On February 10, the Court of Appeals for the Federal Circuit ruled that the Department of Veterans Affairs (“VA”) erred in interpreting the Trade Agreements Act of 1979 (“TAA”) and the Federal Acquisition Regulation (“FAR”) to exclude from procurement pharmaceutical products that are manufactured in the United States using an active pharmaceutical ingredient (“API”) made in a foreign country. Acetris Health, LLC v. United States, No. 2018-2399 (Fed. Cir. Feb. 10, 2020). Acetris had brought this action in the Court of Federal Claims as a result of the VA’s determination that certain of Acetris’ products were not TAA and FAR-compliant because the products contained APIs from India that were made into tablets in the United States. The Court of Federal Claims ruled in Acetris’ favor. (See our blog post on the lower court decision here.)
As an initial matter, the Federal Circuit rejected the government’s arguments that the case was not justiciable on grounds that the case was moot, that there was no constitutional or statutory standing, and that previously filed and pending suits in the Court of International Trade divested the lower court of jurisdiction. Decision at 10-18. On the merits, the Federal Circuit concluded that the VA’s interpretation of the TAA and the FAR was erroneous. The Federal Circuit analyzed the TAA and the FAR separately.
The TAA prohibits the procurement of products that are products of a foreign country or instrumentality that is not designated by statute. According to the Federal Circuit, in this case, the relevant question “is whether Acetris’ products, which are made into tablets in the United States using API made in India (a non-designated country), are ‘products of’ India for which procurement is prohibited by the TAA” under the TAA’s rule-of-origin test. Id. at 18. This test states that
An article is a product of a country or instrumentality only if (i) it is wholly the growth, product, or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed.
Id. at 19 (emphasis in original; citations omitted). The Federal Circuit found that Acetris’ products (the government conceded that the tablets are the products) are not products of India as they do not meet either prong of this test; they are neither wholly the manufacture of India nor substantially transformed in India. Id. The Federal Circuit concluded that because “the TAA only excludes products from government procurement if they are “products of” a foreign country like India, the TAA does not bar the VA from procuring Acetris’ products.” Id.
Regarding the FAR, the Federal Circuit explained that the Trade Agreements contract clause is different from the TAA as it provides in relevant part that
“[t]he Contractor shall deliver under this contract only U.S.-made . . . end products.” FAR § 52.2255. The FAR does not adopt the TAA’s country-of-origin test for determining what are “products of a foreign country or instrumentality.” 19 U.S.C. § 2518(4)(B). Instead, the FAR defines “U.S.-made end product” as “an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States.” FAR § 25.003.
Id. at 19-20. The Federal Circuit determined that Acetris’ products are U.S.-made end products under the plain meaning of the FAR. In coming to this conclusion, the Federal Circuit rejected an argument by the government that the products are not manufactured in the U.S. because they are not substantially transformed in the U.S. The Federal Circuit determined that the “or” in the FAR clause “reflects an intent not to require ‘substantial transformation’ for analysis under the FAR; ‘manufacture’ does not require substantial transformation.” Id. at 22. The Federal Circuit did not need to and did not decide whether Acetris’ products are substantially transformed in the U.S.
While upholding the lower court’s decision, the Federal Circuit disagreed with some of its reasoning and found the judgment “imprecise and confusing.” Id. at 23. The Federal Circuit directed the lower court on remand to
declare that: (1) under the TAA, a pharmaceutical product using API made in India does not, because of that fact, thereby become the “product of” India; and (2) under the FAR, the term “U.S.-made end product” may include products manufactured in the United States using API made in another country.
Because the Federal Circuit did not address whether putting a product into tablets (or other finished dosage form) is considered to be substantial transformation, the decision does not address two alternative scenarios: (1) whether a product with API from a designated country (e.g., France) that is put into finished dosage form in a non-designated country (e.g., India) can be offered to the government and (2) whether a product with API from a non-designated country (e.g., India) that is put into finished dosage form in a designated country other than the U.S. (e.g., France) can be offered to the government.
The government has 90 days after entry of the judgment to appeal this decision to the Supreme Court.