Tag: research

Will Hemp Save the World, Before the Government Kills It?

There is a great line in the wonderful film Charlie Wilson’s War, where Charlie Wilson (played remarkably by the inimitable Tom Hanks) describes the successful, if relatively covert, involvement of the United States government in the Soviet-Afghan War: “These things happened. They were glorious and they changed the world… and then we f***d up the endgame.”

With the next Farm Bill somewhere on the horizon, I believe we are approaching a similar moment for the future of hemp. I believe the future of hemp is glorious and that it can change the world. What will we do to the endgame?

This is an analysis about the current state of hemp and whether that industry will revolutionize the world before the government relegates it back to the ash heap of history. It just so happens to dovetail with my personal experience representing clients in connection with the hemp business.

In the Beginning…

Back in the “stone age” (circa 2017) when I decided I wanted to be a cannabis lawyer, I began with a focus on hemp. [As a brief aside, telling people in Alabama you practice cannabis law in 2017 must have been what Noah felt like when he was telling people it was about to start raining.]

The 2014 Farm Bill, which for the first time legalized “industrial hemp” as distinct from marijuana under the Controlled Substances Act and allowed state agricultural departments and universities to license the production of hemp, cracked the door for a nascent and limited hemp market, and it was a remarkable time to advise new hemp operators and investors about how to maximize this opportunity within the contours of the law.

At the same time, I was regularly receiving calls from existing clients, colleagues within the firm, and strangers about how their non-cannabis companies should conduct themselves when approached by hemp companies who wanted to do business with them. The latter category included banks, insurance companies, real estate companies, and myriad companies who had questions about how their employees’ use of hemp interplayed with the companies’ existing drug testing policies. Most of the time the companies were reluctant to have anything to do with hemp, but the conversations were interesting, and it was clear that most companies realized the landscape was changing. It was the Wild West, and I was having a ball.

Rocket Fuel

Enter the 2018 Farm Bill and the explosion of the hemp industry. The 2018 Farm Bill dropped the word “industrial” and defined “hemp” as:

the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

In addition to removing the limitations from the 2014 Farm Bill licensing, the 2018 Farm Bill also moved oversight authority from the Department of Justice and DEA to the USDA and FDA.

The 2018 Farm Bill was a tectonic shift, and we recognized the new regime’s potential almost immediately, predicting the following:

  • Increased “smart” money and research. Because hemp has been a Schedule I substance along with marijuana for decades, many sophisticated sources of funding have abstained from financing the industry. This placed hemp at a competitive disadvantage to other commodities and prevented hemp from reaching its full potential. Now that hemp can be manufactured and sold without substantial legal risks, look for the money to flow toward this underserved sector. Publicly traded companies, private equity firms, venture capitalists and other investment groups will all take significant stakes in both the manufacturing and selling of hemp and hemp-derived products. In addition to traditional commercial development efforts, much of this cash is likely to be spent to hire top researchers to develop proprietary strands of hemp to meet a range of product applications and to take steps to protect the resulting intellectual property.
  • Explosion of hemp and hemp-derived products. Fueled in large part by this injection of financing from sophisticated investors, there is likely to be an explosion in the ways that hemp is used. Hemp already has hundreds — if not thousands — of known uses, and that number should grow substantially once the industry is exposed to the market forces that come with smart money and increased research. The biggest winner may be the hemp-derived CBD business. Hemp-derived CBD is a compound believed to have significant therapeutic benefits without an appreciable psychoactive component. The Washington Post has reported that “dozens of studies have found evidence that [CBD] can treat epilepsy as well as a range of other illnesses, including anxiety, schizophrenia, heart disease, and cancer.” One industry analysis predicts that the hemp-CBD market alone could hit $22 billion by 2022. The health and wellness sector should see particular hemp-related activity and growth in the coming years.
  • Increased ancillary services provided to hemp-related businesses. Because hemp has been included within the definition of marijuana under federal law for decades, most banks, law firms and other service providers have avoided providing services to hemp businesses to avoid the risk of charges of money laundering or conspiring to violate state and federal drug laws. The absence of such service providers has fostered a great deal of uncertainty in an area where certainty and clarity have been sorely needed. With hemp’s new legal status, look for professional service providers to enter the market in 2019 and beyond. Of course, entities looking to provide services to hemp-related businesses should take adequate precautions to ensure those businesses are only producing federally legal hemp.
  • Consolidation and integration. An interesting phenomenon in “legal” marijuana states has been the rapid consolidation and integration of marijuana growers, processors and dispensaries. Some states have mandated vertical integration (e.g., the growers are the sellers) through regulation. And a number of large cannabis companies have acquired grow operations or multi-unit dispensaries rather than establish a cannabis presence in a state from scratch. The hemp industry is likely to follow a similar path, both through government regulation and because larger companies are likely to seek to obtain sufficient quantities of hemp through consolidation and vertical integration. Accordingly, attorneys and investors should anticipate significant merger and acquisition activity in the coming years.
  • Federal regulations and state regimes. The 2018 Farm Bill does not create an entirely unregulated playing field for hemp. Over the coming months, the U.S. Department of Agriculture and Food and Drug Administration will issue regulations implementing the 2018 Farm Bill. State governments will also unveil plans governing the testing, labeling and marketing of hemp-related products, as well as the licensing and monitoring of hemp-related businesses.

I’m proud to say that we were pretty much on the money with these projections, and countless studies and data confirm that hemp can be a viable product with countless form factors that help shape the global economy.

That is when I realized that I might be able to make a career as a cannabis lawyer.

The Good with the Bad

Of course, the development of the hemp industry has not been without controversy – in fact it may be the controversy that has spurred much of the development.

I would be lying to you if I told you that every hemp or hemp-derived product was designed with the best of intentions or contained appropriate mechanisms to ensure consumer safety. There are certainly hemp-derived products on the market that have not been subjected to sufficient product development and testing, and that are being marketed in ways that rightfully should concern policymakers and the public. Novel, psychoactive cannabinoids that fall within the bounds of the terms, if perhaps not the spirit, of the Farm Bill fill the shelves of stores around the country with little to no mechanisms for enforcement. That should change, and Americans should have confidence that the products made available to them are safe and effective.

In response to this proliferation, a number of states have enacted rules and regulations restricting the production and sale of certain hemp-derived cannabinoids. A number of those rules – for example, age and purity restrictions for psychoactive cannabinoids – seem well-intentioned, and we expect to see more of those unless and until the federal government takes further action.

On occasion, however, it appears that the motivations of policymakers may be less pure. It is no secret amongst those in the cannabis industry that marijuana licensees in states that have legalized marijuana are no fans of the unregulated hemp-derived psychoactive industry. After all, marijuana companies are subject to astronomical taxes and endure regulatory costs that make turning a profit far more difficult than if they were able to offer a product that offered a somewhat similar “high” without the institutional overhead and headwinds. Florida may be the clearest and most recent example. With adult-use marijuana widely expected to become law in Florida soon, the state legislature recently passed a law largely prohibiting delta-8 and delta-10.

On the other hand, it would be wrong, even lazy, to suggest that the development of hemp-based products has been without substantial benefits to society as a whole. Entrepreneurs are developing hemp-based substitutes for any number of the most common products used around the globe, meaning that the addressable market for hemp is everyone on earth and beyond.

A younger version of me once wrote, in comparing the addressable market for marijuana to that of hemp:

Hemp, on the other hand, has the potential to dwarf marijuana in the global market. Unlike its sister plant, hemp has the capacity to replace products we use every day without us even realizing it. For example, hemp can provide a substitute for concrete, plastic, fuel, automotive parts, clothes, etc. These are products nearly all consumers need but they neither realize nor care what the products are made of, as long as they work. In that way, while the market for marijuana is limited to consumers looking to purchase marijuana, the market for hemp includes anyone who purchases products that can be manufactured by hemp. In part for these reasons, experts predict four to five times growth in the industrial hemp market in the next five years.

I stand by those words. I am convinced that hemp can change the world.

But I am equally convinced that local, state, and federal governments can, without the appropriate consideration for hemp’s benefits, relegate the plant back to its prohibition era status and deny the world its many benefits. The policy choices made by state governments, and perhaps most importantly by the federal government during the next Farm Bill, could fundamentally alter the future of hemp. Will it be a soon-forgotten shooting star that dazzled the world for a decade and then burned out, or will we look back at the past decade as the renaissance of one of civilization’s oldest and most versatile plants?

Conclusion

I’ll end where I began because Philip Seymour Hoffman’s work is revered by the Budding Trends community (and anyone with taste), and because the film’s ominous conclusion is a message for anyone who wants to see the hemp industry thrive in the years ahead.

As Hanks’ character celebrates the Afghan defeat of the Soviets, the hardened CIA analyst played by Hoffman offers this parable:

On his sixteenth birthday the boy gets a horse as a present. All of the people in the village say, “Oh, how wonderful!”

The Zen master says, “We’ll see.”

One day, the boy is riding and gets thrown off the horse and hurts his leg. He’s no longer able to walk, so all of the villagers say, “How terrible!”

The Zen master says, “We’ll see.”

Some time passes and the village goes to war. All of the other young men get sent off to fight, but this boy can’t fight because his leg is messed up. All of the villagers say, “How wonderful!”

The Zen master says, “We’ll see.”

The message behind this story is pretty clear. We’re prone to jump to conclusions about whether something is “good” or “bad.” We are especially quick to label something as “bad.” The reality is that things can be either good or bad, both good and bad, or neither. When it comes to whether Congress and the states will recognize hemp’s great potential, I guess we’ll see.

© 2024 Bradley Arant Boult Cummings LLP
For more on Hemp, visit the NLR Biotech, Food, Drug section.

How Big is the Permanent Tax Benefit in the Pending Tax Bill for Research Credit?

Congress perhaps made an unintended drafting error in the Tax Cuts and Jobs Act [1] (TCJA) when it required a taxpayer to decrease its deduction for research and experimental expenditures. The apparent drafting error is in IRC §280C(c)(1), which provides that if a taxpayer’s research credit for a taxable year exceeds the amount allowable as a deduction for research expenditures for the taxable year, the amount of research expenses chargeable to capital account must be reduced by the excess and not by the full amount of the credit.

H.B. 7024 (1-17-24) [2] proposes to correct the drafting error for tax year 2023 and expressly states that the amendment made for taxable year 2023 should not be construed to create an inference with respect to the proper application of the drafting error for taxable year 2022. [3] The “no inference” congressional language could be interpreted as inviting the IRS to attempt an administrative fix of the drafting error.

Background of Research Expenditure Deduction and Credit for Increasing Research Activities: Beginning with the Internal Revenue Code of 1954, a taxpayer engaging in research activities in the experimental or laboratory sense in connection with its trade or business could elect to deduct the cost of its research currently rather than capitalizing the cost to the project for which the research was conducted. The Economic Recovery Tax Act of 1981 added a credit for the cost of research incurred in carrying on a trade or business. The manner in which the deduction and credit operated permitted a taxpayer both to deduct and credit the same research dollar.

Pre-TCJA (2017) law: The Omnibus Budget Reconciliation Act of 1989 ended the possibility deducting and crediting the same research dollar. If a taxpayer currently deducted its research expenditures, the taxpayer had to decrease its deduction by the amount of the research credit that it claimed for the taxable year.[4] The policy reason for the decrease was that a taxpayer should not be entitled to a deduction and a credit for the same dollar expended for research. Put another way, if the government “pays” for research by allowing a credit, the taxpayer did not really pay for the research and should not be entitled to deduct the amount for which the government paid.

TCJA Amendment: The TCJA now requires a taxpayer to capitalize research expenditures paid or incurred in the taxable year and claim an amortization deduction for the expenditures ratably over a five-year period.[5] The TCJA also amended IRC §280C(c)(1), the provision that prevents a taxpayer from receiving a credit and a deduction for the same dollar of research expenditure. The amendment provides that if the research credit amount for the taxable year exceeds the amount allowable as a deduction for the taxable year for qualified research expenses, the research expenses chargeable to capital account for the taxable year must be reduced by the excess.[6] This might have been a drafting error. The research credit for the taxable year might not exceed an amortization deduction for the year.[7] If for a taxable year the credit does not exceed the amortization deduction, a taxpayer could reasonably conclude that no reduction in the amount of capitalized research expenditures is required. The taxpayer would be interpreting the deduction for qualified research expenses as meaning the amount of the amortization of the capitalized expenses.

The IRS might have an opposing interpretation. The phrase, “the amount allowable as a deduction for such taxable year for qualified research expenses” in IRC §280C(c)(1) could be interpreted as always equaling zero because the TCJA amendment requiring amortization of research expenditures for the taxable year nullifies the “deduction … for qualified research expenses.” In other words, there were no “deductible” qualified research expenses for the year after enactment of the TCJA for purposes of IRC §280C(c)(1). [8] The result would be that the capitalized research expenses are decreased by the amount of the credit.

H.B. 7024: On January 31, 2024, the House passed 353 to 70 H.B. 7024, “Tax Relief for American Families and Workers Act of 2024.” Action on the bill is pending in the Senate. The bill restores the current deduction for research expenditures (but only for research performed in the United States), beginning with taxable year 2022,[9] and defers the requirement to amortize research expenditures until taxable year 2026. For taxable years beginning in 2023, the bill requires a taxpayer to decrease the research expenditure deduction for domestic research by the amount of the research credit for the year, thus reinstating, for domestic research, IRC §280C(c)(1) as it had read prior to its amendment by the TCJA. [10]

But for taxable year 2022, the bill does not expressly require a taxpayer to reduce its deduction for research expenditures by the amount of the research credit even though the bill permits the taxpayer to deduct it research expenditures currently for taxable year 2022. Thus, for taxable year 2022, a taxpayer may deduct its research expenditures but must decrease the deduction only by the amount, if any, that its 2022 research credit exceeds its 2022 deduction for qualified research expenditures, which amount may be zero. Moreover, the bill provides that the amendment requiring a decreased deduction for research expenditures for taxable years beginning in 2023 should not be construed to create “any inference” with respect to the proper application of IRC §280C(c) to taxable year 2022.

IRS Notice: In Notice 2023-63 – obviously published before H.R. 7024 – the IRS asks for comments about to interpret the current version of IRC §280C(c)(1). If H.R. 7024 is enacted, the IRS request for comments would appear irrelevant.

Taxpayer Actions: If H.R. 7024 is enacted, taxpayers must consider whether to change their accounting method for research expenditures from amortizing them to currently deducting them. A change would affect many tax calculations, and obviously the only means by which to be certain of the effect is to run the change using various scenarios through the taxpayer’s tax software.

One of the effects to consider if the bill passes is the item discussed in the alert in which the taxpayer reads IRC §280C(c)(1) advantageously for taxable year 2022 and reduces its research expenditure deduction by the amount that the research credit exceeds the deduction for research expenditures for the year, which reduction amount may well be zero. The taxpayer would have a substantial permanent tax benefit by not decreasing its credit and not decreasing it deduction.

If H.B. 7024 is not enacted, a taxpayer might moderate the risk that the IRS will prevail on the interpretation of IRC §280C(c)(1) by electing to decease its credit under IRC §280C(c)(2).[11] But the taxpayer could be more aggressive by taking the position that it is applying IRC §280C(c)(1) and rarely, if ever, does it have to reduce its deduction for research expenditures. That means that the taxpayer that had historically decreased its credit in order to take the full deduction might not have to do so. That might be a very substantial permanent tax benefit.

[1] P.L. 115-97 115th Cong. 1st Sess. (12-22-17).

[2] 118th Cong., 2d Sess.

[3] H.B. 7024, Sec. 201(e)(4).

[4] Instead of decreasing the deduction, the taxpayer could elect to decrease its research credit by multiplying the credit amount by the corporate tax rate. IRC §280C(c)(2). Regardless of whether the taxpayer reduced its deduction or its credit, the federal income tax cost was the same. Many taxpayers elect to reduce the credit so that the full amount of the deduction flows into taxable income of states that conform state taxable income to federal taxable income.

[5] IRC §174(a)(2)(B). The deduction is spread over six taxable years because the taxpayer may deduct for the first amortization year only half of a full year’s amortization. If the research is performed outside the United States, the amortization period is fifteen years.

[6] IRC §280C(c)(1).

[7] For example, assume qualified research expenses for the taxable year 2022 of $1,000 and minimum base amount of $500. The research credit is $100 (20% times $500). The credit does not exceed the amortized deduction – $100 for the first taxable year.

[8] Of course, there were qualified research expenses identified for the research credit.

[9] Proposed IRC §174A(a). A taxpayer that had capitalized and amortized its research expenditures as required by the TCJA may file an amended return for tax year 2022 and deduct research expenditures paid or incurred for that year. Alternatively, the taxpayer may elect to adjust its taxable income under IRC § 481 by taking a favorable adjustment into account in taxable year 2023. Alternatively, it may elect to make the adjustment over taxable years 2023 and 2024. H.B. 7024, sec. 201(f)(2).

[10] The taxpayer could still elect to decrease its credit in lieu of reducing its deduction.

[11] See supra note 4.

© 2024 Miller, Canfield, Paddock and Stone PLC
For more on the Research Credit Tax Bill, visit the NLR Tax section.

USDA Releases Reports on Economic Impact Analysis of the U.S. Biobased Products Industry and on Hemp Research and Innovation

On March 8, 2024, the U.S. Department of Agriculture honored the second annual National Biobased Products Day, “a celebration to raise public awareness of biobased products, their benefits and their contributions to the U.S. economy and rural communities.” USDA states that as part of its activities to honor National Biobased Products Day, it released two reports:

Economic Impact Analysis of the U.S. Biobased Products Industry

USDA states that its commissioned report “An Economic Impact Analysis of the U.S. Biobased Products Industry: 2023 Update,” shows that, based on data from 2021, the biobased products industry has grown nationwide despite the impacts of the global COVID-19 pandemic. According to USDA, key report findings include:

  • Biobased products, a segment of the bioeconomy, contributed $489 billion to the U.S. economy in 2021, up from $464 billion in 2020. This is an increase of $25 billion — a 5.1 percent increase;
  • The biobased products sector, and the jobs it supports, are shown to impact every state in the nation, not just the states where agriculture is the main industry; and
  • The use of biobased products reduces the consumption of petroleum equivalents. In 2017, oil displacement was estimated to be as much as 9.4 million barrels of oil equivalents. In 2021, the displacement grew to 10.7 million barrels of oil equivalents.

USDA notes that the findings span seven major sectors representing the bioeconomy: Agriculture and Forestry; Biobased Chemicals; Biobased Plastic Bottles and Packaging; Biorefining; Enzymes; Forest Products; and Textiles. The 2023 Update is the sixth volume in a series of reports tracking the impact of the biobased product industry on the U.S. economy.

Hemp Research and Innovation

USDA also released its “Hemp Research Needs Roadmap,” which reflects stakeholder input in identifying the hemp industry’s greatest research needs: breeding and genetics, best practices for production, biomanufacturing for end uses, and transparency and consistency. According to USDA, these priority research areas “cut across the entire hemp supply chain and are vital to bolstering hemp industry research.” USDA notes that growing demand for biobased products, like those from hemp, “creates potential for added-value use in food, feed, fiber and other industrial products that can improve the livelihoods of U.S. producers and offer consumers alternative biobased products.”

USDA also announced a $10 million National Institute of Food and Agriculture investment to Oregon State University’s Global Hemp Innovation Center. USDA states that the Center will work with 13 Native American Tribes to spur economic development in the western United States by developing manufacturing capabilities for materials and products made from hemp.

©2024 Bergeson & Campbell, P.C.
For more news on Hemp Research and Innovation, visit the NLR Biotech, Food, Drug section.

Road to Victory Just Got a Little Easier for Whistleblowers

In 2017, a federal jury found whistleblower Trevor Murray was wrongfully terminated after he refused “to change his research on commercial mortgage-backed securities.” He won over $900,000. On appeal in 2022, the U.S. Court of Appeals for the Second Circuit overturned Murray’s award, finding whistleblowers who bring a retaliation claim against their employer under the Sarbanes-Oxley Act (SOX) must prove their employer acted with “retaliatory intent.”

Earlier this month, the U.S. Supreme Court weighed in, issuing a unanimous decision in Trevor Murray v. UBS Securities LLC, et al. The justices found that the Second Circuit was wrong. That is, “when it comes to a plaintiff’s burden of proof on intent under SOX, they only need to show that their protected activity contributed to an unfavorable personnel action, such as a firing.” Once the plaintiff does this, the Supreme Court found the burden of proof shifts to the employer to prove that “it would have taken the same adverse action regardless of the employee’s protected activity.” The justices found the law is intended ”to be plaintiff-friendly.”

In light of this development, employers should continue to be diligent in documenting the reasons that lead to an employee’s termination. This is especially true if that employee may be found to have engaged in a protected activity, cloaking them with certain whistleblower protections.

In siding with whistleblower Trevor Murray, the justices rejected UBS’ position that a separate finding of retaliatory intent is required for whistleblower protection under the Sarbanes-Oxley Act, or SOX, which governs corporate financial reporting and recordkeeping.
© 2024 BARNES & THORNBURG LLP
For more on Whistleblowers, visit the NLR Labor & Employment section.

All Federal Research Agencies to Update Public Access Policies

On 25 August 2022, the Office of Science and Technology Policy (OSTP) released a guidance memorandum instructing federal agencies with research and development expenditures to update their public access policies. Notably, OSTP is retracting prior guidance that gave discretion to agencies to allow a 12-month embargo on the free and public release of peer-reviewed publications, so that federal funded research results will be timely and equitably available at no cost. The memo also directs affected agencies to develop policies that:

  1. Ensure public access to scientific data, even if not associated with peer-reviewed publications;
  2. Ensure scientific and research integrity in the agency’s public access by requiring publication of the metadata, including the unique digital persistent identifier; and
  3. Coordinate with OSTP to ensure equitable delivery of federally funded research results and data.

KEY COMPONENTS OF GUIDANCE:

Updating Public Access Policies

Federal agencies will need to develop new, or update existing, public access plans, and submit them to OSTP and the Office of Management and Budget (OMB). Deadlines for submission are within 180 days for federal agencies with more than US$100 million in annual research and development expenditures, and within 360 days for those with less than US$100 million in expenditures.

Agencies will need to ensure that any peer-reviewed scholarly publication is free and available by default in agency-designated repositories without any embargo or delay following publication. Similarly, OSTP expects the access polices to address publication of any other federally funded scientific data, even if not associated with peer-reviewed scholarly publications. As a concession, federal agencies are being asked to allow researchers to include the “reasonable publication costs and costs associated with submission, curation, management of data, and special handling instructions as allowable expenses in all research budgets.1”

Ensuring Scientific Integrity

To strengthen trust in governmentally funded research, the new or updated policies must transparently communicate information designed to promote OSTP’s research integrity goals. Accordingly, agencies are instructed to collect and make appropriate metadata available in their public access repositories, including (i) all author and co-author names, affiliations, and source of funding, referencing their digital persistent identifiers, as appropriate; (ii) date of publication; and (iii) a unique digital persistent identifier for research output. Agencies should submit to OSTP and OMB (by 31 December 2024) a second update to their policies specifying the approaches taken to implement this transparency, and publish such policy updates by 31 December 2026, with an effective date no later than one year after publication of the updated plan.

IMPLICATIONS FOR THE NATIONAL INSTITUTES OF HEALTH (NIH), OTHER FEDERAL AGENCIES, AND THEIR GRANTEES

The NIH is expected to update its Public Access Policy, potentially along with its Data Management and Sharing Policy to conform with the new OSTP guidance. Universities, academic medical centers, research institutes, and federally funded investigators should monitor agency publications of draft and revised policies in order to update their processes to ensure continued compliance.

In doing so, affected stakeholders may want to consider and comment to relevant federal agencies on the following issues in their respective public access policy development:

  • Federal agency security practices to prevent foreign misappropriation of research data;
  • Implications for research misconduct investigations and research integrity;
  • Any intellectual property considerations without a 12-month embargo, especially to the extent this captures scientific data not yet published in a peer-review journal; and
  • Costs allowable research budgets to support these data management and submission expectations.

1 Office of Science and Technology Policy, Memorandum for the Heads of Executive Departments and Agencies: Ensuring Free, Immediate, and Equitable Access to Federally Funded Research at p. 5 (25 August 2022) available at https://www.whitehouse.gov/wp-content/uploads/2022/08/08-2022-OSTP-Public-Access-Memo.pdf

Article By Cindy L. Ortega Ramos and Rebecca M. Schaefer of K&L Gates

For more administrative and regulatory legal news, click here to visit the National Law Review.

Copyright 2022 K & L Gates

NIEHS-Funded Research Finds that Graphene Shield Shows Promise in Blocking Mosquito Bites

On August 26, 2019, the National Institute of Environmental Health Sciences (NIEHS) announced that the results of an NIEHS-funded study show that graphene could provide alternatives to chemicals in insect repellant and protective clothing.  The study, “Mosquito Bite Prevention through Graphene Barrier Layers,” was published in the Proceedings of the National Academy of Sciences.

According to the abstract, the researchers hypothesized that graphene films may provide mosquito bite protection for light, fiber-based fabrics.  The researchers investigated the fundamental interactions between graphene-based films and the mosquito species Aedes aegypti through a combination of live mosquito experiments, needle penetration force measurements, and mathematical modeling of mechanical puncture phenomena.  The abstract states that “[t]he results show that graphene or graphene oxide nanosheet films in the dry state are highly effective at suppressing mosquito biting behavior on live human skin.  Surprisingly, behavioral assays indicate that the primary mechanism is not mechanical puncture resistance, but rather interference with host chemosensing.”

The researchers propose that the interference is “a molecular barrier effect that prevents Aedes from detecting skin-associated molecular attractants trapped beneath the graphene films and thus prevents the initiation of biting behavior.”  According to the abstract, placing water or human sweat on the external film surface circumvents the molecular barrier effect.  In this scenario, the abstract states, “pristine graphene films continue to protect through puncture resistance — a mechanical barrier effect — while graphene oxide films absorb the water and convert to mechanically soft hydrogels that become nonprotective.”

©2019 Bergeson & Campbell, P.C.
This article was written by Lynn L. Bergeson and Carla N. Hutton of Bergeson & Campbell, P.C.
For more environmental research, see the National Law Review Environmental, Energy & Resources law page.

Lessons in Becoming a Second Rate Intellectual Power – Through Privacy Regulation!

The EU’s endless regulation imposed on data usage has spooled over into academia, providing another lesson in kneecapping your own society by overregulating it. And they wonder why none of the big internet companies arose from the EU (or ever will). This time, the European data regulators seem to be doing everything they can to hamstring clinical trials and drive the research (and the resulting tens of billions of dollars of annual spend) outside the EU. That’s bad for pharma and biotech companies, but it’s also bad for universities that want to attract, retain, and teach top-notch talent.

The European Data Protection Board’s Opinion 3/2019 (the “Opinion”) fires an early and self-wounding shot in the coming war over the GDPR meaning and application of “informed consent.” The EU Board insists on defining “informed consent” in a manner that would cripple most serious health research on humans and human tissue that could have taken place in European hospitals and universities.

As discussed in a US law review article from Former Microsoft Chief Privacy Counsel Mike Hintz called Science and Privacy: Data Protection Laws and Their Impact on Research (14 Washington Journal of Law, Technology & Arts 103 (2019)), noted in a recent IAPP story from Hintz and Gary LaFever, both the strict interpretation of “informed consent” and the GDPR’s right to withdraw consent can both cripple serious clinical trials. Further, according to LaFever and Hintz, researchers have raised concerns that “requirements to obtain consent for accessing data for research purposes can lead to inadequate sample sizes, delays and other costs that can interfere with efforts to produce timely and useful research results.”

A clinical researcher must have a “legal basis” to use personal information, especially health information, in trials.  One of the primary legal basis options is simply gaining permission from the test subject for data use.  Only this is not so simple.

On its face, the GDPR requires clear affirmative consent for using personal data (including health data) to be “freely given, specific, informed and unambiguous.” The Opinion clarifies that nearly all operations of a clinical trial – start to finish – are considered regulated transactions involving use of personal information, and special “explicit consent” is required for use of health data. Explicit consent requirements are satisfied by written statements signed by the data subject.

That consent would need to include, among other things:

  • the purpose of each of the processing operations for which consent is sought,
  • what (type of) data will be collected and used, and
  • the existence of the right to withdraw consent.

The Opinion is clear that the EU Board authors believe the nature of clinical trials to be one of  an imbalance of power between the data subject and the sponsor of the trial, so that consent for use of personal data would likely be coercive and not “freely given.” This raises the specter that not only can the data subject pull out of trials at any time (or insist his/ her data be removed upon completion of the trial), but EU Privacy Regulators are likely to simply cancel the right to use personal health data because the signatures could not be freely given where the trial sponsor had an imbalance of power over the data subject. Imagine spending years and tens of millions of euros conducting clinical trials, only to have the results rendered meaningless because, suddenly, the trial participants are of an insufficient sample size.

Further, if the clinical trial operator does not get permission to use personal information for analytics, academic publication/presentation, or any other use of the trial results, then the trial operator cannot use the results in these manners. This means that either the trial sponsor insists on broad permissions to use clinical results for almost any purpose (which would raise the specter of coercive permissions), or the trial is hobbled by inability to use data in opportunities that might arise later. All in all, using subject permission as a basis for supporting legal use of personal data creates unnecessary problems for clinical trials.

That leaves the following legal bases for use of personal data in clinical trials:

  • a task carried out in the public interest under Article 6(1)(e) in conjunction with Article 9(2), (i) or (j) of the GDPR; or

  • the legitimate interests of the controller under Article 6(1)(f) in conjunction with Article 9(2) (j) of the GDPR;

Not every clinical trial will be able to establish it is being conducted in the public interest, especially where the trial doesn’t fall “within the mandate, missions and tasks vested in a public or private body by national law.”  Relying on this basis means that a trial could be challenged later as not supported by national law, and unless the researchers have legislators or regulators pass or promulgate a clear statement of support for the research, this basis is vulnerable to privacy regulators’ whims.

Further, as observed by Hintze and LaFever, relying on “the legal basis involves a balancing test between those legitimate interests pursued by the controller or by a third party and the risks to the interests or rights of the data subject.” So even the most controller-centric of legal supports can be reversed if the local privacy regulator feels that a legitimate use is outweighed by the interests of the data subject.  I suppose the case of Henrietta Lacks, if arising in the EU in the present day, would be a clear situation where a non-scientific regulator can squelch a clinical trial because the data subjects rights to privacy were considered more important than any trial using her genetic material.

So none of the “legal basis” options is either easy or guaranteed not to be reversed later, once millions in resources have been spent on the clinical trial. Further, as Hintze observes, “The GDPR also includes data minimization principles, including retention limitations which may be in tension with the idea that researchers need to gather and retain large volumes of data to conduct big data analytics tools and machine learning.” Meaning that privacy regulators could step in and decide that a clinician has been too ambitious in her use of personal data in violation of data minimization rules and shut down further use of data for scientific purposes.

The regulators emphasize that “appropriate safeguards” will help protect clinical trials from interference, but I read such promises in the inverse.  If a hacker gains access to data in a clinical trial, or if some of this data is accidentally emailed to the wrong people, or if one of the 50,000 lost laptops each day contains clinical research, then the regulators will pounce with both feet and attack the academic institution (rarely paragons of cutting edge data security) as demonstrating a lack of appropriate safeguards.  Recent staggeringly high fines against Marriott and British Airways demonstrate the presumption of the ICO, at least, that an entity suffering a hack or losing data some other way will be viciously punished.

If clinicians choosing where to set human trials knew about this all-encompassing privacy law and how it throws the very nature of their trials into suspicion and possible jeopardy, I can’t see why they would risk holding trials with residents of the European Economic Zone. The uncertainty and risk involved in the aggressively intrusive privacy regulators now having specific interest in clinical trials may drive important academic work overseas. If we see a data breach in a European university or an academic enforcement action based on the laws cited above, it will drive home the risks.

In that case, this particular European shot in the privacy wars is likely to end up pushing serious researchers out of Europe, to the detriment of academic and intellectual life in the Union.

Damaging friendly fire indeed.

 

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