With Chevron Deference Gone, What’s an Agency to Do?

In a recent landmark decision, the Supreme Court struck down what is known as the Chevron decision, a 1984 case that basically gave federal agencies deference in how to interpret statutes that may be somewhat ambiguous or not completely clear. This deference was not, of course, absolute (as we will see later), but, basically, under Chevron, if the court did find a statute ambiguous and the federal agency’s interpretation of the statute reasonable, the court was likely to side with or provide deference to the agency.

Now that Chevron has been struck down, the judiciary is taking over as the arbiter of statutory ambiguity, which is where the Supreme Court says it belongs. This decision will not be applied retroactively to previously decided cases, but there is the possibility that a new suit could be filed should an aggrieved party be affected by a previous decision.

Some predict utter chaos and an increased number of suits filed against federal agency decisions on statutory interpretations that may adversely impact one side versus the other. Others say that the doomsday prophecy is being overblown.

As a matter of explanation, Congress writes and passes statues. Those statutes are enforced by various agencies. Sometimes an agency may decide to regulate directly from the statute but, in most cases, federal agencies choose to promulgate regulations to provide their interpretation of the statutes to assist those impacted by the statue to better understand how the agency interprets the statute. This process also affords both the public and industry subject to the regulations an opportunity to participate in the rulemaking process by commenting on the proposed regulations. Legislation passed by Congress can often be ambiguous and sometimes the intent of Congress may not be clear. Thus, when a decision must be made by an agency on a certain issue where the statute is unclear or ambiguous, often the agency will provide its interpretation of that statute. The Supreme Court’s decision says that interpretation of ambiguous statutes, however, is a job for the judiciary, and the dismantling of Chevron by the Supreme Court is clear acknowledgement as to where those decisions need to be made, and it is not by the federal agencies themselves.

Just to give you one famous example (at least in relation to Hatch-Waxman) where the courts found that the FDA’s interpretation of a statute in its regulations to be incorrect and which had a significant impact on the way the FDA did business, let’s very briefly look at the Mova decision of 1998 (a complete description of which can be found here). The Mova decision centered around first-to-file exclusivity and how and when such exclusivity was awarded. The 180-day exclusivity (that protects a first filer from other competitors in the market) can be awarded for being first to file and taking on the risk and expense of challenging a patent. To be awarded the 180-day exclusivity period, the FDA’s initial interpretation was centered around not only being first-to-file for an ANDA with Paragraph IV certification but, ultimately, that the first filer must also be sued and win its patent case with a finding that the patent was not infringed by the applicant’s product, that the patent was invalid, or that the patent was unenforceable. In other words, the FDA read into the statute that a “win” by the first filer on the patent was necessary to be awarded the coveted 180-day exclusivity period. The court in this case ruled that the FDA’s interpretation requiring the first filer to “win” its patent suit was not a prerequisite for the award of 180-day exclusivity, and the court said that there was no text in the statute implying that Congress’ intent was that the first filer must both be sued and win the patent suit. The plain reading of the statute was that qualifying for 180-day exclusivity required the first filer to submit a Paragraph IV certification. Thus, the court did not agree with the FDA’s interpretation and ruled that the challenge of the patent by the first filer was the key to gaining the right to be granted the reward of 180-day exclusivity for its efforts. Thus, the FDA’s interpretation was not permissible as the plain text of the statute was not found by the court to be ambiguous and, therefore, the court did not need to entertain a step two analysis under Chevron of whether the FDA’s interpretation was reasonable. The bottom line is that this ruling forever changed the way that 180-day exclusivity is awarded and actually expanded the number of times that firms have been eligible to gain the reward as it is no longer necessary to win the patent suit.

There will be a lot written on the demise of Chevron but (truth be told) we will just have to wait and see what transpires. However, reaction has been swift since the decision was released. Amy Howe, writing for the SCOTUSblog (here), said, “In a major ruling, the Supreme Court on Friday cut back sharply on the power of federal agencies to interpret the laws they administer and ruled that courts should rely on their own interpretation of ambiguous laws. The decision will likely have far-reaching effects across the country, from environmental regulation to healthcare costs.” Melissa Quinn, writing for CBS News Politics (here), notes, “In a blockbuster decision Friday, the Supreme Court overruled a 40-year-old decision that directed federal courts to defer to agencies’ interpretation of unclear laws enacted by Congress. The landmark ruling from the court, which divided 6-3 along ideological lines, curtails the regulatory power of federal agencies and is expected to restrict the government’s ability to impose regulations on areas like the environment, health care and the workplace.”

During both of our tenures at the Office of Generic Drugs, we were able to closely experience the process employed by federal agencies and Congress when proposing new legislation. This process often involved multiple reviews of proposed legislation, with the FDA offering technical assistance to Congress, along with teleconferences to discuss both proposed changes and why those changes were necessary. The reason for changes ranged from alignment and coordination with other statutory provisions to changing text to ensure that the FDA could effectively administer the law if passed. These exchanges also often included a “back and forth” with industry subject to regulation, facilitated by the congressional staffers tasked with drafting the legislation, to solicit any proposed changes. This is where the process often breaks down. We are certainly not suggesting that the FDA always has ALL of the right answers, and once someone no longer works for the FDA, they gain a much better appreciation of when the FDA may not adhere to its own statements, guidances, commitment letters, and regulations. The fundamental question that must be asked and answered by Congress to improve the process is relatively simple. This question being… Is the change that Congress intends to effectuate via the new legislation a change where Congress should defer to the federal agency’s expertise (the FDA in this case) when drafting it or should Congress defer to industry? The FDA is capable of offering technical assistance to Congress, and has done so on numerous occasions, but Congress must decide when it wants to defer to the FDA to avoid ambiguous language that places the FDA in the position of needing to interpret the law and make decisions that may not fully comport with congressional intent.

Will the Chevron decision make federal agencies shy away from issuing regulations? Will the FDA’s scientific judgements be impacted and second-guessed? What chill will this send throughout the entire governmental establishment? How will agencies communicate with stakeholders about controversial issues regarding statutory ambiguities? Whether the Chevron decision is one step in the right direction or a giant step backwards will only be borne out by time.