The US Court of Appeals for the Federal Circuit found that claims covering a naturally occurring composition were not patent eligible under 35 U.S.C. § 101 merely because one component of the composition had been “isolated.” ChromaDex, Inc. v. Elysium Health, Inc., Case No. 2022-1116 (Fed. Cir. Feb. 13, 2023) (Chen, Prost, Stoll, JJ.)

ChromaDex sued Elysium (a former ChromaDex customer) for infringement of its patent directed to dietary supplements containing nicotinamide riboside (NR). Elysium moved for summary judgment, arguing that the asserted claims were invalid under the § 101 prohibition against patenting natural phenomena. After the district court granted summary judgment, ChromaDex appealed.

The asserted claims were directed to a composition comprising:

• Isolated NR
• One or more of tryptophan, nicotinic acid or nicotinamide
• One of 22 carriers
• Increased NAD+ biosynthesis after eating.

Both parties conceded that milk satisfies every element of the asserted claims with the exception that its NR is not “isolated.” Both parties also conceded that milk is a naturally occurring material and thus not patent eligible under § 101.

On these facts, the issue presented was whether the claim limitation that the NR must be “isolated” (which does not occur in nature) was sufficient to make the claims patent eligible. The Federal Circuit responded “no.”

The Federal Circuit analyzed the asserted claims under two tests: the “markedly different characteristics” test set out in Chakrabarty, and the Alice two-step test (unsure whether Chakrabarty remains controlling precedent).

Under the Chakrabarty test, a claimed composition is not a natural phenomenon if it has “markedly different characteristics” from what occurs in nature. The Federal Circuit found that ChromaDex’s claimed composition had no markedly different characteristics from natural milk. While ChromaDex argued that isolation potentially allowed for unnaturally high concentrations of NR, the claims did not require such concentrations. The claims included compositions structurally and functionally identical to milk and therefore failed the “markedly different characteristics” Chakrabarty test.

Proceeding to the two-part Alice test, under step 1 the Federal Circuit found that the claims were directed to a product of nature because there were no structural differences between the claimed composition and natural milk. Under step two, the Court found that there was no “inventive step” because the claims were merely directed to increasing NAD+ biosynthesis, which was a natural principle that resulted from drinking milk.

Practice Note: During claim drafting, care should be taken to avoid claims that encompass all structural and functional components of a naturally occurring material.

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• USDA’s Agricultural Marketing Service (AMS) administers the National Organic Program (NOP) as authorized by the Organic Foods Production Act of 1990 (OFPA).  The USDA organic regulations, which were published on December 21, 2000, and became effective on October 21, 2002, govern the production, handling, labeling, and sale of organically produced agricultural products.  On August 5, 2020, in response to mandates in the Agriculture Improvement Act of 2018, as well as pressure from the industry and recommendations from the National Organic Standards Board (NOSB), USDA published a proposed rule called Strengthening Organic Enforcement (SOE) that is aimed at preventing loss of organic integrity—through unintentional mishandling of organic products and intentional fraud meant to deceive—and strengthening trust in the USDA organic label.
• On January 19, 2023, USDA published the SOE final rule.  The final rule includes clarifications and additional examples in response to comments received on the SOE proposed rule.  Key updates include:
  • Requiring certification of more businesses, like brokers and traders, at critical links in organic supply chains;
  • Requiring NOP Import Certificates for all organic imports;
  • Requiring organic identification on nonretail containers;
  • Increasing authority for more rigorous on-site inspections of certified operations;
  • Requiring uniform qualification and training standards for organic inspectors and certifying agent personnel;
  • Requiring standardized certificates of organic operation;
  • Requiring additional and more frequent reporting of data on certified operations;
  • Creating authority for more robust recordkeeping, traceability practices, and fraud prevention procedures; and
  • Specifying certification requirements for producer groups.
• The compliance date for the SOE final rule is March 19, 2024, or 12 months after the effective date of March 19, 2023.

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On December 29, 2022, President Biden signed into law the “Modernization of Cosmetic Regulation Act of 2022,”¹ which requires increased Food and Drug Administration (FDA) oversight of cosmetics and the ingredients in them. This GT Alert outlines the law’s key provisions, including timelines for FDA actions and enforcement. The law creates new requirements that may generate increased consumer litigation. This GT Alert summarizes the Act’s provisions and does not constitute legal advice. Many provisions are subject to regulatory implementation by a date provided for in the Act.

The new law also includes amendments modifying other FDA requirements. In particular, the law modifies the law as to issues such as improvements and innovations in drug manufacturing, reauthorization of key FDA programs such as the Humanitarian Device Exemption Incentive, the Best Pharmaceuticals for Children Program, and Reauthorization of Orphan Drug Grants. There are also modifications to biologics and drugs, as well as modifications of the Save Medical Device amendments. For information on the potential litigation impacts of the new law, please see this GT Alert published by the Pharmaceutical, Medical Device & Health Care Litigation Practice.

Modernization of Cosmetic Regulation Act of 2022 (MoCRA)

MoCRA, the new cosmetic regulation law, establishes a process, similar to those for other FDA-regulated products, that ensures the cosmetic manufacturers provide assurances that the cosmetic products are safe. This GT Alert provides general information on these new requirements, with effective dates for certain regulatory and other requirements. The law establishes obligations on the “responsible person” that is, the manufacturer, packer, or distributor of a cosmetic and those whose name appears on the products label.

MoCRA is only applicable to importers and entities that manufacture or process cosmetic products. It does not apply to the following entities if they do not import, manufacturer, or process cosmetics: beauty salons; cosmetic product retailers; distribution facilities; pharmacies; hospitals; physicians offices; health care clinics; public health agencies and other nonprofit entities; entities that provide complimentary cosmetic products; trade shows and others giving free samples; entities that are only doing research; and entities that prepare labels, relabel, package, repackage, hold, and/or distribute cosmetic products.

Key Terms

Good Manufacturing Practices: The secretary of the Department of Health and Human Services (HHS) (through the FDA) will propose and finalize regulations to establish good manufacturing practices. The key is to ensure that products are not adulterated and will allow FDA to inspect records to ensure compliance. The proposed rulemaking shall be no later than two years after date of enactment (December 29, 2022) with final regulations no later than three years after date of enactment (December 29, 2022).

Adverse Events: Any health-related event associated with the use of a cosmetic product.

Serious Adverse Event: Any event that is a result of death, life-threatening experience; inpatient hospitalization; persistent or significant disability or incapacity; a congenital anomaly or birth defect; and infection or significant disfigurement OR requires, based on reasonable medical judgment, a medical or surgical intervention to prevent an outcome described in the first definition of serious adverse event.

Process for Reporting Adverse Events: In compliance with the HHS secretary’s regulations, the responsible person shall file a report within 15 days and may supplement the report within one year. A serious adverse event report is similar to other safety reports and can include a statement released to the public (without any personal health information). The HHS secretary may exempt certain reports that do not involve a significant public health issue. Records must be kept by the responsible person for six years; three years for small businesses. There is a Rule of Construction that the submission of any report shall not be construed as an admission that the cosmetic product involved, caused, or contributed to the relevant adverse event.

• Fragrance and Flavor Ingredients: If an ingredient(s) has caused or contributed to a serious adverse event, the HHS secretary may request a list of such ingredients, and such list must be provided within 30 days of the request.

• Safety Substantiation: Records must be maintained that demonstrates adequate substantiation of the safety of the cosmetic product. Adequate substantiation means tests, studies, or other evidence to support a reasonable certainty that the product is safe.

Inspection: The responsible person shall permit an officer or HHS employee (with credentials) to have access to inspect records, manufacturing and other issues.

Registration and Product Listing: Cosmetic manufacturers must submit a registration no later than ONE YEAR AFTER ENACTMENT (December 29, 2022). New facilities must register within 60 days (or 60 days after deadline). Renewal is every two years. Updates or changes must be submitted within 60 days of the change. The content of the information required for registration is outlined in the law. The registering company must also list all cosmetic products it imports, manufactures, or processes and include product category or categories, list of ingredients (fragrances, flavors, or colors), and product listing number (if previously assigned). Flexibility is given to the listing of multiple products with identical formulations or those that differ only to colors, fragrances, flavors, or quantity. Annual updates are to be submitted. FDA will withhold confidential information included in a listing when a request for information is filed.

The HHS secretary may suspend a cosmetic entity’s registration if there is a reasonable probability that a product is causing serious adverse health or deaths, and the secretary has reasonable belief that other products made or processes may also be affected and for which health concerns are raised about the products manufactured. Notice of suspension is to be provided and an opportunity within five days to provide corrective action; or a hearing may be held. The secretary may conclude (a) the suspension remains necessary or (b) the registrant must submit a corrective action plan to demonstrate remediation of the problem conditions. The plan will be reviewed not later than 14 business days or such other time agreed upon by the parties. If the secretary vacates the suspension, FDA will then reinstate the registration. If the facility is suspended, no person shall introduce or deliver in the United States cosmetic products from such facility. The secretary can only delegate this authority to the FDA Commissioner.

Labeling: Each cosmetic product shall have a label that includes a domestic address, domestic phone number, or electronic contact information. In addition, the following applies to labeling.

• Fragrance Allergens: The responsible person shall identify on the label each fragrance allergen included. The secretary shall propose a rule on June 29, 2024 (18 months after date of enactment) and final rule 180 days after the public comment period closes. The secretary shall consider international, state, and local requirements for allergen disclosure and threshold amount levels.

• Cosmetic Products for Professional Use: A professional is an individual licensed by a state authority to practice in the field of cosmetology, nail care, barbering, or esthetics.

• Professional Use Labeling: A cosmetic product introduced into interstate commerce and intended to be used only by a professional shall bear a label that contains a clear and prominent statement that the product shall be administered for use only by a licensed professional; and is in conformity with the requirements for cosmetics labeling.

Records: Records are to be available to authorized personnel to examine products if there is reason to believe a cosmetic product is adulterated or an ingredient could cause harm or run afoul of other standards. The authorized personnel must provide written notice to have access to records at a reasonable time to determine whether the product poses a threat. The records to be reviewed do not include recipes or formulas for cosmetics, financial data, pricing data, personnel data (except qualifications) research data (other than safety substantiation) or sales data (other than shipment data regarding sales).

• Rule of Construction: Nothing in this section shall be construed to limit the secretary’s ability to inspect records or require establishment and maintenance of records under any other provision of the law.

Mandatory Recall Authority: If the secretary determines there is a reasonable probability that a cosmetic is adulterated or misbranded and the use or exposure will cause serious adverse health consequences or death, the secretary shall provide the cosmetic manufacturer an opportunity to voluntarily cease distribution and recall such article. If the entity refuses or does not recall the cosmetic within the time and manner prescribed, the secretary may order that the product not be distributed.

• Hearing: A hearing may be held, no later than 10 days after the date of issuance. A process for resolution is provided by the law to either recall the product and cease distribution based on evidence provided or permit the product to continue distribution. Notice to affected individuals may be required.

• Public Notification: If a recall is required, a press release is to be published, and alerts and public notices are to be issued, as appropriate. The materials must include the name of the cosmetic; a description of the risk; to the extent practicable, information for consumers about similar cosmetics that are not affected by the recall and ensure publication on the FDA website of the image of the cosmetic. The secretary can only delegate this authority to the Commissioner of the FDA.

• Rule of Construction: Nothing in this section shall affect the authority of the secretary to request or participate in a voluntary recall or to issue an order to cease distribution or to recall under any other provision of this chapter.

Small Businesses: Responsible persons and owners and operators of facilities whose gross annual sales in the United States of cosmetic products for the previous three-year period is less than $1,000,000 shall be considered small business and not subject to Good Manufacturing Practices, registration, and listing requirements.

• Exemptions: The small business exceptions do NOT apply to (1) cosmetic products that contact the mucus membrane of the eye under conditions of use that are customary or usual; (2) products that are injected; (3) products that are intended for internal use; or (4) products that are intended to alter appearance for more than 24 hours under conditions of use that are customary or usual, and removal by the consumer is not a part of such conditions of use that are customary or usual.

Preemption. No state or political subdivision of a state may establish any law, regulation, order, or other requirement for cosmetics that is different for registration and product listing, good manufacturing practice, records, recalls, adverse event reporting or safety substantiation. Nothing prevents any state from prohibiting the use of an ingredient in a cosmetic product, or continuing requirement of any state in effect at time of enactment.

• Savings Clause: Nothing in the amendments shall be construed to modify, preempt, or displace any action for damages or the liability of any person under the law of any state, whether statutory or based in common law.

Talc-containing cosmetics: The HHS secretary shall propose regulations one year after December 29, 2022 and finalize the rules 180 days after the comment period to establish testing for detecting asbestos in talc products.

(1) Not later than one year after date of enactment of this act, the secretary shall promulgate proposed regulations to establish and require standardized testing methods for detecting and identifying asbestos in talc-containing cometic products and

(2) Not later than 180 days after the date on which the public comment period on the proposed regulations closes, the secretary shall issue such final regulations.

PFAS in Cosmetic. The HHS secretary shall assess the use of perfluoroalkyl and polyfluoroalkyl substances (PFAS) in cosmetic products and the scientific evidence regarding the safety in cosmetic products, including risks. The secretary may consult with the National Center for Toxicological Research. Report must be issued not later than three years after enactment summarizing the results of the assessment conducted.

Sense of the Congress on animal testing: It is the sense of the Congress that animal testing should not be used for the purposes of safety testing on cosmetic products and should be phased out except for appropriate allowances.

Funding: $14,200,000 for 2023, 25,960,000 for 2024, and $41,890,000 for 2025-2027 have been identified for these activities. The new law provides no industry user fees.

FOOTNOTES

¹ This legislation was included in H.R. 2617, the “Consolidated Appropriations Act, 2023,” as part of a year-end bill.

The post New Cosmetic Regulatory Requirements: What Cosmetic Manufacturers Need to Know appeared first on The National Law Forum.

Could cultured meat be available in your U.S. grocery store in the new year? A previous article focused on the topic of “cultured meat” – meat made from the cells of animals and grown in a nutrient medium. While no cultured meat has yet been approved for sale in the U.S., companies are positioning themselves for mass production once needed approvals, licensing, inspections, etc., are obtained.

Earlier this month, Believer Meats broke ground on a $123 million plus facility in Wilson, North Carolina. The facility will be able to produce 10 metric tons of meat a year and will be the largest cultured meat facility in the world. The new facility will be Believer Meats’ second production facility. Last year it opened its first facility in Rehovot, Israel, with the capacity to make 500 kilograms of cultured meat a day. Believer Meats has developed processes to create cultured chicken, beef, pork, and lamb.

Investment in the cultured meat industry has been massive. For example, Believer Meats has $600 million in funding, and its investors include ADM Ventures, part of Archer-Daniels-Midland Co., and Tyson Foods.

Investment in the cultured meat industry has been massive.

So, with all of the investment and building of facilities, is the sale of cultured meat in the U.S. imminent? Cultured meat was first introduced in 2013. The eventual sale of cultured meat in the U.S. seems inevitable, but the timing is not yet clear. Before any cultured meat can be sold in the U.S., the FDA and USDA must approve the processes, license the facilities, inspect the facilities, inspect the meat, and approve labeling for the meat. Recognizing the rapid development of cultured meat products, the FDA established a premarket consultation process for companies to work with the FDA to start the process of regulatory approval for their cultured meat products. This premarket consultation process permits the companies to, voluntarily, work with the FDA, and to share information about their processes. The FDA premarket consultation does not, itself, “approve” the products, but evaluates the information shared by the companies – in order to determine if the meat is safe for human consumption. Specifically, as part of the premarket consultation, the FDA considers the cells used to make the cultured meat, the processes and materials used to create the cultured meat, and the manufacturing controls under which the cultured meat is created.

Recently, UPSIDE Food Inc. became the first cultured meat company to complete the FDA’s premarket consultation process. In November of this year, the FDA issued a No Questions letter to UPSIDE Food Inc. for its cultured chicken. The letter stated that information provided by UPSIDE Food Inc. to the FDA demonstrated that UPSIDE Food Inc.’s cultured chicken is safe and its production process prevents the introduction of contaminants that would adulterate the product. Last year, UPSIDE Food Inc opened a facility in Emeryville, California capable of producing 50,000 pounds of meat per year.

UPSIDE Food Inc.’s No Questions letter from the FDA is just the first step in the regulatory process. Pursuant to a 2019 agreement between the FDA and USDA, the FDA and the USDA will share oversight of the production of cultured meat. In addition to the premarket consultation, FDA will oversee the creation of the cultured meat up until the time of harvest, including licensing facilities, and inspecting the creation of the cultured meat. Inspections will ensure approved processes are being used and that the cultured cells are grown in a fashion that complies with Good Manufacturing Processes and food safety regulations.

When the cultured meat is harvested and processed into its final form, regulatory oversight will shift to the Food Safety Inspection Service (FSIS) of the USDA. As with traditional meat producers, cultured meat producers will have to apply for Grants of Inspection and be subject to similar inspections and food safety requirements. Labels for the cultured meat will also have to be preapproved by FSIS.

Before Believer Meats can sell any of its products manufactured in the North Carolina facility, Believer Meats will have to navigate the regulatory hurdles necessary to obtain approval of its products for sale to consumers. Believer Meats has indicated that it has been working with the FDA, but the FDA has not yet issued any statement on Believer Meats’ processes or products. However, with the start of construction on the world’s largest cultured meat facility, Believer Meats will be well-positioned to begin commercial production when regulatory approvals are obtained. We will be following this emerging new market and the regulatory rubric designed to oversee these cutting-edge food products.

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• Spencer Sheehan, a well-known class-action attorney, has filed a pair of class-action lawsuits in the U.S. District Court for the Northern District of Illinois, alleging that mint flavored products which do not contain mint are deceptively labeled.
• The first lawsuit alleged that a “mint chocolate chip ice cream” statement of identity is misleading to consumers where the product’s flavor is derived from “natural flavor” and not any mint or mint-containing ingredient. The product also contains images of mint leaves on the front panel. As support for the allegation that the lack of mint is deceptive, the complaint cites to the ice cream flavoring regulation (21 CFR 135.110(f)(2)), which requires that the term “flavored” (e.g., mint flavored) be used where a product contains a natural flavor which predominates.
• The second lawsuit alleged that consumers are misled by a gum product which is labeled as “original flavor” with a backdrop of what appears to be a blue mint leaf, but which only contains “natural and artificial flavor,” and no mint-based ingredients. Plaintiff, citing to the general flavoring regulation (21 CFR 101.22), alleged that the product should have been labeled as “naturally and artificially flavored mint” and that the failure to disclose the flavor or include the other qualifiers is misleading.
• Although Plaintiffs have alleged technical violations of FDA’s labeling regulations, courts have consistently held that a reasonable consumer may not be aware of the intricacies of FDA’s labeling regulations and that therefore a technical labeling violation is not in itself sufficient to show that a reasonable consumer would be misled.

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• On September 14, 2022, Food and Drug Administration (FDA) officials reported a new outbreak of infections from Listeria monocytogenes. FDA has not yet identified a particular product linked to the pathogenic bacterial outbreak but has initiated traceback procedures. To date, FDA has confirmed 6 patients from this week’s Listeria outbreak, and the numbers appear to keep rising. It is still unclear what age group or geographic location has been afflicted by the outbreak.
• FDA is currently actively investigating ten foodborne illness outbreaks with increasing patient numbers every week. The Center for Disease Control (CDC) continues to actively investigate a sizable E. coli outbreak suspected to have been caused by romaine lettuce served at Wendy’s restaurants in Indiana, Michigan, Ohio, and Pennsylvania starting in early September 2022. To date, 43 individuals have been hospitalized due to E. coli poisoning, and 13 new patients have been accounted for this week alone. Other current FDA investigations include a Salmonella Typhimurium outbreak that now affects 30 individuals, a Cyclospora outbreak whose patient count is now 81, and a Salmonella Mississippi outbreak that now afflicts 103 patients nationwide.
• Notably, in March 2022, FDA opened a similar investigation into a Listeria outbreak caused by ice cream products originating from Big Olaf Creamery in Sarasota, Florida. This investigation is still ongoing, but has resulted in 24 patient hospitalizations, 1 death, and 1 miscarriage across 11 states. Keller and Heckman will continue to monitor these outbreaks as they impact the food industry.

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Health Department officials are investigating over one hundred cases of E. coli poisoning in Michigan, Ohio, Indiana and Pennsylvania. People have been diagnosed with food poisoning in Michigan, Ohio, Pennsylvania, and Indiana. The majority of these people claim that they ate sandwiches topped with lettuce at a Wendy’s Restaurant within the week before their food poisoning diagnosis.

Public health officials in Michigan have confirmed 43 cases of E. Coli that match the strain in a multi-state outbreak. A number of similar cases have been identified in Ohio. The specific source of the food poisoning has not been officially determined, but one possible source is romaine lettuce used to top hamburgers and sandwiches at Wendy’s restaurants.

The illness onset dates range from late July through early August 2022. The sickness and harm have ranged from mild to very severe. Many victims have required extensive hospitalization and medical care. Four cases of hemolytic uremic syndrome (HUS) have been diagnosed and suspected to be related to the contaminated lettuce at Wendy’s Restaurants.

• E. Coli outbreak cases have been reported in the following counties: Allegan, Branch,Clinton, Genesee, Gratiot, Jackson, Kent, Macomb, Midland, Monroe, Muskegon, Oakland, Ogemaw, Ottawa, Saginaw, Washtenaw, and Wayne and the City of Detroit. Public health departments in those counties are closely monitoring patients and working hard to determine the source of the poisoning.

E. coli is a bacterium that lives in the digestive tracks of animals and humans. Most varieties are harmless, but some can cause severe illness. Common sources of E. coli include:

• Raw milk or dairy products that are not pasteurized.
• Raw fruits or vegetables, such as lettuce, that have come into contact with infected animal feces.

Symptoms of E. Coli poisoning are very serious. They include severe stomach cramps, diarrhea, and vomiting. Some people experience high fevers and many develop life-threatening conditions.

E. coli infections often require hospitalization and expensive medical care, the damages from this food poisoning can be extensive.

The Wendy’s food poisoning claims are just at their initial stages.  Very few lawsuits have been filed to date, but it is expected dozens will be filed in courthouses shortly.  At this time, there are no reported Wendy’s food poisoning settlements.

In general, food poisoning settlements include money payment for pain and suffering, mental anguish, and the physical injuries caused by the food contamination. In addition, claims for economic losses and damages are also demanded in a food poisoning lawsuit. These are financial losses and include payment of medical bills and expenses, as well as lost wages and income resulted from missed time at work.

If you ate food at a Wendy’s Restaurant that contained romaine lettuce in July or August and were diagnosed or hospitalized with E. coli poisoning, you may benefit from speaking to a food poisoning attorney.

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Three poultry processors and a consulting firm that circulated wage information among them have entered a consent decree with the Department of Justice to end a “long-running conspiracy to exchange information about wages and benefits for poultry processing plant workers and collaborate with their competitors on compensation decisions,” a violation of the Sherman Antitrust Act. The poultry companies — Cargill Inc. and Cargill Meat Solutions Corp., Sanderson Farms Inc., and Wayne Farms LLC – agreed to pay nearly $85 million. In addition to the payment, the producers must submit to antitrust monitoring for 10 years.

The decree brings a halt to the exchange of compensation information and deceptive conduct toward chicken growers designed to lower their compensation. The DOJ charged two of the poultry processors – Sanderson Farms, which was just acquired via joint venture between Cargill and Continental Grain Co., and Wayne Farms, owned by Continental – with violating the Packers and Stockyards Act. The companies engaged in deceptive practices via a “tournament system” which pit chicken growers against each other to determine their compensation. Jonathan Meng, meanwhile, president of the data firm Webber, Meng, Sahl & Company, is banned from the industry for his role as information broker for the producers.

Cargill is a privately held, multinational corporation based in Minnetonka, Minn. The corporation’s major businesses are trading, purchasing and distributing grain and other agricultural commodities. In 2021, Cargill generated revenue of about $134.4 billion. In the meat and poultry processing industry, Cargill’s $20 billion in revenue in 2021 put it in third place behind Tyson Foods Inc. ($43 billion) and JBS USA Holdings, Inc. ($39 billion) and one notch ahead of Sysco Corp. ($18 billion).

Just days before the settlement, Bloomberg Law reporter Dan Papsucn wrote, Sanderson Farms was acquired for $4.5 billion via joint venture between Cargill and Continental Grain Co. Wayne Farms was already owned by Continental. The acquisition combined the third and sixth-largest companies in U.S. chicken production to form the new Wayne-Sanderson Farms company. Before they were merged, Sanderson Farms and Wayne Farms annually were generating approximately $3.56 billion and $2.2 billion, respectively.

The DOJ’s investigation continues into the activities of several unnamed co-conspirators.  The government’s suit was filed in federal court in Maryland (U.S. v. Cargill Meat Solutions Corp., et al., No. 1:22-cv-01821 D. Md.).

Increased Federal Attention

The poultry industry case demonstrates that the antitrust law enforcers at DOJ, in addition to those at the Federal Trade Commission, remain dedicated to increasing competition in such concentrated labor markets. Worker mobility is something President Biden has promised to protect. FTC Chairwoman Lina Khan is considering new regulations to ban non-competes and to target them with enforcement actions, according to Wall Street Journal reporters Dave Michaels and Ryan Tracy.

Agreements entered without the cloak of legitimate competitive concerns by employers are called “naked” agreements. In 2016 DOJ and FTC jointly declared that naked wage-fixing or no-poaching agreements were per se illegal under antitrust laws. If the agreement is separate from or not reasonably necessary to achieve a larger legitimate collaboration between the employers, the agreement is deemed illegal without any inquiry into its competitive effects. Legitimate joint ventures (including, for example, appropriate shared use of facilities) are not considered per se illegal under antitrust laws. For these legitimate ventures the DOJ advocates the “rule of reason” or “quick-look analysis.” Also in 2016, DOJ said it would proceed with criminal actions against naked wage-fixing or no-poaching agreements.

Of course, support for the legitimacy of non-competes and no-poaching agreements splits along party lines. Sometimes the issue isn’t whether the agreements should be eliminated, but who should eliminate them. The question becomes: Is this the purview of the federal government or is it up to state legislatures?

Private Litigation

Private actions are another consideration for employers. Auto repair chain Jiffy Lube, which is owned by Shell Oil Company, recently agreed to pay $2 million to settle claims that it used illegal no-poaching agreements which prevented franchise owners from hiring current or recent employees of other Jiffy Lube franchises. The settlement will be shared among 1,250 hourly workers in the Philadelphia metropolitan area in Pennsylvania, New Jersey and Delaware.

According to the class action complaint, Jiffy Lube used these agreements to suppress wages and prevent workers from achieving better terms of employment. Employees had to wait six months after leaving one Jiffy Lube shop before attempting to work at another, according to the terms. Workers sued claiming this was a violation of the Sherman Antitrust Act.

The case was filed in U.S. District Court for the Eastern District of Pennsylvania (Victor Fuentes v. Royal Dutch Shell PLC, et al., Case No. 2:18-cv-05174, E.D. Pa.).

Employers Beware

As these cases demonstrate, many employers don’t realize (or may not care) that these types of arrangements can be considered anticompetitive or that their employment agreements can create substantial antitrust liabilities. In addition to public and private litigation, restrictive employment agreements can tank business deals. Imagine your M&A deal craters when a buyer discovers you have a no-poach agreement with competitors.  You might not have seen it as problematic until your prospective buyer walks away because of the risk and your once promising deal is over.

Employers and business owners who wish to protect themselves when employees leave for new positions need to be careful how they go about building their defenses because doing it wrong can mean both civil and criminal charges against corporations and individuals, as these cases illustrate. Critical questions need to be answered in employment agreements and business deals. Is the employer – such as a franchisor – trying to stop intramural poaching within its own system, effectively causing vertical restraint? Or is it trying to legitimately protect itself from losing employees to competitors, or horizontal restraint? These are questions best addressed by counsel with a sophisticated understanding of antitrust law, employment agreements, and mergers and acquisitions.

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• On August 1, the USDA’s FSIS announced that it will declare Salmonella an adulterant in breaded and stuffed raw chicken products. Breaded and stuffed raw chicken products will be considered adulterated when they exceed 1 colony forming unit (CFU) of Salmonella per gram. Products that exceed the limit would be subject to regulatory action. FSIS believes the limit of 1 CFU/gram will significantly reduce the risk of illness from consuming such products.
• Breaded and stuffed raw chicken products have been associated with up to 14 food safety outbreaks and approximately 200 illnesses since 1998. The products at issue are those found in the freezer section and that appear to be cooked, but are only heat-treated to set the batter or breading; the products contain raw poultry. FSIS has found that continual efforts to improve product labeling have not reduced consumer illnesses.
• FSIS is expected to publish a notice in the Federal Register in the fall and will be seeking public comments on whether a different standard for adulteration (i.e., zero tolerance or one based on specific serotypes) would be more appropriate, an implementation plan, and a verification testing program.
• This announcement is part of FSIS’ effort to reduce Salmonella illnesses associated with poultry. In October 2021, USDA announced that it was reevaluating its Salmonella control strategy. USDA plans to present a proposed framework for a new comprehensive strategy to reduce Salmonella illnesses attributable to poultry in October and convene a public meeting to discuss in November.

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