] See Guidance, supra FN 1, at FN 48.