[00:00:01] Speaker 01:
Face number 20-5266, Cigar Association of America et al, a balance versus United States Food and Drug Administration et al.

[00:00:10] Speaker 01:
Mr. Etny for the balance, Ms.

[00:00:12] Speaker 01:
Powell for the appellees.

[00:00:28] Speaker 05:
Morning, council.

[00:00:30] Speaker 05:
You may proceed.

[00:00:33] Speaker 00:
Thank you, Judge Rogers, and may it please the court, Michael Edney, for the Appellant Cigar Association, uh, it's scar industry associations.

[00:00:42] Speaker 00:
The Food and Drug Administration's final deeming rule is arbitrary and capricious because it sent a hard deadline for thousands of cigar and pipe tobacco substantial equivalence reports without accounting for the need to tell manufacturers what those reports must contain.

[00:00:59] Speaker 02:
This is a problem.

[00:01:00] Speaker 02:
Can you talk about the forfeiture question on what you just said in your motion for summary judgment below?

[00:01:07] Speaker 02:
You said the FDA could have included these rules, I'm paraphrasing, but the FDA could have included these form and content rules in the final deeming rule six months later or three years after.

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So you seemed to say in your motion for summary judgment that the FDA did not have to include the form and content rules in the original final deeming rule.

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So how does that not forfeit your argument that the deeming rule was arbitrary and capricious for not including the form and content?

[00:01:46] Speaker 00:
Your Honor, I think that we stand by that statement and I think it's exactly right.

[00:01:52] Speaker 00:
We're not contending that the final deeming rule itself, or on the same day as the final deeming rule, the FDA had to

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come out with the form and manner rule required by Congress.

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What we are saying is that the final deeming rule needed to set up a system that was sensitive for the need of that rule at some point.

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And how the final deeming rule created a problem was that it set a firm date without reaching conclusions about how the agency would get to the necessary point.

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So there were several different options that the agency had.

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One would have been to actually provide enough time

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for it to release this rule.

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Another would have been the key, the date, as it did with regard to certain registration requirements off of the release of an implementing rule.

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But by setting this firm date, the final deeming rule set up a system that is arbitrary and capricious.

[00:02:48] Speaker 02:
So why is this, to the extent that that was problematic?

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Why wasn't your proper course to petition, the agency to take action and promulgate the form of content rules that they have all they have now issued a notice of a preliminary roommate.

[00:03:13] Speaker 00:
First of all, in the early days of this, we did almost precisely that.

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In consultations with the Food and Drug Administration, we urged it to delay the compliance date that it had set for substantial equivalence reports so it could issue this guidance.

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And Judge Walker, Commissioner Gottlieb came out in 2017 and said, the industry is exactly right about that.

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that the due date does need to be pushed back so we can get these foundational rules out that are necessary for the system.

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But we do not have an independent interest in the form and manner rule.

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I mean, that's not our problem.

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Our problem is that we have a firm deadline for putting these substantial equivalence reports in, and we don't have a final deeming rule.

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don't have a form and manner rule yet.

[00:04:04] Speaker 00:
Uh, that that's the essential conundrum that we find ourselves in the injury to us and why not just rely on the informal guidance from 2011.

[00:04:15] Speaker 00:
Your honor, the informal guidance from 2011 isn't close to a substitute for the form and manner rule for a number of reasons.

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First of all, the the FDA recognized right out of the gate that, um, that

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that it was going to issue an implementing rule for 905J1, the form and manner rule.

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This is at page 257 of the joint appendix.

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It never purported to be a substitute for that.

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Second, it is about cigarettes.

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And I think the closest and finest point on this is that page 267 of the joint appendix.

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There, the 2011 guidance requires the reporting of

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so-called harmful and potentially harmful constituent testing for cigarettes.

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And it actually specifies a protocol for doing so that is particular to cigarettes.

[00:05:08] Speaker 02:
I get that from the briefing and I'm pretty sympathetic to you on that point and hope that the FDA will address that specific detail.

[00:05:15] Speaker 02:
But let me ask one more equivalent report question if I can.

[00:05:21] Speaker 02:
It seems like some cigar and pipe tobacco makers

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have submitted substantial equivalence reports and those reports have been approved, something in the ballpark of about 100.

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So my question to you is how did they figure out what to put in their successful substantial equivalence report applications?

[00:05:41] Speaker 00:
Well, Your Honor, I think in all likelihood they guessed correctly, but I do want to put

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I do want to put that number in some context.

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As of February 2021, we had 58 substantial equivalence reports granted, and you can see this at approximately page 566 of the Joint Appendix.

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That is of 3,137 cigar substantial equivalence reports filed.

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Almost all of those cigar substantial equivalence reports

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were filed with regard to products that came on the market after August 8th, 2016.

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So they didn't, they weren't already on the market and they had the luxury of going through this process.

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Why can't the people who haven't had their applications granted just take a look at the 58 that were granted and then do what they did?

[00:06:32] Speaker 00:
Your honor, I really don't think that that's any substitute for what the FDA is going to require of all cigars.

[00:06:40] Speaker 02:
Why not?

[00:06:40] Speaker 00:
Why not?

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Your Honor, there's no question that the granting decisions provide some information of the FDA's reasoning, but that reasoning is specific to the products in question and is just not generalizable.

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I think the agency itself understands this.

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That's why

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When Commissioner Gottlieb reached this question, this is the inquiry that the deeming rule contemplated that they would look at it in 2017, he decided there were foundational, generalizable rules that needed to be put in place for this system to function.

[00:07:13] Speaker 02:
He repeated that conclusion in 2019 and in the proposed rule that... That's helpful, Mr. Endy, and I feel bad about monopolizing so much of your time, so I'm going to get out of the way.

[00:07:23] Speaker 00:
No, Your Honor.

[00:07:24] Speaker 00:
You can take all of it as far as I'm concerned.

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We're here to answer your questions, not for me to give a speech.

[00:07:29] Speaker 00:
So do you have any other questions in this vein, Judge Walker?

[00:07:32] Speaker 00:
I don't.

[00:07:33] Speaker 00:
I don't.

[00:07:34] Speaker 00:
Thank you.

[00:07:35] Speaker 04:
So, well, tell us quickly what other provisions you want to talk about, because I want to talk about two specific provisions.

[00:07:45] Speaker 04:
Which were you going to go to next?

[00:07:48] Speaker 00:
Your Honor, I was going to talk about the 905J1 requirement that Congress put out to put the deeming rule in place.

[00:07:57] Speaker 04:
Okay, why don't you go ahead and do that and then I'll ask you my two questions, okay?

[00:08:01] Speaker 00:
So again, I think we have three problems with the system that was set up.

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First, the Family Smoking Prevention and Tobacco Control Act and 905J1 of the Act

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required the FDA that it shall prescribe the form and manner of these reports before they are due.

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Also, the agency carefully avoided an important aspect of the regulatory problem, and I would refer the court to several aspects of the deeming rule where commenters are asking for this category-specific guidance

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And the agency is very carefully avoiding the conclusion that what is out there is sufficient.

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Instead, it says it may issue this guidance later.

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And then third, we have this issue with the departure for the system for cigarettes.

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And Judge Walker, this in part goes to your question.

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Here in this situation,

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The cigarettes were treated very differently under the substantial equivalence process.

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Once they put a report in, they could stay on the market until that report was decided.

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And you can see this in the 2011 guidance at page 262 of the Joint Appendix.

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The FDA says this is going to be a good system because if new rules and guidance come out, you can supplement your reports.

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We can go back and forth to see if things are deficient.

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We don't have that luxury for cigars and tobacco.

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Instead, the agency set up a system where these products have to exit within a year

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of the report being issued.

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And so this back and forth, this collaborative process that might have addressed the lack of a rule with regard to cigarettes, it's just not available for our products.

[00:09:33] Speaker 00:
And in the final deeming rule, by imposing this hard 12-month limit, we believe the agency didn't adequately explain why we should be treated differently.

[00:09:46] Speaker 04:
Well, unless either of my colleagues has a question about that, I want to change the subject.

[00:09:51] Speaker 00:
Of course, we'll go wherever you want.

[00:09:53] Speaker 04:
Okay.

[00:09:54] Speaker 04:
So I want to ask you about pipes.

[00:10:00] Speaker 04:
You rely on the word on the definition of the word component component.

[00:10:06] Speaker 04:
But I'm curious to know what you think about what the district court said, which is the district court rely on the word part and part is broader quote, any essential portion or integral element

[00:10:22] Speaker 04:
which is clearly broad enough to include pipes, or even if not, at least enough to get off the Chevron too, in which case, so what do you think about that?

[00:10:39] Speaker 00:
Your honor, I think probably the best answer to this is at page 29,042 of the final rule.

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in the first column to the left.

[00:10:50] Speaker 00:
There, that's the passage where the agency tells us that pipe tobacco pipes are going to be regulated as tobacco products.

[00:11:00] Speaker 00:
And the agency there is not relying on the word part, it's relying on its definition of the word component.

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So I think this is a situation where the district court

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developed an alternative reasoning for the agency that didn't rely on itself.

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I think we need to take the agency at its word that it was regulating pipes as a component of a tobacco product rather than as a part.

[00:11:24] Speaker 00:
If we are going to go down the road that the district court did, and I will say it did it very briefly, remember a part needs to be integral to the tobacco product itself.

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And this distinguishes pipes very much from cigarette paper.

[00:11:41] Speaker 02:
Can you smoke pipe tobacco without a pipe?

[00:11:45] Speaker 00:
No.

[00:11:46] Speaker 00:
Can you use pipe tobacco?

[00:11:47] Speaker 00:
I suppose there's some way to do it, but there are cigarettes that roll pipe tobacco in paper and people smoke them, but we'll concede that for the most part, pipe tobacco is smoked through wooden or plastic pipes.

[00:12:01] Speaker 02:
Doesn't that make it integral?

[00:12:03] Speaker 02:
Doesn't that make the pipe integral?

[00:12:05] Speaker 00:
No, I don't believe it does, Your Honor.

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And I think the distinction is that it's completely interchangeable.

[00:12:12] Speaker 00:
When pipe tobacco is sold, it's sold without regard to whatever pipe it's going to be used in.

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Many people have had these pipes by their living room table for decades.

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And it doesn't depend on how that pipe works.

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And I would point the court.

[00:12:32] Speaker 00:
Two, again, the pages I cited from the final rule, 29,042.

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There, there is just absolutely no analysis for why pipes need to go through this pre-market review process, which is extremely onerous.

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And it's onerous for the most sophisticated tobacco companies.

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But I can tell you that people who make these pipes are not the most sophisticated tobacco companies.

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A lot of them are made out of homes and in shops.

[00:12:57] Speaker 00:
uh, you know, by artisans, uh, they're not used to an FDA drug approval process by any means.

[00:13:04] Speaker 00:
Um, and, and, and we see no justification about, you know, why pipes are a problem, you know, what features of, of, uh, wooden pipes are, are making pipe tobacco more or less dangerous.

[00:13:15] Speaker 02:
And you didn't raise any of those are arguments, right?

[00:13:19] Speaker 02:
Your only argument is that a pipe is not a component of park.

[00:13:23] Speaker 02:
of a tobacco product.

[00:13:25] Speaker 02:
You haven't challenged anything else about the FDA's regulation of pipes, right?

[00:13:30] Speaker 00:
No, we have, Your Honor.

[00:13:31] Speaker 00:
Throughout the district court proceedings and in this court, we asserted that the FDA did not have a compelling policy basis for going after the regulation of pipes.

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It had discretion to exercise here.

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You know, after all, it had discretion to go after parts

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components and accessories, it drew a line.

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And we believe that line needed to be justified.

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And for something this substantial, it should have been done in more than just a sentence at page 29,042 of the final rule.

[00:14:05] Speaker 04:
Well, look, let me ask you a broader question about that.

[00:14:08] Speaker 04:
I mean, I'm not sure the agency thought about it the way you did.

[00:14:13] Speaker 04:
What we know

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is that the FDA has decided to regulate anything that will alter, quote, alter or affect the tobacco product performance and not regulate things that won't do that, right?

[00:14:28] Speaker 04:
That's what the FDA has done.

[00:14:30] Speaker 04:
And if you look at it that way, it doesn't really make any difference whether it's a part or a component or accessory.

[00:14:38] Speaker 04:
The FDA had the authority to go along where it did.

[00:14:40] Speaker 04:
That's the end of the matter, is that?

[00:14:42] Speaker 04:
What difference does any of this make?

[00:14:43] Speaker 00:
No, I don't think it is the end of the matter, Your Honor.

[00:14:49] Speaker 00:
For better or for worse, the agency relied on its authority to regulate components of tobacco products in order to reach pipes.

[00:15:00] Speaker 00:
And I think we need to take the agency at its word and hold the agency to its analysis.

[00:15:05] Speaker 00:
If it had gone through an analysis of saying, look, we have discretion over a wide range of matters that are related to tobacco products, and this is where we're going to draw the line, that would be one thing.

[00:15:17] Speaker 00:
Instead, it engaged in the statutory exegesis of what

[00:15:21] Speaker 00:
a component of a tobacco product is, and it made pains to distinguish it from accessories.

[00:15:27] Speaker 00:
In that context, I think we need to hold the agency to what it said.

[00:15:30] Speaker 00:
Now, if we decide that this interpretation of the word component is arbitrary and capricious, there are other ways

[00:15:39] Speaker 00:
for the agency to get the pipes, no question, but the correct result is not for this court or litigation counsel to try to legislate around it.

[00:15:47] Speaker 00:
The correct result is to vacate that outcome and remand it back to the agency to engage in that reasoning in the first instance.

[00:15:54] Speaker 00:
So, yes, you're absolutely right.

[00:15:58] Speaker 05:
No, please finish.

[00:15:59] Speaker 05:
Taneyl says he has another question before my question.

[00:16:01] Speaker 04:
No, that's okay.

[00:16:02] Speaker 04:
I think you, were you going to ask about that, Judge Walker or

[00:16:05] Speaker 04:
Before I, I'm going to completely change.

[00:16:06] Speaker 02:
I was going to ask about pipes, but I don't want to get in the way.

[00:16:08] Speaker 04:
I'm going to change the subject again.

[00:16:10] Speaker 04:
So go ahead and get your pipe question.

[00:16:13] Speaker 02:
I spent time for the first time in my life looking at tobacco seller websites where you can buy all this stuff.

[00:16:22] Speaker 02:
And sometimes they have a whole category called accessories and that category includes pipes.

[00:16:29] Speaker 02:
And sometimes they have a whole category called accessories, but there's a separate.

[00:16:34] Speaker 02:
category for pipes.

[00:16:35] Speaker 02:
They're not considered accessories.

[00:16:37] Speaker 02:
Does that suggest some ambiguity about whether or not a pipe is an accessory?

[00:16:44] Speaker 00:
I think it's fair to say, Judge Walker, that tobacco store owners probably don't engage in the type of careful parsing of words that agencies do when they interpret statutes and that courts do when they review those interpretations of statutes.

[00:17:01] Speaker 02:
It's a part of our inquiry to figure out if you win step one about your argument that a pipe is unambiguously

[00:17:12] Speaker 02:
an accessory and not a component, as we look at the plain meaning, the ordinary everyday meaning of what an accessory is.

[00:17:23] Speaker 00:
Your Honor, I think that's right, but remember there's

[00:17:27] Speaker 00:
Two issues here.

[00:17:28] Speaker 00:
One is whether it's an accessory, right?

[00:17:32] Speaker 00:
And I guess this practice that we've identified by looking at tobacco store websites suggests that some may regard it as an accessory and some may regard it as something else.

[00:17:45] Speaker 00:
I'm not hearing you saying that these websites classify it as a tobacco product, rather it has its own sui generis category on certain of these websites.

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But beyond that, it needs to fit within the definition of component for the FDA to win on its current reasoning.

[00:18:02] Speaker 00:
So just because in common parlance, some people are not considering these accessories does not necessarily lead to the inference that those same people are considering them to be components.

[00:18:15] Speaker 00:
And that's the reasoning that the agency undertook.

[00:18:20] Speaker 05:
All right.

[00:18:21] Speaker 05:
So Judge Tatel had another question before I have a question.

[00:18:24] Speaker 04:
Well, you can go first.

[00:18:26] Speaker 05:
I'm fine.

[00:18:27] Speaker 04:
Go ahead.

[00:18:27] Speaker 04:
OK.

[00:18:27] Speaker 04:
So I want to ask you about fees, user fees.

[00:18:30] Speaker 05:
Yes, exactly.

[00:18:32] Speaker 04:
Suppose, let's assume for a minute I agree completely with you that the statute's not as clear as the FDA thought, OK?

[00:18:40] Speaker 04:
There is an alternative justification in the rule, in the justification.

[00:18:53] Speaker 04:
they say the agency said its interpretation uh results in a more more predictable and less administratively burdened method here and why isn't that sufficient to sustain it even if we agree with you that the statute's ambiguous well your honor i i have several answers to that um first um uh this

[00:19:21] Speaker 00:
agency, even when it was pushing out its view that this is just easier to deal with, and it's a policy convenience.

[00:19:31] Speaker 00:
was heavily relying on what Congress specified.

[00:19:35] Speaker 00:
And you can see that at page 28712 of the final user fee rule.

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In those circumstances, and the cases cited in our reply brief and opening brief demonstrate this, this court has not taken such claims of administrative convenience seriously or such alternative arguments.

[00:19:57] Speaker 00:
They still see that the agency's misconception.

[00:19:59] Speaker 04:
Can I just ask you to repeat?

[00:20:01] Speaker 04:
Could you just explain, I'm sorry, my internet was a little wobbly when you said that.

[00:20:08] Speaker 04:
What is it that you're pointing to?

[00:20:09] Speaker 04:
I mean, I take your point that if an agency's policy analysis, policy explanations is infected by a misunderstanding of the statute, we wouldn't defer to it.

[00:20:25] Speaker 04:
But what precisely do you think suggests

[00:20:30] Speaker 04:
the agency's desire to develop a more predictive and simpler method here is infected by its view of the statute as being unambiguous.

[00:20:40] Speaker 04:
What were you looking at there?

[00:20:42] Speaker 00:
I was looking at page 28712 of the final user fee rule where the agency is setting out this analysis.

[00:20:57] Speaker 00:
And it says that one of the reasons that we think this policy analysis is correct is because we think this is what Congress wanted us to do.

[00:21:05] Speaker 00:
I don't have the precise language in front of me, but I could get it to the court.

[00:21:08] Speaker 00:
But those paragraphs are infused with a sense of the agency's certitude about its statutory interpretation.

[00:21:18] Speaker 05:
It's also- So Congress says in this section that the secretary shall

[00:21:26] Speaker 05:
in accordance with this section, assess user fees on.

[00:21:34] Speaker 05:
Then it goes on in the next subsection to say, here's how it shall be allocated.

[00:21:42] Speaker 05:
Here are the applicable percentages.

[00:21:48] Speaker 05:
List the following classes.

[00:21:51] Speaker 05:
And in reading this, I was thinking as a member of Congress

[00:21:55] Speaker 05:
How could I have made this any clearer?

[00:22:00] Speaker 05:
It says in accordance with this section, here's what the secretary is to do.

[00:22:06] Speaker 05:
And I read your briefs carefully, and I know you don't agree, but you haven't told me in taking these various phrases in the statute actually enacted by Congress why it's not clear.

[00:22:22] Speaker 05:
It says,

[00:22:24] Speaker 05:
do it this way, do it as to these classes, et cetera.

[00:22:30] Speaker 05:
What's unclear about that?

[00:22:32] Speaker 05:
It's not a question of, well, Congress could have said do more or whether the agency and its rulemaking could have done more.

[00:22:41] Speaker 05:
It's a question you argue that this particular provision of the statute is unclear.

[00:22:47] Speaker 05:
And I thought, what's unclear about it when you read it all together?

[00:22:53] Speaker 00:
Your honor, I'm fully prepared to account for the phrase in accordance with this section.

[00:22:59] Speaker 00:
And that's one part of the sentence.

[00:23:01] Speaker 00:
Another part of the sentence is that the Congress shall impose user fees on each manufacturer.

[00:23:08] Speaker 05:
I understand that, but it's saying in accordance with this section.

[00:23:14] Speaker 00:
Yes.

[00:23:16] Speaker 00:
So for that language, the limit.

[00:23:19] Speaker 05:
I understand your argument.

[00:23:20] Speaker 05:
You can parse out and separate out phrases, but Congress didn't do that.

[00:23:25] Speaker 05:
It put them all together.

[00:23:28] Speaker 05:
And if you were the secretary, how could it be unclear what Congress wanted you to do?

[00:23:37] Speaker 00:
Your honor, I don't wanna parse out that sentence at all.

[00:23:40] Speaker 00:
I do wanna read it holistically and I think it operates as follows.

[00:23:45] Speaker 00:
The sentence in its operative phrase has a statutory command to impose user fees on each manufacturer of tobacco products subject to this section, which clearly includes e-cigarettes.

[00:23:58] Speaker 00:
It's introduced by the phrase in accordance with this section.

[00:24:02] Speaker 00:
And I think the way that operates is,

[00:24:04] Speaker 00:
you know, is there a prohibition later in the allocation section that prohibits the imposition of user fees?

[00:24:11] Speaker 05:
I know, but you can do that only by ignoring the references to subsections that the Congress has stated.

[00:24:19] Speaker 05:
That's what's so troubling me, troubling me about your argument, not whether Congress made the right decision or not, but wasn't it clear about the decision it made?

[00:24:28] Speaker 05:
And of course, Judge Tatel has said,

[00:24:32] Speaker 05:
even if you think it wasn't clear, the agency prevails at Chevron step two.

[00:24:41] Speaker 00:
Well, Your Honor, I would say this.

[00:24:44] Speaker 00:
We're perfectly prepared to account for the rest of the statute.

[00:24:48] Speaker 00:
And section B2 tells us how user fees are to be allocated.

[00:24:52] Speaker 00:
The key phrase is that the first paragraph that says that they'll be allocated by the applicable percentage of each class

[00:25:01] Speaker 00:
multiplied by the fees for the fiscal year.

[00:25:03] Speaker 05:
But then in the next section, subsection, which the government points to and the FDA points to, listing only six classes, they say that- And it says, for purposes of subparagraph A, the applicable percentages for a fiscal year of the following classes.

[00:25:29] Speaker 05:
And it lists six.

[00:25:32] Speaker 00:
Yes, and I think that word following is very important.

[00:25:34] Speaker 00:
It's a limiting adjective.

[00:25:36] Speaker 00:
It says the applicable percentage for the fiscal year for each of the following classes.

[00:25:42] Speaker 00:
of tobacco products shall be determined in accordance with clause two.

[00:25:46] Speaker 00:
It doesn't say the applicable percentage for each class of tobacco products shall be as follows.

[00:25:54] Speaker 00:
It says for the following.

[00:25:55] Speaker 00:
So it deals with a subset, these six classes and tells you how to determine the percentage for those six classes.

[00:26:03] Speaker 00:
It's not an answer that if we go to the Fair and Equitable Tobacco Reform Act, these percentages

[00:26:12] Speaker 00:
add up to 100 percent, because this is perfectly capable once the agency fills the gap, which agencies do all the time and determines an applicable percentage for e-cigarettes, to use those percentages to deal with the relative percentages of the residual.

[00:26:29] Speaker 00:
As a matter of fact, that's exactly what Congress

[00:26:32] Speaker 00:
anticipated would happen in the case that some of these product classes hadn't been deemed yet.

[00:26:39] Speaker 00:
To go back to Judge Tato's question, there is one thing that I wanted to say and I think it's very important to focus on, and it affects all of this.

[00:26:49] Speaker 00:
The FDA is very, very reliant on the fact that

[00:26:53] Speaker 00:
it would be hard to figure out what the applicable percentage should be for e-cigarettes.

[00:26:58] Speaker 00:
Why?

[00:26:59] Speaker 00:
Because there's all this data from other agencies and they've been calculating these percentages for a long time and we can rely on them and it keeps us out of this business.

[00:27:11] Speaker 00:
Well, that's just no longer the case.

[00:27:13] Speaker 00:
The department.

[00:27:14] Speaker 05:
Congress can amend the statute, but apparently you were very persuasive telling Congress

[00:27:19] Speaker 05:
He cigarettes, they didn't even exist at the time.

[00:27:23] Speaker 05:
So when Congress enacted this statute, it listed these six classes.

[00:27:29] Speaker 05:
Well, I want Congress to do more, go back.

[00:27:32] Speaker 05:
What we're talking about is what the secretary was required to do.

[00:27:39] Speaker 00:
Your Honor, I don't think we had to persuade anybody in 2009 that e-cigarettes shouldn't be dealt with because the e-cigarettes really didn't exist in 2000.

[00:27:48] Speaker 05:
Chris, nicely, my point.

[00:27:50] Speaker 05:
And yet you say this should be read to include e-cigarettes.

[00:27:56] Speaker 00:
Yes, because Congress left it open-ended.

[00:27:59] Speaker 00:
Congress said to back a product subject to this chapter.

[00:28:02] Speaker 00:
And if you go back to the definition.

[00:28:04] Speaker 05:
What's missing is the word, and when it says the following classes shall be determined in accordance.

[00:28:12] Speaker 05:
And we mean no others.

[00:28:14] Speaker 05:
I mean, Congress, that's a level of specificity I don't even see Justice Scalia calling for.

[00:28:21] Speaker 00:
Your honor, I do agree that the statute says the following classes shall be determined, but I don't agree that the statute says, and there shall be no others.

[00:28:29] Speaker 05:
I agree.

[00:28:30] Speaker 05:
But if you want more, go back to Congress.

[00:28:33] Speaker 00:
No, I don't think that's right, your honor, because the immediate.

[00:28:37] Speaker 05:
You think the secretary could impose them even though Congress hasn't authorized them.

[00:28:45] Speaker 00:
Congress not only authorized but mandated that the Secretary impose user fees on each manufacturer of tobacco projects subject to this chapter.

[00:28:54] Speaker 00:
This tobacco project subject to this chapter goes all the way back to Section 901 of the Act.

[00:29:00] Speaker 00:
which doesn't just include the tobacco products that in existence, it includes future tobacco products.

[00:29:05] Speaker 00:
And the only thing we're getting hung up on here is that B to A section of the statute.

[00:29:12] Speaker 00:
There it says the applicable percentage shall drive this.

[00:29:16] Speaker 00:
And the only thing the statute does thereafter is determine the applicable percentage for the following classes.

[00:29:23] Speaker 00:
And I do think that that word following is very important.

[00:29:27] Speaker 00:
It's a limiting adjective.

[00:29:28] Speaker 00:
It says we're dealing

[00:29:30] Speaker 00:
We're telling you what to do with part of the problem, but not all of it.

[00:29:34] Speaker 05:
No, it stands for purposes of subparagraph A, the following classes.

[00:29:43] Speaker 05:
All right?

[00:29:43] Speaker 05:
It seems to me it's very clear what Congress is saying.

[00:29:46] Speaker 05:
That's all it's saying there.

[00:29:47] Speaker 05:
That's all I'm getting at.

[00:29:48] Speaker 05:
Not that you may not be right in an industry sense, but here's what Congress wrote.

[00:29:59] Speaker 05:
And why isn't it reasonable for, more than reasonable, why wasn't the secretary required to conform to that language in imposing user fees?

[00:30:11] Speaker 00:
Your honor, again, I disagree with your reading of that section.

[00:30:18] Speaker 00:
Again, it says for purposes of subparagraph A, obviously the specification of the applicable percentage for the following classes will be for purposes of subparagraph A. There is not language in B to B that suggests that Congress is exhaustively determining what shall be the applicable percentage.

[00:30:38] Speaker 00:
It's just for the following.

[00:30:40] Speaker 05:
I understand that, but at the time it was acting, all right, you can go back.

[00:30:47] Speaker 05:
I just don't understand what you are requiring Congress to say.

[00:30:52] Speaker 05:
You would require Congress to say, of course, if there are any future products that are developed, they should also be subject to the user fees.

[00:31:02] Speaker 00:
Well, Congress could have said that it didn't, but it did say that the secretary shall impose user fees on each manufacturer of tobacco products subject to this chapter.

[00:31:13] Speaker 00:
And that refers back to an earlier section of the act that doesn't just refer to tobacco products then in existence in 2009, but

[00:31:22] Speaker 00:
refers to all products

[00:31:40] Speaker 00:
burden issue brought up by Judge Tatel.

[00:31:43] Speaker 00:
Remember the agency's reasoning on why it would be easier for it not to deal with this situation is that other agencies, the departments of agriculture and treasury were gathering this data.

[00:31:54] Speaker 00:
That was true until 2015 when they got out of that business.

[00:31:57] Speaker 00:
because the agricultural subsidy program that necessitated those calculations went out of existence.

[00:32:04] Speaker 00:
And now the FDA is making those calculations.

[00:32:07] Speaker 00:
And if you look at the broader user fee rule, including the cigarette rule that went into effect in 2014, the FDA is now collecting that data directly from the manufacturers.

[00:32:17] Speaker 00:
So extending the type of information that you would need from another set of manufacturers is not that much of an administrative burden.

[00:32:26] Speaker 00:
and it has enormous consequences.

[00:32:30] Speaker 00:
In the year before the deeming rule and the year before this final user fee rule was issued, e-cigarette use had increased by 8,000%.

[00:32:40] Speaker 00:
There are

[00:32:42] Speaker 00:
3,000 substantial equivalence applications pending for cigar products.

[00:32:47] Speaker 00:
There are 59,000 pre-market tobacco review applications pending for e-cigarettes.

[00:32:54] Speaker 00:
This is not a small problem.

[00:32:57] Speaker 00:
It is going to swamp the budgetary mechanism for the FDA on this, and the burden is going to fall on our industry.

[00:33:04] Speaker 00:
This incredibly unfair result is not one that's driven by the statute.

[00:33:08] Speaker 00:
The statute does not require this outcome and the agency was wrong to conclude that it did.

[00:33:17] Speaker 00:
I see it incredibly over time.

[00:33:21] Speaker 02:
I have one very fast standing question.

[00:33:23] Speaker 02:
Can you just tell me which client makes pipes or has standing to bring the pipes argument that you're making?

[00:33:29] Speaker 02:
I can tell from a quick look that

[00:33:32] Speaker 02:
A lot of your clients deal with cigars, but I didn't see any pipes.

[00:33:35] Speaker 00:
Yes, several several of the members of the of the trade associations, including the Cigar Association America, including Cigar Rights of America, have divisions of their companies that manufacture pipes.

[00:33:48] Speaker 00:
And that's all I needed.

[00:33:51] Speaker 00:
That was a challenge by the government.

[00:33:52] Speaker 00:
But we can provide that evidence if needed.

[00:33:54] Speaker 00:
I believe it's also a legend complaint.

[00:33:57] Speaker 05:
Thank you.

[00:33:59] Speaker 05:
All right.

[00:34:00] Speaker 05:
Shall we hear from Council for Appellee?

[00:34:05] Speaker 03:
Thank you, Mr. Court.

[00:34:06] Speaker 03:
Lindsay Powell for FDA.

[00:34:07] Speaker 03:
I just want to step back for a moment to note that the deeming rule principally reflects a significant decision by FDA that plaintiffs are not challenging here.

[00:34:17] Speaker 03:
And that's the decision that products meeting the statutory definition of tobacco product should be subject to regulation.

[00:34:23] Speaker 03:
Before the deeming rule, products like cigars, like e-cigarettes, simply were not subject to regulation.

[00:34:28] Speaker 03:
And that is the central determination

[00:34:30] Speaker 03:
that FDA made in this rule.

[00:34:33] Speaker 03:
And as a consequence of that rule, products like cigars and pipe tobacco and e-cigarettes became subject to the statutory requirements.

[00:34:41] Speaker 03:
set forth by Congress in the Tobacco Control Act, also to additional authorities provided to FDA by the Tobacco Control Act to impose additional requirements.

[00:34:50] Speaker 03:
But most of what we're talking about here is one particular statutory requirement that automatically became subject to these products, cigars and pipe tobaccos, by operation of that underlying deeming decision, the decision that these products should be regulated at all.

[00:35:04] Speaker 03:
So when we're talking about pre-market review and the substantial equivalence pathway,

[00:35:09] Speaker 03:
What we're talking about are requirements that were established by Congress.

[00:35:12] Speaker 03:
And that's something this court considered in a slightly different context in the Nikapure decision.

[00:35:16] Speaker 03:
And it reached the conclusion that the government advocates here with respect to this cutoff date, the 2007 date for looking back to see what products are new tobacco products.

[00:35:27] Speaker 03:
And so Nikapure is dispositive of that.

[00:35:29] Speaker 03:
But also its discussion more generally is helpful in underscoring the interaction between the rule and the statute here.

[00:35:35] Speaker 03:
So by operation of the rule, all these statutory requirements, including pre-market review, became subject to the statutory requirements set by Congress.

[00:35:47] Speaker 03:
And so what we're talking about here, four of plaintiff's several challenges, concern just this one statutory requirement, the pre-market review requirement, and the substantial equivalence pathway in particular.

[00:35:58] Speaker 03:
For a little bit more context, I want to note that the substantial equivalence pathway is not the only pre-market review pathway available to new products.

[00:36:05] Speaker 03:
So it's certainly what we're focusing on here.

[00:36:07] Speaker 03:
But for products where that showing cannot be made, where there is no predicate product available, the statute provides another pathway.

[00:36:17] Speaker 03:
And so that'll be the pathway, for example, used by most e-cigarette products, since there isn't a predicate product that was marketed as of February 2007.

[00:36:25] Speaker 02:
So just as a practical matter, how would it work?

[00:36:31] Speaker 02:
I'm making a cigar.

[00:36:32] Speaker 02:
It's new.

[00:36:34] Speaker 02:
I think it's equivalent to a cigar that went off the market in, let's say, 2008.

[00:36:39] Speaker 02:
And I've got to run, I guess, lab tests to show that potentially harmful components of my new cigar are no more harmful than that 2008 cigar.

[00:36:51] Speaker 02:
But those 2008 cigars are gone.

[00:36:54] Speaker 02:
They just can't be found.

[00:36:55] Speaker 02:
So how is it possible for me to run that test?

[00:36:59] Speaker 03:
Yes, Your Honor.

[00:37:00] Speaker 03:
So there are several mechanisms that are available to a manufacturer in that position.

[00:37:05] Speaker 03:
And I think this underscores, just as an aside, underscores the wealth of resources and guidance that is available to manufacturers on this subject as they're preparing their substantial equivalence applications.

[00:37:18] Speaker 03:
So if the original product isn't available for testing, if it was the manufacturer's own product, FDA allows it to just make

[00:37:26] Speaker 03:
a sample of that product, which may be easy enough to do in some circumstances and some circumstances that may not be easy.

[00:37:32] Speaker 03:
FDA has in those circumstances, and this is all set out in detail in a cigar specific appendix that's available on FDA's website and has been there since at least 2018.

[00:37:43] Speaker 03:
that provides all sorts of detail about substantial equivalence applications for cigar products.

[00:37:48] Speaker 03:
There's a separate one for pipe tobacco.

[00:37:50] Speaker 03:
And that explains the option of using a surrogate product so that if the manufacturer can identify a product that should test the same or very similarly to the actual predicate product, FDA has said that in those circumstances, the testing can be done on the surrogate product.

[00:38:09] Speaker 02:
That is helpful.

[00:38:10] Speaker 02:
And Mr. Edney has said that you took a collaborative approach with cigarettes that you're not taking with cigars.

[00:38:16] Speaker 02:
Can you respond to that?

[00:38:18] Speaker 02:
Are you being just as collaborative and lenient with cigars as you were with cigarettes?

[00:38:23] Speaker 02:
Or if there's a difference, why is there a difference?

[00:38:26] Speaker 03:
My understanding, Your Honor, is that FDA is absolutely taking the same approach with respect to all of these products and has been very inclusive of manufacturers in this process that it has sort of established.

[00:38:38] Speaker 02:
He says that back when it was just cigarettes, if a cigarette submitted a substantial equivalent report application, they could keep their cigarette on the market until that application was either granted or denied.

[00:38:53] Speaker 02:
Is the same true for cigars, substantial equivalent applications?

[00:38:59] Speaker 03:
There is a one year period.

[00:39:01] Speaker 03:
And again, all of this is subject to FDA.

[00:39:04] Speaker 02:
Why the difference?

[00:39:04] Speaker 02:
Why treat one differently than the other?

[00:39:07] Speaker 03:
So to my knowledge, there is not a difference currently between the treatment of cigarettes and cigars.

[00:39:13] Speaker 03:
I believe this one year period would apply to anybody that had its application submitted by whatever the relevant cutoff date is.

[00:39:25] Speaker 03:
And then while FDA undertook its review during that one year period, there would be sort of a period of enforcement discretion where FDA wasn't doing it.

[00:39:32] Speaker 03:
What plaintiff may be referring to

[00:39:35] Speaker 03:
is some of the timing that happened by operation of the Tobacco Control Act itself.

[00:39:39] Speaker 03:
So the Tobacco Control Act was enacted in 2009, and these requirements didn't become effective as to cigarette manufacturers until 2011.

[00:39:49] Speaker 03:
During that period, FDA was issuing guidance and working with those manufacturers.

[00:39:52] Speaker 03:
So some of this may just be by operation of who had to do what when, but there's no special treatment here for cigarette manufacturers and no unfairness.

[00:40:00] Speaker 02:
Let me ask one more substantial equivalence question.

[00:40:04] Speaker 02:
The opposing council says something like 58 cigar applications have been granted.

[00:40:11] Speaker 02:
I remember reading one of the briefs, it's close to a hundred.

[00:40:14] Speaker 02:
It doesn't matter.

[00:40:15] Speaker 02:
Let's say it's a hundred.

[00:40:16] Speaker 02:
And he says today that there've been 3000 applications filed.

[00:40:21] Speaker 02:
It's a tiny fraction of the 3000 applications.

[00:40:25] Speaker 02:
Is that because those applications are applying for something that they're never gonna get?

[00:40:31] Speaker 02:
Or is it because those applications

[00:40:34] Speaker 02:
are applying to prove an equivalence that exists, but that the applications themselves fail to prove because they don't know what to include?

[00:40:45] Speaker 02:
Or is it just that the FDA is very slow?

[00:40:50] Speaker 03:
I can't break this down by number, but as your honor's question suggests, there are a number of different reasons why an application may not be authorized.

[00:41:01] Speaker 02:
If it's the second category, though, it's trouble.

[00:41:03] Speaker 02:
I mean, it would be, in terms of the legal challenge that the plaintiffs have brought, that legal challenge would be bolstered if the reason that only 100 out of 3,000 applications have been granted is that for 2,900 out of 3,000, they simply don't know what form and content to include in the application.

[00:41:23] Speaker 03:
So there's no evidence that that's the basis for these, the majority of these applications having been not authorized having been rejected.

[00:41:33] Speaker 03:
And I think it would be helpful here if I sort of step back and went point by point with respect to some of plaintiffs arguments on this, including what guidance is out there and what it says but I think

[00:41:45] Speaker 03:
As an antecedent to that, I'd like to start with what the statute says.

[00:41:50] Speaker 03:
So just our top line argument is that if you look at the text of this provision, which is 905J1, it does not direct the secretary to do anything.

[00:42:02] Speaker 03:
This is a provision that directs manufacturers to file a report.

[00:42:05] Speaker 03:
It's a mandate on manufacturers.

[00:42:07] Speaker 03:
And parenthetically, it says that that report

[00:42:10] Speaker 03:
Shall take such form as the secretary shall prescribe but that that shall prescribe language is not a mandate on the secretary in any way, even if you disagree to it, even if you thought no that's really telling the secretary that she needs to do something he needs to do something.

[00:42:25] Speaker 03:
The prescribed language is key.

[00:42:27] Speaker 03:
Prescribed doesn't say engage in notice and comment rulemaking.

[00:42:30] Speaker 03:
That's a very encompassing term that easily includes guidance and these other materials that FDA has been making available.

[00:42:37] Speaker 03:
And so even if you thought FDA had to do something, it's done that something here since at least 2011 when it issued this guidance.

[00:42:44] Speaker 03:
And this is one of the factual points I want to clarify.

[00:42:46] Speaker 03:
Plaintiff's Council says that this guidance is cigarette-specific, and it's not.

[00:42:51] Speaker 03:
By its terms, it applies to the four enumerated products and any products that FDA deems.

[00:42:55] Speaker 03:
It's in no way specific to cigarettes.

[00:42:58] Speaker 03:
That's true of a number of the other guidance documents that FDA has made available.

[00:43:02] Speaker 03:
Some of these resources are product-specific in ways that specifically help the industries that are implicated by this litigation.

[00:43:08] Speaker 03:
So as I noted, there are a number of industry-specific appendices available on FDA's website, one for cigars, one for pipe tobacco,

[00:43:16] Speaker 03:
There's also e-cigarettes, other products.

[00:43:19] Speaker 03:
And these really go through in great detail explaining what type of information is needed by FDA in these reports.

[00:43:27] Speaker 03:
It's true that FDA has noted that it still gets reports that are of variable quality.

[00:43:32] Speaker 03:
So some of these reports do provide all of the information needed for FDA to determine whether a product is substantial equivalent.

[00:43:40] Speaker 03:
and others don't.

[00:43:41] Speaker 03:
And that was among the commentary that was made in 2017 and 2019 and among the reasons for the proposed rule with respect to those 2017 and 2019 statements.

[00:43:52] Speaker 03:
So I would like to draw the court's attention to that because they don't say what plaintiffs council says they do.

[00:43:57] Speaker 03:
You can see it, JA 126 and 294, what the commissioner and the agency actually said there.

[00:44:05] Speaker 03:
however you read those, they don't say, this doesn't work without a rule.

[00:44:09] Speaker 03:
We need a rule to make this work.

[00:44:10] Speaker 03:
They acknowledge that a rule could be helpful, but there's a chasm between saying that the whole thing is defunct without a rule and saying that additional information for industry and the agency would be helpful.

[00:44:24] Speaker 03:
And it's the latter that these express.

[00:44:27] Speaker 03:
I do think

[00:44:30] Speaker 03:
with respect to the authorizations actually granted that even if you acknowledge that there may be a sense where the fraction isn't favorable, the absolute numbers are telling of the sufficiency of this guidance.

[00:44:46] Speaker 03:
So it's nearly 100 for cigars and pipe tobacco overall, it's over 1400 authorizations that FDA has issued.

[00:44:55] Speaker 03:
And again, we're talking about

[00:44:56] Speaker 03:
A generally applicable rule and generally applicable guidance and over 1400 applications have found that to be workable to be able to file these successful applications and get authorization.

[00:45:10] Speaker 03:
So I think that is telling of the problem, notably the district court in the American Academy of Pediatrics case on which plaintiffs rely for other things, considered this argument on industry's part, that they just couldn't get their pre-market review applications together in a meaningful way without further guidance.

[00:45:28] Speaker 03:
And the court characterized that claim as disingenuous, that it too found no support for the idea that there just isn't enough to work with here.

[00:45:36] Speaker 03:
In addition to the other materials I've mentioned, there are, um, FDA has been making available technical reports, um, which do have confidential information redacted as needed, um, and also the authorization orders so that, uh, industry can look at what has already been done successfully, uh, and build on that.

[00:45:54] Speaker 03:
And then, of course, they're welcome to talk to FDA.

[00:45:56] Speaker 02:
FDA has said- Can they access the, the hundred or so reports that have, the hundred or so applications that have been granted?

[00:46:03] Speaker 03:
I believe so, again, with appropriate information redacted.

[00:46:06] Speaker 03:
I think that it's the technical reports and the orders themselves.

[00:46:10] Speaker 02:
Ms.

[00:46:10] Speaker 02:
Powell, I have cost benefit questions, but I want to get out of the way in case there are other questions about this.

[00:46:17] Speaker 04:
Okay, well, I want to continue on some subjects we were talking to council for petition run or for plaintiff.

[00:46:25] Speaker 04:
And I want to start with user fees, Ms.

[00:46:27] Speaker 04:
Powell.

[00:46:29] Speaker 04:
So I take your point.

[00:46:33] Speaker 04:
that the statute includes a pretty detailed scheme for calculating user fees on specific products, which does not include e-cigarettes.

[00:46:45] Speaker 04:
I take your point about that.

[00:46:47] Speaker 04:
But the plaintiffs point to this phrase, each manufacturer and importer of tobacco products subject to this chapter, that's clearly e-cigarettes, and they

[00:47:01] Speaker 04:
focus on the statute's purpose, namely to provide funding for the agency's regulatory activities.

[00:47:11] Speaker 04:
So, you know, I know you think your view of the statute's more persuasive than theirs, but I don't see how, given these competing signals, you can say this is unambiguous.

[00:47:22] Speaker 03:
So two principal responses, Your Honor.

[00:47:25] Speaker 03:
First, as a textual matter, there's one section I'd like to draw the board's attention to that hasn't been talked about in great detail so far today, which is subsection B1A.

[00:47:37] Speaker 03:
So this comes before the applicable percentage section, which lists the six specific products we're talking about.

[00:47:44] Speaker 04:
Which one are we talking about?

[00:47:45] Speaker 04:
Hold on.

[00:47:45] Speaker 04:
Which one?

[00:47:45] Speaker 03:
We're talking about subsection B1A.

[00:47:48] Speaker 03:
B is involved.

[00:47:52] Speaker 03:
B as in ball, yep, B1A.

[00:47:54] Speaker 05:
All right, so it's listing the fiscal years, the amount of the assessment, is that what you're talking about?

[00:48:00] Speaker 03:
Yes, and so subsection A under that.

[00:48:03] Speaker 04:
B2A or B1A, B what?

[00:48:06] Speaker 05:
B1A.

[00:48:10] Speaker 05:
Access says in general, the total user fee assessed and collected under subsection A shall,

[00:48:19] Speaker 03:
Yes, so the total user fees assessed and collected under subsection A each fiscal year with respect to each class of tobacco products shall be an amount that is equal to the applicable percentage of each class for the fiscal year multiplied by the amount specified in paragraph one for the fiscal year.

[00:48:40] Speaker 03:
So paragraph one says, here's the total pie that we're dealing with.

[00:48:46] Speaker 03:
And then this section says exactly how we're gonna cut it

[00:48:49] Speaker 03:
up, that you multiply that total, which is specified by statute, by these percentages that are also set forth by statute.

[00:48:57] Speaker 03:
And it refers to the applicable percentage.

[00:48:59] Speaker 03:
And then B, which we had talked about before, is applicable percentage.

[00:49:03] Speaker 03:
And this is just a closed circuit.

[00:49:05] Speaker 03:
It's a closed-ended formula that Congress has provided.

[00:49:09] Speaker 03:
And I understand the point that now in 2021,

[00:49:13] Speaker 03:
it may feel like it doesn't make a lot of sense.

[00:49:15] Speaker 03:
But as was suggested earlier, that's really a question for Congress.

[00:49:18] Speaker 03:
What Congress was doing back in 2009 was figuring out how best and likely most administratively.

[00:49:27] Speaker 04:
I understand all that.

[00:49:28] Speaker 04:
I saw that.

[00:49:30] Speaker 04:
But the question here is whether this statute is unambiguous.

[00:49:35] Speaker 04:
That's the question.

[00:49:37] Speaker 04:
And it says, the statute says,

[00:49:44] Speaker 04:
Subsection SA says it assess user fees on and collect such fees from each manufacturer and importer of tobacco products.

[00:49:59] Speaker 04:
And those are e-cigarette manufacturers, right?

[00:50:02] Speaker 04:
You don't disagree with that.

[00:50:03] Speaker 03:
I don't, but it says in accordance with this section.

[00:50:08] Speaker 04:
It says, yeah, but it says, it does say that.

[00:50:12] Speaker 04:
It shall do in accordance with this, it shall, that's the ambiguity in the statute.

[00:50:19] Speaker 04:
I totally agree with you that the phrase, that the phrase in accordance with this section brings in the whole section and supports the FDA.

[00:50:36] Speaker 04:
I get that, that you're right about that.

[00:50:40] Speaker 04:
But then it says, assess your fees and collect them from each manufacturer of a tobacco product.

[00:50:48] Speaker 04:
That clearly goes the other way.

[00:50:52] Speaker 04:
So you've got, what you have here is ambiguity, not clarity.

[00:50:56] Speaker 04:
what about particularly particularly since particularly since particularly given the argument about regular about purpose namely to to provide funding for the

[00:51:16] Speaker 04:
agencies regulatory activities, and as council for plaintiff just pointed out, and I'd be curious to your reaction to this, e-cigarettes are gonna increasingly account for a huge amount of the FDA's regulatory activities, which means everybody else will be paying for that, right?

[00:51:36] Speaker 03:
Yes, John, there's no question that the market for e-cigarettes is growing and Congress has several times considered legislation that would do what plaintiffs want

[00:51:44] Speaker 03:
it to do, but that doesn't, those considerations don't, at this point in time, don't inform the meaning of the text of the statute.

[00:51:53] Speaker 04:
And I really think to your honor's point- I'm not sure, that's not the way we, respectfully, I don't think that's right.

[00:52:00] Speaker 04:
When we're looking at, to determine whether a statute is clear or not, we look at text and purpose, both, to determine whether there's clarity or ambiguity.

[00:52:13] Speaker 04:
And I agree with you that we don't look at the current balance in terms of how much e-cigarettes are consuming of the FDA's regulatory activities.

[00:52:23] Speaker 04:
I totally agree with that.

[00:52:25] Speaker 04:
But there's no doubt that the Congress passed this in order to provide funding for the FDA's regulatory activities, period.

[00:52:33] Speaker 04:
And you know, the FDA, you could tell from my questions for counsel for the plaintiff that I,

[00:52:42] Speaker 04:
My instinct is that the agency's policy reasons for resolving this ambiguity may well be sustainable here.

[00:52:51] Speaker 04:
Although I have a question or two about that also.

[00:52:54] Speaker 04:
I just don't see the clarity the agency finds in the statute here because of this each manufacturer language.

[00:53:06] Speaker 04:
That's where I'm stuck.

[00:53:08] Speaker 03:
Yeah, and it does sound like I may not convince you of that, but it just- No, I didn't say you're not convincing me.

[00:53:12] Speaker 04:
I just think it's really hard and I'm not quite there.

[00:53:17] Speaker 03:
Yeah.

[00:53:18] Speaker 03:
If I may, I would make a few quick statutory points and then I would like to address your honor's Chevron point too.

[00:53:24] Speaker 04:
Before you do that, can I just ask you about this phrase?

[00:53:27] Speaker 04:
Tell me in the best, clearest way you can, the way I'm supposed to think about this, each manufacturer phrase.

[00:53:36] Speaker 04:
Tell me about that.

[00:53:38] Speaker 04:
What's your best explanation for that?

[00:53:41] Speaker 03:
I think each manufacturer there is really calling out the point that in accordance with the section in the calculations that Congress is prescribing that follow, FDA needs to determine not only the share for each industry, but also the share for each manufacturer.

[00:54:01] Speaker 04:
But the terms manufacturer and tobacco products are defined terms in the statute.

[00:54:10] Speaker 03:
They are, yes.

[00:54:11] Speaker 04:
Yeah.

[00:54:12] Speaker 04:
And e-cigarette manufacturers are our manufacturer of tobacco products.

[00:54:21] Speaker 04:
So you've got in accordance with this procedure, they have to impose fees on

[00:54:31] Speaker 04:
a product that is a defined product under the statute.

[00:54:34] Speaker 04:
In other words, in accordance here, maybe I put it this way, the phrase in accordance with this section can't limit the statute's definition of manufacturing tobacco product.

[00:54:50] Speaker 03:
No, but it can limit the direction to FDA in terms of how and with what.

[00:54:57] Speaker 03:
respect to whom it is supposed to assess user fees.

[00:55:01] Speaker 03:
And so I think part of what's going on here is on plaintiff's view, each manufacturer and importer of tobacco product ends up, if you give that the full scope that they insist on, a few things happen.

[00:55:15] Speaker 03:
One is much of the rest of the work that Congress has done here and much of what it has said

[00:55:21] Speaker 03:
becomes meaningless in accordance with this section no longer means very much.

[00:55:24] Speaker 03:
And certainly this very carefully prescribed series of calculations and allocations no longer means anything, because on plaintiff's view, FDA can just make the rest of it up.

[00:55:35] Speaker 03:
And it's not just making it up with respect to e-cigarettes, right?

[00:55:38] Speaker 03:
If you take each manufacturer and importer to mean what they say it means, you're talking about every manufacturer and importer of every single deemed product, including all components and parts, because those are deemed products,

[00:55:50] Speaker 03:
And you would also be talking about everyone in the supply chain, every single firm there.

[00:55:55] Speaker 03:
So you're talking about relabelers and repackagers.

[00:55:57] Speaker 03:
It's not just this group of manufacturers of these cigarettes and this sort of straightforward thing to figure out how to impose it on them.

[00:56:05] Speaker 03:
And even there, it's apples and oranges and complicated, but you're talking about so many other actors and manufacturers of so many other things.

[00:56:13] Speaker 03:
And to say, no, what Congress meant here was do this one thing very carefully and do whatever else you want with respect to the rest of it, just renders the careful construction that's provided here largely meaningless.

[00:56:26] Speaker 03:
I mean, it really is a poor fit, I think.

[00:56:30] Speaker 03:
And I think one statutory point, sorry, Your Honor.

[00:56:33] Speaker 04:
No, we'll go ahead.

[00:56:33] Speaker 04:
What's your response to my question then about to Council for Plaintiff when I suggested that I thought the agency's policy reasons might be perfectly acceptable here for explaining why it did what it did under an ambiguous statute.

[00:56:50] Speaker 04:
And his response was the agency's argument that they did this for predictability and administrative workability just doesn't make any sense at all.

[00:57:02] Speaker 03:
I think that's incorrect, Your Honor, for a large part the reasons I've just said.

[00:57:07] Speaker 03:
So we're going back to the start of Your Honor's question.

[00:57:11] Speaker 03:
FDA did hear very clearly in the final rule, say not only did it read the statute to require what it was doing, but that to the extent there was any perceived ambiguity, it really found this to be the only reasonable approach for these administrability reasons.

[00:57:26] Speaker 03:
And again, we have a statute here where Congress has

[00:57:29] Speaker 03:
use the pre existing scaffolding of the fair and equitable tobacco reform act, so this is an excise tax scheme and e cigarettes were not then or not now subject to these excise taxes and that's true for the other tobacco products and so to sort of have that careful scaffolding on the one hand.

[00:57:47] Speaker 03:
We'll call those the apples and have to develop wholesale the scheme for oranges to figure out how we're going to do calculations with respect not only to cigarettes, but all these other products, all these components and parts, all these other actors in the supply chain is a hugely unwieldy process and one that it would be very hard to make sense of.

[00:58:09] Speaker 03:
So it's a matter of reason.

[00:58:11] Speaker 04:
Absolutely.

[00:58:12] Speaker 04:
Okay, one last question about this.

[00:58:14] Speaker 04:
I was struck by the fact that when I read your brief, I thought this was just that the agency was relying completely on its statutory interpretation.

[00:58:26] Speaker 04:
And then when I read the regulation or the order, I saw that the regulation says, the order says that, you know, even if the statute's not clear, we have these policy reasons for doing it.

[00:58:39] Speaker 04:
In other words, they did it under Chevron too, but you didn't say that in your brief.

[00:58:43] Speaker 04:
Are you not defending that here?

[00:58:45] Speaker 03:
No, we are defending that, Your Honor.

[00:58:46] Speaker 03:
I'd have to look at exactly what we said in the brief, if it wasn't- Well, I can tell you, I looked and didn't see it.

[00:58:52] Speaker 04:
So is there, I don't think I missed it.

[00:58:56] Speaker 04:
So I was thinking to myself, well, maybe, maybe the FDA isn't defending this rationale.

[00:59:01] Speaker 03:
No, I think the statutory analysis is more straightforward than your honor does, but we absolutely stand by the things said.

[00:59:08] Speaker 03:
in the final rule and the reasonableness of FDA's approach, even if the statute were viewed as ambiguous.

[00:59:15] Speaker 03:
I did not recall that that was omitted from the brief, but to the extent it is, there's been no argument by plaintiffs that any argument along those lines has been waived, and we don't intend to do so.

[00:59:25] Speaker 04:
Okay.

[00:59:27] Speaker 04:
All right.

[00:59:27] Speaker 04:
Well, thank you.

[00:59:28] Speaker 04:
Those were very helpful answers.

[00:59:29] Speaker 04:
Thanks.

[00:59:31] Speaker 04:
I have another subject, but I'm going to pause for a while and let

[00:59:35] Speaker 04:
Unless neither of you have any questions, I'll go ahead.

[00:59:38] Speaker 02:
I have one more subject, but Judge Rogers, I don't want to go before you if you have questions.

[00:59:43] Speaker 05:
Go ahead.

[00:59:45] Speaker 02:
If we could turn to the cost benefit question issue.

[00:59:50] Speaker 02:
The plaintiffs say that FDA did not run a cost benefit analysis specific to cigars and pipe tobacco.

[01:00:04] Speaker 02:
Is that right or wrong?

[01:00:07] Speaker 03:
That is wrong.

[01:00:08] Speaker 02:
Okay, tell me where I look to see that that's wrong.

[01:00:14] Speaker 02:
And don't just say the whole 150 page analysis.

[01:00:18] Speaker 03:
Yes, Your Honor.

[01:00:19] Speaker 03:
And of course, as our sort of threshold that I won't belabor since it doesn't go to your question, but we of course do

[01:00:28] Speaker 03:
continue to think that the court shouldn't engage the cost benefit analysis question because it's not subject to judicial review.

[01:00:33] Speaker 03:
But to your Honor's question, if the court did reach that, it should conclude as a district court did that the analysis here was adequate.

[01:00:40] Speaker 03:
The consideration of costs, which the agency found it was able to quantify, is, I think, looking at roughly AR 24,006 to 21, and some of those pages are in the Joint Appendix, some aren't.

[01:00:56] Speaker 03:
If the court wanted us to supplement, we would, of course, be happy to do so.

[01:00:59] Speaker 03:
But the FDA, on the cost side, and it explained why it was treating costs different from benefits, because one

[01:01:05] Speaker 03:
more readily quantifiable here and it used appropriate economic substitutes where it couldn't quantify.

[01:01:09] Speaker 02:
And are those costs specific to the substantial equivalent regime that cigars and pipe tobacco are now subject to, or are they more general?

[01:01:21] Speaker 03:
So FDA looked separately and so also separately by product because these tend to apply differently at the PMTA, the other pre-market review pathway.

[01:01:31] Speaker 03:
And at the substantial equivalence pathway, it looked at roughly how many cigar and pipe tobacco products were marketed as of 2007 and how many would, were marketed.

[01:01:40] Speaker 02:
I think your answer is yes.

[01:01:42] Speaker 02:
And it's a good answer for FDA.

[01:01:46] Speaker 02:
The FDA's cost benefit analysis considers the costs to the cigar industry

[01:01:51] Speaker 02:
of the substantial equivalence requirement regime?

[01:01:55] Speaker 03:
Yes.

[01:01:56] Speaker 02:
And same for pipe tobacco?

[01:01:58] Speaker 03:
And same for pipe tobacco, yes.

[01:02:01] Speaker 02:
Okay.

[01:02:02] Speaker 02:
Now, I don't wanna interrupt you, but I do have different questions.

[01:02:06] Speaker 02:
Sure, I didn't know if you wanted to hear briefly about the benefit side, which was a little bit different, or if you're- Please, and that's leading to my next question, but go ahead, you go first.

[01:02:15] Speaker 03:
So on the benefit side, the quantification was not feasible for the reasons FDA explained in the final RIA, but it did qualitatively explain the benefits of premarket review generally, substantial equivalence review specifically, and with respect to cigars and pipe tobaccos, you see that specific explanation actually in the preliminary RIA.

[01:02:37] Speaker 03:
In the final version, FDA sort of uses more of a shorthand, but it's clearly referring to this in some JA sites for you.

[01:02:43] Speaker 03:
in the final RA, these sort of shorthand references are 501 and 503, but then I think where you'll see sort of a fuller explanation specific to cigars, pipe tobacco, hookahs, is at JA 525.

[01:02:55] Speaker 03:
And these explanations also overlap with the even fuller explanation of the benefits that are found in

[01:03:04] Speaker 03:
the preamble to the rule itself.

[01:03:06] Speaker 03:
And of course, that discussion of benefits is not itself a cost benefit analysis.

[01:03:10] Speaker 03:
It didn't rely on cost benefit, but it explains how pre-market review will keep more dangerous products from reaching the market and protect people that way.

[01:03:17] Speaker 02:
Okay, let me get to my first concern was like, what do the plaintiffs mean when they say this was not addressed at all?

[01:03:25] Speaker 02:
And I've got some reading to do, but assuming the reading says what you say the reading does.

[01:03:30] Speaker 02:
I'm with you on that.

[01:03:31] Speaker 02:
My other concern

[01:03:33] Speaker 02:
is JA503, I thought, was the best of what I could find, the best explanation of the regulatory regime's benefits.

[01:03:46] Speaker 02:
It was the most specific, which is not to say that it was very specific.

[01:03:52] Speaker 02:
And I get that these benefits can't be quantified and that no court, and we have precedent on this, can require an agency to measure the immeasurable.

[01:04:03] Speaker 02:
put quantitative benefits out the window and just to talk about qualitative.

[01:04:11] Speaker 02:
Qualitative has to mean enough.

[01:04:15] Speaker 02:
It has to be more than zero and it probably has to be more than just a teeny bit of benefits.

[01:04:21] Speaker 02:
And so I suspect that the FDA would say that a regulation with $77 million in costs that

[01:04:31] Speaker 02:
stops zero people from smoking would be a regulation with more cost than benefit.

[01:04:39] Speaker 02:
And I think probably you would say a $77 million cost would not outweigh the benefits of stopping just one person from smoking.

[01:04:51] Speaker 02:
And I get that you can't tell me exactly how many people will stop smoking from this, but I can't find in the cost benefit analysis

[01:04:59] Speaker 02:
very much at all about whether I should think this is a teeny bit more than one person will stop smoking.

[01:05:05] Speaker 02:
This is a lot more than one person will stop smoking.

[01:05:10] Speaker 02:
And if it doesn't, it's just the benefits seem so invisible, so difficult to grasp, so indecipherable, whereas the costs seem quite clear.

[01:05:21] Speaker 02:
Why should I not think of it?

[01:05:22] Speaker 02:
Why am I wrong about the benefits?

[01:05:24] Speaker 05:
How about never start smoking?

[01:05:27] Speaker 02:
Yes.

[01:05:27] Speaker 02:
Yeah.

[01:05:27] Speaker 02:
No, that's good.

[01:05:29] Speaker 02:
Yes.

[01:05:29] Speaker 02:
Stop.

[01:05:29] Speaker 02:
Let's get one person to never start smoking.

[01:05:32] Speaker 02:
But I think, let me, let me start with this question.

[01:05:33] Speaker 02:
Yes or no.

[01:05:34] Speaker 02:
Cause I rambled and there are probably a hundred questions in there, but let's say the $77 million cost is compared to a benefit of stopping one person from ever smoking.

[01:05:44] Speaker 02:
Do you think that the costs there?

[01:05:47] Speaker 02:
Sorry.

[01:05:48] Speaker 02:
Do you think that the benefits to that regime would outweigh the costs?

[01:05:52] Speaker 03:
I think.

[01:05:53] Speaker 03:
likely not, but an important note here, your honor, which is that Congress didn't tell FDA in making this deeming decision to consider costs and benefits.

[01:06:03] Speaker 02:
So this- That's a separate thing.

[01:06:04] Speaker 02:
You correctly said, you know, all of these questions about cost benefit assume that the FDA had to do it correctly.

[01:06:12] Speaker 02:
And you argue in your brief, they didn't have to do it correctly and that they could have ignored it and that we can ignore it.

[01:06:17] Speaker 02:
And the district court didn't quite agree with you, but I assume we're going to pay attention to it, assume the FDA had to

[01:06:23] Speaker 02:
do a cost benefit analysis where the benefits of this outweigh the costs.

[01:06:27] Speaker 02:
I agree with you that the FDA would have failed the cost benefit analysis if it had $77 million in costs and only stopped one person from smoking.

[01:06:40] Speaker 02:
How am I supposed to know that the FDA used its expertise to conclude that this regulation will stop more than one person from smoking?

[01:06:53] Speaker 03:
Three points, if I may, Your Honor.

[01:06:55] Speaker 03:
First, again, I think scope is relevant here.

[01:06:58] Speaker 03:
So this is not a pre-market review rule.

[01:07:00] Speaker 03:
It's a deeming rule.

[01:07:01] Speaker 03:
So the FDA was considering the costs and benefits of regulation as a whole.

[01:07:04] Speaker 03:
And I think that's really important when considering sort of the two sides of the scale that FDA is looking at.

[01:07:10] Speaker 03:
It's not just pre-market review that it was considering.

[01:07:13] Speaker 03:
It's whether they should be regulated and everything that flows from that.

[01:07:15] Speaker 03:
So I think that there's something a little bit artificial here about looking at this one question in isolation that's not consistent

[01:07:21] Speaker 03:
with the broader regulatory project.

[01:07:25] Speaker 03:
Second, FDA has explained in this rule and others why it's essentially impossible to predict how many lives, or that's not quite right, how many people will either not start smoking or will stop smoking as a result of certain types of regulation.

[01:07:40] Speaker 03:
And this comes up in the warning regulations, other contexts.

[01:07:43] Speaker 03:
And so that's not what FDA has tried to measure because it doesn't make sense to try to measure the immeasurable.

[01:07:48] Speaker 03:
that you won't find in the cost benefit analysis something saying how many people specifically are likely to not start smoking or likely to stop smoking.

[01:07:56] Speaker 03:
What FDA did was use, since it couldn't quantify, it couldn't come up with those numbers, what it did was use this breakeven analysis, which the OMB circular is prescribed, and it asks what value, again, we're talking about the deeming rule as a whole, not pre-market review, would have to have

[01:08:13] Speaker 03:
And it actually just looked at current smokers for that analysis, which I think is a very conservative approach because of course there's value to the people who will not start smoking, who will avoid some of the risks of secondhand smoke.

[01:08:26] Speaker 03:
But just looking at what current smokers would have to be willing to pay to justify the costs that it was able to quantify.

[01:08:33] Speaker 03:
And it found that $2 per user.

[01:08:35] Speaker 02:
So I read all that.

[01:08:38] Speaker 02:
Take a current smoker who now learns everything the FDA wants that smoker to learn.

[01:08:44] Speaker 02:
and who nevertheless chooses to continue smoking.

[01:08:50] Speaker 02:
How has the FDA's regime been of a nickel's worth of benefit to that smoker, nevermind $2 worth of benefit?

[01:08:58] Speaker 03:
In many ways, your honor.

[01:08:59] Speaker 03:
So with respect to pre-market review in particular, even if a person continues to smoke, the products that will be available to that person may well be affected by pre-market reviews.

[01:09:09] Speaker 03:
So the whole purpose is to prevent more and more dangerous products from coming to market.

[01:09:13] Speaker 03:
And we actually see that this was something Congress was specifically concerned with it cigar and cigarette manufacturers historically have have sort of incrementally recalibrated their products to refine the delivery of nicotine to make them more addictive to make them more harmful to users and the pre market review process.

[01:09:31] Speaker 03:
seeks to stop that.

[01:09:32] Speaker 03:
So it actually looks at what changes are being made to a product.

[01:09:35] Speaker 03:
It doesn't make it more harmful to the public health than if it is more harmful.

[01:09:38] Speaker 02:
That is extremely helpful.

[01:09:40] Speaker 02:
I wish you had written a cost benefit analysis, but you have helped me very much in interpreting it.

[01:09:46] Speaker 02:
So I have no more questions.

[01:09:51] Speaker 03:
I'm happy to go over the court would like, or I can make a- Judge Tatel?

[01:09:55] Speaker 04:
Yeah, I wanted to ask you about pipes.

[01:10:00] Speaker 04:
Could you, could you just tell us, so what is your view about where the agency got its authority to regulate pipes?

[01:10:09] Speaker 03:
Yes, your honor.

[01:10:10] Speaker 03:
So a few things here.

[01:10:12] Speaker 03:
So the, the statute defines tobacco product and it does so in significant part by reference to component part or accessory of such product that's right there in the statute, but it doesn't separately define those terms and in other terms, a gap for the agency to fill.

[01:10:28] Speaker 03:
So FDA was exercising its discretion in saying what that means.

[01:10:32] Speaker 03:
What is a component or part?

[01:10:33] Speaker 03:
What is an accessory?

[01:10:35] Speaker 03:
And contrary to what plaintiffs have said here today, FDA clearly and expressly and explicitly defined component or part.

[01:10:42] Speaker 03:
We're not just talking about pipes as components.

[01:10:44] Speaker 03:
The term is component or part.

[01:10:46] Speaker 03:
That's what FDA defined.

[01:10:47] Speaker 03:
That's what we're talking about here.

[01:10:48] Speaker 03:
And so your honors points earlier about the breadth of the term part absolutely inform the scope of the statutory provision being interpreted and the reasonableness of the agency's definition here.

[01:10:59] Speaker 03:
And although it's true FDA did not canvas the entire universe of products that could fall conceivably into either of these categories that wouldn't have been wieldy.

[01:11:09] Speaker 03:
It did talk about many of them.

[01:11:11] Speaker 03:
It specifically noted that pipes are properly treated as a component because of their effect on use and it analogize them to a refillable vaping pen.

[01:11:21] Speaker 03:
So that's a like an empty

[01:11:22] Speaker 03:
e-cigarette device that you can add more nicotine containing e-liquid to.

[01:11:27] Speaker 03:
And certainly that device affects the way the user is consuming this product, the chemicals and nicotine delivered to them.

[01:11:35] Speaker 03:
So two pipes act that way.

[01:11:36] Speaker 03:
The size of the bowl can affect the rate of smoke that's delivered.

[01:11:44] Speaker 03:
If there's a filter in the pipe or not, that affects the component.

[01:11:47] Speaker 03:
to the user, the size of the wool can affect moisture, which FDA noted in the rule can affect nicotine delivery to the user.

[01:11:53] Speaker 03:
So there's all sorts of ways where this product that you can't use pipe tobacco without affects the way that pipe tobacco reaches the consumer and its effect on the consumer's health.

[01:12:04] Speaker 03:
And FDA did go through in the rule a number of other products that commenters found to present closer questions.

[01:12:10] Speaker 03:
And so I'd note that in addition to the sort of obvious analogies that we cite in our brief refillable vape pens,

[01:12:15] Speaker 03:
cigarette papers and filters that are mentioned in the statute.

[01:12:18] Speaker 03:
There are also things like a bag or tin for loose tobacco, which may less obviously be a component, but FDA explained very thoroughly in the rule why those sorts of containers, bag or tin for the tobacco,

[01:12:31] Speaker 03:
an e-liquid vial, even the plastic covering for a single cigar, those are properly regulated as components or parts because they can affect in very meaningful ways the performance of the product inside.

[01:12:44] Speaker 03:
It can affect moisture again, which is relevant for the reasons I've noted.

[01:12:49] Speaker 03:
There can be an experience where chemicals from that container leach into the tobacco product and are then consumed by the user.

[01:12:58] Speaker 03:
FDA also noted that there were some instances where those containers were themselves being, that menthol was being applied to them for the purpose of mixing with the tobacco inside.

[01:13:09] Speaker 03:
So containers like that, the sort of mere vessels that plaintiffs would liken a pipe to, even those are regulated appropriately as components and parts under the regulation.

[01:13:21] Speaker 03:
And that's not challenged here.

[01:13:22] Speaker 06:
So the,

[01:13:23] Speaker 03:
that a pipe, which again is necessary to the use of pipe tobacco and affects the way its chemicals are delivered to a user is entirely appropriate.

[01:13:32] Speaker 04:
Okay, that's, that's very helpful.

[01:13:33] Speaker 04:
I just have my last question is just totally factual and maybe there's an answer in here, but in preparing for this, my law clerk went and looked at something called

[01:13:45] Speaker 04:
Etsy.

[01:13:46] Speaker 04:
Do you know what Etsy is?

[01:13:47] Speaker 04:
No Etsy, yes.

[01:13:48] Speaker 04:
Yeah, okay.

[01:13:48] Speaker 04:
Well, I actually didn't know.

[01:13:50] Speaker 04:
Anyway, he told me what it is.

[01:13:51] Speaker 04:
And he found 15,000 listings for tobacco for 15,000 listings for tobacco pipes.

[01:14:00] Speaker 04:
So are so if someone's just, you know, in their garage making pipes and selling them on there, are they subject to this statute?

[01:14:09] Speaker 03:
I believe so, Your Honor, if they're manufacturing a component or part of a

[01:14:13] Speaker 03:
tobacco product, then they would be subject to the regulations.

[01:14:16] Speaker 04:
They would have to get, they would have to apply under this statute, right?

[01:14:20] Speaker 03:
I believe so.

[01:14:21] Speaker 03:
And it may be that for some of these products, so that mean pipes have been marketed for a very long time.

[01:14:26] Speaker 03:
So there, there will be readily available predicates for many of these.

[01:14:31] Speaker 03:
And it may be for a simple product like this.

[01:14:34] Speaker 04:
It may be very simple, right?

[01:14:36] Speaker 04:
It may not be much of a burden.

[01:14:37] Speaker 04:
I see.

[01:14:38] Speaker 04:
Okay.

[01:14:38] Speaker 04:
Well, thanks.

[01:14:39] Speaker 04:
I just didn't know.

[01:14:40] Speaker 04:
So I have no further questions.

[01:14:42] Speaker 04:
So.

[01:14:44] Speaker 05:
Judge Walker, did you want to follow up at all?

[01:14:51] Speaker 05:
Judge Walker.

[01:14:53] Speaker 02:
I'm sorry.

[01:14:54] Speaker 02:
No, I don't have anymore.

[01:14:55] Speaker 02:
Thank you, Judge Rogers.

[01:14:57] Speaker 05:
All right.

[01:14:57] Speaker 05:
Thank you, counsel.

[01:14:59] Speaker 05:
Thank you.

[01:15:01] Speaker 05:
Counsel for Appellants, give you a couple of minutes.

[01:15:12] Speaker 05:
Counsel for Appellants.

[01:15:14] Speaker 05:
We'll give you a couple of minutes.

[01:15:17] Speaker 00:
Thank you.

[01:15:17] Speaker 00:
Thank you, Judge Rogers.

[01:15:18] Speaker 00:
Can you hear me now?

[01:15:19] Speaker 05:
Yes.

[01:15:20] Speaker 00:
OK, great.

[01:15:23] Speaker 00:
Thank you.

[01:15:23] Speaker 00:
I want to go directly to an early question from Judge Walker regarding the 12 month period after filing a substantial equivalence report for cigar and pipe tobacco products and when the product needs to come off the market.

[01:15:38] Speaker 00:
This came about, Your Honor, through

[01:15:42] Speaker 00:
the proposed and final rule.

[01:15:44] Speaker 00:
In the proposed rule, the agency actually proposed treating cigars and pipe tobacco like it had cigarettes, allowing the products to remain on the market indefinitely while the substantial equivalence report was considered.

[01:16:02] Speaker 00:
It changed that position in the final rule.

[01:16:04] Speaker 00:
the analysis there was that, well, we don't want dangerous products to remain on the market too long just because we're too slow.

[01:16:12] Speaker 00:
But there was absolutely no analysis in that change about whether the agency itself was ready to deal with this influx of reports and whether it had issued sufficient guidance.

[01:16:23] Speaker 02:
Ms.

[01:16:24] Speaker 02:
Powell says that although cigars and pipe tobacco may be,

[01:16:31] Speaker 02:
subject to a less friendly regime now than cigarettes were when cigarettes were first regulated under the 2009 Act, that at least as of now, cigarettes, cigars and pipe tobacco are currently being regulated under the same rules, deadlines, etc.

[01:16:50] Speaker 02:
Is that correct?

[01:16:51] Speaker 00:
That is not correct.

[01:16:53] Speaker 02:
So so cigarettes, where do I go to find that you're right that she's wrong?

[01:17:00] Speaker 00:
We go to 905J2, I believe, of the act.

[01:17:10] Speaker 00:
There, the Congress provided and the agency has followed and adopted that a product that submitted its substantial equivalence report within 22 months of the enactment of the statute

[01:17:29] Speaker 00:
could stay on the market as long as that report is pending.

[01:17:32] Speaker 00:
Now, you might think that that was a long time ago, Judge Walker, but the reality is that there are still cigarettes that were not grandfathered, that came on the market between 2007 and 2011 and had to submit this report, for which the report is still pending and those products are still on the market.

[01:17:51] Speaker 02:
So it's cigarettes that came on the market after 2011 will be treated the same as cigars

[01:17:59] Speaker 02:
that come on the market, let's say now.

[01:18:03] Speaker 00:
Yes, but I think it's important to treat apples to apples, because there's two issues with the substantial equivalence regime.

[01:18:11] Speaker 00:
One is for, in the case of cigars, products that were on the market before August 8th, 2016, and the other is for products that came on the market after.

[01:18:21] Speaker 00:
Products that wanted to come on the market after August 8th,

[01:18:26] Speaker 00:
couldn't come on until they filed a substantial equivalence report and got FDA approval.

[01:18:30] Speaker 00:
They had to stay out.

[01:18:32] Speaker 00:
But we're dealing with here, and for cigarettes, this was a period of time that happened earlier, products that had long been on the market but didn't qualify for the 2007 grandfather date.

[01:18:43] Speaker 00:
For cigarettes, that was four years.

[01:18:45] Speaker 00:
For cigars and pipe tobacco, it was 10 years.

[01:18:48] Speaker 00:
And so for that large swath of products that have already been marketed, where businesses have organized their lives around it,

[01:18:55] Speaker 00:
They had to submit substantial equivalence reports.

[01:18:58] Speaker 00:
The cigarette industry could come on and submit that report, let it stay there indefinitely while the FDA was considering it.

[01:19:05] Speaker 00:
The cigar and pipe tobacco industry had to submit the report by last September.

[01:19:09] Speaker 00:
And if we don't get a decision in a year, we have to come off the market.

[01:19:13] Speaker 00:
That's a decision that was made in the final deeming rule.

[01:19:15] Speaker 00:
And we believe that in combination with the failure to address whether the FDA was ready and whether guidance was ready to get us through that,

[01:19:24] Speaker 00:
That was an arbitrary and capricious unexplained distinction that created this mess.

[01:19:29] Speaker 00:
And it is truly a mess, Your Honor.

[01:19:31] Speaker 00:
And I would direct the court to page 556 of the Joint Appendix.

[01:19:35] Speaker 00:
There we have the February 2021 report from the FDA Center for Tobacco Policy.

[01:19:41] Speaker 00:
At that point,

[01:19:43] Speaker 00:
says that there is no way that it is going to get through the pending cigar substantial equivalence reports, the 3,000 that we talked about by September 2021.

[01:19:53] Speaker 00:
And this is really the, this 12 month crunch was totally unnecessary.

[01:19:58] Speaker 00:
It wasn't explained by the agency and it is the end of collaboration.

[01:20:03] Speaker 00:
And I want to come back to that.

[01:20:06] Speaker 02:
One of the ways that- What happened after September 2020?

[01:20:11] Speaker 02:
Did these cigar people have to just take their products off the market?

[01:20:14] Speaker 02:
Did they take their products off the market?

[01:20:18] Speaker 00:
The way it works, and this date was moved a bit, was in 2018, then it moved to 2020.

[01:20:25] Speaker 00:
But if your product came on the market between February 15, 2007, and August 8, 2016, you had to submit a substantial equivalence report by September 2020.

[01:20:39] Speaker 00:
And if you did, you could stay on the market for another year.

[01:20:42] Speaker 00:
And you could stay on the market if the FDA granted your report.

[01:20:47] Speaker 00:
If you did not, you had to come off the market.

[01:20:49] Speaker 00:
So those cigar products.

[01:20:52] Speaker 02:
In September 2021, we will know whether or not this kind of doomsday scenario you're describing has happened, where perfectly legitimate cigars are being taken off the market

[01:21:06] Speaker 02:
simply because the FDA took more than one year to respond to the application.

[01:21:13] Speaker 00:
Your honor, respectfully, I don't think we have to wait until September, 2021, because the agency is already telling us the answer.

[01:21:19] Speaker 00:
Again, at page 556 of the Joint Appendix, and it's February, 2021 report, the Centers for Tobacco Policy is announcing to all of us that it is not going to get through these reports by September, 2021.

[01:21:31] Speaker 00:
It has a bunch of excuses for that, reasons that we don't need to go into here, but the crash is coming.

[01:21:39] Speaker 04:
It's not a maybe, it's a definitely.

[01:21:42] Speaker 04:
Could it extend the date?

[01:21:43] Speaker 04:
the September date?

[01:21:46] Speaker 00:
Well, I mean, that's a great question, Your Honor.

[01:21:49] Speaker 00:
I think the agency, when it promulgated the deeming rule, thought it could extend this date on numerous occasions.

[01:21:56] Speaker 00:
The deeming rule itself, in numerous spots, page 29008, 09, 010, 016, relies on its future flexibility to adjust these compliance dates.

[01:22:10] Speaker 00:
the District Court in Maryland said it was very wrong about that.

[01:22:14] Speaker 00:
It doesn't have that flexibility.

[01:22:15] Speaker 04:
It can do it through notice and comment rulemaking.

[01:22:18] Speaker 00:
No, Your Honor.

[01:22:19] Speaker 00:
Well, I mean, Your Honor, it at least needs to do it through notice and comment rulemaking.

[01:22:23] Speaker 00:
But what the judge in Maryland also held, and this is a case that we were not permitted to be involved in, but what the judge in Maryland also held

[01:22:32] Speaker 00:
is that the ability to extend these dates is anchored by the effective date of the demeanor.

[01:22:40] Speaker 00:
He said, look, you, the FDA, activated this statute in 2016.

[01:22:45] Speaker 00:
Once you did that, if you don't do this reasonably promptly, if you keep pushing these things out, it's going to turn into post-market review, not pre-market review, although it already kind of was.

[01:22:56] Speaker 00:
That is a fundamental legal error that lies at the basis of the FDA's analysis of whether it had enough guidance out there.

[01:23:06] Speaker 00:
And it licensed the FDA to punt that issue, to say that we'd get to it later, to not

[01:23:14] Speaker 00:
completely run the ground whether the guidance were sufficient and say that it may issue it in the future.

[01:23:20] Speaker 00:
And that's combined with this 905J1 error, not making provision for this rule to get out before these reports were due, it shows that the agency was

[01:23:30] Speaker 00:
laboring under a legal misconception.

[01:23:32] Speaker 00:
And when that happens, we send rules back to the agency for it to make proper policy decisions on the basis of correct legal principles.

[01:23:44] Speaker 00:
And we don't speculate about what it would have done.

[01:23:47] Speaker 05:
Let me ask you, you may ultimately be correct, but suppose the problem is not the absence of the guidance that you say is necessary, but simply staff.

[01:24:00] Speaker 05:
Agencies inundated with these requests.

[01:24:03] Speaker 05:
Yeah, it's 10 people assigned to review them.

[01:24:07] Speaker 05:
It's got 33,000 requests.

[01:24:10] Speaker 05:
Can't do it that fast.

[01:24:12] Speaker 05:
All right, now that doesn't take away your argument that the agency was arbitrary in thinking that it could, but that's a different issue.

[01:24:22] Speaker 05:
And I didn't see that addressed at all anywhere.

[01:24:27] Speaker 00:
Well, I think that is a component.

[01:24:29] Speaker 00:
Again, the issue in the deeming rule is not just whether to regulate products, it's when.

[01:24:36] Speaker 00:
Because nothing in the act said that the FDA had to regulate cigars, and it didn't tell them when it had to regulate cigars.

[01:24:43] Speaker 00:
As a matter of fact, it waited seven years to do so.

[01:24:45] Speaker 00:
But we think part and parcel of the deeming decision, part and parcel of the decision to throw it in the pre-market review, was a considered calculation of whether the agency was ready for it.

[01:24:56] Speaker 00:
And we are attacking one aspect of that, whether it has sufficient guidance out there, but its capacity to deal with this influx is an entirely different question that plays into the grandfather they do because they pushed

[01:25:08] Speaker 00:
10 years of cigars that were already on the market through this process where it could have focused on new ones.

[01:25:13] Speaker 00:
It could have staggered that review.

[01:25:14] Speaker 00:
All of these considerations weren't taken seriously by the FDA when it promulgated the final deeming rule.

[01:25:23] Speaker 00:
Instead, it said, you know, we'll address these issues later and it's all going to be okay because we have the flexibility to adjust these dates.

[01:25:29] Speaker 00:
The district court in Maryland said no, and that legal error

[01:25:32] Speaker 00:
is driving a lot of these issues.

[01:25:36] Speaker 00:
So, but I do think that the guidance or the adequacy thereof is an issue, because if you go back and look at the 2011 cigarette guidance, and I will assert to you that it is cigarette guidance, it refers directly to HBHC methodologies for cigarettes.

[01:25:52] Speaker 00:
But if you go back and look at that guidance, there's a suggestion, I think it's at page 262 of the Joint Appendix,

[01:26:00] Speaker 00:
where the agency said, look, this is all going to be OK, because you can remain on the market as long as the report is pending.

[01:26:06] Speaker 00:
And we can go back and forth and make sure that you have enough in your report to get through.

[01:26:11] Speaker 00:
We're going to have a collaborative process.

[01:26:13] Speaker 00:
And that is exactly what happened.

[01:26:14] Speaker 00:
It took years and years and years for these cigarette reports to get through the process.

[01:26:20] Speaker 00:
The agency kept coming back to manufacturers and say, well, we need this.

[01:26:24] Speaker 00:
Your report needs to be supplemented by that.

[01:26:26] Speaker 00:
That's not going to happen with regard to the cigars.

[01:26:28] Speaker 00:
And the only reason it's not going to happen is because they set this 12-month exit date.

[01:26:35] Speaker 00:
And they shouldn't have done it.

[01:26:37] Speaker 00:
There's just no explanation for it.

[01:26:39] Speaker 00:
And it was arbitrary and capricious to do so.

[01:26:41] Speaker 00:
And it's creating the crisis that we're about to confront.

[01:26:45] Speaker 00:
Um, I also want, I also want to go to a question that, uh, council for the government, uh, address that that's the adequacy of the guidance in question.

[01:26:56] Speaker 00:
Your honor, State Farm tells us that that we need the agency to be making these assertions that the guidance is adequate, not, not, not litigation counsel before this court.

[01:27:07] Speaker 00:
And that's never a conclusion that the agency reached.

[01:27:11] Speaker 00:
And as a matter of fact, in the final deeming rule, carefully avoided it.

[01:27:14] Speaker 00:
After the final deeming rule, in a review contemplated by the deeming rule itself, the agency concluded time and time again that the guidance was inadequate for cigars and pipe tobacco.

[01:27:25] Speaker 00:
It did so in the 2017 press release.

[01:27:28] Speaker 00:
It did so in the proposed rule for the form and manner rule.

[01:27:31] Speaker 00:
It did so in remarks of the agency head in connection with the issuance of that rule.

[01:27:36] Speaker 00:
So I think at this point, we really can't dive into this assertion that there was enough out there for this process to go forward.

[01:27:44] Speaker 00:
It's not a conclusion that the agency made.

[01:27:47] Speaker 00:
It's a litigation argument.

[01:27:49] Speaker 00:
And State Farm tells us that we need to listen to the agency officials and what the agencies say or do not say in their rulemaking in order to reach these conclusions.

[01:28:01] Speaker 00:
We think that it's an issue that the agency should have reached in the final deeming rule itself.

[01:28:08] Speaker 00:
I also want to

[01:28:11] Speaker 00:
dissuade the court from taking up the invitation of relying on Nikapur.

[01:28:16] Speaker 00:
That case was about e-cigarettes that go through a different pre-market review pathway, don't have the 905J1 issue.

[01:28:23] Speaker 00:
All the arguments there about changing this process were about policy, and no statutory authority was offered.

[01:28:32] Speaker 00:
On 905J1 itself, the requirement to put out the form and manner rule, it's in the same sentence as the due date for the substantial equivalence reports, and it assumes by that due date that the agency will have already prescribed

[01:28:47] Speaker 00:
the form of manner of these reports need to be.

[01:28:50] Speaker 00:
I want to come back, Judge Tatel, to a question that you asked me regarding pipes and where in the rule there is a suggestion that the policy determination relied on its interpretation of the statute.

[01:29:08] Speaker 00:
I would direct the court to the

[01:29:09] Speaker 00:
The last paragraph in the third column of page 28, 711 of the user fee rule, continuing on to the first column there, there's a strong reliance on its previous statutory interpretation arguments.

[01:29:24] Speaker 00:
And if you see the last paragraph of page 712, there is a extensive discussion of the reason that they're not doing this is because Congress didn't tell them how to do it.

[01:29:39] Speaker 00:
This is a responsibility now that the FDA has taken over.

[01:29:44] Speaker 00:
The user fee rule was about getting this information from manufacturers and it certainly could do it with regard to e-cigarettes.

[01:29:53] Speaker 00:
It's a problem that could capsize the entire rule.

[01:29:58] Speaker 00:
With regard to cost benefit analysis, I would invite the court to look at how it

[01:30:05] Speaker 00:
how the agency dealt with e-cigarettes in the pre-market review process.

[01:30:10] Speaker 00:
It went through in the final regulatory impact analysis, an extensive discussion of the precise problems with e-cigarettes, how their particular ones are endangering youth, how the pre-market review process was going to stop that.

[01:30:23] Speaker 00:
What we missed in the cross-benefit analysis with regard to cigars, with any of that, instead there was a very significant focus

[01:30:34] Speaker 00:
on on on

[01:30:38] Speaker 00:
Instead, there was a general discussion that says, if there are unsafe products out there, we don't know what they are.

[01:30:43] Speaker 00:
It wasn't even an example.

[01:30:44] Speaker 00:
The pre-market review process will root them out.

[01:30:48] Speaker 00:
And there was really no justification about throwing the last 10 years of cigar products that had long been on the market into this process.

[01:30:55] Speaker 00:
We can go back to this court's decision in RJR.

[01:30:59] Speaker 00:
The RJR decision about a half decade ago struck down the FDA's warnings requirements for cigarettes.

[01:31:06] Speaker 00:
And one of the things that happened in there was the FDA had gone through an analysis about how much its rule would change cigarette smoking.

[01:31:15] Speaker 00:
And the conclusion was 0.001%.

[01:31:18] Speaker 00:
And this court said, well, geez, that's not enough to make this endeavor non-arbitrary.

[01:31:26] Speaker 00:
After that happened, the FDA very consciously got out of the business of explaining how its regulation would reduce smoking rates, because it didn't like the outcomes.

[01:31:36] Speaker 00:
And I don't think the FDA should be rewarded for getting out of that business.

[01:31:40] Speaker 00:
The cost benefit analysis, which was explicitly relied on in the final deeming rule is an effort to circumvent that important question that really should have been addressed by the FDA.

[01:31:54] Speaker 00:
I can see that I'm being abusive of the court's time and I'd be happy to answer any questions that the court might have in addition to what I've just mentioned.

[01:32:05] Speaker 05:
Thank you.

[01:32:06] Speaker 05:
Any further questions?

[01:32:07] Speaker 02:
No.

[01:32:08] Speaker 02:
Thank you.

[01:32:09] Speaker 02:
No.

[01:32:10] Speaker 05:
Thank you, Council.

[01:32:11] Speaker 05:
Thank you, Your Honor.

[01:32:12] Speaker 05:
Under advisement.