Mr. John Clerici

October 6, 2004

JOHN M. CLERICI, ESQUIRE
PARTNER, MCKENNA LONG & ALDRIDGE LLP
WASHINGTON, D.C.
TESTIFYING BEFORE THE UNITED STATES SENATE
COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
AND
COMMITTEE ON THE JUDICIARY
REGARDING THE
BIOSHIELD II: RESPONDING TO AN EVER-CHANGING THREAT
October 6, 2004
John M. Clerici
McKenna Long & Aldridge LLP
1900 K Street, NW
Washington, DC 20006
(202) 496-7574
jclerici@mckennalong.com
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Chairman Gregg, Chairman Hatch, Senator Kennedy, Senator Leahy, and
Members of the Committees, it is an honor for me to testify before you today
regarding liability and antitrust issues surrounding the creation of an effective biodefense
industry in the United States. I would like to recognize the commitment
and leadership on the issue of bio-defense displayed by each of you in the drafting
and passage of the Project Bioshield Act of 2004. Specifically, the foresight of
Chairman Hatch and Senator Lieberman in introducing similar legislation soon
after the attacks of 2001 and the leadership of Chairman Gregg and Senator
Kennedy in introducing S. 15 and seeing it through to passage are to be
commended. America is safer thanks to your leadership and actions.
My testimony today is based on direct experience advising government
contractors, pharmaceutical, and bio-tech companies throughout America and
throughout the world on how to bring the best possible homeland security and antiterrorism
solutions to both the government and private markets. My work over the
last three years has centered on addressing liability issues surrounding anti-terror
goods and services, including, specifically, bio-defense countermeasures. My firm
and I played a key role in the drafting and passage of the SAFETY Act, including
representing all four entities that received the first certifications under the Act on
June 18, 2004. There is no greater concern - particularly, for public corporations in
the post- Sarbanes/Oxley environment - than ensuring a balance between
responding to the nation's need for high-quality anti-terror technology and
protecting corporate assets from unnecessary, expensive litigation that threatens
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the very existence of these companies and prevents effective countermeasures from
being deployed.
In the area of bio-defense, we have worked closely with a number of
pharmaceutical and bio-tech companies to ensure that the Project Bioshield Act of
2004 addressed what they perceived as obstacles to entering the bio-defense
market. I am happy to testify that through the leadership of the Bush
Administration and Congress, this landmark legislation has achieved a great deal.
It provides the Federal government the ability to ensure industry a market for biodefense
products. It streamlines the contracting process to attract great interest
from non-traditional government contractors. It provides funding to allow the
Federal government to purchase and stockpile critical countermeasures. And it
allows the President to act during an emergency to get the best countermeasures
available into the hands of our public health officials, regardless of whether every
regulatory step required in peacetime has been completed. In short, Project
Bioshield is a positive step in protecting the nation.
Congress now has the opportunity to build upon this success by enacting
Bioshield II. There are two issues that I would like to discuss today that merit
consideration as part of Bioshield II. First, Congress should act to remove obstacles
caused by liability concerns that prevent bio-defense countermeasures from coming
to market. Second, Congress should encourage the use of existing antitrust
authorities to stimulate and streamline industry participation in this critical
market.
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Liability Must be Addresses to Have a Successful Bio-Defense Industry
Make no mistake - liability concerns are preventing critical bio-defense
measures from being developed and coming to market. There is a clear difference
between the liability concerns of a company engaged in day to day drug
development and sales and the concerns of a bio-defense provider. First and
foremost, these countermeasures are, by their very nature, meant to prevent or
mitigate the impact of a criminal, terrorist act. Such acts are unpredictable and the
means to address their impact must rely only upon available intelligence, predictive
models, and, to a large degree, luck. This is not an environment that any
responsible company can enter lightly. And without an effort to address the issue of
liability, it is a market I regret to say many of the best and brightest will simply
avoid.
Nature of the Liability Threat
Manufacturers of countermeasures produced under Project Bioshield risk
exposure to devastating product liability lawsuits to a far greater degree than
typical drug companies. Project Bioshield specifically contemplates that such
countermeasures may be made available without the usual battery of clinical trials
required for other FDA-approved products. Safety and efficacy data must be
derived, for the most part, from animal trials since healthy humans cannot be
exposed toxic agents during testing for obvious reasons. Thus, these critical
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countermeasures must be developed and are likely be deployed without the full
battery of testing typical of other drugs.
Moreover, the distribution and administration of countermeasures in
response to a bioterrorist attack will most certainly require the government's
enhanced role in recommending, distributing and administering countermeasures
during a crisis. The very nature of deploying countermeasures in the fog of a crisis
will clearly expose manufacturers to unknown and unquantifiable liability that
cannot be addressed simply by good laboratory and manufacturing practices and
insurance.
Additionally, the government may rightly decide to purchase and stockpile
countermeasures with undetermined side effects until a better countermeasure is
developed. These stockpiles could remain in place for years, only to be deployed in
an emergency. Further, the government has the ability now to administer
countermeasures developed under Bioshield, even without full regulatory approval.
Finally, the market for bio-defense countermeasures is limited primarily to
government stockpiles. Thus, unlike with drugs produced to treat illness or even
infectious disease, there is no predictable, reoccurring market that would allow a
company to spread the liability risk across a large volume of drugs for a period of
years.
Even as the government has begun to purchase Bioshield countermeasures,
it has no current way to resolve issues of liability - an issue of grave concern to
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industry - with any degree of certainty as part of the procurement process. The net
impact of this atmosphere results in needed countermeasures not being developed
and deployed, thereby exposing the economy, and the nation as a whole, to far
greater potential liability due to the lack of available effective countermeasures in
the event of attack. Either way, the Federal government is likely to the bear both
the human and financial cost of such an attack as it did on September 11th. But by
failing to account for these costs before an attack, countermeasures will not be
developed and the nation will be more exposed to attack.
Available Liability Mitigation Tools are Inadequate
Congress should act to address liability in, at a minimum, three ways: by
encouraging expanded use of existing indemnification authorities; by expanding the
SAFETY Act to cover vaccines and other countermeasures deployed prior to a
terrorist attack; and, by expanding the compensation scheme provided for smallpox
countermeasures to cover all countermeasures produced under Project Bioshield.
Currently, there exists only two ways the Federal government can mitigate
the liability concerns for providers of countermeasures other than smallpox vaccine
- through Federal indemnification under Public Law 85-804 and through
designation/certification under the SAFETY Act.
Public Law 85-804
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As you are aware, Public Law (P.L.) 85-804 (August 28, 1958, codified at 50
U.S.C. § § 1431 - 1435) grants the President extremely broad authority that allows a
Federal government contractor to obtain financial or other forms of relief under
certain circumstances, even when the government may have no express legal
obligation to grant such relief, or when there are express prohibitions against such
relief contained in other statutes, regulations, or common law. Under this
authority, the heads of designated departments or agencies have the discretionary
power to provide contractors with government indemnity when they are engaged in
unusually hazardous or nuclear activities and when it is in the interest of the
national defense to provide such indemnity. Of course, the liability protections
offered by P.L. 85-804 still requires years of litigation until victims are ultimately
compensated.
In essence, indemnification under P.L. 85-804 relies upon the usual tort
system and simply places the Federal government in the position of an insurer
where payments are made only after all claims have been adjudicated in the court
system and judgments have bee rendered. This rather lengthy process does not
result in compensation to victims being paid in a timely manor nor does it place any
effective limits on the Federal government's contingent liabilities when it acts in
this capacity. However, given the types of risk it is meant to address, P.L. 85-804
has proven to be an effective means of addressing liability concerns for the
deployment of unusually hazardous technologies to the Federal government.
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This authority has been invoked by the Department of Health and Human
Services (which was first granted the authority in October 2001 following the
anthrax attacks) in agreements involving the donation of smallpox vaccine by
Wyeth and Aventis Pasteur to the Federal government in 2001. However, HHS will
not, as a matter of HHS policy, address the issue of indemnification prior to award
of a contract for a countermeasure. This policy leaves potential providers of biodefense
countermeasures in the position of having to expend scarce resources to
prepare and submit a proposal that may result in a contract that cannot be accepted
due to the lack of liability protections should HHS ultimately refuse to provide
indemnification. More often, companies simply refuse to bid at all due to the lack of
certainty on the issue of liability. This has resulted in the largest, and far more
experienced, drug companies with the necessary expertise to address this threat
being left on the sidelines of the war on terror - a result that does not serve the
nation well.
In addition, on February 28, 2003, President Bush significantly modified E.O.
10789 implementing P.L 85-804 by adding additional requirements for heads of
agencies and departments considering requests from contractors seeking Federal
indemnification for certain products and services. Under the Executive Order, as
revised, the head of a Federal agency or department, other than the Secretary of
Defense, considering a contractor's request for Federal indemnification for products
or services that have been or could be designated as "qualified antiterrorism
technologies" under the SAFETY Act must now consult with the Secretary of
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Homeland Security and receive the approval of the Director of the Office of
Management and Budget (OMB) before granting such a request. During this
consultation, the Secretary of Homeland Security must advise the head of the
agency or department whether use of the authorities provided to the Secretary of
Homeland Security under the SAFETY Act would be more appropriate than Federal
indemnification. If the head of the non-Defense agency or department determines
that Federal indemnification is appropriate after such consultation, he must also
receive approval from the Director of OMB before granting the contractor's request
for Federal indemnification under P.L. 85-804. The revised Executive Order further
states that the Secretary of Defense must only consider whether use of the SAFETY
Act is appropriate before granting Federal indemnity for indemnification for
products or services that have been or could be designated as "qualified
antiterrorism technologies" under the SAFETY Act. Coordination with the
Secretary of Homeland Security and approval by the Director of OMB is not
required.
SAFETY Act Does Not Provide Protection from Pre-Terrorist Liability
The SAFETY Act does, in fact, provide significant protections to providers of
countermeasures that receive certification under the Act. I must note, however,
that to date, no such certifications have been granted for bio-defense
countermeasures.
Significantly, Section 865(1) of the SAFETY Act notes that qualified antiterrorism
technologies may include technologies deployed for the purpose of
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"limiting the harm such acts [of terrorism] might otherwise cause." The "harm"
that may be caused by an act of terrorism clearly goes beyond the immediate effects
of the act itself. An act of terrorism such as the attacks of September 11th or the
October 2001 anthrax attacks trigger a number of immediate remedial and
emergency responses to limit the resulting harm and deter follow-on attacks.
For example, immediately following the detection of anthrax in the offices of
Senator Tom Daschle and Senator Patrick Leahy, Members of Congress and their
staffs were treated with antibiotics and other prophylactic measures with the goal
of limiting the harm that this act of terrorism could cause. Clearly, any injuries
that might have been caused by the administration of these treatments, even
though direct results of the act of terrorism itself could be directly traced to the act
and the objective of limiting the resulting harm. Moreover, any claims brought as a
result of such injuries would clearly be "arising out of, relating to, or resulting from
an act of terrorism."
Limitations of the SAFETY Act for Bio-Defense Countermeasures
While the SAFETY Act can provide signification protections to a company, it
has limitations in the context of countermeasures. Most significantly, the SAFETY
Act does not provide compensation for those injured by qualified technology.
Rather, the liability is removed as matter of law. That said, if the SAFETY Act
were to be coupled with a limited compensation scheme bio-defense coutermeasures,
liability would be addressed and victims could be made whole.
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Moreover, the potential liability of a provider of anti-terrorist technologies
that may allegedly cause injury PRIOR to a terrorist attack, such as a vaccine, are
not currently addressed by the SAFETY Act.
In the legislative history of the Project BioShield Act of 2002, Congress stated
that the Secretary of Homeland Security is "encouraged to designate [biodefense]
countermeasures as 'qualified anti-terrorism technologies' as defined in section 862 of
the Homeland Security Act." In the context of Project BioShield, there is great concern
by makers of bio-terrorism countermeasures, diagnostics, and therapeutics that SAFETY
Act protections do provide protection since liability frequently exists PRIOR to, in
addition to following an act of terrorism.
For example, in the context of a diagnostic, a test kit for Anthrax exposure
that may, perhaps, provide false positives would expose the manufacturer to
tremendous - and likely insurable liability - thereby preventing widespread
deployment, even if the diagnostic is the current state of the art.
Also, recognize that the research and development into these bio-defense
measures as well as production, itself, may expose a company to potential liability
given that both R&D and production may involve toxic materials, even if those toxic
materials cannot possibly harm the public. For example, BIOPORT, the
manufacturer of the Anthrax vaccine provided to the Department of Defense long
before 9/11, was sued in Florida in the Fall 2003 for allegedly not preventing the
Anthrax strain that killed the gentlemen in Florida in October 2001 from being
stolen by terrorists. However, BIOPORT does not possess - nor has it ever
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possessed - live strains of Anthrax. Moreover, the R&D companies that support the
bio-defense industry that do routinely use these toxins, and yet, very rarely receive
indemnification. This is just one example among many.
SAFETY Act Protections Should be Extended
Through minor changes to existing language, SAFETY Act protections should
apply to technologies that mitigate against terrorist incidents, and such protections
should attach if there is the POTENTIAL for a terrorist attack - not just after an act
of terrorism occurs. Minor changes to the SAFETY Act, such as those proposed by
Congressman Curt Weldon (R-PA) would easily address this issue and would be a
significant step in providing the certainty necessary to stimulate the bio-defense
market. (See attached).
Protections for Smallpox Vaccine Should be Expanded to All Biodefense
Countermeasures
The liability protections provided under the Homeland Security Act of 2002
(P.L. 107-296), and further expanded by the Smallpox Emergency Personnel
Protection Act of 2003 (P.L. 108-20) for the administration of smallpox vaccines are,
indeed, quite powerful. Though currently limited only to smallpox vaccine, the
Congress should strongly considered extending this legislation to apply to providers
of any countermeasure developed under Project Bioshield. Such a change would
provide additional certainty on the issue of liability and would positively impact the
creation of bio-defense countermeasures. I note that this provision is somewhat
limited in that it is only triggered by declaration of the Secretary of Health and
Human Services such that has been made regarding smallpox. Moreover, there are
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significant questions regarding the precise scope of the protections afforded by this
measure regarding the types of claims covered and the specific entities that are
protected. Still, expansion of this measure to protect manufactures of
countermeasures produced under Project Bioshield would be a significant
improvement to the status quo.
Any legislation expanding the coverage of the liability protections afforded
smallpox vaccines under the Homeland Security Act of 2002 must also expand the
statutory language provided by the Smallpox Emergency Personnel Protection Act
of 2003 to ensure identical treatment of all countermeasures with smallpox vaccine.
It must also squarely provide liability protections for injuries alleged to be caused
by non-negligent administration of the countermeasure (e.g., claims for breach of
warranty and/or strict liability). Such legislation, coupled with expansion of the
SAFETY Act, will provide the certainty necessary to develop a fully responsive biodefense
industry as quickly as possible and will provide a means for unintended
victims to be compensated.
Existing Antitrust Measures Should Be Used to Address Bio-Defense Market
Concerns
Turning to antitrust concerns surrounding Project Bioshield, the
government's current homeland security efforts require various agencies, including
the Department of Defense, to purchase a number of vaccines and other drugs to
address multiple bio-terror threats. There are a limited number of companies
capable of supplying such products to meet the government's growing needs.
Further, no single company has the resources necessary to respond effectively to
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multiple solicitations for such products. Moreover, the government market for these
products is rather limited and uncertain, even with the passage of Project Bioshield.
The limitations and uncertainties inhibit research, development and production of
these products to satisfy the government's national defense needs that would
normally be spurred through competitive market forces.
Defense Production Act Provides the Authority to Convene an
Industry-wide Meeting
To address these challenges, the government has the express authority under
the Defense Production Act (DPA) of 1950, as amended, 50 USC App. § 2361 et seq.,
to convene a meeting of all relevant companies competing for government contracts
that call for the development and production of certain vaccines for national defense
purposes. Under such authority, the government may provide immunity from
potential antitrust liability to a company that participates in a process with its
competition, including meetings, the objective of which is to address issues of
common concern to industry and the government. The government may, in
exercising this authority, require competitors to act in collaboration or share
information that otherwise could not be shared due to antitrust laws and
regulations. The objective of this process would be to reduce or eliminate barriers
that prevent companies from satisfying the government's national defense needs.
The DPA provides the government with the authority to permit companies to
enter into certain agreements that could include potential competitors and would
have the effect of altering competitive behavior for the development of bio-defense
countermeasures -- activities which would otherwise violate the antitrust laws.
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Under the DPA, the government may convene a meeting with all or some of the
nation's bio-defense manufacturers to discuss the government's bio-defense
procurement requirements. Topics at such a meeting may include issues of common
concern such as market allocation, agreements that certain companies respond to
specific solicitations, and/or required contract terms such as indemnification. If the
DPA's statutory prescriptions are satisfied, the government's valid exercise of its
DPA authority would provide complete protection against the operation of certain
antitrust laws for the private-entity participants in this process.
The government has the authority to convene meetings and execute
agreements creating what could be described as a "managed market" that fall under
the DPA's exemption from the antitrust laws. Under this authority, parties could
meet to discuss a proposed division of the total market for vaccines,
countermeasures, and other drugs necessary to support homeland security,
including possibly allocating drug research development and production contracts
among potential competitors to avoid inefficient procedures associated with full and
open competition in this context. Such a meeting might also address the need for
certain contract provisions. The conduct of such meetings undoubtedly would
require the sharing of information that could otherwise not be shared due to the
operation of antitrust laws and regulations.
The DPA, and specifically 50 USC App. § 2158, expressly enable the creation
of agreements among potential competitors, with the participation of the United
States, the purpose of which is to manage the development and production of
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defense-related goods and services and which agreements, but for this provision,
might violate certain antitrust laws. Thus, the DPA will provide immunity1 from
any public or private antitrust action brought against a company that participates
in such a meeting, provided that all of the technical elements outlined in the DPA
have been met.
Essential to the operation of this exemption from the antitrust laws and
regulations is the active participation of the United States which participation is
described in considerable detail in the DPA itself. When conditions exist that
directly threaten the national defense or its preparedness programs, the DPA
authorizes the President to give antitrust immunity to rival contractors for the
purposes of forming agreements to develop preparedness programs and to expand
production capacity and supply beyond levels needed to meet essential civilian
demand. William E. Kovacic, Antitrust Analysis of Joint Ventures and Teaming
Arrangements Involving Government Contractors, 58 Antitrust L.J. 1059 (1989).
Immunity against any civil or criminal action brought under federal antitrust laws
or any similar law of any state may be conferred on any person that:
· Takes any action in the course of developing a voluntary agreement
initiated by the President or a plan of action adopted under such
agreement; or
1 While the statute itself refers to an "immunity" that is being conferred, we do not believe that the
exemption amounts, literally, to an "immunity." Our reason for differing on the effect of the law is
that a company would not be "immune" from an action brought by a private party or government,
but rather could prevail in an antitrust action brought against it by showing that it had complied
with a government supervised voluntary agreement or plan of action. See, 50 USC App. § 2158(j).
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· Takes any action to carry out an approved voluntary agreement or
plan of action initiated by the President; and
· Complies with the requirements of the DPA; and
· Acts in accordance with the terms of voluntary agreement or plan of
action.
50 USC App. § 2158(j)(1).2
"Antitrust laws" for purposes of the DPA, have "the meaning given to such
term in subsection (a) of the first section of the Clayton Act, except that such term
includes Section 5 of the Federal Trade Commission Act to the extent that such
section 5 applies to unfair methods of competition." 50 USC App. § 2158(b). That
definition includes (by referencing the Clayton Act) the Sherman Act, 15 U.S.C. § 1,
et seq., which contains the antitrust prohibitions potentially applicable to the
actions contemplated in this memorandum. The person seeking the immunity has
the burden of persuasion to establish that each of the elements for receiving
immunity under the DPA have been met. 50 USC App. § 2158(j)(3).
While immunity is not available if "the action was taken for the purpose of
violating the antitrust laws," this provision does not present a problem for the
government to achieve the overall objectives of the DPA. This language was
2 If a voluntary agreement or plan of action is accompanied by contracts with the United States that
call for the conduct of the necessary research, development, and production, additional statutes exist
which would protect against antitrust laws. See 10 USC § 2304(c) and 41 USC § 303©.
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inserted during reauthorization of the DPA in 1991 as a "face-saving" measure for
those legislators hesitant to reenact the antitrust immunity provisions of the DPA
for fear of eviscerating existing antitrust law. Assuming that a company act in
accordance with provisions of the DPA, and follows the government's directions in
that regard, by definition, they are not acting for the "purpose" of violating antitrust
laws.
Separately, the DPA provides immunity from liability, damages or penalties
based upon acts or omissions "...resulting directly or indirectly from compliance
with a rule, regulation or order issued pursuant to this act" even if such rule,
regulation or order is thereafter held to have been invalid. This additional
protection is operative here because the supervised agreements contemplated by the
DPA would generally be effectuated by agency "rule" and "order" under the terms of
the Act. This provision of the DPA is indeed written as a true immunity provision
and, in our view, would bar a private antitrust action.
The Homeland Security Act of 2002 contains a provision that expressly
references the antitrust exemptions of the DPA. The provision recites that the DPA
confers antitrust immunity to participants in a "critical infrastructure protection
program" established in accordance with the Homeland Security Act of 2002. This
language was inserted in lieu of a stand-alone antitrust exemption which was
ultimately considered unnecessary.
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Moreover, the Federal Maritime Administration used the DPA for these
purposes as recently as 1996. Under that voluntary agreement, the Department of
Transportation convened a meeting with eligible U.S.-flag vessel operators to enter
into a "Voluntary Intermodal Sealift Agreement" (VISA) to address the total sealift
needs of the United States in the event of a national emergency. Specifically, the
action was undertaken with the intention that "the participants that are party to a
VISA will provide capacity to support a significant portion of surge and sustainment
requirements in the deployment of U.S. military forces." 60 FR 54144 (October 19,
1995). While the DPA was used to allocate market-share on at least fifty occasions
during the Korean War,3 the VISA program is the most recent example of the
governments use of the DPA for these purposes. The VISA program remains in
effect today. These examples demonstrate that the DPA is available to protect
participants from antitrust liability for government-sponsored agreements to divide
market share among competitors.
As a prerequisite to establishing a voluntary agreement under the DPA, the
President (or his approved designee) must find that "conditions exist which may
pose a direct threat to the national defense or its preparedness programs." 50 USC
App. § 2158(c)(1). By Executive Order 12919, dated June 3, 1994, the President has
delegated this authority to the heads of each federal department or agency. E.O.
12919, Part V, Sec. 501. Once appointed, the President's designee (defined as the
3 See generally, Harold L. Schilz, Voluntary Industry Agreements and Their Exemptions from the
Antitrust Laws, 40 Va. L. Rev. 1 (1954).
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"sponsor" by the governing regulations) must consult with the Attorney General and
the FTC not less than 10 days before attending a meeting discussing any proposal
to develop a voluntary agreement. In addition, the sponsor must have received
prior approval from the Attorney General to have such a meeting. 50 USC App. §
2158(c)(2).
Regulations providing the standards and procedures by which voluntary
agreements may be developed are found at 44 CFR 331.1-4. In accordance with
these regulations, any sponsor that wishes to develop a voluntary agreement shall
submit to the Attorney General and the Director the Federal Emergency
Management Agency (FEMA) a proposal that includes statements regarding:
· The purpose of the agreement;
· The factual basis for making the finding that "conditions exist which
may pose a direct threat to the national defense or its preparedness
programs;"
· The proposed participants in the agreement; and
· Any coordination with other federal agencies accomplished in
connection with the proposal.
Upon a finding that the prerequisites for initiating a meeting to discuss a
voluntary agreement under the DPA have been met, "the President [or the approved
sponsor] may consult with representatives of industry, business, financing,
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agriculture, labor, and other interests...[to facilitate the creation of]...voluntary
agreements and plans of action to help provide for the defense of the United States
through the development of preparedness programs and the expansion of productive
capacity and supply beyond levels needed to meet essential civilian demand in the
United States." 50 USC App. § 2158(c)(1).
Voluntary agreements may only be developed with the direct involvement of
the Attorney General, the Chairman of the FTC, and the Director of FEMA, or their
designees. The sponsor of the agreement must serve as the chairman of any
meeting discussing proposed voluntary agreements. The sponsor must ensure that
notice of the time, location, and nature of any meeting discussing a proposed
voluntary agreement is published at least seven day in advance. All interested
persons must be invited to submit written data and views concerning the proposed
voluntary agreement, with or without the opportunity for oral presentation. In
addition, all interested persons must be invited to attend any meeting discussing
the proposed agreement, unless the chairman finds the subject of the meeting is
protected under the Freedom of Information Act (FOIA). Finally, a full and
verbatim transcript must be prepared for any meeting discussing the proposed
agreement. This transcript must be provided to the Attorney General, the FTC, and
Congress, and be made available for public inspection and copying, subject to FOIA.
50 USC App. § 2158(d); 44 CFR 332.2.
Voluntary agreements are executed through a "plan of action," which may
include the conduct of research and development contracts. Such a plan may also
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include contracts for the production of goods and services or other actions as agreed
to by the parties to the voluntary agreement and the government.4
Voluntary agreements, and any plans of action contemplated by such
agreements, become effective when the sponsor certifies, in writing, that the
agreement or plan is necessary and the sponsor submits the agreement or plan to
Congress. In addition, the Attorney General (with consultation from the FTC
Chairman and the FEMA Director) must find, in writing, that the purpose of the
action "may not reasonably be achieved through a voluntary agreement or plan of
action having less anticompetitive effects or without any voluntary agreement or
plan of action and publishes such finding in the Federal Register." 50 USC App. §
2158(f)(1); 44 CFR 332.1(b)(2); E.O. 10480, §§ 101 & 501(a).
Voluntary agreements and plans of action contemplated by such agreements
expire two years from the effective date and may be extended upon certification or
finding by the sponsor and the FEMA Director that such extension is appropriate.
50 USC App. § 2158(f)(2). The Attorney General may terminate or modify a
voluntary agreement, in writing, after consultation with the FTC Chairman. The
sponsor of the agreement, with the concurrence of the FEMA Director, may
terminate or modify a voluntary agreement, in writing, after consultation with the
Attorney General and the FTC Chairman. Any person who is a party to a voluntary
4 The term "plan of action," as defined by the DPA, means "any of 1 or more documented methods
adopted by participants in an existing voluntary agreement to implement that agreement." 50 USC
App. § 2158(b)(2). A plan of action is issued by the government with the express agreement and
cooperation of all of the parties to the voluntary agreement.
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agreement may terminate his participation in the agreement upon written notice to
the sponsor. No antitrust immunity shall apply to any act or omission occurring
after the termination of the voluntary agreement or any act or omission that is
beyond the scope of the agreement. 44 CFR 332.5.
If the technical elements of the DPA have been satisfied, competitors may
meet to discuss with government the formation of voluntary agreements with its
potential competitors that could have the effect of dividing the markets or
developing common contract terms for the countermeasures to be developed. Such
voluntary agreements may include a plan of action to be issued by the sponsoring
agency that permits, among other things, division of market share and/or
assignment of certain contracts among participants to the agreements. Again, all
such meetings, voluntary agreements, and plans of action must comply with all of
the requirements of the DPA to be afforded protection from antitrust laws and
regulations.
I note that this authority exists today - and has since 1950. Congress should
consider whether use of this authority would enable HHS to address many of the
issues facing companies that are resistant to otherwise participate in this market.
Clearly, simply convening a meeting under the authorities of the DPA to discuss
this issue would most certainly stimulate interest and facilitate discussion with a
far broader number of entities than are expressed interest in the bio-defense
interest today.
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Thank you again to Chairman Gregg, Chairman Hatch, Senator Kennedy and Senator Leahy and members of the Committees for your attention to this critical issue. I welcome your questions.