By Jordan Isern, J.D.
In December 2020, health officials administered the first COVID-19 vaccine and President-Elect Biden promised to deliver more than 100 million vaccines in his first 100 days of office. But now that President Biden has assumed office and rollout has begun, the United States must grapple with new limitations, namely: production and distribution.
Today, the private sector undergirds most of the production and distribution effort. However, this was not always the case. For most of the twentieth century, executive agencies[1] conducted or had tight control over the development, production, and distribution of vaccines. But the Reagan administration unshackled the pharmaceutical industry. Since the 1980s, the federal government has decreased investment and regulation in this space, relying instead on market forces for vaccine development, production, and distribution. Meanwhile, because of a tandem decrease in antitrust enforcement, the vaccine industry consolidated. For example, in 1996, eight pharmaceutical companies produced the recommended childhood vaccines, but by 2002, only four pharmaceutical companies controlled production. Therefore, vaccine production and distribution rely on a relatively small group of private companies, and the federal government has few tools to control their efforts.
Indeed, it is the confluence of these factors — the curtailment of government control and the consolidation of the vaccine supply chain — to which Obama advisors attribute the slow rollout of the H1N1 vaccine, in 2009. Advisors estimate that 2,000 lives would have been saved had vaccinations not been delayed due to the “subpar production capacities that were available.” However, with the COVID-19 pandemic, there are signs that the private sector is rising to meet the demand:
First, pharmaceutical companies and vertical suppliers are now working together like never before as they rush the vaccine rollout. For instance, as the world raced to develop a vaccine, nine pharmaceutical companies — fearing political pressure to compromise regulatory processes — signed a pledge promising not to file for regulatory approval for any prospective vaccine until its safety and efficacy were validated by established scientific standards. Moreover, pharmaceutical companies, Sanofi and GlaxoSmithKline collaborated to develop a joint vaccine. Finally, as the focus shifted to production, six biopharmaceutical companies entered an agreement to share “technical information” regarding their manufacturing processes and platforms.
Second, the federal government has supported pharmaceutical industry collaboration by lessening the specter of antitrust enforcement against these companies. Though not per se unlawful, collaboration between companies in a highly concentrated industry traditionally sparks serious antitrust concerns. While all antitrust laws remain intact, executive agencies have eased certain antitrust regulatory processes that could slow the production and distribution of the vaccine. And, President Biden affirmatively promoted this collaboration and is expected to take executive action to encourage collaboration in the vaccine rollout stage.
The remainder of this article will examine what the executive branch has done and might do to shield this collaboration from antitrust liability by looking at rarely used legal tools it has only recently dusted off: (1) the DOJ Business Review and FTC Advisory Opinion Processes; and (2) § 708 voluntary agreements under the Defense Production Act.
The DOJ Business Review Process and FTC Advisory Opinion Process
In late March 2020,[2] the Department of Justice (the “DOJ”) and the Federal Trade Commission (the “FTC”) issued a joint statement providing new guidance to companies during the COVID-19 pandemic. The new guidelines included an update to two existing processes: the DOJ’s “Business Review Process” and the FTC’s “Advisory Commission Process” (jointly, the “Business Review” process). Both processes offer the same service: to provide a mechanism for companies to seek preemptive antitrust review by these agencies of proposed conduct, such as collaboration.
Importantly, an approving review does not immunize companies from federal or state antitrust prosecution, but rather informs companies of that agency’s current intensions toward the proposed conduct. Thus, an “approval” under the Business Review process takes the form of the agency declaring its present intention is to take “no [antitrust] action” against the reviewed companies. However, in practice, an approving Business Review provides companies with de facto immunity.
Normally, the Business Review process can take months or years. And, historically, this protracted timeline has discouraged its use.[3] But the agencies’ new guidelines expedite these processes for COVID-19 related requests. Now, the agencies will aim to “resolve those [requests for review] addressing public health and safety within seven (7) calendar days of receiving all necessary information.” In essence, by expediting the Business Review process, the DOJ and FTC made it feasible for vaccine producers to collaborate in a timely and responsive way.
Perhaps the most potent application of the Business Review process for production and distribution is when companies seek Review to share “technical information.” Under antitrust guidelines, the sharing of “technical information” may be permissible as it “may be necessary to achieve the procompetitive benefits of certain collaborations.” This guideline is critical for vaccine suppliers seeking Business Review. To manufacture to scale and with speed, some suppliers will need access to knowledge not contained in patents or other public disclosures. Thus, the “technical information” guideline can play a critical role in the Business Review process for clearing the path for collaboration among suppliers.
Indeed, the sharing of “technical information” laid at the crux of the DOJ’s most recent Business Review, which approved collaboration among six vaccine manufacturers.[4] Specifically, the DOJ stated it intended to take “no action” against the sharing of “technical information” between the companies about “manufacturing facilities and other topics that could . . . expedite the production of . . . treatments.”[5] The DOJ’s approval rested on four factors: (1) the inability of any one firm to meet demand; (2) the potential of the collaboration to increase the capacity and speed of production in furtherance of national policy; (3) the collaboration’s procompetitive benefits; and (4) the safeguards the companies will take to avoid antitrust violations.
Given the Biden administration’s interest in fostering further collaboration, it is likely the DOJ and FTC will consider and approve more manufacturer and distributor proposals to collaborate under the Business Review process.
Voluntary Agreements under DPA § 708
In a nutshell, the Defense Production Act (“DPA”) gives the President “an array of authorities to shape national defense preparedness programs and to take appropriate steps to maintain and enhance the domestic industrial base.” And, if certain requirements are met,[6] § 708 allows the President to consult and forge voluntary agreements with competing businesses to “provide for the national defense.” Moreover, § 708 establishes a defense for companies from state and federal antitrust liability[7] for any action taken to carry out that agreement.[8] Notably, § 708 voluntary agreements have not been invoked since the Cold War. But they may soon play a critical role in fostering collaboration for the vaccine rollout during the current pandemic.
Under DPA, “national defense” is defined broadly and applies in the context of the current pandemic. Indeed, in March, former President Trump first staked out the use of § 708 for pandemic purposes in Executive Order 13911. The executive order invoked § 708 to authorize the Department of Health and Human Services to “provide for the making of voluntary agreements and plans of action by the private sector” that could “enable greater cooperation among private businesses in expanding production of and distributing” medical resources.
Accordingly, the first application of § 708 during the pandemic was to address the production and distribution of medical resources. In May, the Federal Emergency Management Agency (“FEMA”) invoked § 708 in a draft voluntary agreement subject to approval by the Attorney General. The agreement sought to establish a pandemic-response committee which would include representatives from “private industry” related to “the production of medical resources.” The committee would: (1) share information relating to manufacturing and supply chain issues; (2) manage healthcare resource requirements; (3) share information about the demand for healthcare resources; (4) cooperate in the manufacturing, allocation, and distribution of healthcare resources; and (5) carry out any other necessary activities. Moreover, the agreement sought to provide committee members from the private sector a § 708 antitrust defense. The agreement was approved by the Attorney General in August, and implementation began in January 2021.
Before his inauguration, President-Elect Biden made overtures that he planned to use his DPA powers aggressively to respond to the pandemic. And, indeed, he did. On his first full day in the White House, President Biden issued the “Executive Order on a Sustainable Public Health Supply Chain” and invoked his DPA authorities. While the order did not directly invoke § 708, it did imply that future executive action might, by calling on agencies to “take appropriate action using all available legal authorities, including the Defense Production Act, to fill those [supply] shortfalls[.]” Therefore, it is likely that as the vaccine rollout picks up speed, more agencies will invoke § 708 to foster collaboration between vaccine suppliers.
Comparing the Two Tools to Encourage Collaboration
At bottom, both processes seek to achieve the same ends. They enhance collaboration among firms, while assuaging those firms’ fears of antitrust liability. Yet, there are some key differences:
First, the Business Review process is more expeditious than § 708 voluntary agreements, in practice. The DOJ and FTC complete Business Reviews in seven days. Meanwhile, it took FEMA three months to obtain approval by the Attorney General for its § 708 agreement. And, seven months later, FEMA is still holding meetings to implement its agreement.
Second, the Business Review process only approves of the collaboration as needed, while § 708 agreements last for a fixed period of time. For instance, when the DOJ approved of the sharing of “technical information” between vaccine manufacturers, they only expressed their present intentions. Moreover, that verdict will last only so long as its reasoning—which was based on contemporary factors such as present production capacities and current national policy—holds. Meanwhile, FEMA’s § 708 voluntary agreement will last until 2025 regardless of circumstances. And, it permits the companies involved to collaborate for “any pandemic . . . during that time,” not just the COVID-19 pandemic.
Third, the Business Review process applies to a narrow set of companies, while § 708 voluntary agreements can apply to entire industries. In fact, DPA requires that the membership to voluntary agreements be open to the public. This, however, is not true for the Business Review process. The DOJ or FTC Business Review conclusions only apply to the companies that requested the Review. If other companies would like to join in the approved collaboration with the agency’s blessings, they must request a new Business Review from the issuing agency. Indeed, this is what the AmerisourceBergen Corporation, a manufacturer of personal protection equipment (“PPE”), did when it was added to an existing collaboration between the five PPE manufacturers.
Fourth, the scope of the collaboration between suppliers may be greater under § 708 voluntary agreements than the Business Review process. This is because the Business Review process is limited to what the Review-seeking parties request and is already permissible under antitrust law. To demonstrate, the Business Review for the six vaccine manufacturers condoned only the sharing of “technical information” about manufacturing facilities and processes, but excluded all information about price and costs. Likewise, under FEMA’s § 708 voluntary agreement, participating companies can also share information relating to manufacturing. But they can share more than that. They can share healthcare resource requirements, resources, and distribution, and carry out any other necessary activities. Typically, the sharing of costs and prices would raise antitrust concerns, but participating companies in § 708 voluntary agreements are clothed with a new defense to any antitrust liability under the DPA.
Finally, some criticize the government’s approach altogether, for proliferating the policy that started the problem: the elimination of competition. In a November report, the Open Markets Institute speculated the vaccine rollout would be slow and blamed the government for its lack of antitrust enforcement in the pharmaceutical industry. The report dove into the government’s laissez-faire antitrust approach since the Reagan administration and argued this led to consolidation up, down, and across the vaccine supply chain. The result, the report continued, is an anemic supply infrastructure that cannot meet the “supply and capacity” required during a health crisis. Thus, instead of the approach of relaxing antitrust laws to encourage collaboration, the report advocates for a “system overhaul,” which would involve increasing antitrust enforcement to encourage competition among vaccine producers and distributors.
Conclusion
Looking forward, it is unclear how the Biden administration will achieve its promise of 100 million vaccines in the first 100 days. But, for better or for worse, it is likely that the administration will revitalize these legal tools to encourage collaboration and dampen the fear of antitrust liability. And, Americans seeking vaccines will likely benefit. For instance, in implementing the expedited Business Review process, the agencies sought to “assist patients, consumers and communities affected by COVID-19[.]” Moreover, § 708 may only be invoked “to provide for the national defense[,]” and in this case, the COVID-19 pandemic. At bottom, the policy behind both legal tools is the same—to help Americans during the COVID-19 pandemic. Thus, with regard to vaccines, one can expect these tools will be implemented to improve Americans’ access to vaccines.
[1] For example, during the First and Second World Wars, the Department of Defense largely managed the development, production, and distribution of vaccines. And, later, the National Institutes of Health (NIH) regulated the development and production of vaccines while the Communicable Diseases Center (CDC) regulated the distribution of vaccines.
[2] The joint statement has been updated since March 2020, but its original form included the business review process guidelines. The updated statement, issued in April 2020, reminds companies that anticompetitive practices in labor markets will continue to be enforced, and largely does not impact its original guidelines regarding the business review process.
[3] In fact, the Business Review process was only requested 12 times between 2014 and 2018. Moreover, the DOJ reached a conclusion on only six of those requests during that time.
[4] These companies are Eli Lilly and Company, AbCellera Biologics, Amgen, AstraZeneca, Genentech, and GSK.
[5] This other information included information about the companies’ upstream suppliers, manufacturing processes/platforms, and the availability of raw materials.
[6] Before making an agreement, the President must: (1) find “conditions exist which may impose a direct threat to the national defense or its preparedness programs”; (2) collaborate with the private companies and subject the companies to ongoing government oversight; and (3) reach agreement with the private companies that they maintain records pertaining to the execution of the voluntary agreement.
[7] § 708 provides a defense for state and federal civil and criminal antitrust laws. However, § 708 does not prove a defense for actions arising from laws concerning “unfair acts or practices.” Also, it likely does not provide a defense for actions brought under state consumer protection laws.
[8] Companies can only successfully invoke this as a defense if they can show they: (1) fully complied with DPRA; (2) “acted in accordance with terms of the voluntary agreement”; and (3) did not engage in conduct “for the purpose of violating antitrust laws.”
This article was originally published on the COVID-19 and the Law blog.
Jordan Isern graduated from Harvard Law School in May 2021.
