Cyclops Vapor 2, Llc et al v. United States Food And Drug Administration et Al(Mag2)

BRIEF/MEMORANDUM in Support re MOTION for Summary Judgment

M.D. Ala.February 1, 2017

IN THE UNITED STATES DISTRICT COURT DISTRICT FOR THE MIDDLE DISTRICT OF ALABAMA NORTHERN DIVISION CYCLOPS VAPOR 2, LLC, ) 455 Dexter Ave., Ste. 4050 ) Montgomery, AL 36104 ) ) TIGER VAPOR, LLC ) 3715 Pepperell Parkway ) OPELIKA, AL 36801 ) ) KARMA S CLOUDS, LLC, d/b/a ) OPERATION VAPOR ) 886 N. Daleville Ave. ) Daleville, AL 36322 ) ) Plaintiffs, ) ) v. ) ) NO. 2016-CV-556-MHT-CSC UNITED STATES FOOD AND DRUG ) ADMINISTRATION ) 10903 New Hampshire Ave. ) Silver Spring, MD 20993 ) ) ROBERT CALIFF, M.D., in his official ) capacity as Commissioner of Food and ) Drugs ) ) and ) ) JURY TRIAL DEMANDED SYLVIA M. BURWELL, in her official ) Capacity as Secretary of Health and Human ) Services ) 200 Independence Ave. SW ) Washington, DC 20201 ) ) Defendants. ) MEMORANDUM BRIEF IN SUPPORT OF PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 1 of 51 ii TABLE OF CONTENTS TABLE OF AUTHORITIES .......................................................................................................iv INTORDUCTION .......................................................................................................................1 STATUTORY, REGULATORY, AND FACTUAL BACKGROUND .....................................2 A. The Family Smoking Prevention and Tobacco Control Act ......................................2 B. Vaping Products .........................................................................................................5 C. The Deeming Rule’s Effects on Plaintiffs .................................................................6 1. Premarket Aproval Process ............................................................................6 2. Inability to Introduce New Products ..............................................................7 3. Prohibition Against Sampling ........................................................................7 4. Infringement on Commercial Free Speech ....................................................8 STANDARD OF REVIEW .........................................................................................................8 ARGUMENT ...............................................................................................................................9 I. Products not made nor derived from tobacco products are not covered by the TCA. .....9 A. The Deeming Rule’s application to vape products not “made or derived from tobacco” is contrary to the text of the Products. ........................................................10 B. The Deeming Rule’s application to non-nicotine-containing vaping products is contrary to the TCA’s structure Products ..................................................................13 II. The Deeming Rule’s Regulation of Vaping Devices and E-Liquids Fails “Hard Look” APA Review. TCA. .........................................................................................................15 A. The Deeming Rule is internally inconsistent Products ..............................................15 B. The Rule will undermine the TCA’s public-health goals. .........................................17 C. FDA failed to consider reasonable alternatives .........................................................20 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 2 of 51 iii 1. The Rule fails to meaningfully consider the burden of the PMTA requirement on the vaping industry Products ................................................................................20 2. FDA failed to consider reasonable alternatives. ..................................................22 III. The Deeming Rule Is Invalid Because It Is Premised on an Arbitrary and Capricious Cost-Benefit Analysis. .....................................................................................................25 IV. The Deeming Rule Violates the First Amendment. .........................................................30 A. The Deeming Rule’s regulation of vaping devices and e-liquid samples violates the First Amendment. ......................................................................................................32 1. Samples are protected speech.. ............................................................................32 2. The purported governmental interest is not furthered by the regulation of the protected speech. ..................................................................................................33 3. The total ban on sampling is more extensive than necessary. .............................34 B. The regulation of truthful, non-misleading statements about vaping devices and e- liquids violates the First Amendment. .......................................................................36 1. Plaintiffs has standing to challenge to this aspect of the Deeming Rule. ............36 2. FDA’s professed interests are not directly and materially advanced by its regulation of truthful, non-misleading speech about vaping products. ................38 3. The MRTPR is more extensive than necessary to serve the professed interests regarding vaping products. ...................................................................................40 CONCLUSION ............................................................................................................................41 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 3 of 51 iv TABLE OF AUTHORITIES Cases: 1-800-411-Pain Referral Serv., LLC v. Otto, 744 F.3d 1045, 1054–55 (8th Cir. 2014) ............31 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 500 (1996) ................................................41 Alexander v. Cahill, 598 F.3d 79, 91 (2d Cir. 2010) ..................................................................34 Am. Biosci. Inc. v. Thompson, 269 F.3d 1077, 1079 (D.C. Cir. 2001) .....................................4 Am. Gas Ass’n v. FERC, 593 F.3d 14, 19 (D.C. Cir. 2010) ......................................................22 Am. Meat Inst. v. U.S. Dep't of Agric., 760 F.3d 18, 22–23 (D.C. Cir. 2014) (en banc) ...........34 Babbitt v. United Farm Workers Nat’l Union, 442 U.S. 289, 298 (1979) ..................................37 Bailey v. Morales, 190 F.3d 320, 321, 325 (5th Cir. 1999) ........................................................22 Bates v. State Bar of Ariz., 433 U.S. 350, 375 (1977) ................................................................40 Brown v. Entm’t Merchs. Ass’n, 564 U.S. 786, 803 n.9 (2011) ................................................39 Bus. Roundtable v. SEC, 647 F.3d 1144, 1153 (D.C. Cir. 2011) .................................16,25,26,30 Cal Indep. Sys Operator Corp. v. FERC, 372 F.3d 395 (D.C. Cir. 2004) ...................................13 Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 561 (1980) ................................................................................................................................................passim Chamber of Commerce v. SEC, 412 F.3d 133, 145 (D.C. Cir. 2005) .................................... 22,26 Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984) ................................................................ 9 Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415–16 (1971) ......................15 City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 417 (1993) ................................35 Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253–54 (1992) ....................................................10 Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980) ..................10 Corrosion Proof Fittings v. EPA, 947 F.2d 1201, 1219 (5th Cir. 1991) .....................................27 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 4 of 51 v Ctr. for Biological Diversity v. NHTSA, 538 F.3d 1172, 1198 (9th Cir. 2008) .................... 29,30 Discount Tobacco City & Lottery, Inc. v. United States, 674 F.3d 509, 538 (6th Cir. 2012) .............................................................................................................................................32,33,34 Edenfield v. Fane, 507 U.S. 761, 770 (1993) .....................................................................31,32,34 Encino Motorcars, LLC v. Navarro, 136 S. Ct. ----, 2016 WL 3369424, at *7 (U.S. June 20, 2016) ............................................................................................................................................14 Envtl. Def. Fund v. EPA, 852 F.2d 1316, 1329 (D.C. Cir. 1988) ..............................................20 FF Cosmetics FL Inc. v. City of Miami Beach, Fla., 129 F. Supp. 3d 1316, 1326 (S.D. Fla. 2015) ......................................................................................................................................................35 Food & Drug Admin. v. Brown & Williamson Tobacco Corp. 529 U.S. 120, 159 (2000) ......... 2 Gen. Chem. Corp. v. United States, 817 F.2d 844, 857 (D.C. Cir. 1987) ..................................16 Greater New Orleans Broad. Ass’n v. United States, 527 U.S. 173, 183–84, 188 (1999) ........................................................................................................................................... 31,33,35 HolRail, LLC v. STB, 515 F.3d 1313, 1317 (D.C. Cir. 2008) ...................................................13 Ibanez v. Fla. Dep’t of Bus. & Prof’l Regulation, 512 U.S. 136, 146 (1994) ............................39 Ind. Boxcar Corp. v. R.R. Retirement Bd., 712 F.3d 590, 591 (D.C. Cir. 2013) ........................ 9 Int’l Union, United Mine Workers of Am. v. Mine Safety & Health Admin., 626 F.3d 84, 90 (D.. Cir. 2010) ..................................................................................................................................... 9 Japan Whaling Ass’n v. Am. Cetacean Soc’y, 478 U.S. 221, 238–39 (1986) ............................12 King v. Governor of N.J., 767 F.3d 216, 236 (3d Cir. 2014) .....................................................31 La. Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 374 (1986) .......................................................10 Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 583 n.3 (2001) ..................................36,37,40,41 Mach Mining, LLC v. EEOC, 135 S. Ct. 1645, 1651 (2015) .....................................................15 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 5 of 51 vi Michigan v. EPA, 135 S.Ct. 2699, 2706–07 (2015) ................................................................9,25 Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43–44 .............................................................................................................................................. passim Nat’l Ass’n of Mfrs. v. SEC, 800 F.3d 518, 524–25, 527 (D.C. Cir. 2015) ...............................34 Navegar, Inc. v. United States, 103 F.3d 994, 998 (D.C. Cir. 1997) ..........................................36 NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) .........................................................26 New York v. Reilly, 969 F.2d 1147, 1153 (D.C. Cir. 1992) ......................................................24 Pearson v. Shalala, 164 F.3d 650, 657 (D.C. Cir. 1999) .............................................................40 Peel v. Attorney Registration & Disciplinary Comm’n of Ill., 496 U.S. 91, 111 (1990) ...........39 Performance Coal Co. v. Fed. Mine Safety & Health Review Comm’n, 642 F.3d 234, 238 (D.C. ir. 2011) .......................................................................................................................................13 Pub. Citizen v. FMCSA, 374 F.3d 1209, 1221 (D.C. Cir. 2004) ........................................... 26,29 R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205, 1221 (D.C. Cir. 2012) .............................34 In re R.M.J., 455 U.S. 191, 203 (1982) .......................................................................................38 Retail Digital Network, LLC v. Appelsmith, 810 F.3d 638, 648 (9th Cir. 2016) .......................31 Rockwood v. City of Burlington, Vt., 21 F. Supp. 2d 411, 415, 421–22 (D. Vt. 1998) .............33 Russello v. United States, 464 U.S. 16, 23 (1983) ......................................................................14 Sierra Club v. Mainella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006) ................................................. 9 Sorenson v. Sec’y of Treasury, 475 U.S. 851, 860 (1986) .........................................................11 Sorrell v. IMS Health, 564 U.S. 552, 566 (2011) .......................................................................31 Sottera, Inc. v. Food & Drug Admin., 627 F.3d 891, 894 (D.C. Cir. 2010) .............................2,12 Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2341 (2014) ....................................... 36,36 Sw. Airlines Co. v. Transp. Sec. Admin., 554 F.3d 1065, 1069–70 (D.C. Cir. 2009) ...............13 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 6 of 51 vii In re Tam, 808 F.3d 1321, 1335 (Fed. Cir. 2015) (en banc) .......................................................31 Thompson v. W. States Med. Ctr., 535 U.S. 357, 373 (2002) ....................................................35 United States v. Caronia, 703 F.3d 149, 163–64 (2d Cir. 2012) ................................................31 United States v. Home Concrete & Supply, LLC, 132 S. Ct. 1836, 1846 n.1 (2012) (Scalia, J., concurring) ..................................................................................................................................13 Utility Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2446 (2014) ...........................................14 Statutes and Regulations 2 U.S.C. § 1532(a)(2) ...................................................................................................................25 5 U.S.C. § 706(2) ......................................................................................................................7,15 21 U.S.C. § 321(g)(1) ..................................................................................................................14 21 U.S.C. § 321(rr)(1) ..................................................................................................................10 21 U.S.C. § 371(a) .......................................................................................................................24 21 U.S.C. § 387(17) .....................................................................................................................11 21 U.S.C. § 387a ........................................................................................................................... 4 21 U.S.C. § 387a–1 ...................................................................................................................4,24 21 U.S.C. § 387d(a) .....................................................................................................................13 21 U.S.C. § 387g(a)(1)(A) ...........................................................................................................13 21 U.S.C. § 387j(a) ......................................................................................................................19 21 U.S.C. § 387j(b) ......................................................................................................................20 21 U.S.C. § 387k(a) .....................................................................................................................37 Pub. L. No. 111–31, 123 Stat. 1777 (2009) .................................................................................. 3 21 C.F.R. 1140.16(d) ...................................................................................................................30 62 Fed. Reg. 55,852 (Oct. 28, 1997) ............................................................................................27 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 7 of 51 viii 68 Fed. Reg. 15,404(Mar. 31, 2003) ............................................................................................27 81 Fed. Reg. 28,973 (May 10, 2016) .....................................................................................Passim Others CASAA Report to OMB/OIRA (Dec. 15, 2015), www.reginfo.gov/public/do/viewEO12866Meeting?viewRule=true&rin=0910AG38&meetingId =1456&acronym=0910HHS/FDA ..............................................................................................28 David T. Levy et al., A Framework for Evaluating the Public Health Impact of E-Cigarettes and Other Vaporized Nicotine Products, Soc’y for Study of Addiction (Apr. 2016) .......................15 FDA Advertising & Promotion Guidance for Modified Risk Tobacco Products, www.fda.gov/TobaccoProducts/Labeling/MarketingandAdvertising/ucm304465.htm ..............36 FDA, Report to Congress, Innovative Products and Treatments To Achieve Abstinence from Tobacco Use, Reductions in Consumption of Tobacco, and Reductions in the Harm Associated with Continued Tobacco Use (Nov. 11, 2013) ...........................................................................15 FDA Warning Letters, www.fda.gov/ICECI/EnforcementActions/WarningLetters ...................37 FDA Warning Letter to Alexander Carter, www.fda.gov/iceci/enforcementactions/ warningletters/2015/ucm445430.htm (May 1, 2015) .................................................................38 FDA Warning Letter to www.cigoutlet.net, www.fda.gov/iceci/enforcementactions/ warningletters/2015/ucm463528.htm (Sept. 15, 2015) ...............................................................38 OMB, OIRA, RIN-0910-AG38, www.reginfo.gov/public/do/eom12866SearchResults?view=yes&page num=0 .......................28 Merriam-Webster Dictionary, www.merriam-webster.com/dictionary/component ....................11 Merriam-Webster Dictionary, www.merriam-webster.com/dictionary/part ...............................11 National Academies, Growing up Tobacco Free: Preventing Nicotine Addiction in Children and Youths (1994), available at www.reginfo.gov/public/do/viewEO12866Meeting?viewRule=true&rin=0910AG38&meetingId =1456&acronym=0910HHS/FDA ..............................................................................................33 Oxford English Dictionary, www.oed.com/view/Entry/37759 ...................................................11 Review: Swedish Match North America, Inc., at 18, 20, 25–26 (Mar. 11, 2015), available at www.fda.gov/downloads/TobaccoProducts/Labeling/TobaccoProduct Re- viewEvaluation/UCM472123.pdf ................................................................................................. 5 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 8 of 51 ix Sabrina Tavernise, Swedish Company Asks F.D.A. to Remove Warnings From Smokeless Tobacco Product, N.Y. Times (Apr. 8, 2015) .............................................................................36 Tobacco Advisory Group of The Royal College of Physicians, Nicotine Without Smoke: Tobacco Harm Reduction 189 (Apr. 2016), www.rcplondon.ac.uk/file/3563 ............................. 5 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 9 of 51 1 INTRODUCTION Plaintiffs have brought this action under the Regulatory Flexibility Act (“RFA”), 5 U.S.C. § 601 et seq.; Administrative Procedure Act (“APA”), and the First Amendment to the U.S. Constitution to challenge They have challenged FDA’s unlawful, arbitrary, and capricious regulations of the vaping devices and e-liquids in the “Deeming Rule” (or “the Rule), 81 Fed. Reg. 28,973 (May 10, 2016). In enacting the Rule, FDA has exceeded its constitutional and statutory authority and is threatening to regulate an entire vaping industry out of existence. FDA has overstepped its authority under the Family Prevention and Tobacco Control Act by attempting to regulate products that are not tobacco. Congress expressly defined “tobacco product” as a “product made or derived from tobacco and intended for human consumption.” In the Deeming Rule, FDA asserts jurisdiction over products that are not made of nor derived from tobacco, as well as over products that are not intended for human consumption, such as batteries, coils, software, vaporizers, and non-tobacco, non-nicotine e-liquids. The majority of the products sold by plaintiffs fall within those two categories: not “made or derived from tobacco” and not “intended for human consumption.” The Deeming Rule further fails the “hard look” scrutiny of the APA. FDA has not rationally explained its decision to regulate a product out of existence that may potentially be potentially beneficial to public health. The products at issue have been acknowledged by the FDA to be far less harmful to users, than traditional tobacco products like cigarettes. The rule fails to consider alterative regulatory schemes that would amount to a far less destructive regulation. Additionally, the Rule’s cost-benefit analysis violates the APA by failing to quantify the Rule’s benefits and grossly understating its costs. Benefits that were difficult to quantity were included, while those costs that were difficult to quantify were not included. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 10 of 51 2 Finally, the Rule violates the First Amendment. Its ban of free samples of vaping devices or e-liquids fails the test in Sorrell v. IMS Health, 564 U.S. 552 (2011) and Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 561 (1980). The Rule’s restrictions on truthful, non-misleading statements about vaping products (i.e., i.e., they don’t contact tar, or ash, or that they are smokeless) are unconstitutional for the same reasons.1 For the reasons stated above this Court should set aside the Deeming Rule. STATUTORY, REGULATORY, FACTUAL BACKGROUND As this case involves FDA’s unlawful regulation of vaping products, a brief background on the source of the challenged rule and the vaping industry follows. A. The Family Smoking Prevention and Tobacco Control Act FDA has promulgated the regulations at issue pursuant to its authority under the Family Smoking Prevention and Tobacco Control Act (“the TCA” or “the Act”). Before the TCA was enacted the Supreme Court held in Food & Drug Admin. v. Brown & Williamson Tobacco Corp. that the Food Drug and Cosmetics Act “gives no authority to [FDA] to regulate tobacco products.” 529 U.S. 120, 159 (2000). The Court “look[ed] to the FDCA’s ‘overall regulatory scheme,’ the ‘tobacco-specific legislation’” in place at the time “and the FDA's own frequently asserted position’” that it lacked the authority to regulate tobacco. Sottera, Inc. v. Food & Drug Admin., 627 F.3d 891, 894 (D.C. Cir. 2010). Congress responded to FDA v. Brown & Williamson by enacting the Family Prevention and Tobacco Control Act to provide the FDA with certain “authority with respect to the manufacturing, marketing, and distribution of tobacco products” that the Supreme Court decided it lacked because of an existing statutory framework regulating the tobacco industry. Pub. L. No. 1 Oddly enough, the Rule would ban the following statements taken from findings of the Rule itself: (i) vaping devices enable “substantial reductions in the exposure to harmful constituents Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 11 of 51 3 111–31, 123 Stat. 1777, § 3(1) (2009). In the TCA, Congress wanted to address the “cancer, heart disease, and other serious adverse health effects” associated with use of “tobacco products” and to address various issues related to smoking and the use of cigarettes. Id. at §§ 2(2), (13)– (14), (16), (23)–(25), (31)–(32), (34), (38)– (39), (45), (47)–(48) (2009). At the time of enactment congress found a “consensus exists within the scientific and medical communities that tobacco products are inherently dangerous and cause cancer, heart disease, and other serious adverse health effects.” Id. at §2(2). The FDA was initially only granted jurisdiction over “cigarettes, cigarette tobacco, roll- your-own tobacco, and smokeless tobacco.” However, under the FDA’s “deeming” power the secretary could subject additional “tobacco products” to authority of the Act. Among other things, the Act: (i) makes it unlawful to market misbranded or adulterated tobacco products; (ii) requires manufacturers of tobacco products to submit detailed product and advertising information to FDA; (iii) requires manufacturers to register manufacturing facilities with FDA and open such facilities for biannual FDA inspections; (iv) authorizes FDA to impose restrictions on the sale and distribution of tobacco products, and to require warning labels for tobacco products; (v) authorizes FDA to regulate the methods used in manufacturing tobacco products; (vi) grants FDA authority to mandate new product safety standards regarding the composition and characteristics of tobacco products; (vii) directs tobacco product manufacturers to keep certain records; (viii) requires manufacturers to obtain advance FDA authorization before making certain advertising and labeling claims; and (ix) grants FDA authority to promulgate testing requirements. 21 U.S.C. §§ 387a–387k, 387o, 387t. The most burdensome of the requirements imposed by the TCA on tobacco products are bore by those products considered “new tobacco products.” “New tobacco products” are Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 12 of 51 4 prohibited from being marketed, unless prior authorization is recieved from the FDA. Id., at § 387j(a)(2). Three primary mechanisms for attainment are provided in the act: • The substantial equivalence (“SE”) pathway, which requires the manufacturer to show that its product “is substantially equivalent to a tobacco product commercially marketed ... in the United States as of February 15, 2007,” id. at § 387j(a)(2)(A)(i), or to a product that itself was approved by FDA as an “SE” product; • The SE exemption pathway, which requires a manufacturer to show that its product is only a “minor modification” of a tobacco product that was on the market as of February 15, 2007, or approved under another pathway, and that the modification only involves a change in additive levels, id. at §§ 387e(j)(3), 387j(a)(2)(A)(ii); and • The premarket tobacco application (“PMTA”) pathway, under which the manufacturer must obtain FDA authorization based on a detailed application documenting the product’s health risks, ingredients, manufacturing methods, and other characteristics, id. at § 387j(b)(1). For vaping products, the PMTA pathway is the primary—if not the only avenue. (See Exhibit A, FDA Administrative Record “AR,” 023,989 (“[N]early all [vaping] products will be subject to premarket review.”); AR023,995–4,003 (describing the PMTA process, detailing FDA’s estimates of the costs, and concluding that 99–100% of vaping products will be subject to PMTA requirement).); see also Am. Biosci. Inc. v. Thompson, 269 F.3d 1077, 1079 (D.C. Cir. 2001) (describing FDA’s “new drug application” process, upon which the PMTA pathway is based, as “expensive and time-consuming”). FDA has approved only one PMTA application since the TCA was enacted. That applicant submitted, inter alia, four clinical pharmacology studies, data from two clinical trials, study data spanning several decades, and extensive reports of testing.2 2 See FDA, Premarket Tobacco Application (PMTA) Technical Project Lead (TPL) Review: Swedish Match North America, Inc., at 18, 20, 25–26 (Mar. 11, 2015), available at www.fda.gov/downloads/TobaccoProducts/Labeling/TobaccoProductReviewEvaluation/UCM47 2123.pdf. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 13 of 51 5 B. Vaping Products “Vaping”—the “act of inhaling and exhaling the vapor,” often but not always containing nicotine, “produced by an electronic cigarette or similar device”3 is a new industry. Vaping products were just being introduced when the TCA was enacted. 81 Fed. Reg. at 28,978. Vaping devices and many e-liquids do not contain tobacco and do not generate smoke. A vaping device is an innovative electronic device used to convert e-liquid into vapor. It provides the user with a sensation like that of smoking a traditional cigarette, without exposing the user to the combustion of tobacco. There are two types of vaping devices, open and closed systems. Open systems are customizable. They come in a wide array of options including look and performance. Any e- liquid may be used in the open system device. In open systems, any third-party e-liquid can be used. Closed system devices cannot be altered by the end users. Closed system devices operate as manufactured, and are manufactured as either rechargeable or disposable. The disposable vaping devices are single use devices. Rechargeable systems may be reused, but only as the manufacture allows. E-liquid is a liquid that is converted into vapor by the vaping device and inhaled by the user. The liquid typically consists of plant based propylene glycol and/or glycerin, flavoring, and nicotine. E-liquids may contain tobacco-derived nicotine, non-tobacco derived nicotine, or synthetic nicotine. Some e-liquids contain no nicotine or tobacco derivatives at all. 3 Oxford Dictionaries, oxforddictionaries.com/us/definition/american_english/vape. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 14 of 51 6 Peer-reviewed studies have concluded that vaping is much safer than using cigarettes, because vaping does not generate the toxins associated with combusting and smoking tobacco.4 Indeed, the Rule acknowledges that studies show that: (i) vaping devices enable “substantial reductions in the exposure to harmful constit- uents typically associated with smoking” when “compared to cigarettes”; (ii) “most of the chemicals causing smoking related disease from combusted tobacco use are ab- sent” in the vapor generated by vaping devices; (iii) “the chemicals that are present” in vapor generated by vaping devices “pose limited danger”; and (iv) vaping devices “are likely to be much less, if at all, harmful to users or bystanders” than cigarettes. 81 Fed. Reg. at 29,030–31. All told, FDA was told of dozens of studies showing that vaping is less harmful than cigarettes. (See, e.g., AR127,406–9; AR131,585.) C. The Deeming Rule’s Effect on Plaintiffs 1. PREMARKET APPROVAL PROCESS The TCA’s most onerous compliance burden is the pre-market approval requirement, 21 U.S.C. § 387j, applies to Plaintiffs’ products through the FDA’s Deeming Rule, whether those e- liquids contain nicotine derived from tobacco or not. (Exhibit B, Declaration of Zack Carpenter, “Carpenter Decl.,” ¶ 10; Exhibit C, Declaration of Karen Anderson, “Anderson Decl.,” ¶ 15.) Plaintiffs will be unable to comply with the burdensome premarket approval requirement, 21 U.S.C § 387j, because those requirements are far too costly for all their products. 4 See David T. Levy et al., A Framework for Evaluating the Public Health Impact of E-Cigarettes and Other Vaporized Nicotine Products, Soc’y for Study of Addiction 6 (Apr. 2016), www.onlinelibrary.wiley.com/doi/10.1111/add.13394/abstract (“The evidence suggests a strong potential for [vaping product] use to improve population health by reducing or displacing cigarette use in countries where cigarette prevalence is high and smokers are interested in quitting.”); Tobacco Advisory Group of The Royal College of Physicians, Nicotine Without Smoke: Tobacco Harm Reduction, 189 (Apr. 2016), www.rcplondon.ac.uk/file/3563 (“Large- scale substitution of e- cigarettes ... for tobacco smoking has the potential to prevent almost all the harm from smoking in society.”). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 15 of 51 7 (Carpenter Decl. at ¶ 11; Anderson Decl., at ¶ 16.) Specifically, Karma S Clouds expects that the Deeming Rule will force them to permanently discontinue any of the products they have manufactured in the past. (Anderson Decl. ¶ 19). 2. INABILITY TO INTRODUCE NEW PRODUCTS Plaintiffs will no longer be able to produce new products as of the effective date, August 8, 2016, without a premarket authorization from the FDA. (Carpenter Decl. ¶ 15; Anderson Decl., ¶ 20.) To create a new product a substantial expenditure of time and money to complete a PMTA is required. (Id.) A product could take years to reach the market and becoming available only after customer’s taste have changed. (Id.) Before the implementation of the Deeming Rule, Plaintiffs sold many e-liquids at several different nicotine strengths, as well as coils manufactured on site. (Carpenter Decl. ¶ 16; Anderson Decl., at ¶ 21.) As a new business part of their marketing strategy was to introduce new products, disrupting the traditional tobacco market by continually providing an innovative product that meets their customers taste. (Id.) But for the Deeming Rule, Cyclops Vapor 2 would continue to work to improve the variety, quality, and performance of its e-liquids researching, developing, and introducing new products. (Id.) 3. PROHIBITION AGAINST SAMPLING Free sampling is an important marketing tool for Plaintiffs’ business operations. (Anderson Decl. ¶ 23). As of the Rule’s effective date, this business is prohibited from distributing “free samples” of vaping products. 81 Fed. Reg. at 29,054. Without free samples end users, because of cost, will be less likely to try let alone purchase Plaintiffs’ products. (Anderson Decl. ¶ 23). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 16 of 51 8 Specifically, Plaintiffs used instore events known as a vape meets to market new products to potential and existing customers. (Anderson Decl. ¶ 25). These vape meets provided attendees to try free samples in a relatively short amount of time. (Id.) No minors were given free samples at these vape meets. (Id. ¶ 27). Like a vape meet, wine shops often hold in store events called wine tastings. (Id. ¶ 25). In short, sampling is a critical part of Karma S Clouds LLC marketing strategy, and the Rule bans it outright. This company has spent time and money developing marketing strategies that rely in large part on free samples. (Id. ¶ 26). The prohibition on free samples has resulted in frustration among loyal customers and a significant loss in sales for Plaintiffs. (Id.) 4. INFRINGEMENT ON COMMERCIAL FREE SPEECH Beginning on the Rule’s effective date, Plaintiffs will not be able to inform consumers that its products are free of, or contain reduced levels of, any substance, without an order of approval from FDA. See 81 Fed. Reg. at 29,053. Consumer education about Plaintiffs products is an important part of our business strategy because vaping is so new compared to the established cigarette industry. (Carpenter Decl., ¶ 21, Anderson Decl. ¶ 31). As part of that education, Plaintiffs made a number of truthful, nonmisleading statements to consumers through instore posters comparing the chemicals in tobacco to those found in e-liquid. (Anderson Decl. ¶ 31.) Those truthful, nonmisleading statements are prohibited under the Deeming Rule. STANDARD OF REVIEW Summary judgment is “the mechanism for deciding, as a matter of law, whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review.” Sierra Club v. Mainella, 459 F. Supp. 2d 76, 90 (D.D.C. 2006). The APA requires courts to “hold unlawful and set aside agency action, findings, and conclusions found to Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 17 of 51 9 be ... arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A). This Court reviews FDA’s interpretation of the TCA under Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). The Court first “examines the statute de novo,” Int’l Union, United Mine Workers of Am. v. Mine Safety & Health Admin., 626 F.3d 84, 90 (D.C. Cir. 2010), and “employ[s] traditional tools of statutory construction” to determine whether Congress spoke unambiguously to “the precise question at is- sue,” Chevron, 467 U.S. at 843. Only if the statute is ambiguous does the Court consider “whether the agency’s answer is based on a permissible construction of the statute.” Id. at 843. The APA further “requires that agency decision making be both reasonable and reasonably explained.” Ind. Boxcar Corp. v. R.R. Retirement Bd., 712 F.3d 590, 591 (D.C. Cir. 2013). A rule is arbitrary and capricious when the agency, inter alia, does not consider relevant factors, fails to consider an important part of the problem, or adopts an approach counter to the evidence. See Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43–44 (1983). ARGUMENT I. Products not made nor derived from tobacco products are not covered by the TCA. “We begin with the familiar canon of statutory construction that the starting point for interpreting a statute is the language of the statute itself,” and “absent a clearly expressed legislative intention to the contrary, that language must ordinarily be regarded as conclusive.” Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980). Congress defined the term “tobacco product” as “any product made or derived from tobacco that is intended for human consumption.” 21 U.S.C. § 321(rr)(1). Most of the products sold, Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 18 of 51 10 manufactured, or distributed by the plaintiffs are not “made or derived from tobacco.” Despite this clear contradiction the FDA attempts to regulate these vape products under the TCA. A. The Deeming Rule’s application to vape products not “made or derived from tobacco” is contrary to the plain language of the TCA. Under the express language of the TCA, FDA cannot regulate products that are not “made or derived from tobacco.” Id. The Supreme Court has “stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there.” Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253–54 (1992). Federal agencies may exercise only those powers Congress has delegated them in enabling legislation. See, e.g., La. Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 374 (1986). FDA concedes that “its authority is not so broad as to allow FDA to issue a regulation that contradicts a clear statutory provision.” 81 Fed. Reg. at 28,993. Yet, that is exactly what FDA has done in purporting to regulate e-liquids, that are not made nor derived from tobacco. The Rule deems “all products meeting the statutory definition of ‘‘tobacco product,’’ except accessories of the newly deemed tobacco products, to be subject to FDA’s tobacco product authorities.” 81 Fed. Reg. at 28,976. Then states “‘tobacco products’ include currently marketed products such . . . ENDS (including e-cigarettes, e-hookah, e-cigars, vape pens, advanced refillable personal vaporizers, and electronic pipes), cigars, and pipe tobacco.” Id. The Rule expands the definition of “tobacco product” beyond what an ordinary understanding of the term can bear. The FDA has unilaterally determined that vape products many which are not “made or derived from tobacco” are “tobacco products” because the FDA has deemed to be “tobacco products”. The statutory text is unambiguous: To qualify as a “tobacco product,” the product must be made or derived from tobacco and intended for human consumption or be a “component, part or accessory of” such a product. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 19 of 51 11 A “component” is a “constituent part” or “ingredient.” Merriam-Webster Dictionary, www.merriam-webster.com/dictionary/component; see also Oxford English Dictionary, www.oed.com/view/Entry/37759 (“constituent element or part”). A “part” is “one of the subdivisions . . . into which something is or is regarded as divided and which together constitute the whole.” See Merriam-Webster Dictionary, www.merriam-webster.com/dictionary/part. Many of the e-liquids manufactured by the plaintiffs contain nothing made nor derived from tobacco and many of those e-liquids are available in varieties. Each is its own, separate consumer product that contains neither tobacco nor anything derived from tobacco. Furthermore, “[t]he normal rule of statutory construction assumes that identical words used in different parts of the same act are intended to have the same meaning.” Sorenson v. Sec’y of Treasury, 475 U.S. 851, 860 (1986) (internal quotation marks omitted). The TCA further confirms, in numerous places, that the terms “component” or “part” were not intended to include separate finished products not made nor derived from tobacco: • Section 900 (21 U.S.C. § 387(17)) defines a “smoke constituent” as “any chemical or chemical compound in mainstream or side stream tobacco smoke that either transfers from any component of the cigarette to the smoke or that is formed by the combustion or heating of tobacco, additives, or other component of the tobacco product” (emphasis added). • Section 904 (21 U.S.C. § 387d(a)) requires manufacturers to list “all ingredients ... added by the manufacturer to the tobacco, paper, filter, or other part of each tobacco product” (emphasis added). • Section 907 (21 U.S.C. § 387g(a)(1)(A)) prohibits “a cigarette or any of its component parts (including the tobacco, filter, or paper)” from containing flavors (emphasis added). Repeatedly and consistently throughout the TCA, Congress used “component” and “part” to refer to items inseparable from the product made or derived from tobacco, not to refer to separate products not so made or derived. See Japan Whaling Ass’n v. Am. Cetacean Soc’y, 478 Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 20 of 51 12 U.S. 221, 238–39 (1986) (“Without strong evidence to the contrary, we doubt that Congress intended the same phrase to have significantly different meanings in two adjoining paragraphs of the same subsection.”). FDA erroneously concluded that the D.C. Circuit’s decision in Sottera Inc. v. FDA, 627 F.3d 891 (D.C. Cir. 2010), establishes the agency’s jurisdiction over products that do not contain tobacco or anything derived from tobacco. 81 Fed. Reg. at 29,043. Sottera did not and could not have done so, for two reasons. First, the issue presented in Sottera was whether FDA had authority to regulate e-cigarettes under the device provisions of the FDCA. See 627 F.3d at 892. The court had no occasion to rule on the meaning of the TCA, such that any discussion of the Act’s meaning is dicta. Second, the product at issue in Sottera itself contained nicotine derived from tobacco and was intended for human consumption. Sottera 627 F.3d 891, 898. There is no basis to conclude, contrary to the language that Congress used, that Sottera held that FDA may also regulate products containing neither tobacco nor anything derived from tobacco. FDA may also argue that the words “component” or “part” are ambiguous. However, “‘the issue is not so much whether the [statutory language] is, in some abstract sense, ambiguous, but rather whether, read in context and using the traditional tools of statutory construction, the term ... encompasses [the government’s interpretation].’” Cal. Indep. Sys. Operator Corp. v. FERC, 372 F.3d 395, 400 (D.C. Cir. 2004).5 Put differently, “[i]t does not matter whether the word ‘yellow’ is ambiguous when the agency has interpreted it to mean ‘purple.’” United States v. Home Concrete & Supply, LLC, 132 S. Ct. 1836, 1846 n.1 (2012) (Scalia, J., concurring). 5 See, e.g., Sw. Airlines Co. v. Transp. Sec. Admin., 554 F.3d 1065, 1069–70 (D.C. Cir. 2009) (rejecting agency’s interpretation of “screening passengers” even though “to screen” may have multiple meanings because the term is clear in context); HolRail, LLC v. STB, 515 F.3d 1313, 1317 (D.C. Cir. 2008) (holding that “the term ‘cross’ may have multiple meanings in some circumstances” but that “the statute, read in context, clearly resolves the case”). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 21 of 51 13 FDA therefore cannot say—as the Deeming Rule does—that a product that is neither made nor derived from tobacco nor intended for human consumption is nevertheless a “component” or “part” of a tobacco product. B. The Deeming Rule’s application to non-nicotine-containing vaping products is contrary to the TCA’s structure. “[T]o defeat application of a statute’s plain meaning, [an agency] must ‘show either that, as a matter of historical fact, Congress did not mean what it appears to have said, or that, as a matter of logic and statutory structure, it almost surely could not have meant it.’” Performance Coal Co. v. Fed. Mine Safety & Health Review Comm’n, 642 F.3d 234, 238 (D.C. Cir. 2011). FDA cannot do so. The Rule tries to evade the plain meaning definition of “tobacco product” by “defining ‘component or part’ to mean any software or assembly of materials intended or reasonably expected: (1) To alter of affect the tobacco product’s performance, composition, constituents, or characteristics; or (2) to be used with or for the human consumption of a tobacco product.” 81 Fed. Reg. at 29,015 (emphases added). FDA proceeds to grant itself license to “consider the totality of the circumstances” to ascertain the “intended or reasonably expected” use. Id. That approach might have been appropriate if, in the TCA, Congress had adopted the definition framework of the drug or device provisions of the FDCA. But as FDA itself has previously recognized and told Congress: “Drugs and devices are defined by their intended use, while tobacco products are not.”6 In sharp contrast to the TCA and its definition of “tobacco product,” in the drug and device provisions of the FDCA, Congress expressly defined the 6 FDA, Report to Congress, Innovative Products and Treatments To Achieve Abstinence from Tobacco Use, Reductions in Consumption of Tobacco, and Reductions in the Harm Associated with Continued Tobacco Use, at 4 (Nov. 11, 2013) (emphasis added, capitalization omitted) [hereinafter, “FDA, Report to Congress”]. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 22 of 51 14 regulated products—“drugs” and “devices”—by their “intended” use. 21 U.S.C. § 321(g)(1) (drugs); id. § 321(h) (devices). FDA cannot, via interpretation, amend the TCA to adopt an “intended use” approach for “tobacco products” that Congress itself did not adopt. See, e.g., Russello v. United States, 464 U.S. 16, 23 (1983) (“Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” (brackets omitted)); see also Utility Air Regulatory Grp. v. EPA, 134 S. Ct. 2427, 2446 (2014) (“[A]n agency may not rewrite clear statutory terms to suit its own sense of how the statute should operate.”). Rather, as FDA has conceded, in “contrast” to its device and drug authority, “FDA’s authority to regulate tobacco products ... depends first on the product’s physical makeup.”7 Furthermore, subjecting non-nicotine-containing vaping products to the Act leads to absurd results. Such as informing FDA of the “ingredients” of its programmable software, displays, batteries, etc. 81 Fed. Reg. at 29,033, 29,046. But no one consumes software, displays, batteries, or other parts of an open vaping system, and there is no reason to think that Congress intended to subject these products to FDA regulation. Accordingly, in purporting to regulate products that do not meet the statutory definition of a “tobacco product,” FDA has exceeded its statutory authority. II. The Deeming Rule’s Regulation of Vaping Devices and E-Liquids Fails “Hard Look” APA Review. Courts apply a “‘strong presumption’ favoring judicial review of administrative action.” Mach Mining, LLC v. EEOC, 135 S. Ct. 1645, 1651 (2015). “One of the basic procedural requirements of administrative rulemaking is that an agency must give adequate reasons for its 7 Id. at 5. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 23 of 51 15 decisions.” Encino Motorcars, LLC v. Navarro, 136 S. Ct. ----, 2016 WL 3369424, at *7 (U.S. June 20, 2016). In determining whether a rule complies with that requirement, courts must conduct “thorough, probing, in-depth review” of the agency’s reasoning and a “searching and careful” inquiry regarding the rule’s factual underpinnings. Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415–16 (1971). Agency action is arbitrary and capricious—and must be “h[e]ld unlawful and set aside,” 5 U.S.C. § 706(2)— when the agency fails to articulate “a rational connection between the facts found and the choice made,” fails to base its decision “on a consideration of the relevant factors,” “fail[s] to consider an important aspect of the problem,” or “offer[s] an explanation for its decision that runs counter to the [record] evidence.” State Farm, 463 U.S. at 43. The Deeming Rule fails this scrutiny in multiple respects. A. The Deeming Rule is internally inconsistent. Most fundamentally, the Rule is at war with itself regarding the rationale for regulating vaping products. FDA says that sweeping regulation of vaping products is necessary to protect the public health, while simultaneously conceding that it does not know enough about vaping to determine its effect on public health. The Rule repeatedly makes these self-contradictory statements—sometimes within just a few sentences of one another. FDA acknowledges the Deeming Rule was to protect the public health and “deeming all products meeting the statutory definition of ‘‘tobacco product’’ will significantly benefit public health”, such as e-liquid. See 81 Fed. Reg. at 29,042 (“FDA is deeming these products to address public health concerns.”); id. at 28,983 (“regulation of the newly deemed products will be beneficial to public health”); id. at 29,014 (Rule designed “to protect the public health”).)8 But at the same time, FDA concedes that 8 Despite basing the Deeming Rule on a purported public health interest, FDA also says that there is no need “to establish that deeming will benefit public health,” because “FDA is not required to meet a particular public health standard to deem tobacco products.” 81 Fed. Reg. at Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 24 of 51 16 it does “not currently have sufficient data . . . to determine what effects e-cigarettes have on the public health.” Id. at 29,984; see id. at 29,028–29 (“[W]e do not have sufficient data to determine what effects e-cigarettes have on public health at the population level. ... [W]e do not currently have sufficient data about e-cigarettes ... to fully determine what effects they have on the public health.”). (See also AR023,930 (“[T]he welfare effects of including [vaping products] in this final rule are uncertain.”); AR023,970 (“The health impact of e-cigarettes, for users and the public, cannot be determined with currently available data.”); AR023,973 (“Reliable evidence on the impacts of warning labels, premarket review, and marketing restrictions on users of ... [vaping products] does not, to our knowledge, exist.”).) The Deeming Rule cannot satisfy the APA’s requirement of “reasoned decision-making” considering this foundational conflict. State Farm, 463 U.S. at 52. The D.C. Circuit has held time and again that internal inconsistencies render agency action arbitrary and capricious. See, e.g., Bus. Roundtable v. SEC, 647 F.3d 1144, 1153 (D.C. Cir. 2011) (vacating rule that was “internally inconsistent and therefore arbitrary”); Gen. Chem. Corp. v. United States, 817 F.2d 844, 857 (D.C. Cir. 1987) (“Because the ICC’s analysis ... is internally inconsistent and inadequately explained, we find its ultimate conclusion ... to be arbitrary and capricious.”). This principle applies with special force here, as the contradiction in FDA’s reasoning goes to the agency’s very reason for promulgating the Rule. The Deeming Rule also suffers from a second basic logical flaw. FDA suggests that the Rule is justified because it will provide FDA with the ability “to obtain critical information regarding the health risks of newly deemed tobacco products.” 81 Fed. Reg. at 28,975. That 28,983. Irrespective of whether the TCA requires FDA to show that deeming a class of products to be “tobacco products” will advance public health, the APA undoubtedly requires FDA to “articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” State Farm, 463 U.S. at 43 (internal quotation marks omitted). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 25 of 51 17 rationale is wholly circular and question begging: FDA cannot rationally justify a rule intended to address health risks by pointing to the need for information to determine whether those risks exist in the first place. B. The Rule will undermine the TCA’s public-health goals. The Deeming Rule will also undermine the TCA’s core goal of reducing the deaths and disease resulting from use of tobacco products. The Rule acknowledges that vaping products are safer than traditional tobacco products, yet at the same time imposes a regulation that will crush the vaping industry and preserve the pre-TCA cigarette-dominant status quo. A substantial body of literature shows that vaping products offer important health advantages. For example, a 2015 study by Public Health England (AR022,842, AR022,845, AR022,916)—the governmental body charged to “protect and improve” England’s “health and wellbeing”—concluded that vaping products are “likely to be much less, if at all, harmful to users or bystanders” when “compared with cigarettes.” 81 Fed. Reg. at 29,029–31. This study also determined, consistent with “a review by an international team of experts,” that: (i) vaping products are “around 95 percent safer than smoking combusted cigarettes”; (ii) vaping products provide “substantial reductions in the exposure to harmful constituents typically associated with smoking”; and (iii) “most of the chemicals causing smoking-related disease from combusted tobacco use are absent” in the vapor produced by vaporizers, while “the chemicals that are present pose limited danger.” See id.; see also id. at 29,029 (“[S]tudies have found that lower levels of toxicants are observed in e-cigarette aerosols than in combusted tobacco smoke.”). Other studies have reached the same basic conclusion. A peer-reviewed paper in Cancer Prevention Research found that cigarette users who switched to vaping products reported “reductions in exposure to carbon monoxide and the toxicant acrolein.” Id. at 29,040. (See also Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 26 of 51 18 AR129,153–60 (showing that e-vapor toxicant levels are “significantly lower” than in cigarette smoke, and are well below ambient workplace threshold limit values).) Similarly, several studies conclude that vaping poses “relatively little risk,” produces vapor that “is less injurious than the smoke from cigarettes,” and eliminates exposure to “the combustion products that are responsible for nearly all of smoking’s damaging effects.” (AR130,482–3; AR139,744.) In short, dozens of studies and articles show that vaping products pose a substantially reduced health risk vis-à-vis cigarettes. (See, e.g., AR127,406–9; AR131,576; AR150,351; AR151,105–6.)9 The record also indicates that most vaping product users are current cigarette smokers or recent former smokers. See 81 Fed. Reg. at 29,028, 29,036. And the record contains significant evidence that vaping products help these cigarette smokers quit. Id. at 29,030. (See also, AR130,486–9; AR139,746.) Nevertheless, FDA insists that it is too early to tell whether vaping products present a public-health benefit. See, e.g., 81 Fed. Reg. at 28,984, 29,028–32. Even were that correct—and the body of evidence outlined above strongly suggests otherwise—it is undisputed by FDA itself that vaping products are far less risky than cigarettes. Indeed, the Rule acknowledges that inhalation of e-vapor “is of less risk to a user than the inhalation of ... smoke from combusted tobacco products,” and that use of vaping products “is likely less hazardous for an individual user than continued smoking of traditional cigarettes.” Id. at 29,033, 29,035. In reality, the Deeming Rule arbitrarily and capriciously ignores this evidence entirely. Instead, it subjects vaping products—which FDA admits are “not responsible for the high prevalence of tobacco-related death and disease in this country,” id. at 29,033—to the same set of rules that Congress designed to apply to the traditional tobacco products. Specifically, the 9 See also, supra n.4 (additional peer-reviewed studies). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 27 of 51 19 Rule requires vaping products to comply with nearly all the labeling, disclosure, sales, misbranding, and other provisions of the TCA that apply to cigarettes. See 81 Fed. Reg. at 29,000 (“The statute automatically subjects deemed products to the statutory requirements for ‘tobacco products’ in chapter IX of the [FDCA].”). The Rule imposes a more stringent set of rules on vaping products in the respect that matters most: premarket authorization. Unlike many cigarettes that were on the market as of February 15, 2007, and are thus exempt from premarket-review requirements, or which can utilize the less burdensome SE pathway, vaping products may be sold only after navigating the lengthy and burdensome PMTA process. See 21 U.S.C. § 387j(a)(1)–(2). (See also, AR023,989 (“[N]early all [vaping] products will be subject to premarket review.”).) As FDA recognizes, the Rule will cause “substantial amounts of product ... exit” and “firm exit” in the vaping industry, while allowing cigarettes and other traditional tobacco products to remain on the market. (AR023,933; see also, AR023,931.) The net effect of this all-or-nothing approach is to drive consumers back to cigarettes. (See AR150,357–8 (Rule will “likely ... lead to an increase in the sale or consumption of even more harmful products—namely traditional cigarettes.”)) That outcome is directly at odds with two of Congress’s core goals in passing the Act: “promot[ing] cessation” and “reduc[ing] disease risk and the social costs associated with tobacco-related diseases.” TCA § 3(9). It is also incompatible with the Surgeon General’s 2014 Report that “promotion of noncombustible products is much more likely to provide public health benefits only in an environment where the appeal, accessibility, promotion, and use of cigarettes and other combusted tobacco products are being rapidly reduced.” 81 Fed. Reg. at 28,984. A regulation so at odds with Congress’s stated Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 28 of 51 20 purposes cannot withstand APA review. See, e.g., Envtl. Def. Fund v. EPA, 852 F.2d 1316, 1329 (D.C. Cir. 1988). C. FDA failed to consider reasonable alternatives. Finally, the Deeming Rule is arbitrary and capricious because it fails to consider numerous alternatives that would avoid a “significant degree of product exit” (AR023,991.) while still achieving Congress’s public-health objectives. 1. The Rule fails to meaningfully consider the burden of the PMTA requirement on the vaping industry. FDA concedes that, under the Rule, a PMTA is effectively the sole approval pathway available for all but a handful of vaping products. (See, e.g., AR023,989, AR023,995 (indicating that 99% of vaporizers and 100% of e-liquids are likely subject to the PMTA requirement).) As described above, the PMTA pathway is extremely burdensome. See 21 U.S.C. § 387j(b)(1); 81 Fed. Reg. at 28,991. To obtain FDA approval, a PMTA must also show “that permitting th[e] produc[t] to be marketed would be appropriate for the protection of the public health.” 81 Fed. Reg. at 28,991. This is a tremendous burden on its own: the Rule indicates that FDA will require data regarding an e-liquid’s “likely impact when used in the [full] range of delivery systems available.” Id. at 28,992. 10 And PMTAs for open-system vaping devices (or their components and parts) will need to demonstrate how the product (such as a replaceable heating coil) will perform “when used together with the range of other components and liquids available” on the market. Id. This would necessitate a staggering amount of testing given FDA’s estimates that “there are 5,000 to 10,000 10 FDA predicts that the need to cross-test every e-liquid with every available vaporizer, and every component with every other available component and e-liquid, will make it “difficult” to obtain premarket approval for parts, components, and open-system vaporizers. 81 Fed. Reg. at 29,017, 28,998. (See also AR024,007.) In actuality, the extent of testing required will make it impossible to obtain approval. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 29 of 51 21 e-liquid product-package combinations” and “800 to 1,000 delivery systems product-package combinations” on the market. (AR023,939.) The Deeming Rule estimates that a single PMTA will, on average, take 1,500 hours to prepare, and cost $131,643 for e-liquid products and over $465,000 for vaporizer products. 81 Fed. Reg. at 29,078. (AR023,998–4,003) — yet FDA has allotted only 2 years for compliance. 81 Fed. Reg. at 29,011. (See AR149,701–2.) With respect to the Plaintiffs, here, they will be unable to comply with the burdensome premarket approval requirement, 21 U.S.C § 387j, because those requirements are far too costly for all of their products.11 The TCA provides only three avenues for tobacco products introduced after the Grandfather Date, February 15, 2007. For Plaintiffs, there is only one avenue available, the most onerous of the three, the premarket tobacco application PMTA. The other avenues are not available because none of Plaintiffs’ products were commercially marketed in the United States before the Grandfather Date. FDA concedes that the cost and burden associated with the PMTA process will cause a substantial majority of vaping products “to exit” the market rather “than submit a premarket application.” (AR023,989–90; see also AR023,933 (anticipating “substantial amounts of product consolidation and exit, as well as firm but when the actual costs are taken into account, it becomes clear that the PMTA requirement will eviscerate the vaping industry. (AR043,316–7; AR 139,755; AR144,042–3; AR149,702.) This is particularly so because nearly all vaping companies are small businesses that lack the financial resources and staffing to carry out the testing and paperwork obligations required. 81 Fed. Reg. at 29,014, 29,076. 11 The cost of the PMTA is not the only cost to Plaintiffs as a result of the Deeming Rule. Plaintiff Karma S Clouds has already sustained losses of $3,000 to $5,000 in sales per month since the Rule went into effect. (Anderson Decl., ¶ 34.) Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 30 of 51 22 2. FDA failed to consider reasonable alternatives. An agency’s failure to consider reasonable alternatives in a rulemaking violates the APA. See Am. Gas Ass’n v. FERC, 593 F.3d 14, 19 (D.C. Cir. 2010) (agency must consider all “reasonable alternatives” raised in comments); Chamber of Commerce v. SEC, 412 F.3d 133, 145 (D.C. Cir. 2005) (agency must consider “alternative[s]” and explain its rejection of those alternatives). Three less burdensome options stand out among many that FDA should have evaluated. First, FDA could have collected sufficient data to reach a conclusion—one way or the other— regarding the health effects of vaping products before choosing whether and how to regulate them. See 81 Fed. Reg. at 28,983 (Comment 4), 29,042 (Comment 166). FDA took this data- driven approach with respect to flavored tobacco products, id. at 29,014, and should have followed suit regarding vaping products. Indeed, the Rule emphasizes that “FDA is funding more than 70 studies related to [vaping] products (AR024,062–3), including a “long-term, population- level” study regarding the health effects of vaping, 81 Fed. Reg. at 29,029. FDA has not adequately explained why it chose to deem vaping products before completing its research efforts. Second, the Deeming Rule provides no meaningful response to several commenters’ suggestion that FDA follow the European Union’s approach to regulation of vaping products. (AR149,708–12.) Under this approach, FDA would subject vaping products to disclosure, advertising, good manufacturing practices, misbranding, and other requirements, but would not require vaping products to obtain premarket authorization. (AR130,503–4; AR150,356–9.) Such a regime would provide FDA with authority to collect substantial information from vaping manufacturers, ensure that vaping products are not labeled or advertised in misleading ways, Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 31 of 51 23 allow FDA to prohibit the sale of vaping products to minors, and accomplish all of the other objectives set forth in the Rule. FDA has not explained why it needs the PMTA process in addition to these other regulatory powers to attain the TCA’s goals.12 This omission is particularly glaring as FDA has fashioned modified approval frameworks in the past for dietary supplements and over-the-counter drugs. (AR130,503.) Third, FDA should have at a minimum considered crafting a streamlined PMTA process for products, such as vaporizers, that fall on the safer side of the risk continuum. (AR130,480–1; AR130,506–9; AR131,575.) Nothing in the TCA requires FDA to impose precisely the same regulatory framework on every tobacco product, regardless of their relative risks. Because vaping products “are different than conventional tobacco products” that FDA characterizes as “less hazardous for an individual user than continued smoking of traditional cigarettes,” 81 Fed. Reg. at 28,997, 29,035, FDA should treat them differently. The TCA gives effect to differences between types of products (e.g., by banning the distribution of free samples of cigarettes, but not of certain smokeless tobacco products, 21 U.S.C. § 387a–1(a)(2)), and there is no reason why the same principle should not apply to vaping products. For example, a streamlined PMTA process could dispense with several costly study requirements and ensure that vaping products will be approved so long as they meet minimum performance standards. (AR130,506–17; AR131,596–98.) This approach would “drive consumers to the least harmful forms of nicotine products” (AR131,576.) and comport with the Surgeon General’s admonition that vaping is “much more likely to provide public health benefits 12 FDA does argue that all of the TCA’s restrictions, including the PMTA requirement, apply “automatically” to all newly deemed tobacco products, and that FDA lacks authority to modify the statutory grandfather date. 81 Fed. Reg. at 28,993, 29,000. Irrespective of whether those assertions are accurate, they are nonresponsive to the argument that FDA had discretion in fashioning the contours of the Deeming Rule, and that FDA should have exercised that discretion by pursuing the TCA’s goals in a less burdensome fashion. (AR130,503–4, AR130,511.) Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 32 of 51 24 only in an environment where the appeal, accessibility, promotion, and use of cigarettes and other combusted tobacco products are being rapidly reduced.” 81 Fed. Reg. at 28,984. FDA has express statutory authority to consider and implement these alternatives. Specifically, FDA may “promulgate regulations for the efficient enforcement of” Chapter IX of the FDCA, which includes the TCA. 21 U.S.C. § 371(a). It is no answer for FDA to say that deeming under the TCA is an all-or-nothing affair; FDA could have chosen instead to issue tailored regulations under Section 371(a), as many commenters suggested. (See, e.g., AR150,356–60.) FDA was not “limited to a choice between” adopting the most stringent rule available and adopting no rule “at all”; the law instead required the agency to evaluate “lesser restriction[s]” brought to its attention. New York v. Reilly, 969 F.2d 1147, 1153 (D.C. Cir. 1992). The Small Business Administration faulted FDA’s proposed rule on precisely these grounds, informing FDA that its proposed rule was “deficient” because it failed fully to “consider significant alternatives which accomplish the stated FDA objectives and which minimize the significant economic impact of the proposal on small entities, ” and that its brief discussion of a handful of alternate approaches was insufficient because “[a]ll of the alternatives ... considered” by FDA “would only [have] ma[de] marginal changes to the overall compliance costs to small entities.”13 (AR082,216–7.) FDA’s final rule was equally deficient. III. Deeming Rule Is Premised on an Arbitrary and Capricious Cost-Benefit Analysis. FDA issued the Rule based on a belief that “the benefits of the final rule justify the costs.” (AR023,917.) That conclusion is arbitrary and capricious because FDA “opportunistically 13 The Deeming Rule addresses four alternatives, one of which dealt with cigars. 81 Fed. Reg. at 29,075. None of the other options addressed the PMTA requirement, which accounts for the largest share of the Rule’s overall costs. (AR024,009.) Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 33 of 51 25 framed the costs and benefits of the rule; failed adequately to quantify certain costs or explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters.” Bus. Roundtable, 647 F.3d at 1148–49. As the SBA put it: “FDA failed to discuss the quantitative or qualitative costs” of the Rule “on many potentially affected small entities” and omitted “essential information needed to properly inform the agency’s decision making.” (AR082,219.) Congress directed FDA to only “impose appropriate regulatory controls on the tobacco industry.” TCA § 3(8) (emphasis added). That is a Congressional directive for the agency to engage in a cost-benefit analysis in any rulemaking. See Michigan v. EPA, 135 S.Ct. 2699, 2706–07 (2015) (holding term “appropriate” to encompass cost/benefit factors). In addition, agencies must prepare “a qualitative and quantitative assessment of the anticipated costs and benefits of [a rule], including the costs and benefits to ... the private sector” whenever a rule will impose over $100 million in inflation-adjusted costs. 2 U.S.C. § 1532(a)(2). The APA’s requirement of “reasoned decision making” likewise requires agencies to “look at the costs as well as the benefits” of the rules they promulgate. State Farm, 463 U.S. at 52, 54. FDA correctly determined that a cost-benefit analysis of the Deeming Rule is required considering these mandates, particularly because the Rule will cost the private sector nearly $1 billion, with a “significant” effect on small businesses. 81 Fed. Reg. at 29,074. (See also, AR023,915–17.) But conducting a cost-benefit analysis is not the same as conducting a reasoned cost-benefit analysis, and here FDA’s assessment violates the APA in several ways. First, the Deeming Rule’s cost-benefit analysis fails because FDA failed to quantify the Rule’s benefits. Rather than compute even an approximation of the benefits that the Rule will provide, FDA says that “[t]he direct benefits of” the Rule “are difficult to quantify, and we Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 34 of 51 26 cannot predict the size of these benefits at this time.” 81 Fed. Reg. at 28,981, 29,075. (See also, AR023,917 (“[I]t is not possible to compare benefits and costs directly.”)) The difficulty of the task is no excuse. “[A]n agency may not shirk a statutory responsibility simply because it may be difficult.” NetCoalition v. SEC, 615 F.3d 525, 539 (D.C. Cir. 2010) (citing Chamber of Commerce, 412 F.3d at 143). Even when faced with data that “vary enormously,” “the agency’s job is to exercise its expertise to make tough choices about which of the competing estimates is most plausible, and to hazard a guess as to which is correct, even if the lack of [directly relevant data] means that the estimate will be imprecise.” Pub. Citizen v. FMCSA, 374 F.3d 1209, 1221 (D.C. Cir. 2004); see also, Bus. Roundtable, 647 F.3d at 1150. It is not “sufficient for an agency to merely recite the terms ‘substantial uncertainty’ as a justification for its actions.” State Farm, 463 U.S. at 52. An agency cannot realistically determine that a rule’s benefits justify its costs if it does not have at least a general grasp of the rule’s benefits. There is no valid reason why FDA could not form at least a rough estimate of the Rule’s benefits. FDA has quantified the benefits of health-focused rules before. In 2003, for example, FDA proposed a rule on the quality requirements for medical gloves to reduce the risk that HIV and other diseases would be transmitted during medical procedures. See 68 Fed. Reg. 15,404, 15,408 (Mar. 31, 2003). In doing so, FDA was able to quantify the reduction in anxiety that the rule would accomplish, using a “quality-adjusted life span” method—similar to the one discussed in the Rule (AR023,926)—to determine that the Rule would generate approximately $1.4 million in annual anxiety-reduction benefits. 68 Fed. Reg. at 15,413.14 If FDA can quantify 14 See also, 62 Fed. Reg. 55,852, 55,963–67 (Oct. 28, 1997) (FDA mammography-standards rule concluding that reducing the prevalence of false-positive tests would generate “$12.7 million” in benefits). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 35 of 51 27 the benefits of reducing anxiety, it can surely quantify the benefits of regulating consumer products such as vaporizers and e-liquids. The Rule seeks to sidestep this error by employing a “break-even analysis,” but that loose inquiry is insufficient because (as FDA admits) it “is neither a benefit-cost analysis nor a measure of welfare gain.” (AR023,922.) FDA’s break-even analysis is also arbitrary because it relies on amorphous and unquantified benefits, such as “better align[ing] actual consumption and production decisions with socially optimal patterns.” (AR024,026.) While not categorically barred from considering such benefits, agencies should rely on them only when a rule’s effects are “impossible to quantify” despite the agency’s “best attempt[s].” Corrosion Proof Fittings v. EPA, 947 F.2d 1201, 1219 (5th Cir. 1991). Even in those cases, unquantified benefits may be used only to “tip the balance in close cases”; “[t]hey cannot ... be used to effect a wholesale shift” in the analysis or as “a trump card allowing the [agency] to justify any cost calculus, no matter how high.” Id. Second, FDA substantially understates the Rule’s costs. The Rule’s estimates regarding the PMTA burden are divorced from reality. In addition, FDA arbitrarily elected not to quantify a wide range of costs, including: (i) costs to consumers of vaping products “due to loss of product variety or higher prices”; (ii) “recordkeeping costs for exporters of deemed tobacco products”; (iii) “compliance costs for components and parts other than complete ... [vaping] delivery systems”; (iv) “the cost of testing and reporting for” harmful and potentially harmful constituents; and (v) “market adjustment (friction) costs” such as lost revenues, job losses, and Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 36 of 51 28 companies in the vaping industry going out of business. 81 Fed. Reg. at 29,075. (See also, AR024,013–15, AR024,021–24.)15 These costs are massive. The compliance burden for components and parts is illustrative. FDA estimates that PMTAs will be submitted for 1,250–2,500 e-liquids and 360–450 vaporizer systems (AR023,959), and each of these products consists of numerous components and parts. A vaporizer system typically includes a mouthpiece, battery, heating coil, storage tank, wiring, programmable software, and digital display; while e-liquid products involve the e-liquid itself, the vial or container in which the e-liquid is stored, a lid or stopper, etc. 81 Fed. Reg. at 29,016. (See also AR129,122–3.) All of those individual components will need to go through the PMTA process, which FDA says on average will cost over $465,000 and take 1,500 hours per application. If each of the 1,610–2,950 vaping products for which PMTAs are expected involve, on average, 4 components or parts (a conservative estimate), then the aggregate cost of compliance will be $2.9–5.5 billion and 9.6–17.7 million hours (1,102–2,020 years). FDA cannot pretend that these costs do not exist. 15 Compounding this arbitrary and capricious decision, FDA did not consider or respond to numerous comments and presentations made during meetings, at which FDA staff was present, with OMB’s Office of Information and Regulatory Affairs, as none of these materials were produced in the Administrative Record, even though the Rule acknowledges that “FDA consulted with other Federal Agencies during the Federal Agency review process, required by Executive Order 12866.” 81 Fed. Reg. at 28,983. See OMB, OIRA, RIN-0910-AG38 (listing 59 meetings involving OMB, FDA, and other parties, most with linked documents submitted at these meetings), www.reginfo.gov/public/do/eom12866SearchResults?view=yes &pagenum=0. The Rule states that “FDA has not received any data indicating that regulation ‘will destroy almost all of the e-cigarette products on the market.’” 81 Fed. Reg. at 29,077. But Consumer Advocates for Smoke-free Alternatives Association provided comments and data at an OMB/OIRA meeting attended by Scott Chesemore of FDA demonstrating that “the net effect of the proposed regulations will be to permanently ban on the order of 99.99% of the roughly 100,000 e-cigarette products on the market today” and that the Rule “would immediately eliminate an entire sector of small and medium businesses from the country.” CASAA Report to OMB/OIRA (Dec. 15, 2015), www.reginfo.gov/public/do/viewEO12866Meeting?viewRule=true &rin=0910AG38&meetingId=1456&acronym=0910HHS/FDA Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 37 of 51 29 The “unquantified” social costs will be significant as well. FDA admits that the Deeming Rule may backfire by causing users of vaping products to switch to riskier conventional tobacco products. (AR023,960, AR023,977; see also AR023,931 (“A reduction in the supply of electronic cigarettes could under some conditions yield negative health benefits”).) FDA’s purported cost-benefit analysis mentions this possibility, but then fails to consider it when determining whether the Rule’s benefits justify its costs. (AR023,915–17.) FDA violated the APA by failing to bring its expertise to bear and “make tough choices” about the probable cost of these burdens. Pub. Citizen, 374 F.3d at 1221; see also, State Farm, 463, U.S. at 52 (“uncertainty” does not excuse agency from the need to “exercise its judgment”). Third, FDA loads the dice by excluding the unquantified costs from its break-even analysis. FDA divides the Rule’s total quantified costs by FDA’s estimate of the number of tobacco product users, and then subjectively concludes that the Rule is justified because society is willing to pay the resulting amount to obtain the Rule’s unquantified benefits. (AR023,915– 17.) But FDA did not factor the unquantified costs into this analysis at all—for instance by recognizing that its willingness-to-pay number significantly underrepresented the Rule’s actual costs, including the cost of product and firm exit from the market, billions of dollars in component compliance costs, testing for harmful constituents, and the health costs associated with consumers using cigarettes rather than vaping products. Agencies may not treat costs and benefits inconsistently in this fashion. In Ctr. for Biological Diversity v. NHTSA, 538 F.3d 1172, 1198 (9th Cir. 2008), the court invalidated a rule in part because the agency had “put a thumb on the scale by undervaluing the benefits and overvaluing the costs of more stringent standards.” The agency’s cost-benefit analysis was “arbitrary and capricious because” the agency refused to quantify one set of uncertain benefits— Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 38 of 51 30 the value of reducing carbon emissions—but “monetized other uncertain benefits, such as the reduction of ... crash, noise, and congestion costs.” Id. at 1202. The Deeming Rule suffers from all the same methodological defects. See Bus. Roundtable, 647 F.3d at 1151–52 (vacating SEC rule because its cost-benefit analysis “discounted the costs of” the Rule “but not the benefits” and “duck[ed] serious evaluation of [certain] costs”). Fourth, and finally, the Rule fails to determine whether the cost of regulating vaping products is justified by the benefits associated with such regulation. True, the Rule concludes that its overall benefits justify its overall costs (AR023,915–17), but this omnibus assessment is insufficient because the Rule addresses a broad range of products and issues, many of which have no bearing on the vaping industry. E.g., 81 Fed. Reg. at 29,020–27 (cigars). The cost of regulating vaping products makes up the overwhelming majority of the Rule’s total cost (AR024,009), and given the evidence that vaping products are substantially less harmful than cigarettes, it is far from clear that the marginal benefits of regulation justify the towering costs. IV. The Deeming Rule Violates the First Amendment. The Rule violates not only the APA, but the Constitution, as FDA has failed to meet its burden to justify restrictions on commercial speech. The Rule bans manufacturers, distributors, and retailers from distributing “free samples” of vaping products (“the sampling ban”). 81 Fed. Reg. at 29,054 (citing 21 C.F.R. § 1140.16(d)). And it prohibits these companies from making truthful, non-misleading statements about their products without FDA’s prior approval. Id. at 29,053 (citing TCA § 911). In doing so, the Rule violates Plaintiffs’ First Amendment rights. The First Amendment protects commercial speech from “unwarranted governmental regulation.” Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of N.Y., 447 U.S. 557, 561 (1980). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 39 of 51 31 Whether a restriction on commercial speech is valid under Central Hudson turns on four interrelated questions: (1) whether the speech concerns lawful activity and is not misleading; (2) whether the governmental interest for the restriction is “substantial”; (3) whether the restriction directly and materially advances the interest; and (4) whether the restriction is “not more extensive than is necessary to serve that interest.” Greater New Orleans Broad. Ass’n v. United States, 527 U.S. 173, 183–84, 188 (1999) (quoting Cent. Hudson, 447 U.S. at 566). FDA bears the burden of justifying restrictions on commercial speech.16 Edenfield v. Fane, 507 U.S. 761, 770 (1993). Furthermore, “[t]he First Amendment requires heightened scrutiny whenever the government creates a regulation of speech because of disagreement with the message it conveys.” Sorrell v. IMS Health, 564 U.S. 552, 566 (2011). While the D.C. Circuit has not yet addressed the issue, other courts have interpreted Sorrell to impose a two-step inquiry. First, a court determines whether the government has imposed content- and speaker-based restrictions. If so, heightened scrutiny applies. If not, then intermediate scrutiny applies. In either case, the court analyzes the Central Hudson factors, applying the appropriate level of scrutiny.17 Heightened scrutiny should apply here because the Rule imposes content-and speaker- based restrictions: it applies to manufacturers and distributors of vaping products, and bars them 16 In the Rule, FDA implies (incorrectly) that the public (through its comments) bore the burden of “provid[ing] evidence demonstrating that the distribution of free samples of [vaping products] would be consistent with protecting public health.” 81 Fed. Reg. at 28,987. 17 See Retail Digital Network, LLC v. Appelsmith, 810 F.3d 638, 648 (9th Cir. 2016); 1-800- 411-Pain Referral Serv., LLC v. Otto, 744 F.3d 1045, 1054–55 (8th Cir. 2014); United States v. Caronia, 703 F.3d 149, 163–64 (2d Cir. 2012); see also, In re Tam, 808 F.3d 1321, 1335 (Fed. Cir. 2015) (en banc); King v. Governor of N.J., 767 F.3d 216, 236 (3d Cir. 2014). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 40 of 51 32 from making a specific, content-based class of statements about those products. But, as demonstrated below, the Rule fails the Central Hudson analysis, even without heightened scrutiny. A. The Deeming Rule’s regulation of vaping devices and e-liquid samples violates the First Amendment. The Deeming Rule’s prohibition of sampling of vaping products does not pass muster under Central Hudson, let alone under heightened scrutiny. 1. Samples are protected speech. The Supreme Court has recognized that any form of solicitation “may have considerable value” by “allow[ing] direct and spontaneous communication between buyer and seller” and “more personal interchange.” Edenfield, 507 U.S. at 766. Sampling allows buyers to “meet and evaluate” sellers and “explore in detail the way in which a particular product or service compares to its alternatives in the market.” See id. These benefits are even more significant for “nonstandard products,” id., like those in the vaping industry. And the courts unanimously recognize that free samples are protected speech. See, e.g., Discount Tobacco City & Lottery, Inc. v. United States, 674 F.3d 509, 538 (6th Cir. 2012) (holding that sampling is protected speech because it is a “promotional method[] that convey[s] the twin messages of reinforcing brand loyalty and encouraging switching from competitors’ brands”); Bailey v. Morales, 190 F.3d 320, 321, 325 (5th Cir. 1999) (restrictions on “promotional gifts and items” offered by chiropractors violated the First Amendment); Rockwood v. City of Burlington, Vt., 21 F. Supp. 2d 411, 415, 421–22 (D. Vt. 1998) (distribution of free samples was protected speech).18 18 In the Rule, FDA proffered its “belie[f] that distribution of free samples” lacks a “significant expressive element” and is “conduct not speech.” 81 Fed. Reg. at 28,986 (emphasis added). But FDA’s “belief” is not the law. The Rule also asserts that “a free sample ban is akin to a price restriction (i.e., tobacco products cannot be free)” or a restriction on distribution—‘‘form[s] of Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 41 of 51 33 2. The purported governmental interest is not furthered by the regulation of the protected speech. The second and third parts of the Central Hudson framework are interrelated, with the second step asking “whether the asserted governmental interest served by the speech restriction is substantial” and third step asking “whether the speech restriction directly and materially advances the asserted governmental interest.” Greater New Orleans, 527 U.S. at 185, 188. While plaintiffs agrees that FDA has asserted a substantial interest (to “eliminate a pathway for youth to access tobacco products,” 81 Fed. Reg. at 28,996), FDA has not demonstrated that the sampling ban will directly and materially advance this interest. Instead, FDA relies on conjecture and unproven belief. (FDA cites one reference to support the proposition that “free samples of cigarettes ‘encourage experimentation by minors with a risk free and cost-free way to satisfy their curiosity.’” Id. at 29,054. But that study, more than two decades old, concerned only youth smoking of cigarettes.19) Without any analysis, FDA proclaims that it “believes that the same rationale [in that article] applies to [vaping] products.” Id. (emphasis added). But FDA cannot satisfy its burden through “mere speculation or conjecture.” Edenfield, 507 U.S. at 770; see also, Cent. Hudson, 447 U.S. at 569 (rejecting the link between the interest and restriction as “tenuous”). FDA also cites Discount Tobacco’s inapposite conclusion that a sampling ban on cigarettes was supported by sufficient evidence that free samples of cigarettes were an “easily accessible source” for youth. 674 F.3d at 541. But this Court is not bound by the Sixth Circuit’s regulation that would not involve any restriction on speech.” Id. Notably, the Sixth Circuit reversed the lower court’s materially similar “sampling is not speech” rationale. See Discount Tobacco, 674 F.3d at 539. 19 See Institute of Medicine of the National Academies, Growing up Tobacco Free: Preventing Nicotine Addiction in Children and Youths (1994), available at www.nap.edu/catalog/4757.html. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 42 of 51 34 assessment of a sampling ban on cigarettes, particularly when that decision both conflicts with prior case law and relies on evidence that is (at best) distantly relevant to current youth, products, markets, and norms vis-à-vis vaping products. See Rockwood, 21 F. Supp. 2d at 415, 423 (finding that a ban on the distribution of free samples was not “narrowly tailored to reduce underage smoking” because there were “alternative means of achieving” the aims of the restrictions); Discount Tobacco, 674 F.3d at 540–41 (citing various articles from 1994 and the 2000s about minors’ use of traditional tobacco products). In short, FDA failed to prove “the effectiveness” of the sampling ban “in fact” would reduce minors’ access to vaping products to a material degree. Nat’l Ass’n of Mfrs. v. SEC, 800 F.3d 518, 524–25, 527 (D.C. Cir. 2015). FDA cannot rely on a “rote invocation” that a product may end up in the hands of minors, Alexander v. Cahill, 598 F.3d 79, 91 (2d Cir. 2010), but must instead “find and present data supporting its claims prior to imposing a burden on commercial speech,” R.J. Reynolds Tobacco Co. v. FDA, 696 F.3d 1205, 1221 (D.C. Cir. 2012), abrogated on other grounds by Am. Meat Inst. v. U.S. Dep't of Agric., 760 F.3d 18, 22–23 (D.C. Cir. 2014) (en banc). 3. The total ban on sampling is more extensive than necessary. Even if FDA had proven that the sampling ban will materially further a substantial interest, the ban is still “more extensive than is necessary to serve that interest.” Greater New Orleans, 527 U.S. at 183–84. Restrictions on speech must be “narrowly drawn.” Cent. Hudson, 447 U.S. at 567. “On the whole,” the restriction should indicate that FDA “carefully calculated the costs and benefits associated with the burden on speech imposed by its prohibition.” Greater New Orleans, 527 U.S. at 188 (quoting City of Cincinnati v. Discovery Network, Inc., 507 U.S. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 43 of 51 35 410, 417 (1993)). Rather than conduct this careful calculation, FDA opted for the most extensive ban possible as a matter of first preference. Comments to the proposed rule noted the overbreadth and harms of the ban. Consumers told FDA that free samples are “necessary to convince cigarette users to switch to” vaping because “their products are new.” 81 Fed. Reg. at 29,054. Rather than address these concerns, FDA “clarif[ies]” that customers can “touch, hold, and smell” a product if they do not inhale or use it—a clarification that is of no use for vaping products. Id. Commenters also proposed various less restrictive alternatives, including those used with smokeless tobacco—namely, the limiting of free samples to adults at qualified-adult only facilities, but also prohibiting samples from leaving store premises and prohibiting the distribution of free samples at public events. Id. at 28,985–86, 29,054. With no explanation, FDA rejected these comments with the unsupported ipse dixit “belie[f],” that “it could [not] achieve the same results by allowing samples of newly deemed products in qualified adult-only facilities [“QAOF”], as FDA does with smokeless tobacco.” Id. at 28,986. The Rule thus demonstrates that, rather than engage in the careful consideration and analysis that Central Hudson requires, FDA acted on “the first strategy the Government thought to try.” Thompson v. W. States Med. Ctr., 535 U.S. 357, 373 (2002). “If the First Amendment means anything, it means that regulating speech must be a last-not first-resort.” Id. But FDA has instead adopted a “blanket ban,” especially “disfavored in the law” when less intrusive means are available. See, e.g., FF Cosmetics FL Inc. v. City of Miami Beach, Fla., 129 F. Supp. 3d 1316, 1326 (S.D. Fla. 2015); 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 500 (1996) (stating that “special care” should be taken in reviewing blanket bans). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 44 of 51 36 B. The regulation of truthful, non-misleading statements about vaping devices and e-liquids violates the First Amendment. The Deeming Rule further violates the First Amendment by subjecting plaintiffs’ truthful, nonmisleading statements about the contents of its product to FDA pre-review and approval under the MRTPR provisions of the TCA. While the pre-review process, in theory, only restricts modified risk claims, in practice it “effectively produce[s] a total ban.” Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 583 n.3 (2001). FDA has never approved a modified risk tobacco product application.20 Only one application—which included over 135,000 pages encompassing 50 years of data has ever even been considered for review by FDA.21 1. Plaintiffs have standing to challenge to this aspect of the Deeming Rule. Plaintiffs have standing to challenge the Rule’s subjection of its products to the MRTPR provisions because Plaintiffs face a credible and immediate threat of enforcement. Such a threat “can simultaneously ripen a preenforcement challenge and give the threatened party standing.” Navegar, Inc. v. United States, 103 F.3d 994, 998 (D.C. Cir. 1997). Here, standing and ripeness boil down to whether there exists a “concrete and particularized” and “actual or imminent” threat of injury to Nico- pure. Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2341 (2014). This requirement is met when a plaintiff alleges “(i) an intention to engage in a course of conduct arguably affected with a constitutional interest, (ii) but proscribed by a statute, and (iii) there exists a credible threat of prosecution thereunder.” Babbitt v. United Farm Workers Nat’l Union, 442 U.S. 289, 298 (1979) (numbering added). 20 See FDA Advertising & Promotion Guidance for Modified Risk Tobacco Products, www.fda.gov/TobaccoProducts/Labeling/MarketingandAdvertising/ucm304465.htm. 21 See ibid. Commentators have expressed skepticism that the application will be approved. See Sabrina Tavernise, Swedish Company Asks F.D.A. to Remove Warnings From Smokeless Tobacco Product, N.Y. Times (Apr. 8, 2015), www.nytimes.com/2015/04/09/health/swedish- company-asks-fda-to-remove-warn- ings-from-smokeless-tobacco-product.html. Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 45 of 51 37 Plaintiffs meet these elements. First, Plaintiffs was engaged in a course of conduct affected with a constitutional interest. Plaintiffs that they “made a number of truthful, nonmisleading statements to consumers through instore posters comparing the chemicals in tobacco to those found in e-liquid,” which they are no longer permitted to make under the Deeming Rule. (See, Anderson Decl., ¶ 31.) Plaintiffs wish to continue making these statements, which are speech protected by the First Amendment. See Lorillard, 533 U.S. at 571. Second, the Rule threatens Plaintiffs’ intended future conduct with prohibition. Under the MRTPR, “[n]o person may introduce or deliver ... any modified risk tobacco product” without first obtaining an order from FDA. 21 U.S.C. § 387k(a). This includes a label or advertising “comparing the chemicals in tobacco to those found in e-liquid.” Id.; see also 81 Fed. Reg. at 29,062 (Rule applies to “Internet web pages”). The statements “comparing the chemicals in tobacco to those found in e-liquid.” are subject to the MRTPR. Finally, the threat of future enforcement is substantial. FDA enforcement under the MRTPR is a common occurrence. Since December 2010, FDA has issued 244 enforcement letters that allege violations of the MRTPR. 22 Indeed, there is a history of past enforcement against others who have made the type of statements that Plaintiffs wish to continue making, including products described as having a “small amount of tar”23 or “reduc[ing] the amount of smoke.” 24The circumstances here are thus analogous to those in Susan B. Anthony, in which the Supreme Court held that Article III standing requirements were met by plaintiffs who raised a 22 See FDA Warning Letters (search for “modified risk tobacco product”), www.fda.gov/ICECI/EnforcementActions/WarningLetters. 23 FDA Warning Letter to Alexander Carter, www.fda.gov/iceci/enforcementactions/ warningletters/2015/ucm445430.htm (May 1, 2015). 24 FDA Warning Letter to www.cigoutlet.net, www.fda.gov/iceci/enforcementactions/ warningletters/2015/ucm463528.htm (Sept. 15, 2015). Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 46 of 51 38 preenforcement challenge to a law prohibiting “false statements” during a political campaign. Susan B. Anthony, 134 S. Ct. 2334. 2. FDA’s professed interests are not directly and materially advanced by its regulation of truthful, non-misleading speech about vaping products. “Truthful advertising related to lawful activities is entitled to the protections of the First Amendment.” In re R.M.J., 455 U.S. 191, 203 (1982). In nevertheless subjecting that speech to regulation, FDA advances two interests: (i) “public health benefits” and (ii) preventing the “use of unsubstantiated modified risk claims, which may mislead consumers.” 81 Fed. Reg. at 28,976, 29,039. Because FDA fails to show how the MRTPR directly and materially advance either interest, the Court should set aside FDA’s decision. First, FDA does not meet its burden to show the Rule “directly advance[]” FDA’s stated interest in protecting public health. Cent. Hudson, 447 U.S. at 566. As FDA concedes, vaping products “are different than conventional tobacco products.” 81 Fed. Reg. at 28,997, offer “substantial reductions in the exposure to harmful constituents,” and eliminate “most of the chemicals causing smoking-related disease from combusted tobacco use.” Id. at 29,030–31. FDA would have to show that the MRTPR, by restricting truthful and non-misleading speech about the contents or characteristics of using vaping products, somehow benefits the public health on a population-wide basis. As shown in Part II.A, supra, FDA admits that it cannot. Id. at 29,028 (“[The FDA] do[es] not have sufficient data to determine what effects e-cigarettes have on public health at the population level.”). Instead, the Rule reports powerful contrary evidence: “[T]here is emerging data that some individual smokers may potentially use [vaping] to transition away from combustible tobacco products.” Id. at 29,037. Consumers who vape had a “higher quit rate [20%] than those who used Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 47 of 51 39 [nicotine replacement therapies] like patches or gum [10%] or those that did not use a cessation aid [15%].” Id. Second, FDA contends that the MRTPR “will prevent the use of unsubstantiated modified risk claims, which may mislead consumers[.]” Id. at 29,053. But “rote invocation of the words ‘potentially misleading,’” cannot “supplant the [government’s] burden to ‘demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree.’” Ibanez v. Fla. Dep’t of Bus. & Prof’l Regulation, 512 U.S. 136, 146 (1994) (quoting Edenfield, 507 U.S. at 771). Otherwise, any restriction of speech could be justified on such grounds. FDA offers no evidence that consumers have been, or will be, misled by the vaping industry. Nor is it disputed that Plaintiffs’ statement regarding the lack of smoke, ash, or tar from its products are truthful. As discussed, FDA concedes that vaping products are “less hazardous for an individual user than continued smoking of traditional cigarettes.”). 81 Fed. Reg. at 29,035. FDA’s concern about “the possibility of deception in hypothetical cases is not sufficient to rebut the constitutional presumption favoring disclosure over concealment.” Peel v. Attorney Registration & Disciplinary Comm’n of Ill., 496 U.S. 91, 111 (1990); cf. Brown v. Entm’t Merchs. Ass’n, 564 U.S. 786, 803 n.9 (2011) (“[T]he government does not have a compelling interest in each marginal percentage point by which its goals are advanced.”). FDA also suggests that the Rule is justified based on a history of “inaccurate and harmful health claims” made by “the [tobacco] industry.” 81 Fed. Reg. at 28,987. But FDA cites no history of deception with respect to vaping. The vaping industry includes different companies and different products. As FDA recognizes: (1) there is substantial evidence that vaping products are less harmful than traditional cigarettes; and (2) vaping products “are different than Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 48 of 51 40 conventional tobacco products.” Id. at 28,997. Considering these material differences, different regulation of truthful, non-misleading speech is warranted. 3. The MRTPR is more extensive than necessary to serve the professed interests regarding vaping products. Even if the professed interests are advanced by applying the MRTPR to vaping products, FDA fails to show the restrictions are not “more extensive than is necessary” to serve the government’s interests. Cent. Hudson, 447 U.S. at 566. When the government asserts an interest in protecting consumers from potentially misleading commercial speech, “the preferred remedy is more disclosure, rather than less.” Bates v. State Bar of Ariz., 433 U.S. 350, 375 (1977). In particular, the Supreme Court has “repeatedly point[ed] to disclaimers as constitutionally preferable to outright suppression.” Pearson v. Shalala, 164 F.3d 650, 657 (D.C. Cir. 1999) (collecting cases). Instead of restricting Plaintiffs from disseminating truthful information to consumers, FDA could have simply required disclaimers, such as that the statements: (i) are not approved by FDA; (ii) do not establish that the product is safer than any other tobacco product; or (iii) do not change the fact that quitting nicotine products altogether is healthier than using vaping products. FDA’s blanket approach further fails to recognize that plaintiffs have a constitutionally protected interest in “conveying truthful information about [its] products to adults, and adults have a corresponding interest in receiving truthful information about [plaintiffs’] products.” Lorillard, 533 U.S. at 564. A consumer choosing between purchasing Plaintiffs’ e-liquid, or a competitor’s e-liquid that contains diacetyl or acetyl propionyl, would not have the benefit of knowing which product is free of those substances. Consumers who have allergies and other concerns may not inquire about the ingredients. But the Rule prohibits Plaintiffs from even making a truthful statement that, for instance, its products do not contain peanuts, a known Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 49 of 51 41 allergen. Because the First Amendment “directs [courts] to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good,” the Rule’s application of the MRTPR to vaping products should be vacated. 44 Liquormart, 517 U.S. at 503. CONCLUSION In the Deeming Rule, FDA has purported to regulate products outside the scope of its statutory authority. It has purported to subject Plaintiffs and the rest of the vaping industry to crushing regulation in the interest of the public health while conceding that there may not be any public health interest in the regulation. FDA compounded this improper approach by ignoring reasonable, more flexible alternatives to the “all-or-nothing” approach taken with respect to vaping products. The agency also abdicated its obligation to conduct a reasoned cost-benefit analysis. And it has violated Plaintiffs’ First Amendment rights. This Court should set aside the Deeming Rule’s regulation of vaping devices and e-liquids. Respectfully Submitted this the 1st day of February, 2017, /s/ Joseph Lister Hubbard, Jr._________________ Joseph Lister Hubbard, Jr. (HUBBJ5825) J. Willis Garrett, III (GARRJ7452) Attorneys for Plaintiffs CYCLOPS VAPOR 2, LLC; TIGER VAPOR, LLC; and KARMA S CLOUDS, LLC, d/b/a/ OPERATION VAPOR OF COUNSEL: The Joe Hubbard Law Firm P.O. Box 1054 Montgomery, Alabama 36101-1054 Telephone: 334.312.2697 Fax: 334.460.9712 joe@joehubbardlaw.com Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 50 of 51 42 Galloway, Wettermark, Everest & Rutens, LLP P.O. Box 16629 Mobile, Alabama 36616 Telephone: 251.476.4493 Fax: 251.479.5566 wgarrett@gallowayllp.com CERTIFICATE OF SERVICE I hereby certify that on this the 1st day of February, 2017, I have electronically filed the foregoing with the Clerk of the Court using the CM/ECF system, and that I have mailed a true and correct copy of the foregoing by United States Mail, postage prepaid. s/Joseph L. Hubbard, Jr. OF COUNSEL Case 2:16-cv-00556-MHT-CSC Document 22 Filed 02/01/17 Page 51 of 51