U.S. Supreme Court Overrules Chevron: Sparks Potential Major Shift in Food and Drug, Trade, and Consumer Protection Laws

On June 28, the United States Supreme Court in the consolidated cases of Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce (collectively, “Loper Bright”) held by a 6-3 majority that “Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”¹ In so holding, the Supreme Court ended 40 years of Chevron deference in which courts deferred to administrative agencies’ reasonable readings of ambiguous laws.² Under Chevron, an administrative agency charged with implementing a federal statute would “fill the gap” in the reading of ambiguous laws with the rationale that administrative agencies have the best expertise to do so. Now, as Chief Justice Roberts wrote, judges are still allowed to consider a federal agency’s interpretation of a statute – particularly when it “rests on factual premises” within the agency’s expertise – but are no longer required to do so.

Both the Loper Bright and Relentless cases related to interpretations by the National Marine Fisheries Service of the Magnuson-Stevens Fishery Conservation and Management Act, a statute passed in 1976 to respond to the threat of overfishing and to promote conservation. In 2020, the National Marine Fisheries Service (Agency) approved a final rule that provided for the owners of herring vessels to bear the expense of contracting for monitors engaged on their vessels. Owners of fishing vessels challenged the Agency’s authority to adopt the rule imposing the payment requirement. In both cases, the district courts held that deference to the Agency’s interpretation would be warranted under Chevron. The D.C. Circuit and First Circuit subsequently affirmed the respective district court opinions.

The Supreme Court granted review in both cases to decide the limited ques­tion of whether Chevron should be overruled or clarified. In the long-awaited decision, the Court overruled Chevron. Chief Justice Roberts wrote that the Administrative Procedure Act (APA) states that courts, not agencies, will decide “all relevant questions of law” aris­ing on review of agency action – even those involving ambiguous laws.³ The Court held that the APA “makes clear that agency interpretations of statutes – like agency interpreta­tions of the Constitution – are not entitled to deference.” In a grand departure from previous rulings, the Court held “Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do.”

The exact standard of review the Supreme Court has now embraced is unclear. On the one hand, Loper Bright states courts “must exercise independent judgment” in determining the meaning of statutory provisions. Even when an ambiguity “happens to implicate a tech­nical matter,” it does not follow that Congress has taken the power to authoritatively interpret the statute from the courts and given it to the agency, the Opinion states. On the other hand, Chief Justice Roberts wrote that a statute’s meaning may well be that the agency is authorized to exer­cise a degree of discretion where statutes “expressly delegate” to an agency the authority to give meaning to a particular statutory term. Finally, Chief Justice Roberts stated the Opinion does “not call into question” prior cases that relied on the Chevron framework.

In dissent, Justice Kagan emphasized that deference to administrative agencies is a rule that has formed the backdrop against which Congress, courts, agencies and regulated par­ties all have operated under for decades. It has be­come part of the “warp and woof of modern government, sup­porting regulatory efforts of all kinds – to name a few, keep­ing air and water clean, food and drugs safe, and financial markets honest,” wrote Justice Kagan.

The overruling of Chevron will have wide-ranging implications across agency-facing practices including food and drug, trade, healthcare, environmental, labor, gun and other regulations. In the immediate term, it will likely increase the number of challenges that the lower courts hear as to agency actions. While the Court has stated that regulations that have already been decided based on Chevron will not be up for review, there may be tests as to whether litigants can successfully unsettle precedents. Expectations formed around those historical constructions could be called into question, which could impact businesses as they seek to predict the way laws will be interpreted. Finally, there may be more jurisdictional differences in how statutes are interpreted as courts – rather than administrative agencies – define statutory construction of administrative statutes.

Buchanan has highlighted three separate, non-exhaustive areas that will likely see large impacts in a post-Chevron landscape.

FDA and Regulated Industry

Loper Bright is likely to have a profound impact on federal agencies like the U.S. Food and Drug Administration (FDA) that regulate highly scientific industries making drug, biologic, and medical device products. At its core, FDA makes determinations about the safety and effectiveness of these products based on a company’s scientific and medical data to protect the public health. Day-to-day regulatory decisions involving the interpretation and application of that data may be little impacted following the overturning of Chevron.

However, FDA-regulated companies may decide that the time is right for legal challenges on a host of issues, particularly in the pharmaceutical industry where market share and high dollars are at stake.

For example, the Federal Food, Drug, and Cosmetic Act (FFDCA) provides that a company may demonstrate that a drug is effective by providing “substantial evidence” consisting of “adequate and well-controlled investigations” or one well-controlled clinical investigation plus “confirmatory evidence.” FDA guidance discusses the data and information that can comprise “confirmatory evidence,” but a company may see the statute’s lack of specificity and clarity as an invitation to challenge FDA’s interpretation, particularly if the agency does not approve a drug product based on the effectiveness evidence submitted.

Drug sponsors may also be emboldened to challenge FDA’s interpretation of the FFDCA provisions governing the award of drug product exclusivity and the ability to list patents in FDA’s list of “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the “Orange Book.” Pharmaceutical company business decisions about which drug development programs to pursue, and when, are driven in part by FDA regulatory and patent strategy planning. FDA’s historic interpretation of key statutory provisions that provide for the award of FDA exclusivity in certain circumstances, including for orphan drug products, could be subject to challenge. Furthermore, FDA may now be forced to rethink whether certain patents are appropriately listed in the Orange Book – especially patents for drug/device combination products, an issue currently in the spotlight. In each of these cases, the market stakes may be too high for a company not to challenge FDA’s interpretation of the FFDCA.

Even though FDA-regulated industries may at times criticize the agency’s decisions, these decisions have nonetheless created a sense of predictability about how FDA will decide a certain legal issue. While companies may now enjoy more success in their litigation efforts against FDA, the inevitable result will be a period of uncertainty as FDA, regulated industry, and the courts navigate the next steps in a post-Chevron legal world.

International Trade

For companies engaged in, competing with, or affected by cross-border trade, the Supreme Court’s decision to overturn Chevron deference creates uncertainty and opportunity for challenging the agencies that administer U.S. trade laws. Prior to this decision, companies enjoyed a higher degree of certainty as to what might be considered colorable grounds for appealing an adverse agency determination. However, for companies now participating – or which may have reason to participate in the future – in trade remedy proceedings before the U.S. Department of Commerce (DOC) or the U.S. International Trade Commission (ITC), or import compliance proceedings before U.S. Customs and Border Control (CBP), it is possible that the decision generates additional avenues of challenging adverse agency action.

Many aspects of securing a favorable outcome in the context of trade-related disputes require developing a strong record in the underlying proceeding. Already before this decision was handed down, the U.S. Court of International Trade and Court of Appeals for the Federal Circuit were increasingly requiring that the DOC, ITC, and CBP provide more complete explanations based on record evidence. This decision is likely to accelerate that trend. As a consequence, for example, in trade remedy proceedings, parties found to be dumping, unlawfully subsidized, or injuring domestic industry may enjoy greater success on appeal where an agency’s methodology deviates from past practice, was based on inadequate evidence, or otherwise contained unpersuasive reasoning. As such, to obtain an enduring victory in post-Chevron era disputes, it is now more essential than ever that parties who seek relief under the trade laws implement strategies that compel the agencies to clearly document and describe decisions.

At the same time, in the trade context, it is unlikely this decision will create a sea change empowering challenges to agency determinations that extend beyond commercial trade law to impact areas of national security law with a close nexus to trade. Given the imperative to prioritize national security, areas of law that aim to safeguard national security such as sanctions, export controls, and inbound/outbound investment controls are likely to be more insulated from the effects of this decision.

Federal Trade Commission

The Loper Bright decision may affect the work of the Federal Trade Commission (FTC) as well. The FTC is tasked with, among other statutes, enforcing the FTC Act. The FTC Act broadly prohibits “deceptive or unfair business practices” and “unfair methods of competition.” The former is generally thought to encompass consumer protection and the latter to encompass competition matters. Further, the FTC is permitted to “make rules and regulations for the purpose of carrying out the provisions of [the Act].” The FTC also is granted the authority to enforce certain specific consumer protection statutes such as the Wool Products Labeling Act and the Do-Not-Call Implementation Act. As a result of Loper Bright, more of the FTC’s rules promulgated under the FTC Act may be successfully challenged.

Historically, there were relatively few FTC rules where the FTC, or a court, invoked Chevron to uphold the Agency’s interpretation of a statute. There has only been one competition-related case, in 2015, challenging an FTC rule where the court used Chevron to analyze the validity of the rule requiring pharmaceutical companies to file patent transfers under the HSR Act (not the FTC Act). The court ruled in favor of the FTC. Other cases relating to consumer protection rules used Chevron both to find that the FTC’s interpretation was reasonable, and therefore entitled to deference, and, albeit in fewer instances, not reasonable and not entitled to deference.

Under Chair Linda M. Khan, the FTC has sought to significantly expand what it means to prohibit “unfair methods of competition.” Most notably, the FTC promulgated the rule prohibiting effectively all post-employment non-compete agreements in May. The FTC in its response to the various motions to stay the Non-Compete Rule, however, does not rely on Chevron to support its position that it has the authority to issue the Rule. Instead, it argues that the FTC Act clearly gives it the authority to enact such a rule under Sections 5 and 6(g) of the FTC Act – seemingly intending to cut off even getting to a Chevron analysis. On July 3, 2024, a federal district judge granted a private plaintiff and four business associations, including the U.S. Chamber of Commerce’s, motion for a preliminary injunction (solely as to the Plaintiffs) against the FTC rule banning non-compete agreements.⁴ In granting the preliminary injunction, United States District Judge Ada Brown for the Northern District of Texas considered the text, structure and history of the FTC and held that Congress did not grant the FTC substantive rule making authority regarding unfair methods of competition, and that the FTC violated the Administrative Procedure Act because the Rule is arbitrary and capricious.

Of course, the court could have still invoked Chevron deference to uphold the Non-Compete Rule. But, Judge Brown, in her ruling did not use either Chevron or Loper Bright to grant a preliminary injunction to stop the Non-Compete Rule from going into effect. Indeed, she cites Loper Bright only in passing.

As for other rules previously enacted by the FTC, it remains to be seen how many will result in challenges. Certainly, rules seen as expanding the FTC Act would be most vulnerable because the FTC Act is written so broadly. Specific rules enacted to carry out particular consumer protection statutes may be safer. Either way, just as with any administrative agency rules, the Loper Bright result will prompt more challenges and a potential patchwork of decisions and implementation. 

Buchanan’s teams of attorneys and government relations professionals stand ready to assist clients in understanding the implications of this ruling across a variety of subject matters.