Category: Regulatory

Rytr or Wrong: Is the FTC’s Operation AI Comply a Prudent Defense Against Deception or an Assault on Innovation and Constitutional Free Speech?

In today’s rapidly evolving digital economy, new artificial intelligence tools promise to transform every industry. Sometimes, those promises are overblown or outright deceptive. So, as the AI hype cycle continues, regulators are left with the unenviable role of determining their duties to shape the impact of these developing tools on businesses and the public. Although the EEOC, SEC, DOJ and several State Attorneys General are issuing warnings and increasingly investigating the risks of AI, this tension is on full display with the Federal Trade Commission’s recent enforcement actions announced as part of its “Operation AI Comply,” which marks the beginning of its “new law enforcement sweep” against companies that are relying on AI “as a way to supercharge deceptive or unfair conduct that harms consumers.”1

Although many of the initial targets of Operation AI Comply were accused of conduct that plausibly violated Section 5, the FTC’s charges against an AI writing assistant, Rytr, drew strong dissents from two of the FTC Commissioners who accused their fellow commissioners of effectively strangling AI innovation in the crib. There are several important takeaways from Operation AI Comply, particularly if the dissenting commissioners have correctly identified that the FTC is pushing the boundaries of its authority in pursuit of AI.

The FTC and its Role in AI Regulation.

The FTC plays a critical role in protecting consumers from unfair or deceptive practices, and it has long been warning developers about how their algorithms and AI tools might violate one of its broadest sources of statutory authority: Section 5 of the FTC Act.2

In many respects, the FTC’s September 25, 2024, announcement of its “Crackdown on Deceptive AI Claims and Schemes” should not have come as a surprise, as most of the enforcement actions related to overhyping AI.3 For example, the FTC’s Complaint and proposed settlement with DoNotPay – which made bold claims about being “the world’s first robot lawyer” and that it could “generate perfectly valid legal documents in no time,” replacing “the $200-billion-dollar legal industry with artificial intelligence”4– turned on relatively straightforward false or unsubstantiated performance claims in violation of Section 5 of the FTC Act.5 Similarly, the FTC’s charges against Ascend Ecom,6 Ecommerce Empire Builders,7 and FBA Machine8 all relate to allegations of e-commerce business opportunity schemes that generally engaged in AI-washing – i.e., a tactic of exaggerating or falsely representing that a product uses AI in an effort to make the product or company appear more cutting edge than it actually is.9 Each of these four cases was unanimously supported by the Commission, receiving 5-0 votes, and is consistent with other actions brought by the FTC to combat unfair, deceptive, or discriminatory impacts of AI.10

However, with a 3-2 split among its commissioners, the FTC’s complaint against Rytr is a different story.11 Historically, unanimous decisions were more typical; however, split decisions are becoming more common as the FTC pursues more aggressive enforcement actions and reflect a broader ideological conflict about the role of regulation and market intervention.

Rytr: Creative Assistant or Assistant to Fraud?

Rytr is a generative AI writing assistant that produces unlimited written content for subscribers for over 43 use cases.12 At the core of the FTC’s complaint against Rytr is the risk that one of its use cases – a “Testimonial & Review” feature – can be used to create customer reviews that may be false or misleading.13

Based on limited user input, users can generate “genuine-sounding, detailed reviews quickly and with little user effort,” which the FTC believes “would almost certainly be false for users who copy the generated content and publish it online.”14 The FTC gives one example where a user provided minimal inputs of “this product” and “dog shampoo” to generate a detailed paragraph boasting how the dog shampoo smelled great, reduced shedding, improved the shine of their dog’s coat, and recommended the product.15 Based on example inputs and outputs like this, the FTC concluded that Rytr’s services “causes or is likely to cause substantial harm to consumers” and “its likely only use is to facilitate subscribers posting fake reviews with which to deceive consumers.”16 As such, the FTC’s complaint argues that Rytr – by offering a tool that could be readily used to generate false reviews — provided the “means and instrumentalities for deception” and engaged in unfair acts or practices in violation of Section 5 of the FTC Act.17

In other words, the majority of the FTC Commissioners were concerned about an infinite potential for inaccurate or deceptive product reviews by Rytr’s subscribers and did not recognize countervailing reasons to allow this use of technology. Without admitting or denying the allegations in the Complaint, Rytr agreed to a proposed settlement with the FTC by which Rytr would stop offering the Testimonial & Review use case at issue in this case18 – a pragmatic solution to avoid litigation with the government.

Dissents from the FTC’s Direction.

Commissioners Melissa Holyoak and Andrew Ferguson submitted two dissenting statements, criticizing the complaint against Rytr as an aggressive expansion of the FTC’s authority under Section 5 and cautioned against its chilling effect on a nascent industry.19

Commissioner Ferguson framed the internal conflict well: “Treating as categorically illegal a generative AI tool merely because of the possibility that someone might use it for fraud is inconsistent with our precedents and common sense. And it threatens to turn honest innovators into lawbreakers and risks strangling a potentially revolutionary technology in its cradle.”20 The dissenting statements identified three broad objections to the Rytr complaint.

First, as a threshold matter, the complaint failed to identify any evidence of actual harmful or deceptive acts stemming from Rytr’s product – a clear requirement under Section 5 of the FTC Act.21 Both dissents criticized the complaint for effectively treating draft outputs from Rytr as the final reviews published by users; however, “the Commission does not allege a single example of a Rytr-generated review being used to deceive consumers in violation of Section 5 [.]22 Both dissents criticized the complaint for ignoring the obvious benefits of generative AI in this context. Namely, that “much of the promise of AI stems from its remarkable ability to provide such benefits to consumers using AI tools. . . . If Rytr’s tool helped users draft reviews about their experiences that they would not have posted without the benefit of a drafting aid, consumers seeing their reviews benefitted, too.”23

Second, the dissenters rejected the complaint as “a dramatic extension of means-and-instrumentalities liability,”24 particularly in a case “where there is no allegation that Rytr itself made misrepresentations.”25 The complaint focused on the fact that Rytr “has furnished its users and subscribers with the means to generate written content for consumer reviews that is false and deceptive[,]” thus providing “the means and instrumentalities for the commissions of deceptive acts and practices.”26 However, the dissenters note that the “critical element for primary liability is the existence of a representation, either by statement or omission, made by the defendant.”27 The theory advanced against Rytr could be “true of an almost unlimited number of products and services: pencils, paper, printers, computers, smartphones, word processors, . . . etc.”28 Accordingly, both dissenting commissioners rejected this expansion of means-and-instrumentalities liability because a “knowledge requirement avoids treating innocent and productive conduct as illegal merely because of the subsequent acts of independent third parties.”29

Finally, the dissenters offered several reasons why the FTC’s complaint was not in the public’s interest. Both dissenters expressed concerns that this case was too aggressive and would undermine innovation in the AI industry.30 Commissioner Ferguson went further to note that the complaint could violate important First Amendment interests, noting that the complaint “holds a company liable under Section 5 for a product that helps people speak, quite literally.”31 He criticized the theory behind the complaint; “[y]et because the technology in question is new and unfamiliar, I fear we are giving short shrift to common sense and to fundamental constitutional values.”32

Conclusion

It bears repeating that the FTC Commissioners unanimously approved almost every case listed in Operation AI Comply; “[w]hen people use generative AI technology to lie, cheat, and steal, the law should punish them no differently than if they use quill and parchment.”33 So, the FTC’s warnings about marketing AI systems for professional services, using AI to engage in misleading marketing, or overstating a product’s AI integration should be heeded, especially with the FTC’s statements that this is only the beginning of its enforcement activity.34 In prepared remarks, Chair Lina Khan has stated that the FTC is “making clear that there is no AI exemption from the laws on the books[,]35 so companies should take care to protect against whether their AI and other automated tools are being used for unfair or deceptive purposes or have biased or discriminatory impacts. Just because a technology is new does not mean that it can ignore existing laws – and we’ve seen similar sentiments and disputes in other areas of emerging technology enforcement, such as the SEC’s view that, with respect to U.S. securities laws, “[t]here’s no reason to treat the crypto market differently just because different technology is used.”36

However, the Rytr case could be an indicator that the majority intends to pursue a broader theory of liability under Section 5 of the FTC Act to include tools that merely could be misused – without proof of actual harm or intent. If that continues to be the case, developers should be vigilant in identifying how their products and platforms could be misused for fraudulent purposes, as well-intentioned developers may become the target of investigations or other inquiries by the FTC. The FTC is accepting public comments on the proposed consent agreement with Rytr through November 4, 2024,37 which could develop the FTC’s position further.

1) FTC Announces Crackdown on Deceptive AI Claims and Schemes, Press Release, Federal Trade Commission (Sept. 25, 2024), available at https://www.ftc.gov/news-events/news/press-releases/2024/09/ftc-announces-crackdown-deceptive-ai-claims-schemes.

2) See, e.g., Aiming for truth, fairness, and equity in your company’s use of AI, Elisa Johnson, Federal Trade Commission (April 19, 2021), available at https://www.ftc.gov/business-guidance/blog/2021/04/aiming-truth-fairness-equity-your-companys-use-ai.

3) Operation AI Comply: Detecting AI-infused frauds and deceptions, Alvaro Puig, Federal Trade Commission (Sept. 25, 2024), available at https://consumer.ftc.gov/consumer-alerts/2024/09/operation-ai-comply-detecting-ai-infused-frauds-and-deceptions.

4) See, e.g., id.

5) In re DoNotPay, Inc., FTC Matter No. 2323042, Complaint available at https://www.ftc.gov/system/files/ftc_gov/pdf/DoNotPayInc-Complaint.pdf.

6) FTC v. Ascend Capventures, Inc., et al., C.D. Ca. Case No. 2:24-CV-07660-SPG-JPR (Filed Sept. 9, 2024).

7) FTC v. Empire Holdings Group LLC, et al., E.D. Pa. Case No. 2:24-CV-04949 (Filed Sept. 18, 2024).

8) FTC v. TheFBAMachine Inc., et al., D. N.J. Case No. 2:24-CV-06635-JXN-LDW (Filed June 3, 2024).

9) See generally, FTC Announces Crackdown on Deceptive AI Claims and Schemes, supra.

10) The FTC aggregated several summaries for its recent cases related to AI and other automated tools, which can be found here: https://www.ftc.gov/business-guidance/blog/2024/09/operation-ai-comply-continuing-crackdown-overpromises-ai-related-lies#:~:text=These%20cases%20are,CRI%20Genetics.

11) See generally Cases and Proceedings: Rytr, FTC Matter No. 2323052 (last updated Sept. 25, 2024), available at https://www.ftc.gov/legal-library/browse/cases-proceedings/rytr.

12) See, e.g., In re Rytr LLC, FTC Matter No. 2323052, Complaint ¶ 2, available at https://www.ftc.gov/system/files/ftc_gov/pdf/2323052rytrcomplaint.pdf.

13) Id. ¶ 6.

14) Id. ¶¶ 6-8.

15)  Id. ¶ 10.

16) Id. ¶ 14.

17) Id. ¶¶ 15-18.

18)  See In re Rytr LLC, Agreement Containing Consent Order, available at https://www.ftc.gov/system/files/ftc_gov/pdf/2323052rytracco.pdf.

19) See, e.g., Dissenting Statement of Commissioner Melissa Holyoak, Joined by Commissioner Andrew N. Ferguson, In re Rytr LLC, FTC Matter No. 2323052 at p.1 (cautioning against settlements to “advance claims or obtain orders that a court is highly unlikely to credit or grant in litigation,” as it may encourage the use of “questionable or misguided theories or cases.”) [hereinafter, “Holyoak Dissent”].

20) Dissenting Statement of Commissioner Andrew N. Ferguson, Joined by Commissioner Melissa Holyoak, In re Rytr LLC, FTC Matter No. 2323052 at p.1 [hereinafter, “Ferguson Dissent”].

21) See 15 U.S.C. § 45(n) (prohibiting the FTC from declaring an act or practice unfair unless it “causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.”).

22) Ferguson Dissent at p.6; see also Holyoak Dissent at p.2.

23) Holyoak Dissent at p.3; see also Ferguson Dissent at p.7 (noting the challenges of writing a thoughtful review and that “a tool that produces a well-written first draft of a review based on some keyword inputs can make the task more accessible.”).

24) Ferguson Dissent at p.5.

25) Holyoak Dissent at p.4 (emphasis original).

26) Complaint ¶¶ 15-16.

27) Holyoak Dissent at p.4 (emphasis original) (cleaned up with citations omitted); see also Ferguson Dissent at pp.3-5 (discussing the circumstances in which means-and-instrumentalities liability arises).

28) Ferguson Dissent at p.5.

29) Ferguson Dissent at p.7; see also Holyoak Dissent at p.5 (“Section 5 does not categorically prohibit a product or service merely because someone might use it to deceive someone else.”).

30)  Holyoak Dissent at p.5 (“Today’s misguided complaint and its erroneous application of Section 5 will likely undermine innovation in the AI space.”); Ferguson Dissent at p.10 (“But we should not bend the law to get at AI. And we certainly should not chill innovation by threatening to hold AI companies liable for whatever illegal use some clever fraudster might find for their technology.”).

31) Ferguson Dissent at p.10.

32) Id.

33) Id. at p.9 (citing Concurring and Dissenting Statement of Commissioner Andrew N. Ferguson, A Look Behind the Screens: Examining the Data Practices of Social Media and Video Streaming Services, at pp.10-11 (Sept. 19, 2024)).

34) Operation AI Comply: Detecting AI-infused frauds and deceptions, supra.

35) A few key principles: An excerpt from Chair Khan’s Remarks at the January Tech Summit on AI, FTC (Feb. 8, 2024), available at https://www.ftc.gov/policy/advocacy-research/tech-at-ftc/2024/02/few-key-principles-excerpt-chair-khans-remarks-january-tech-summit-ai.

36) Prepared Remarks of Gary Gensler on Crypto Markets at Penn Law Capital Markets Association Annual Conference, Chair Gary Gensler, SEC (April 4, 2022), available at https://www.sec.gov/newsroom/speeches-statements/gensler-remarks-crypto-markets-040422.

37) Rytr LLC; Analysis of Proposed Consent Order To Aid Public Comment, Federal Register, available at https://www.federalregister.gov/documents/2024/10/03/2024-22767/rytr-llc-analysis-of-proposed-consent-order-to-aid-public-comment.

Copyright ©2024 Nelson Mullins Riley & Scarborough LLP

Recent Federal Strike Force Prosecutions Serve as Warning to U.S. Manufacturers and Other Exporters

The recent enforcement activities of the newest federal strike force serve as a warning to U.S. manufacturers and other businesses involved in the export of products that the government is doubling down on prosecuting trade violations. The expressed mission of the multi-agency Disruptive Technology Strike Force (Strike Force) is “to counter efforts by hostile nation states to illicitly acquire sensitive U.S. technology to advance their authoritarian regimes and facilitate human rights abuses.” The latest Strike Force criminal indictments focus on technology such as:

  • Aerospace and defense source code,
  • Aircraft components,
  • Microelectronic components used in unmanned aerial vehicles (UAVs),
  • Laser welding machinery.

There is every reason to expect that the Department of Justice’s (DOJ) future targets will extend beyond the kind of individual defendants who have been the focus of the 24 criminal indictments to date and include legitimate companies whose compliance program deficiencies allow the illicit exports to occur. Ensuring that a company’s trade compliance program meets or exceeds the expressed standards of the DOJ and the Department of Commerce (DOC) is now more essential than ever.

Compliance Keys

  • Exposure Risk for Manufacturers and Distributors. The export-diversion schemes prosecuted to date share a common element—a bad actor sought to exploit innocent U.S. manufacturers and distributors by misrepresenting their identity and end-use plans or by seeking to compromise the manufacturer’s computer systems. As U.S. export controls (particularly those aimed at Russia and China) have expanded over the past several years, schemes like those alleged in these indictments have proliferated. Failing to be alert for the warning signs of such schemes may expose a company to becoming a victim of sanctions evaders or, worse, an enforcement target for ignoring red flags. The Export Administration Regulations prohibit companies from engaging in a transaction with the knowledge that a violation has occurred or will occur. “Knowledge” is not limited to actual knowledge; it can also be inferred from turning a blind eye to red flags in a transaction. As a result, having personnel trained to identify and respond appropriately to red flags suggesting that diversion could be occurring can be crucial to avoiding export violations.
  • Precautions to Detect and Prevent Imposter Schemes.
    • First, a written risk-based export control compliance plan can be a valuable aid in detecting diversion schemes and other illicit behavior. Such plans detail procedures employees must follow for conducting diligence on new and existing customers and transactions, evaluating when export licenses are required for a transaction, and detecting and responding to red flags. They provide clear guidance on when and how to escalate potential issues. Such a compliance plan gives employees the tools to help them identify when their company may be facing a diversion scheme and how to respond appropriately before a transaction is executed.
    • Second, companies can emphasize conducting “know your customer” (KYC) diligence on transactions. The importance of such diligence is heightened when new customers are involved, when business with an existing company is expanding to new products, or to involve new product destinations. The DOC has published extensive guidance on KYC diligence (often in conjunction with other U.S. government agencies and with enforcement authorities in allied countries). This week, the DOC and export control authorities from the other G7 countries issued new guidance that identifies items most likely to be the subject of diversion efforts by Russia, lists common red flags suggesting potential export control and sanctions evasion in a transaction, and suggests some diligence best practices to prevent diversion and evasion. This new guidance echoes similar guidance issued by U.S. and allied government agencies over the last two years for detecting diversion schemes in the current environment of export controls and sanctions regarding Russia and China. (For example, our summary of the joint guidance issued last year by export-control authorities in the United States, the United Kingdom, Canada, Australia, and New Zealand addressing 45 types of goods at high risk for diversion and recommended KYC diligence steps can be found here.) Companies should be tracking and incorporating, as appropriate, these guidance updates
    • Third, companies can be knowledgeable about the potential uses of their products and technology. This knowledge informs when and where a company may face diversion risk. Products and technology with permissible uses could be a target for diversion where they can be used for purposes the U.S. government restricts. For example, in one of the recent Strike Force cases, U.S. v. Postovoy, the alleged diversion scheme targeted a company whose microelectronic components could be used in drones and UAVs. Keeping U.S.-origin components out of such vehicles used by Russia in the war with Ukraine has been a major U.S. export control policy priority. Similarly, in another Strike Force case, U.S. v. Teslenko, the alleged diversion scheme targeted a company whose laser welders had applications that could aid Russia’s nuclear weapons program. Knowing the market for illicit uses for a company’s products and technology helps a company tailor its compliance efforts by identifying what products may be attractive to bad actors and what specific red flags may be of most concern regarding the company’s products and technology.
  • Cybersecurity Vigilance to Prevent Technology Theft. Another case announced alongside the Strike Force cases, U.S. v. Wei, is a reminder that U.S. manufacturers of sensitive technology face a multifront effort by foreign malign actors to gain access to that technology. In addition to ensuring up-to-date export controls and sanctions compliance programs, U.S. manufacturers should consider measures to protect their technology from misappropriation through cyber intrusion by implementing appropriate processes and tools to prevent and detect such activity by these actors. These processes and tools can include:
    • Regularly sharing cyber hygiene tips and training on current phishing schemes and conducting phishing tests to increase employee awareness of these risks,
    • Maintaining system hygiene by regularly scanning systems for vulnerabilities and unauthorized accounts, monitoring access logs for suspicious activity, and prohibiting automatic email forwarding to external addresses to prevent data leakage,
    • Installing a secure email gateway to filter out spam, malware, and phishing attempts and employing email authentication techniques (e.g., SPF, DKIM, and DMARC),
    • Tracking and monitoring all endpoints and mobile devices to detect suspicious activities and regularly auditing access logs to identify violations or attempted violations of access policies, and
    • Restricting administrative and privileged account access to minimize potential damage and limiting remote access to critical data and functions.

The Indictments

The six most recent indictments relating to the Strike Force’s efforts confirm that export control and sanctions compliance, particularly concerning Russia, China, and Iran, is a significant enforcement priority for the DOJ and other government agencies. As one Strike Force member stated, the DOJ, “through the work of the Strike Force, will continue to do all [it] can to prevent advanced technologies from falling into the hands of our adversaries and protect our national security.” These indictments and a related indictment announced simultaneously highlight the risks of manufacturers and distributors falling victim to schemes like those alleged in the indictments or becoming the focus of enforcement efforts for committing export control violations.

U.S. v. Postovoy. A Russian citizen living in the United States was indicted for conspiring to violate the Export Control Reform Act (ECRA), to smuggle, launder money, and defraud the United States. After Russia invaded Ukraine, the individual used a series of companies he owned around the world to obtain and unlawfully export microelectronic components that could be used in drones and UAVs from the United States to Russia. The individual concealed and misstated end-user and destination information in communications with U.S.-based distributors.

U.S. v. Song. A Chinese national was indicted for wire fraud and aggravated identity theft in connection with attempts to obtain software and source code from the National Aeronautics and Space Administration (NASA), research universities, and private companies. Over several years, the individual “spear phished” individuals at NASA, the Air Force, Navy, Army, and Federal Aviation Administration; research universities; and aerospace companies in an attempt to obtain code to which the individual suspected the victims had access. At all relevant times, the individual, who assumed the identities of persons known to the victims, was an employee of a Chinese state-owned aerospace and defense contractor.

U.S. v. Teslenko. A U.S. resident and a Russian national were indicted for smuggling and conspiracy to violate the ECRA, smuggle, and defraud the United States. For approximately six years, the individuals exported laser welding machines from one’s employer in the United States to a Russian company involved in Russia’s nuclear weapons program. The individuals falsified export documentation to conceal the end user.

U.S. v. Goodarzi. A dual U.S. and Iranian citizen was charged with smuggling UAV components to Iran from the United States. For four years, the individual obtained U.S.-originated parts and either transshipped them, typically through the United Arab Emirates or transported them in his own checked luggage during trips to Iran. The individual had acknowledged in numerous emails with U.S. suppliers that the parts could not be transferred to Iran because of sanctions. The individual also lacked the proper export license to send these items to a sanctioned country like Iran.

U.S. v. Nader. A dual U.S. and Iranian citizen was indicted for violating U.S. economic sanctions and other federal laws in connection with procuring U.S.-originated aircraft components for Iran’s armed forces. Customers in Iran placed orders with the individual, who, in turn, directly or through others, contacted U.S. companies for the components. The individual falsely identified himself or his U.S.-based company as the end user of the components. The individual attempted to export the components, including transshipment to Iran, on several occasions; however, DOC agents detained each export.

U.S. v. Wei. In addition to the above criminal cases brought through the work of the Strike Force, the DOJ announced the indictment of a Chinese national on charges of fraud, conspiracy, computer intrusion, and aggravated identity theft for unlawfully accessing the computer network of a U.S. telecommunications company. The individual—a member of the People’s Liberation Army—and co-conspirators accessed the company’s systems in 2017 and stole documents relating to communications devices, product development, testing plans, internal product evaluations, and competitive intelligence. The individual attempted to install malicious software to maintain access to the company’s systems; his access continued for approximately three months.

Copyright © 2024 Robinson & Cole LLP. All rights reserved.
For more news on Export Regulations, visit the NLR Antitrust, Trade, & Regulation

Missouri Cannabis Regulators Show Me a Well-Considered Clarification of Earlier Rule Essentially Banning Hemp Products

I can only assume that being a cannabis regulator is a challenging and usually thankless job. The laws are relatively new and constantly evolving. Operators are always pushing the science faster than regulators can promulgate thoughtful new rules. And of course, there is no shortage of bad actors in the cannabis business.

That said, Budding Trends has been tough on cannabis regulators when it seemed warranted. And we’ve had no shortage of material.

We wanted to take this occasion to applaud the recent letter from the Missouri Department of Health & Senior Services announcing a substantial rollback of Gov. Mike Parson’s Executive Order that appeared to ban all “psychoactive cannabis products.”

The governor’s order would, by its terms, essentially destroy the state’s market for products containing hemp-derived THC. To be fair, the stated purpose of the order – to keep psychoactive cannabis products out of the hands of children – is a noble goal and one shared by any responsible operator in the hemp-derived THC business. Unfortunately, the plain language of the order goes much further and threatens to end the sale of most hemp products in Missouri.

In comes Missouri Department of Health & Senior Service Deputy Director and General Counsel Richard Moore to the rescue. In a recent letter, Moore “clarify[ied] any misunderstandings about the Department’s efforts to keep Missourians and their children safe from psychoactive cannabis products, sometimes called intoxicating cannabis products.” As part of this clarification, and in furtherance of the department’s commitment to “transparency in its enforcement efforts,” the department will limit its focus to (1) hemp-derived THC products targeting children and (2) “any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of [hemp-derived THC products].”

The department does not have any intention, however, of initiating enforcement actions against other hemp-derived THC products. Specifically, “[h]emp or cannabidiol (CBD) products which are collected by extraction and have not been changed into a new substance, such as hemp protein powders, hemp milk, hemp flower, hemp teas or other drinks, CBD gummies, CBD drink additives, or foods with CBD” are not the focus of the department’s enforcement efforts.

I believe this represents a fair compromise that accomplishes both the governor’s stated and worthwhile goals of eliminating deceptive hemp operators and those who would sell hemp-derived THC products to children, as well as keeping the hemp regime implemented by the Missouri Legislature in place.

More states would do well to consider this approach. For an example of the opposite approach, consider our recent post on Mississippi’s potential ban on hemp beverages. Consider, too, a much different approach taken by the solicitor general of South Carolina, which we will write about in the coming days.

And perhaps most importantly, consider whether Congress can fashion a similar compromise as it considers federal hemp policy in the next Farm Bill in the coming months.

© 2024 Bradley Arant Boult Cummings LLP
For more news on Hemp Derived THC Regulation, visit the NLR Biotech, Food & Drug.

EPA Bans Ongoing Uses of Chrysotile Asbestos

On March 28, 2024, the U.S. Environmental Protection Agency (EPA) issued a final rule under the Toxic Substances Control Act (TSCA) to address to the extent necessary the unreasonable risk of injury to health presented by chrysotile asbestos based on the risks posed by certain conditions of use (COU). 89 Fed. Reg. 21970. According to the final rule, the injuries to human health include mesothelioma and lung, ovarian, and laryngeal cancers resulting from chronic inhalation exposure to chrysotile asbestos. The final rule prohibits the manufacture (including import), processing, distribution in commerce, and commercial use of chrysotile asbestos for chrysotile asbestos diaphragms in the chlor-alkali industry; chrysotile asbestos-containing sheet gaskets in chemical production; chrysotile asbestos-containing brake blocks in the oil industry; aftermarket automotive chrysotile asbestos-containing brakes/linings; other chrysotile asbestos-containing vehicle friction products; and other chrysotile asbestos-containing gaskets. It also prohibits the manufacture (including import), processing, and distribution in commerce for consumer use of aftermarket automotive chrysotile asbestos-containing brakes/linings; and other chrysotile asbestos-containing gaskets. The final rule specifies the compliance dates for these prohibitions. The final rule also includes disposal and recordkeeping requirements for these COUs. The final rule will be effective May 28, 2024.

Manufacturing, Processing, Distribution in Commerce, and Commercial Use of Chrysotile Asbestos Diaphragms in the Chlor-alkali Industry

As of the effective date of the final rule, all persons are prohibited from the manufacture (including import) of chrysotile asbestos, including any chrysotile asbestos-containing products or articles, for diaphragms in the chlor-alkali industry. Beginning five years after the effective date of the final rule, all persons are prohibited from processing, distribution in commerce, and commercial use of chrysotile asbestos for diaphragms in the chlor-alkali industry, except as provided in 40 C.F.R. Section 751.505(c) and (d).

Section 751.505(c) permits a person to process, distribute in commerce, and commercially use chrysotile asbestos for diaphragms in the chlor-alkali industry at no more than two facilities until eight years after the effective date of the final rule, provided that they meet certain conditions.

Section 751.505(d) permits a person who meets all of the criteria of that paragraph to process, distribute in commerce, and commercially use chrysotile asbestos for diaphragms in the chlor-alkali industry at not more than one facility until 12 years after the effective date of the final rule, provided that they meet certain conditions.

Certification of Compliance for Chlor-alkali Industry

A person who processes, distributes in commerce, or commercially uses chrysotile asbestos for diaphragms in the chlor-alkali industry between five years and eight years after the effective date of the final rule must certify to EPA their compliance with all requirements of Section 751.505(c) and provide the following information to EPA: identification of the facility (or facilities) at which, by five years after the effective date of the final rule, the person has ceased all processing, distribution in commerce, and commercial use of chrysotile asbestos; identification of the one or two facilities (no more than two facilities) at which the person will after five years after the effective date of the final rule continue to process, distribute in commerce, and commercially use chrysotile asbestos diaphragms while the facility or facilities are being converted to non-chrysotile asbestos membrane technology; and the name of the facility manager or other contact.

A person who processes, distributes in commerce, or commercially uses chrysotile asbestos for diaphragms in the chlor-alkali industry between eight and 12 years after the effective date of the final rule must certify to EPA their compliance with all requirements of Section 751.505(d) and provide the following information to EPA: identification of the facility at which the person has ceased all processing, distribution in commerce, and commercial use of chrysotile asbestos after five years after the effective date of the final rule but no later than eight years after the effective date of the final rule; identification of the facility at which the person will between eight years after the effective date of the final rule and no later than 12 years continue to process, distribute in commerce, and commercially use chrysotile asbestos diaphragms while the facility is being converted to non-chrysotile asbestos membrane technology pursuant to Section 751.505(d); and the name of the facility manager or other contact.

Other Prohibitions of and Restrictions on the Manufacturing, Processing, Distribution in Commerce, and Commercial Use of Chrysotile Asbestos

Prohibition on Manufacture (Including Import), Processing, Distribution in Commerce, and Commercial Use of Chrysotile Asbestos for Chrysotile Asbestos-Containing Sheet Gaskets in Chemical Production

Beginning two years after the effective date of the final rule, all persons are prohibited from manufacturing (including importing), processing, distributing in commerce, and commercial use of chrysotile asbestos, including any chrysotile asbestos-containing products or articles, for use in sheet gaskets for chemical production, except as provided in Section 751.509(b) and (c). Any sheet gaskets for chemical production that are already installed and in use as of the applicable compliance date are not subject to this distribution in commerce and commercial use prohibition, however.

Section 751.509(b) allows the commercial use of chrysotile asbestos sheet gaskets for titanium dioxide production past the general two-year prohibition; any person may use chrysotile asbestos sheet gaskets for titanium dioxide production until five years after the effective date of the final rule. EPA notes that this provision applies only to commercial use; manufacturing (including import), processing, and distribution in commerce must cease after two years, pursuant to Section 751.509(a).

Section 751.509(c) allows the commercial use of chrysotile asbestos sheet gaskets for processing of nuclear material past the general two-year prohibition: any person who meets the applicable criteria in the paragraph may commercially use chrysotile asbestos sheet gaskets for processing nuclear material until five years after the effective date of this final rule. At the Department of Energy’s Savannah River Site, use may continue until the end of 2037. EPA notes that this provision applies only to commercial use; manufacturing (including import), processing, and distribution in commerce must cease after two years. Section 751.509(c) requires that, beginning 180 days after the effective date of the final rule, all persons commercially using chrysotile asbestos sheet gaskets for processing nuclear material must have in place exposure controls expected to reduce exposure of potentially exposed persons to asbestos, and provide potentially exposed persons in the regulated area where chrysotile asbestos sheet gasket replacement is being performed with a full-face air purifying respirator with a P-100 (HEPA) cartridge (providing an assigned protection factor of 50), or other respirators that provide a similar or higher level of protection to the wearer.

Prohibition on Manufacture (Including Import), Processing, Distribution in Commerce, and Commercial Use of Chrysotile Asbestos-Containing Brake Blocks in the Oil Industry; Aftermarket Automotive Chrysotile Asbestos-Containing Brakes/Linings; Asbestos-Containing Vehicle Friction Products; and Other Asbestos-Containing Gaskets

Beginning 180 days after the effective date of the final rule, all persons are prohibited from manufacturing (including importing), processing, distribution in commerce, and commercial use of chrysotile asbestos, including any chrysotile asbestos-containing products or articles, for commercial use of: oilfield brake blocks; aftermarket automotive brakes and linings; other vehicle friction products; and other gaskets. Any aftermarket automotive brakes and linings, other vehicle friction products, and other gaskets that are already installed and in use as of 180 days after the effective date of the final rule are not subject to this distribution in commerce and commercial use prohibition.

Prohibition on Manufacture (Including Import), Processing, and Distribution in Commerce for Aftermarket Automotive Chrysotile Asbestos-Containing Brakes/Linings and Other Asbestos-Containing Gaskets for Consumer Use

Beginning 180 days after the effective date of the final rule, all persons are prohibited from the manufacturing (including importing), processing, and distribution in commerce of chrysotile asbestos, including any chrysotile asbestos-containing products or articles, for consumer use of: aftermarket automotive brakes and linings; and other gaskets. Any aftermarket automotive brakes and linings and other gaskets that are already installed and in consumer use as of 180 days after the effective date of the final rule are not subject to this distribution in commerce prohibition.

EPA notes that this prohibition does not apply to the consumer use of any chrysotile asbestos-containing aftermarket automotive brakes and linings and other gaskets. EPA states that its authority to regulate commercial use under TSCA Section 6(a)(5) does not extend to consumer use of chemical substances or mixtures. According to EPA, the prohibition on the upstream manufacturing, processing, and distribution of chrysotile asbestos aftermarket automotive brakes and linings and other gaskets for consumer use “will remove these products from the consumer market and over time eliminate their use as these products wear out and are replaced, or the vehicles in which they are components are retired from use.”

Interim Workplace Controls of Chrysotile Asbestos Exposures

For most of the COUs where, pursuant to the final rule, the prohibition on processing and industrial use will take effect in five or more years after the effective date of the final rule, EPA requires owners or operators to comply with an eight-hour existing chemical exposure limit (ECEL), beginning six months after the effective date of the final rule. EPA notes that this requirement applies to the following COUs:

  • Processing and industrial use of chrysotile asbestos in bulk form or as part of chrysotile asbestos diaphragms used in the chlor-alkali industry; and
  • Industrial use of chrysotile asbestos sheet gaskets for titanium dioxide production.

Once a facility has completed the phase-out of chrysotile asbestos and no longer uses chrysotile asbestos in its operations, the interim requirements no longer apply.

EPA states that its intention “is to require interim workplace controls that address the unreasonable risk from chrysotile asbestos to workers directly handling the chemical or in the area where the chemical is being used until the relevant prohibitions go into effect.” EPA notes that its 2020 Risk Evaluation for Asbestos, Part 1: Chrysotile Asbestos (Asbestos Part I) “did not distinguish between employers, contractors, or other legal entities or businesses that manufacture, process, distribute in commerce, use, or dispose of chrysotile asbestos. For this reason, EPA uses the term “owner or operator” to describe the entity responsible for implementing the interim workplace controls in any workplace where an applicable COU subject to the interim workplace controls occurs. The term includes any person who owns, leases, operates, controls, or supervises such a workplace. EPA has proposed to amend 40 C.F.R. Section 751.5 to add a definition of “owner or operator” consistent with this description as part of its proposed TSCA Section 6(a) rules to regulate methylene chloride and perchloroethylene. In this final rule, EPA uses the same definition of “owner or operator” to apply to where it appears in the regulatory text for chrysotile asbestos.

EPA notes that, as mentioned in the proposed rule, TSCA risk management requirements could incorporate and reinforce requirements in Occupational Safety and Health Administration (OSHA) standards. For chrysotile asbestos, EPA states that its approach for interim controls seeks to align, to the extent possible, with certain elements of the existing OSHA standard for regulating asbestos under 29 C.F.R. Sections 1910.1001 and 1926.1101. According to EPA, the OSHA permissible exposure limit (PEL) and ancillary requirements “have established a long-standing precedent for exposure limit threshold requirements within the regulated community.” EPA acknowledges that it is applying a “lower, more protective” ECEL derived from Asbestos Part I. EPA notes that it is not establishing medical surveillance requirements based on the ECEL to align with those under 29 C.F.R. Section 1910.1001, however, and that companies must continue to follow the medical surveillance requirements established by OSHA at 0.1 fiber per cubic centimeter of air as an eight-hour time-weighted average (TWA) level.

Disposal

EPA states that it is implementing the disposal provisions in the proposed rule without significant changes. EPA notes that the disposal provisions at Section 751.513 cross reference existing EPA and OSHA regulations that address asbestos-containing waste disposal. EPA requires that for the chrysotile asbestos diaphragm COU, as well as oilfield brake blocks, other vehicle friction products, and any commercial use of other gaskets and aftermarket automotive brakes and linings COUs, regulated entities must adhere to waste disposal requirements in OSHA’s Asbestos General Industry Standard in 29 C.F.R. Section 1910.1001, including Section 1910.1001(k)(6) requiring waste, scrap, debris, bags, containers, equipment, and clothing contaminated with asbestos that are consigned for disposal to be disposed of in sealed impermeable bags or other closed, impermeable containers. For the chrysotile asbestos sheet gaskets in the chemical production COU, regulated entities must adhere to waste disposal requirements described in OSHA’s Asbestos Safety and Health Regulations for Construction in 29 C.F.R. Section 1926.1101.

EPA notes that additionally, for the chrysotile asbestos diaphragm COU, as well as oilfield brake blocks, other vehicle friction products, and any commercial use of other gaskets and aftermarket automotive brakes and linings, the final rule cross-references the disposal requirements of Asbestos National Emission Standards for Hazardous Air Pollutants (NESHAP) (40 C.F.R. Part 61, Subpart M) at 40 C.F.R. Section 61.150. EPA states that the asbestos NESHAP reduces exposure to airborne asbestos “by generally requiring sealing of asbestos-containing waste material from regulated activities in a leak-tight container and disposing of it in a landfill permitted to receive asbestos waste.” According to EPA, it is not cross-referencing this same NESHAP waste disposal provision for the disposal of chrysotile asbestos-containing waste from sheet gasket processing and use “because EPA did not find unreasonable risk for the disposal of sheet gaskets.”

EPA also requires that each manufacturer (including importer), processor, and distributor of chrysotile asbestos, including as part of products and articles for consumer uses subject to the final rule, dispose of regulated products and articles in accordance with specified disposal provisions. EPA states that these consumer uses are aftermarket automotive brakes and linings and other gaskets. EPA notes that these consumer use supply chain disposal requirements are consistent with those for disposers of aftermarket automotive brakes and linings and other gaskets intended for commercial use. EPA states that it “does not generally have TSCA section 6(a) authority to directly regulate consumer use and disposal, but under TSCA section 6(a) EPA may nonetheless regulate the disposal activity of suppliers of these products, including importers, wholesalers and retailers of asbestos-containing aftermarket automotive brakes and linings, and other gaskets.” The disposal requirements at Section 751.513 will take effect 180 days after the effective date of the final rule.

Recordkeeping

A general records provision at 40 C.F.R. Section 751.515(a) of the final rule requires that, beginning 180 days after the effective date of the final rule, all persons who manufacture (including import), process, distribute in commerce, or engage in industrial or commercial use of chrysotile asbestos must maintain ordinary business records, such as invoices and bills-of-lading related to compliance with the prohibitions, restrictions, and other provisions of this rulemaking and must make them available to EPA for inspection. Section 751.515(b) addresses recordkeeping for certifications of compliance for the chlor-alkali industry required under Section 751.507 of the rule: persons must retain records for five years to substantiate certifications required under that provision and must make them available to EPA for inspection.

Section 751.515(c) of the final rule requires retention of records for interim workplace controls of chrysotile asbestos exposures. The final rule requires owners or operators subject to the exposure monitoring provisions of Section 751.511(c) to document and retain records for each monitoring event. Additionally, Section 751.515(c) requires that owners or operators subject to the interim workplace controls described in Section 751.511 retain certain records.

Section 751.515(d) requires the retention of disposal records. Each person, except a consumer, who disposes of any chrysotile asbestos and any chrysotile asbestos-containing products or articles subject to Section 751.513, beginning 180 days after the effective date of the final rule, must retain in one location at the headquarters of the company, or at the facility for which the records were generated: any records related to any disposal of chrysotile asbestos and any chrysotile asbestos-containing products or articles generated pursuant to, or otherwise documenting compliance with, regulations specified in Section 751.513. All records under this rule must be retained for five years from the date of generation.

Commentary

Bergeson & Campbell, P.C. (B&C®) acknowledges the historic nature of the rule, but it must also be placed into context. First, the rule applies to the few, limited ongoing uses of chrysotile asbestos that were not banned in the 1980s. It does not apply to the asbestos types that may already be in place, such as in old buildings. A ban on the manufacture, import, processing, and use of chrysotile asbestos cannot erase other types of asbestos, including chrysotile asbestos, that are and have been in place for decades. EPA’s Asbestos Part 2 risk evaluation will address the potential risk from such legacy uses and associated disposal activities. That work is underway. Second, EPA concluded that for the limited, ongoing uses of chrysotile asbestos, the only way to mitigate the risk of ongoing import, processing, use, and disposal is to ban chrysotile asbestos, except for the narrow use in brakes on specialized, large cargo aircraft operated by the National Aeronautics and Space Administration (NASA).

In its risk evaluation, EPA concluded that the use of chrysotile asbestos in chlor-alkali production does not present an unreasonable risk if protective measures are used, such as engineering controls, glove boxes, and personal protective equipment (PPE). In the final risk management rule, EPA nevertheless argues that chrysotile asbestos must be banned because the necessary PPE may not be used correctly. If this logic prevails, EPA may be in the awkward situation of needing to ban every substance that it determines as presenting an unreasonable risk when PPE is not used, meaning that EPA will have to ban nearly every substance it reviews under TSCA Section 6 (at least for the foreseeable future) because it is likely that all substances that EPA will review in the next several decades will be sufficiently hazardous for EPA to conclude that the chemical substances present an unreasonable risk from routine, unprotected inhalation and/or dermal exposures. EPA seems to be saying that someone, somewhere, under some circumstances, may decide not to wear protective measures, or not wear PPE correctly and that because of this instance, EPA cannot reduce an unreasonable risk by imposing workplace protective measures. EPA might view asbestos as a special case, but EPA did not qualify its argument in the rule.

EPA’s cost benefit analysis is surprising: EPA estimates benefits from avoided cancer cases to be between $3,000 and $6,000 per year. This is surprising in that a hazardous chemical apparently leads to so little economic benefits if asbestos is banned. The modest value would appear to be evidence that ongoing uses of chrysotile asbestos are largely not a significant health risk. In comparison, EPA’s economic analysis estimated costs ranging from $34 million to $43 million per year of implementing the rule.

EPA’s progress with advancing its TSCA Section 6 rulemaking activities on chrysotile asbestos is commendable. There are, however, several issues with EPA’s Asbestos Part I that are still unresolved and will likely resurface as the bases for any potential challenges to EPA’s rule. The first issue is EPA’s use of the now rescinded 2018 Application of Systematic Review in TSCA Risk Evaluations (the 2018 SR Document). We previously discussed our concerns with EPA’s use of this approach in Asbestos Part I. The crux of the issue is that the U.S. National Academies of Sciences, Engineering, and Medicine (NASEM) reviewed the 2018 SR Document and concluded that “The OPPT approach to systematic review does not adequately meet the state-of-practice.” This conclusion supports that EPA did not fulfill its obligations of complying with the scientific standards under TSCA Section 26. For further discussion, see our memorandum dated April 7, 2022.

The second related issue is EPA’s derivation of an inhalation unit risk (IUR) for chrysotile asbestos and its subsequent use of the IUR for establishing an ECEL. EPA derived the IUR on textile worker populations from two facilities and stated the following in Asbestos Part I: “The epidemiologic studies that are reasonably available include populations exposed to chrysotile asbestos, which may contain small, but variable amounts of amphibole asbestos.” EPA’s use of these studies was controversial and included criticisms in the peer-reviewed literature with one group of experts pointing out that “All 8 cases of pleural cancer and mesothelioma in the examined populations arose in facilities where amphiboles were present.” The same group of experts also stated that “the suggested inhalation unit risk (IUR) for chrysotile asbestos was far too high since it was not markedly different than for amosite, despite the fact that the amphiboles are a far more potent carcinogen.”

It is unclear if EPA’s study selection for deriving the IUR and exclusion of other studies was due to a flawed systematic review process or other issues, such as favoring a pre-determined outcome. The same group of experts mentioned above stated the following about EPA’s peer review on the draft version of Asbestos Part I:

[A] key limitation of the EPA meeting was that the questions that the panelists were asked to address, termed “charge questions,” did not focus on the most pertinent aspects of the document. Thus, by asking questions that avoided the thorny topics regarding chrysotile asbestos which were often poorly focused, the EPA failed to obtain relevant topical insight from the advisory panel.

Readers may find the above statements implausible, yet EPA’s sponsored peer-review activities on formaldehyde supports that they are not. On August 9, 2023, NASEM issued its report titled Review of EPA’s 2020 Draft Formaldehyde Assessment. NASEM stated the following in its report:

The committee…was not charged with commenting on other interpretations of scientific information relevant to the hazards and risks of formaldehyde, nor did its statement of task call for a review of alternative opinions on EPA’s formaldehyde assessment.

The concern with limiting the scope of a peer review is that doing so, at a minimum, creates an appearance of favoring a pre-determined outcome and may ultimately undermine the integrity of the science used in EPA’s decision-making. Either outcome is inconsistent with the scientific standards under TSCA Section 26 and EPA’s recently updated draft Scientific Integrity Policy.

The third issue relates to EPA’s unreasonable risk determination in Asbestos Part I. EPA referenced its 1994 Guidelines for Statistical Analysis of Occupational Exposure Data (the 1994 Guidelines) as the justification for evaluating monitoring samples that were below the limit of detection (LOD). EPA stated that the 1994 Guidelines “call for replacing non-detects with the LOD or LOQ [limit of quantification] divided by two or divided by the square root of two, depending on the skewness of the data distributions.” EPA also stated that “more than half of the samples were non-detectable.” The approach in the 1994 Guidelines conflicts with EPA’s 2008 Framework for Investigating Asbestos-Contaminated Superfund Sites (the 2008 Framework), which states “[w]hen computing the mean of a set of asbestos measurements, samples that are ‘nondetect’ should be evaluated using a value of zero, not ½ the analytical sensitivity [footnote omitted].” EPA did not state its rationale for not using the 2008 Framework recommendations (i.e., replacing non-detects with zero). EPA is, however, aware of the 2008 Framework, as evidenced by its use of the 2008 Framework for estimating cancer risks for less than lifetime exposure from inhalation of chrysotile asbestos.

It is not clear whether the rule will be challenged, but B&C would not be surprised if impacted industries, non-governmental organizations, and other stakeholder groups bring suit. The scientific methods and documents supporting this rule have been publicly challenged specifically, as discussed above, and generally by other expert academics in the field. This is, after all, the first final rule under TSCA Section 6(a) and will be precedent setting for other risk management rules. This rule is not just about asbestos; it reflects how EPA will manage risks for existing chemical substances EPA identifies as high-priority substances under TSCA Section 6. Stay tuned.

©2024 Bergeson & Campbell, P.C.

NJDEP Publishes New Climate Change Rule Proposal

Substantial changes to NJDEP’s use Coastal, Flood Hazard, Wetland and Stormwater regulatory programs are coming that will severely impact proposed and existing development. NJDEP published its Protecting Against Climate Threats (PACT) Resilient Environments and Landscapes (REAL) rule in the August 5, 2024 New Jersey Register and has up to a year to adopt the proposed amendments.

The proposal is extensive and will implement sweeping regulatory changes across various regulatory permitting programs, affecting new development and redevelopment, and substantial improvements to existing development. The proposal relies on several reports and studies commissioned or prepared by NJDEP, including the NJ Scientific Report on Climate Change (NJ Climate Science Report), the New Jersey Climate Change Alliance Science and Technical Advisory Panel (STAP) “Rising Seas and Changing Coastal Storms” report prepared by Rutgers University, and two rainfall studies in 2021, which predict a less than 17% chance that sea level rise (“SLR”) will exceed 5.1 feet by Year 2100, and that the State’s precipitation rates and intensity are expected to increase through the Year 2100. DEP is using this very conservative less than 17% chance as the basis for these proposed rules.

NJDEP will establish a regulatory Inundation Risk Zone (IRZ) largely in coastal areas along tidal waters that are predicted to be at risk of daily inundation or standing flood waters of up to 5.1 feet (by Year 2100). The extent of the IRZ is determined by adding 5 feet to the calculated mean higher high water (MHHW) line elevation. Projects in the IRZ involving new residential development, critical buildings and substantial improvements to existing structures will need to meet onerous enhanced risk assessment criteria including an alternatives analysis designed to avoid the risk (a/k/a discourage building). The rule will also establish a new Climate Adjusted Flood Elevation (CAFE) in tidal flood hazard areas, which represents a 5-foot addition to FEMA’s 100-year flood elevation based on NJDEP’s very conservative SLR predictions.

Numerous other proscriptive measures are proposed. Some of the more noteworthy provisions are listed below.

General 

  • New burdens will be imposed regarding pre-commencement work notices, including that such notices be made no more than 14 days in advance of the start of work in addition to reporting requirements for completion of work. In our experience, notices similar to these are simply filed and are merely a regulatory burden.

Coastal 

  • Non-mainland (barrier island) coastal centers will be extinguished and, in many cases, strict new impervious cover limitations (3%) and vegetative preserve/plantings requirements will become applicable. This makes development or redevelopment in most of the barrier islands improbable, if not impossible.
  • A 3% cover limit will be applicable even in designated centers for lands identified as a Coastal Environmentally Sensitive Area, even if these areas can be otherwise developed with permits from discrete programs such as wetlands or flood hazard areas.
  • Construction continuation rights beyond the permit expiration date in the CAFRA Individual Permit context will be curtailed based on new requirements to justify the continuation based on the reasonable financial investment of the permittee “in proportion to the project as a whole”.
  • The CAFRA infill exception for a single-family house or duplex in a coastal high hazard area and erosion hazard area will be removed for parcels in the IRZ.

Wetlands 

  • Limitations and mitigation requirements will be enhanced with respect to wetland buffers and permitting.
  • New conditions will be imposed for wetland general permits requiring stormwater compliance for projects that are a major development, in contrast to the current rules which only require stormwater compliance if the wetland and/or buffer impacts are considered major development thresholds.
  • The rules will require General Permit applicants to demonstrate “no other practicable configuration” that would avoid or reduce the impacts to wetlands, effectively holding General Permit applicants to standards similar to the alternatives analysis required for an Individual Permit, contrary to the purpose of the General Permit program as a streamlined approval process.
  • Wetland buffer averaging plan approvals will impose onerous conditions requiring placement of conservation restrictions on the entire wetland and buffer complex, whether or not a project has only limited impacts and additional future regulated activities would otherwise be allowed under NJDEP’s rules, but for the conservation restriction.

Flood Hazard 

  • Permittees will need to recertify that flood hazard areas remain unchanged if work is not commenced within 180 days after a permit is issued, and the work must involve elements of permanent construction of a habitable structure and not only site clearing/preparation, excavation, roadwork or construction of accessory structures (garages). If flood hazard conditions have changed, the project may need to be revised to address the changed conditions, and NJDEP approval obtained before the approved work may occur.
  •  A FEMA Letter of Map Revision approval will be required for certain projects involving minimal flood elevation increases before NJDEP will take action on the permit application. This will add a substantial period of time to the review since FEMA is not required to make a decision within a specified time period, unlike DEP which must adhere to the 90-day law time periods for decision making.
  •  Single-family home subdivisions with more than two units will be held to the same access road elevation requirements currently applicable only to muti-residential and critical buildings, and NJDEP is removing the minimal flexibility currently afforded to redevelopment projects that allows for access roads to be up to a foot below the applicable flood elevation where it is not feasible to elevate. This will make many developments and redevelopments infeasible. There is no clarity on the issue of how far dry access must extend for it to be approvable by DEP.
  • New criteria will be imposed for access roads including that they must accommodate two-way traffic of motor vehicles providing access to and from each building for the duration of the flood.
  • The current restriction on construction of a single-family home on a lot created after 2007 in a fluvial flood hazard area if there is already an existing habitable building or authorization for same from NJDEP will be extended to multi-residence buildings.
  • Critical and multi-residence buildings will be required to grade pedestrian areas outside of the building footprint to 1 foot above CAFE subject to certain non-feasibility conditions.
  • Limitations and mitigation requirements will be enhanced with respect to riparian buffers and permitting, including removal of the current exemptions for disturbance in truncated riparian zones and along manmade channels conveying stormwater.
  • The land area subject to 150-foot riparian zone buffers associated with threatened or endangered species habitat is being expanded. Activities within 25 of top of bank will be curtailed.
  • A permit will be required to conduct horizontal directional drilling below riparian zones (or wetlands), and enhanced permitting requirements will be imposed for solar panels in a flood hazard area.
  • A Verification will need to be obtained for projects impacting riparian zones.

Stormwater 

  • Stormwater requirements will be enhanced including new requirements on redevelopment of 80% TSS removal for stormwater runoff for new and redeveloped motor vehicle surface (increased from 50% for redeveloped impervious surfaces).

The proposed amendments do nothing meaningful to incentivize development opportunities in areas outside of the IRZ or CAFE. The FHA hardship provisions do not provide meaningful opportunities for relief, and in fact, the proposal imposes new conditions making it even less likely that hardship relief may be obtained.

Legacy (previously, grandfathering) provisions remain consistent with current NJDEP rules and depend largely on securing relevant approvals or the filing of a complete application before the rules become effective. Applications submitted before the effective date and declared technically complete will qualify for legacy status.

Three public hearing dates are scheduled (September 5, 12 and 19, 2024) and comments on the rule proposal must be submitted by November 3, 2024. If you have questions regarding qualification for legacy status or how the forthcoming rules may affect your project, please contact one of the attorneys in our Environmental Department. A courtesy copy of the draft proposal can be found  here.

© 2024 Giordano, Halleran & Ciesla, P.C. All Rights Reserved
For more news on State Climate Change Laws, visit the NLR Environmental & Energy Resources section.

This Michigan Supreme Court Case Has the Potential to Guide Drone and Air Rights Law for the Nation

While at first glance the Michigan Supreme Court case of Long Lake Township v. Maxon, appears to be a simple zoning dispute with a Fourth Amendment twist, the real impact of the case may ultimately fall on drones and air rights law, particularly the rights of landowners to exclude drones from flying in the airspace immediately above their land, and relatedly the ability of state and municipal governments to regulate such flights.

The history of the case is straightforward. When the Michigan municipality of Long Lake Township sought to enforce a zoning ordinance against Todd Maxon, Mr. Maxon asked the trial court to exclude all evidence obtained by flying a drone over Mr. Maxon’s land. After the trial court refused to exclude the evidence on the grounds that the photographs did not violate the Fourth Amendment, an appellate court ruled that the Fourth Amendment issue was irrelevant because a legal proceeding to enforce a local zoning ordinance is not required to exclude evidence obtained in violation of the Fourth Amendment (the requirement to exclude such evidence is known as the “exclusionary rule”).

Now, we await the Michigan Supreme Court’s decision as to whether the exclusionary rule applies, and if so, whether the use of the drone to inspect Mr. Maxon’s land for zoning compliance violated the Fourth Amendment’s prohibition of unreasonable searches.

A decision on that second question will center on landowners’ right to exclude drones from the airspace immediately above their land, because a warrantless search violates the Fourth Amendment if there is a reasonable expectation of privacy in the searched area that society recognizes as reasonable. It follows then, that, if a landowner has no legal right to exclude drones from flying over his or her land, then it would be inherently unreasonable to expect privacy in portions of their property that can be observed from such public drone flight paths above their land, as courts routinely rule that there cannot be a reasonable expectation of privacy in land that can be observed from adjacent, publicly-accessible space.

As drone technology developed from a curious, niche hobby into a potential billion-dollar business with the ability to change the way packages are delivered to our homes and offices, legal debates quickly followed about whether all airspace above the blades of the grass constitutes “publicly navigable airspace” that is beyond the control of the landowners below, or if those landowners maintain some residual control over some airspace above their land. A decision from the Michigan Supreme Court on this issue would be one of the highest level state or federal courts to confront this question.

Hopefully, the exclusionary rule will not prevent a thorough analysis of the issue, as its resolution will ultimately be necessary to confirm the permissibility of local government regulation of the time, place, and manner of drone flights, and landowners’ airspace control rights, and only when those questions are resolved will drone technology be able to fully flourish in the United States as part of a legal regime that acknowledges and respects the traditional property rights of landowners.

This is a bellwether. This decision will affect the course of not just Michigan, but all of America about how it treats drone surveillance.
Copyright 2024 Goulston & Storrs PC.
For more news on Drone Air Regulations and Zoning Rights, visit the NLR Real Estate section.

Be Careful What You Write: What a Heavily Redacted Antitrust Complaint Teaches Us About Creating Problematic Documents in Transactions

The Federal Trade Commission (FTC) recently filed a complaint in the U.S. District Court for the Southern District of Texas to stop Tempur Sealy’s proposed acquisition of Mattress Firm. See Federal Trade Comm’n v. Tempur Sealy Int’l, Inc. and Mattress Firm Group Inc., Case No. 4:24-cv-02508 (S.D. Tex. Jul. 2, 2024). On the same day, the FTC also commenced an administrative proceeding in its own court to block the transaction. See In re Tempur Sealy Int’l, Inc. and Mattress Firm Group Inc., Docket No. 9433 (FTC Jul. 2, 2024). According to the complaints, Tempur Sealy is the world’s largest mattress supplier and Mattress Firm is the largest mattress retailer in the United States. Vertical mergers between manufacturers and retailers can often produce procompetitive benefits, but this transaction struck the FTC as anticompetitive. The FTC’s principal concern appears to be that Tempur Sealy would shut off its rivals’ access to Mattress Firm.

Supporting the FTC’s decision to sue, Federal Trade Commissioner Melissa Holyoak said, “Despite the increased likelihood of procompetitive effects from vertical mergers, they may still result in harm in some circumstances. Consistent with these well-established economic principles, I vote in favor of filing this complaint based upon the substantial evidence generated by staff’s thorough investigation, especially the parties’ own ordinary-course documents. I have reason to believe that the effect of Tempur Sealy’s acquisition of Mattress Firm ‘may be to substantially lessen competition.’” (Emphasis added).

What exactly was in these ordinary course documents that caused Holyoak to believe this merger violates Section 7 of the Clayton Act and Section 5 of the FTC Act? The short answer is we don’t know. The complaints, which extensively quote some documents, are heavily redacted and the documents themselves, even in redacted form, are not attached to the complaints. Nor would we expect the documents to be attached, as they likely contain competitively sensitive information that ordinarily would not be on the public record. Rather than speculate about the documents themselves, let’s use the allegations in the FTC’s complaints as a tool to remind ourselves how documents are used in antitrust investigations and how lawyers and clients can work together to reduce the likelihood that potentially problematic documents are created.

  1. What’s an “ordinary course” document? As the name suggests, an ordinary course document is one that is created by the parties in the course of their ordinary business activities. It may be a routinely issued report, an email or text exchange by two employees, Slack messages, a slide deck, board minutes or any other form of written communication. Antitrust regulators routinely use these documents to gain insight into how the parties see themselves in relation to the competition, the rationale for a transaction, and how the parties view the likely competitive effects of a transaction. Often regulators will place more emphasis on communications from senior leadership in a corporation as those individuals may have greater knowledge of the transaction and have more authority to “speak” for an entity than lower-level employees. Regulators will use these documents not only to support their own theories and claims, but also to contradict the parties’ advocacy about the procompetitive aspects of a deal.
  2. How does the government obtain these ordinary course documents? In the case of the Tempur Sealy/Mattress Firm transaction and other high dollar value transactions, the parties were required to file Hart-Scott-Rodino (HSR) premerger notification forms. When an HSR filing is required, the parties must produce documents that discuss the transaction in relation to certain specific topics, such as competition, competitors, markets, and market shares. These documents are usually not ordinary course documents as they were created specifically for the deal but are nevertheless critical in the regulators’ review of potential competitive issues. Documents routinely produced in the HSR process, such as Confidential Information Memoranda (CIM) and Management Presentations, may contain statements that could create potential antitrust concerns. Clients should recognize that even the smallest of things in a CIM or Management Presentation have the potential to create big problems, as government regulators will read every page of what is submitted to them. For example, assume that an HSR filing contains a 100-page deck intended to serve as a Management Presentation, and one page of that deck contains a sentence that says: “We [seller] are the dominant player in our industry and we face minimal competition.” The rest of the deck might be completely innocuous, but depending on the circumstances, that one sentence has the potential to ignite regulators’ interest.Some transactions, such as Tempur Sealy/Mattress Firm, undergo a Second Request process after HSR is filed. A Second Request is an extensive subpoena requesting documents and data from the parties that goes far beyond the HSR process. The Second Request process is what likely turned up the “ordinary course” documents mentioned in Holyoak’s statement. This included text messages. See, e.g., Paragraph 108 of the federal complaint and Paragraph 99 of the administrative complaint. Judging from the amount of redacted material referenced in the complaints, the FTC appears to believe there are many documents that portray this transaction in an anticompetitive light.

    Clients should also be aware that the government’s authority to review and investigate transactions is not limited to only those transactions that require HSR filings; the government’s authority extends to any transaction that impacts competition in the United States. In addition to HSR filings, the government learns about deals through a variety of sources, such as press reports and third party complaints from customers or competitors. Accordingly, our views about document creation extend to all transactions, not just those requiring HSR premerger notification.

  3. Document creation in transactions is a team sport. That means lawyers and clients should work together as a team to minimize the creation of potentially harmful documents. The team should also include investment bankers and other advisors who are generating documents that analyze the transaction. In ideal circumstances, clients will involve experienced antitrust lawyers early on to understand: 1) whether the transaction potentially raises substantive antitrust concerns, such as when two direct competitors combine; 2) if the transaction will require HSR notification; and 3) whether or not HSR is required, what are the guardrails or best practices the client should observe. Recognizing that we don’t always operate in ideal circumstances and lawyers may only become involved after certain documents are created, lawyers should nevertheless remain vigilant about documents from the time they become involved in a deal. Coaching clients and their advisors about document creation best practices is always critically important.
  4. What are some best practices? Lawyers should proactively educate their clients on what to say (or not say) about the transaction and which words or phrases may be particularly susceptible to raising potential antitrust concerns. For example, words like “dominate” and “control” in relation to competition and competitors may create problems, as could market share statistics that overstate a seller’s prominence in a particular industry. Lawyers should also review drafts of documents such as CIMs, Management Presentations, and teasers to ensure that they are free of harmful verbiage.
  5. Expect statements to be misunderstood or taken out of context: Reading the Tempur Sealy/Mattress Firm complaints, two things are clear: 1) the government relied on portions of documents to support its allegations; and 2) the context of many of the quoted statements is unknown. It may be the case that some of the statements the FTC found important become less important when the entire document is reviewed and the context of the statement is made clear. Relatedly, there may be other documents not referenced in the complaints that indicate the transaction has procompetitive benefits. Allegations in a complaint are just that – allegations – and the evidence that emerges as the case progresses may or may not support those allegations. That being said, parties are wise to follow the best practices above. Similarly, they are also wise to avoid making exaggerated statements or statements intended to be humorous. These statements may be misunderstood by government regulators who do not know the specific industry or its players as well as clients do.
  6. Follow the general principle of “less is more” when it comes to document creation. Many transactions seem to move at lightning speed, but a moment of self-reflection can be very valuable. Ask yourself: do I need to write this, and if I do, what’s the best way to say it? Some organizations are more document-intensive than others, and there may be other reasons, unrelated to antitrust considerations, that require certain documentation. But in general, more documents are probably created than are truly necessary and more documents create the potential for more problems. Regardless, the key is to remember emails, texts, Slack messages, and slide decks may be read not only by their intended recipients but also by government antitrust regulators.
Copyright ©2024 Nelson Mullins Riley & Scarborough LLP
For more news on Antitrust Complaints, visit the NLR Antitrust Trade & Regulation section.

Google Modifies Ad Policy to Benefit Daily Fantasy Sports and Lottery Couriers

Google has set the stage for a transformative change slated for July 15, 2024, providing a roadmap to extend Google Ads to daily fantasy sports (“DFS”) operators and lottery courier services across numerous U.S. states. A significant shift in the search engine’s Google Ads gambling and games policy, this move is indicative of the company’s responsiveness to the evolving legal landscape surrounding online gaming and lottery courier services. Industry stakeholders must navigate this new advertising landscape mindfully, seizing its potential within regulatory bounds. Legal advice and assistance may be needed to address the new policies and understand the new Google environment.

Google announced that it would permit these businesses to advertise on a state-by-state basis.

  • Approved for DFS Advertising: Alaska, California, Florida, Georgia, Kentucky, Minnesota, Nebraska, New Mexico, North Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Utah, West Virginia, Wisconsin, and Wyoming.
  • Approved for Lottery Courier Advertising: Alaska, Arkansas, Colorado, District of Columbia, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Vermont, West Virginia, and Wyoming.

If advertisers are targeting their ads in a state that does not require a license to conduct DFS or lottery courier service, they must be licensed in at least one other U.S. state that mandates such a license.

The Legal Context of the Updated Google Ads Policy

Usually circumspect when it comes to gambling-related content, Google’s policy update marks a notable departure. Traditionally, its stringent restrictions limited advertising to state-run lotteries and horse racing only. The historical context here is important as this shift from Google’s previously conservative policy marks a wider change in the digital advertising of gaming activities. Now, licensed lottery courier services will be able to market themselves through Google Ads in 40 states, excluding California due to specific state restrictions. The revised guidelines correspond with the expanding endorsement and enactment of governance over online gaming and lottery operations. Nonetheless, this update enforces rigorous procedural rules and criteria for advertising compliance, encompassing adherence to both individual state regulations and the certification processes established by Google.

This paradigm shift in Google’s policy echoes their latest requirements for advertisers, who are compelled to demonstrate compliance not just through licensing but also through the integrity of their ad content and search positioning efforts, reflecting a commitment to consumer trust and regulatory adherence.

Daily Fantasy Sports Advertising: A New Playing Field

On the DFS front, Google’s policy expansion allows operators to advertise in 17 states, including jurisdictions where online sports betting remains unlegislated. DFS operators in states which currently do not permit online sports betting will remain at liberty to run Google ads. This reflects Google’s nuanced approach to advertising within the gaming industry, ensuring that ads from entities that have met state-imposed standards are available to users. DFS providers can enter new markets at the rollout, subject to regulatory compliance, including state licensing. In states without such licensing requirements, operators must nonetheless hold a valid license from another state that does enforce scrutiny of operators, underscoring Google’s effort in promoting only legitimate, reputable services.

Lottery Courier Advertising: Riding the Wave of Legalization

Entities such as Jackpocket and Lotto.com, acting as intermediaries, can now increase their visibility and customer base through Google Ads. Among other recent developments, DraftKings’ recent acquisition of Jackpocket for $750 million showcases the growing economic significance of lottery courier services. This growing market, while gaining popularity for convenience, is also varied in acceptance across states; advertisers must navigate diverse regulations and be keenly aware of states like California, where the State lottery commission has expressed restrictions and presently takes a dim view of courier operations.

Understanding Compliance: Standing At the Gate of Certification

Google’s guidelines mandate advertisers provide evidence of all aspects of their operation, from licensing to customer data protection and legal compliance. Certification thus becomes synonymous with service integrity, with Google’s policy now establishing this as a prerequisite. To synchronize with this directive, advertisers must:

  • Hold an official license in one state, considering the dynamics of interstate variances in regulation.
  • Target ads with precision, respecting the complexities of state-specific legal frameworks.
  • Engage diligently with Google’s certification process, indicative of an advertiser’s adherence to compliance and transparency.

Advertisers seeking certification need to demonstrate compliance with rigorous legal standards, including the authentication of tickets and adherence to regulations. The process calls for delivering not just proof of licensing where required, but also extensive details pertaining to their business operations. The intent behind this comprehensive evaluation is to safeguard consumers by preventing untrustworthy services from gaining approval to advertise.

It will be particularly interesting to understand how Google enforces its ”licensing” requirement for vendors, such as marketing affiliates, which promote lottery/fantasy sports services indirectly. Unlike B2C fantasy sports operators or couriers, these B2B entities traditionally not providing consumer-facing services may not be subject to the same state licensing demands, yet they must still navigate the intricacies of Google’s policy in their marketing efforts.

Implications for Advertisers: A Forward-Looking Approach

In navigating Google’s updated advertising framework, adherence to its detailed certification process is paramount to successful marketing. A failure to meet Google’s more robust standards could lead to advertising restrictions on its platform and related services—underscoring the need for meticulous strategy alignment and transparent operations.

The alterations to Google’s policy demand substantial attention to detail and legal compliance. These policy changes necessitate careful scrutiny and a proactive stance from advertisers to ensure alignment with new advertising avenues. On July 15, 2024, Google’s updated advertising policies will come into effect, after which the related policy page will be updated to reflect these changes.

Google’s revisions to its policies underscore the company’s pragmatic response to the dynamic realm of Internet-based lottery-related and gaming services. Notably, Google’s decision enables lottery courier advertising in a majority of states, acknowledging the sector’s growth. It is highly likely that other social media platforms will soon follow suit, thereby setting new standards for these business to adhere to if they want to take advantage of these powerful tools.

© 2024 Blank Rome LLP

Ozempic Lawsuit Overview

Makers of Ozempic and other semaglutide drugs are facing hundreds of lawsuits throughout the United States. While intended for diabetes management and weight loss, research has linked the drug to increased risk of gastroparesis, stomach paralysis, pancreatitis and bowel obstruction.

Plaintiffs and their Ozempic lawsuit lawyers are seeking monetary compensation through products liability litigation. Victims are continuing to come forward. As of June 2024, cases are in preliminary stages, with new cases being added to multi-district litigation.

What Is the Ozempic Lawsuit About?

The Ozempic lawsuit is about whether the manufacturers of semaglutide drugs created and sold an unreasonably dangerous drug that hurt people. Plaintiffs say that the drugs created an unreasonable risk of gastrointestinal injury – a risk that the drug manufacturers knew about, and that they hid from the public.

What drugs are involved in the Ozempic weight loss lawsuit?

Ozempic might be the best known of the drugs involved in the weight loss lawsuits, but there are several drugs named in litigation. These drugs include:

● Ozempic
● Wegovy
● Rybelsus
● Trulicity
● Mounjaro

Ozempic, Wegovy and Rybelsus are manufactured by Danish pharmaceutical giant Novo Nordisk. Trulicity and Mounjaro are manufactured by Eli Lilly and Company.

Each individual case names the drug or drugs that the plaintiff took.

What are the issues in the Ozempic lawsuit?

There are three primary issues alleged in the Ozempic lawsuits:

1. Whether the drug companies knew or should have known that their semaglutide drugs could cause gastroparesis and other gastrointestinal issues.

2. Whether the drug companies adequately warned doctors and patients about the dangers of their products.

3. Whether the drug companies made false, misleading, or incomplete statements about safety as they marketed their products.

Overview of the Drug of Ozempic and How It Works

Danish pharmaceutical company Novo Nordisk developed the diabetes drug Ozempic. Its purpose is to treat type 2 diabetes.

How do Ozempic and related weight loss drugs work?

Ozempic is a glucagon-like peptide-1 (GLP-1) receptor agonist. The drug signals the body that it is not hungry and to stop eating. It is meant to act like the GLP-1 hormone.

When we eat, the body releases the GLP-1 hormone in the intestinal tract. The hormone signals the brain that it is full. When the hormone is present, a person may eat less or stop eating. In diabetes patients, the drugs trigger insulin production and reduce a hormone from the pancreas that increases blood sugar. The drug helps keep the person’s blood sugar level lower, managing their diabetes.

Over time, Novo Nordisk made and marketed three different semaglutide GLP-1 receptor agonist drugs:

● Ozempic – Injected with a pen, approved in 2017
● Rybelsus – Taken by pill, approved in 2019
● Wegovy – Targeted for weight loss patients, in a higher concentration than other forms of semaglutides, approved in 2021

With FDA approval, sales of these weight loss drugs soared. Medicare even began to cover the drug Wegovy in 2024, with some restrictions. There was such a demand for the products that there was a shortage in 2023.

Not a miracle drug after all

At first, manufacturers thought that they had created a miracle drug. The New England Journal of Medicine reported that people taking semaglutide drugs lost up to 15% of their body weight. Novo Nordisk aggressively marketed the drugs, including with consumer-direct marketing campaigns. Influencers on social media touted the benefits, and there were stories of celebrities who had found seemingly effortless success.

However, it soon became clear that there may be serious problems with the drugs. Doctors and researchers began learning that the drugs may cause higher rates of gastroparesis and other gastrointestinal issues. Victims say that when these drugs were marketed to them, they were unaware that they were placing themselves in serious danger.

What’s the problem with Ozempic?

Ozempic and other weight loss drugs may cause higher rates of gastroparesis. Gastroparesis is a medical condition of weakened stomach muscles and intestines. The condition can lead to other problems and complications because the person cannot move food through the body in a
timely manner.

What is gastroparesis?

Gastroparesis is delayed gastric emptying of the digestive tract, including the stomach, intestines and bowels. The person has weakened muscles in their stomach and intestines, so they’re not able to digest food at a reasonable pace. The condition can cause several problems
and complications, including:

● Stomach pain
● Vomiting, nausea, diarrhea
● Fatigue
● Vitamin, nutrition deficiencies
● Bloating
● Too many bacteria in the small intestine
● Obstructed intestine or bowel

Gastroparesis can cause discomfort. The condition can be dangerous and life-threatening. Diabetes can mask the symptoms of gastroparesis, making it harder to detect.

Ozempic Lawsuit Case Details

What type of case is the Ozempic lawsuit?

The Ozempic stomach paralysis lawsuit is a tort product liability case, which is not an Ozempic class action lawsuit. The claims have been consolidated into multidistrict litigation. People who were harmed by taking the drug are bringing civil claims, seeking compensation for their monetary damages, physical harm and suffering.

What is the Ozempic lawsuit case number?

The Ozempic gastrointestinal lawsuits are currently joined in Multi-District Litigation In Re: Glucagon-Like Peptide – 1 Receptor Agonists (GLP-1 RAS) Products Liability Litigation, MDL-3094. The cases are joined in the United States District Court for the Eastern District of Pennsylvania. Each individual case that is part of the multi-district litigation proceeds retains its
own individual case number.

Note: Ozempic is also the subject of unrelated multi-district litigation regarding patents (MDL-3038). The cases have been consolidated in a Delaware court. The issues are unrelated to the issues in the defective drug products liability cases.

Who is the judge of the Ozempic multi-district litigation?

District Judge Gene E.K. Pratter was assigned to preside over the Ozempic multidistrict litigation. However, she passed away in May 2024. A new judge will be assigned to the case.

How many cases are a part of the Ozempic lawsuit?

As of June 2024, there are 101 cases pending in the Ozempic lawsuit multi-district litigation. New cases are being added periodically as victims come forward.

Multi-District Litigation – Cases Joined Together for Preliminary Proceedings

The Ozempic lawsuit started as separate lawsuits filed throughout the United States. At first, 18 cases were filed in 11 judicial districts. There were another 37 related cases in 15 districts.

Nine of the original plaintiffs believed that it would make more sense to build their cases together. They thought their cases were similar enough that they should work together for preliminary proceedings. They wanted to work together in discovery, preliminary motions, depositions and evidentiary rulings. On December 1, 2023, they filed a motion to transfer the cases from their respective courts.

On February 5, 2024, the courts agreed and ordered the cases combined for preliminary proceedings in multi-district litigation.

Not everyone wanted the transfer. Some plaintiffs thought that only claims against Novo Nordisk should be combined. The parties opposing MDL didn’t want multiple defendants combined.

However, the court transferred all claims involving similar allegations about GLP-1 RA drugs and whether they cause gastrointestinal issues. The court said that even though the two companies sold drugs with different molecular structures, complete overlap of issues is not required.

Current Status of the Ozempic Weight Loss Litigation

The Ozempic weight loss litigation is in the early stages. As of June 9, 2024, the court has issued four case management orders. These orders direct the parties to do certain things in preliminary proceedings.

Case management order no. 1 – February 15, 2024

● A statement that cases transferred to the court, and cases subsequently transferred to the court, will be subject to the court’s orders.
● Attorneys are directed to review the court’s policies and procedures.
● The court set the date, time and place for the first in-court case conference. The court set aside two hours of court time for the conference.
● Topics to be discussed included selecting plaintiff’s lead counsel, the responsibilities of lead counsel and allocation of tasks. The court said that pleadings, timing, future status conferences and other issues could be discussed.

Case management order no. 2 – February 16, 2024

● Waiving pro hac vice fees in the case.
● Requiring parties to submit the court’s pro hac vice form, if applicable.

Case management order no. 3 – April 23, 2024

● Appointing Liaison Counsel for Plaintiffs, and a mentor.
● Identifying and appointing counsel to the Plaintiff’s Committee.
● Authorizing Committee members to select additional counsel for the Committee, up to 25 total members.
● Allowing the Committee to create subcommittees.
● Ordering the Committee to propose conference dates.

Case management order no. 4 – April 24, 2024

● Requiring the parties to preserve potentially relevant evidence.
● Parties must keep documents, data and tangible things in their presence that are relevant to the claims and defenses in the case.
● Each party must take reasonable steps to avoid loss of the evidence. Auto-delete features must be disabled.
● Certain sources don’t need to be preserved, searched or produced from.
● Keeping evidence or information is not an agreement or concession that the material is relevant to litigation.

There have been other filings in the case. These filings are procedural, like asking the court for additional time to respond to the motion to transfer the cases to multi-district litigation and required proof of service documents.

The court held a status conference on March 14, 2024. Preliminary proceedings will continue, after which the court may schedule bellwether trials. These early trials inform the parties as to how cases may be decided if they go to trial.

Basis of a Claim

The decisions that people make about their medical care may impact the rest of their lives. The choices that people make about their healthcare should be informed.

A critical basis for the Ozempic lawsuit is the claim that the drug manufacturer failed to warn consumers about the risks of the drugs. Some claims allege that the warning label was too generic, listing minor symptoms but saying too little about gastrointestinal issues, and not
emphasizing the dangers enough.

Many patients saw the direct-to-consumer marketing campaigns, including $180.2 million spent to market the drug in 2022. Marketing efforts for Rybelsus were similarly robust in 2022, at $167.2 million spent. Much of the marketing budget was spent on national television ads.

The marketing worked, and sales climbed high that year. Novo Nordisk credited the marketing effort for its 36% revenue growth in North America in 2022.

Consumers say that with marketing efforts this strong, they had the right to complete information before taking Ozempic or another semaglutide drug.

U.S. products liability law and the Ozempic case

In the United States, drug manufacturers have a legal liability to make products that are reasonably safe. Product liability is the type of case that a victim may bring if they are harmed by a dangerous drug. One of the ways that a drug can be dangerous is if the public doesn’t have the information that they need about the risks and potential harm.

A claim may also be based on misleading statements in advertising. The lawsuits say that the drug manufacturer proclaimed the benefits of the drugs without emphasizing the potential risks. Plaintiffs say that the advertising campaigns were deficient enough that the drug companies
should be liable for damages.

Damages for Ozempic Lawsuit

The purpose of the Ozempic lawsuit is to compensate victims. A person who develops gastroparesis likely has significant losses due to medical expenses. They may have physical suffering.

Damages claimed may include economic and non-economic losses. Valuing damages is an important part of any case.

Proving an Ozempic Legal Claim

While you can file an Ozempic lawsuit, to succeed in an Ozempic lawsuit, a person must prove:

● They took Ozempic or a related drug.
● The drug was defective under legal standards.
● Because of taking the drug, the victim developed medical problems. There is causation between using the drug and the harm that occurred.
● Damages resulted to the victim including medical bills, other financial losses, physical pain, suffering and other damages.

Novo Nordisk is aggressively fighting claims. They have responded to the allegations and will be fighting the claims in the months to come. The parties will continue to discuss medical evidence and pursue their respective positions.

Justice for Ozempic Victims

Ozempic lawsuits are still in the early stages. New plaintiffs are continuing to join, and the cases are moving through preliminary proceedings. The court will schedule future dates as the parties develop their cases, pursue settlement and prepare for trial.

Oberheiden P.C. © 2024
For more news on Ozempic Lawsuits, visit the NLR Products Liability section.

The Commodity Futures Trading Commission Cracks Down on Employer Non-Disclosure Provisions

The Commodity Futures Trading Commission (“CFTC”) has now joined the Securities and Exchange Commission (“SEC”) in taking a stand against broad non-disclosure provisions in employment agreements.

Last week, the CFTC announced a settlement with Trafigura Trading LLC, in which the company agreed to pay a $55 million penalty, in part because it required employees to sign agreements that impeded voluntary communications with the CFTC.

In its decision, the CFTC specifically found:

Between July 31, 2017 and 2020, Trafigura required its employees to sign employment agreements, and requested that former employees sign separation agreements, with broad non-disclosure provisions that prohibited the sharing of Trafigura’s confidential information with third parties. These nondisclosure provisions did not contain carve-out language expressly permitting communications with law enforcement or regulators like the Commission.

The CFTC concluded that such non-disclosure provisions violate Regulation 165.19(b), 17 C.F.R. § 165.19(b) (2023), implementing Section 23(h)-(j) of the Act, 7 U.S.C. § 26(h)–(j), even without any additional actions impeding communications.

As a result of this finding, among others involving misappropriation of material nonpublic information and manipulative conduct, the CFTC not only levied a significant fine on Trafigura, but imposed a host of conditions and undertakings with which Trafigura was required to comply. Relevant here, the CFTC required that Trafigura modify its non-disclosure provisions to include language making clear that “no term in any such Agreement should be understood to limit or prevent the filing of a complaint with; or voluntary, lawful communication with; or disclosure of information to any federal, state, or local governmental regulatory or law enforcement agency.”

Director of the Whistleblower Office Brian Young commented, “This is the first CFTC action charging a company under regulations designed to prevent interference with whistleblower communications. This groundbreaking action demonstrates the CFTC’s commitment to protecting potential whistleblowers and puts the market on notice that the CFTC will not tolerate contractual arrangements that could impede communication by potential witnesses.”

We have long reported on the SEC’s targeting of employment agreements. With the CFTC following suit, employers should expect additional agencies to scrutinize language in employment agreements, separation agreements and other employment-related documents, such as employee handbooks and Codes of Conduct. To minimize such scrutiny and exposure employers should take action to modify non-disclosure and other provisions such as non-disparagement and confidentiality clauses that might have the purpose or effect of impeding agency communications. Such modifications must include carve-out language clarifying that nothing precludes current and former employees from communicating in any way with a government agency, such as the CFTC or the SEC. It is more important than ever for employers to work with counsel to conduct a comprehensive review of their policies, practices, and agreements for language that such agencies may find problematic.

©2024 Epstein Becker & Green, P.C. All rights reserved.
For more news on Employer Non-Disclosure Provisions, visit the NLR Labor & Employment section.