Does the Supply Chain Look the Same After COVID-19?

Businesses are starting to look to the longer term, including in respect of supply chain resilience, risk and its mitigation. There seems little doubt that things will not simply go back to what they were before. New partnerships are forming, and building in supplier and supply chain flexibility will be key to coping with uncertainty.  Read the full client alert below, discussing some pointers for the future:

My Company Wants to Manufacture PPE to Protect Against COVID-19… But Are We Protected?

As COVID-19 continues to spread rapidly across the globe, we have witnessed an unprecedented amount of altruism and goodwill across the supply chain. With a dearth of hand sanitizer, ventilators, medicine, gloves, masks, and other personal protective equipment (“PPE”) that is desperately needed to combat COVID-19, numerous businesses have rallied and responded to the call for assistance, altering their product lines to address shortages and manufacture vital products. While these initiatives are laudable, companies pivoting to Good Samaritan production should be aware of the existing legal and regulatory landscape to ensure that they comply with industry and regulatory standards. The Plaintiffs’ bar is already posting online advertisements seeking clients who are interested in pursuing product liability and other civil, and criminal, liability claims related to coronavirus treatment and care. Accordingly, even if businesses seek to help individuals survive the COVID-19 pandemic, they may unwittingly expose themselves to potential liability.

One layer of protection the federal government has afforded manufacturers and suppliers of drugs, devices, and PPE is the March 10, 2020 Declaration issued by the Secretary of Health and Human Services (“HHS”). See 85 Fed. Reg. 15198. The Declaration provides tort immunity under the Public Readiness and Emergency Preparedness Act (“PREP Act”) to entities involved in the creation or distribution of “countermeasures” to the COVID-19 virus. The types of covered “countermeasures” triggering PREP Act immunity include the production or manufacture of any drug, medicine, vaccine, or device used to treat, diagnose, cure, mitigate, or prevent COVID-19, which could potentially include PPE.

If your company is considering manufacturing or supplying such equipment to the frontline of the COVID-19 battle, the current scope of protection is as follows:

Covered Businesses. Under the Declaration, “covered persons” who cannot be sued under federal or state law include manufacturers, distributors, program planners, and qualified persons—as well as their officials, agents, and employees—who manufacture, test, develop, distribute, administer, or use “covered countermeasures.”

Covered Products. Covered “countermeasures” include not only the manufacturing of drugs and devices used to treat or prevent COVID-19, but also any device used to administer these products, and “all components or constituent materials.” This includes products and technologies designed to merely “enhance” the effects of drugs, devices, and products used in the fight against COVID-19. Immunity could thus be far-reaching, potentially extending not only to manufacturers and suppliers of PPE, but also to fabric and other material suppliers involved in the PPE supply chain.

Covered Activities. Protected activities include the manufacture, testing, development, distribution, administration, and use of covered countermeasures, subject to certain limitations, such as:

  • There must be a causal relationship to the “design, development, clinical testing or investigation, manufacture, labeling, distribution, formulation, packaging, marketing, promotion, sale, purchase, donation, dispensing, prescribing, administration, licensing, or use” of a covered countermeasure.
  • Immunity is limited to activities related to present or future federal contracts or other federal transactions or agreements, or otherwise authorized by a specified health authority with the power to prescribe, administer, deliver, distribute, or dispense covered countermeasures following an emergency declaration.
  • Countermeasures must either be approved or cleared under the Food, Drug, and Cosmetic Act (“FDCA”), or licensed under the Public Health Service Act (“PHSA”), or authorized for “Emergency Use” under applicable provisions of the FDCA. As a practical matter, this means that countermeasures remain subject to a form of pre-market approval.
  • There is no immunity for intentional torts where death or serious physical injury has occurred that was proximately caused by “willful misconduct.” The plaintiff bears the burden of proving willful misconduct by clear and convincing evidence.
  • No immunity is provided where the U.S. has no jurisdiction, unless the events occurred in a U.S. territory or there is some other connection to the U.S. that makes it reasonable to apply U.S. law.
  • Immunity presently extends only through October 1, 2024. Manufacturers have been granted an additional “12 months of liability protection,” however, to “arrange for the disposition of covered countermeasures.”

In sum, although the scope of immunity is broad, it is not unlimited. Companies should discuss with counsel whether the immunity provided under the PREP Act applies to the new products they are considering manufacturing, and whether any applicable insurance policy will provide coverage if they face a lawsuit. If a business is not adequately covered, it could face substantial exposure to product liability claims, including claims alleging marketing misrepresentations, breach of warranty, negligence, failure to warn, or consumer fraud. Companies should be especially wary of statements and claims made to the public about their product’s ability to protect against the virus, particularly where those statements may lack medical or scientific support.

The U.S. Food and Drug Administration (“FDA”) has already sent warning letters to certain companies, stating that they made false or unsupported claims about their product’s ability to protect against or treat COVID-19. Plaintiffs’ attorneys are closely monitoring these regulatory developments, and have initiated class action lawsuits based upon state consumer fraud statutes, false advertising claims, the tort of misrepresentation, and breach of warranty claims. Notably, any business in the supply chain—from the manufacturer to the supplier to the retailer—could find themselves susceptible to such claims.

Accordingly, while the federal government has provided immunity from liability for covered businesses engaging in covered countermeasures to combat the COVID-19 pandemic, it is prudent for companies to consult with counsel and carefully analyze the Declaration and PREP Act to ensure they are engaged in protected activities, and are in compliance with all applicable regulations. COVID-19 will not prevent future compliance audits, government inquiries, and other post hoc investigations on any company’s practices during this time. With careful planning, however, the Declaration should have the intended effect of encouraging businesses to design, test, manufacture, and administer drugs and devices that can treat and prevent COVID-19, making our world a safer place.

CARES Act Financial Assistance to Business Enterprises, States and Municipalities

After much anticipation, the Board of Governors of the Federal Reserve (“Federal Reserve”) on April 9, 2020 announced additional actions “using its full range of authorities” to provide US$2.3 trillion of credit to a wide variety of business enterprises, States and municipalities. The Federal Reserve’s actions in support of existing and new programs, as described below, leverage up to US$500 billion of investment by Treasury and leave substantial “dry powder” for the Federal Reserve to modify or provide additional financial support if and as needed after these programs take root. The guidance provided to date is both incomplete and subject to revision, with the Federal Reserve seeking public comment to its guidance on or before April 16.

Specifically, as part of its response to address the negative economic effects stemming from the COVID-19 pandemic, the Federal Reserve will:

  • Purchase up to US$600 billion in loans through the Main Street Lending Program, with the Treasury Department using US$75 billion available under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 (“Act”) to provide equity to the facility;
  • Expand the size and scope of the Primary and Secondary Market Corporate Credit Facilities (“PMCCF” and “SMCCF”), as well as the Term Asset-Backed Securities Loan Facility (“TALF”), allowing these three programs to support up to US$850 billion in credit backed by US$85 billion in equity investments (for credit protection) provided by the Treasury Department;
  • Establish a Municipal Liquidity Facility that will offer up to US$500 billion in lending to states, as well as cities with over one million residents and counties with over two million residents, with the Treasury Department providing US$35 billion in equity investments pursuant to the Act as credit protection for the facility; and
  • Through the Paycheck Protection Program Liquidity Facility (“PPPLF”), supply liquidity to banks making loans to small businesses under the Paycheck Protection Program (“PPP”). The PPPLF will provide term financing to such banks, backed by PPP loans, taking the loans as collateral at face value with the only recourse being to the underlying PPP loans to businesses

With the exception of the PPPLF and Municipal Liquidity Facility – and subject to restrictions on size, etc. (which are discussed in detail below) – only businesses created or organized in the US or under the laws of the US, and that have significant operations in and a majority of their employees based in the US, are eligible for financial assistance under these Federal Reserve programs.

Our colleagues James Barresi, Stacy H. Krumin, Alethia N. Nancoo, Tom Reems, James A. Schneider, David A. Zagore, James C. Sivon, and David Stewart have prepared a client alert that provides an overview of each of these programs and their respective term sheets, including as they relate to eligible assets and issuers, limits per issuer, and pricing, among other issues. As in our previous alert, this alert also discuss key considerations regarding the feasibility and costs, economic and otherwise, of obtaining such relief. A separate Squire Patton Boggs analysis addresses the responses and relief measures being provided by the Export-Import Bank of the US.  Read the full client alert below:

Coronavirus (COVID-19) Update: Trade, Supply Chain and Defense

Countries around the world continue to enact policies aimed at mitigating the spread of COVID-19 that both recognize the importance of trade to their respective economies, but also seek to address domestic demand for key goods – especially medical supplies – related to the crisis.  Similarly, some recent government policies around the world have shifted focus inward on ensuring domestic food security and this may contribute to food insecurity in other parts of the world that rely on imports.  In the US, administration officials and members of Congress continue their efforts to support US businesses impacted by the pandemic.

Our multidisciplinary team based in the US has prepared an in-depth update on trade, supply chain and defense issues amid the COVID-19 pandemic.  Read the full update below:

Considerations for Companies Interested in Manufacturing Hand Sanitizer to Fight Against COVID-19

As the COVID-19 pandemic continues, many businesses are manufacturing essential public health and/or medical supplies that are now in high demand.  Companies around the world—from global luxury brands like Dior and Givenchy to local distilleries throughout the United States—have been switching their alcohol-based product lines from the manufacturing of products such as perfume and spirits to the manufacturing of hand sanitizer.

If your company wants to assist in manufacturing critical supplies like hand sanitizer to fight against the spread of COVID-19, there are several regulatory and legal considerations it should be mindful of during these uncertain times.

FDA Guidance for Preparing Hand Sanitizer

The Food and Drug Administration (FDA) has regulatory oversight of over-the-counter drugs, including alcohol-based hand sanitizers, and producers of such products are typically required to register with the FDA.  On March 27, 2020, the FDA released updated guidance, entitled Temporary Policy for Preparation of Certain Alcohol-Based Hand Sanitizer Products During the Public Health Emergency (COVID-19).  The FDA guidance provides that the FDA does not intend to take action against businesses “that prepare alcohol-based hand sanitizers for consumer use and for use as health care personnel hand rubs for the duration of the public health emergency[,]” provided that businesses follow certain requirements, including:

  • The hand sanitizer is generally manufactured using: (1) alcohol that is not less than 94.9% ethanol by volume or isopropyl alcohol; (2) food grade glycerin; (3) hydrogen peroxide; and (4) sterile water.
  • The hand sanitizer is manufactured according to the formula provided in the guidance.
  • Records are kept to ensure the correct amount of the active ingredient (alcohol) is used, and that each batch of hand sanitizer matches the provided formula.
  • Sanitary conditions and appropriate equipment are used during manufacturing.
  • The alcohol content in samples of the finished product is verified before each batch is distributed.
  • The hand sanitizer is labeled appropriately.
  • Businesses register with the FDA Drug Registration and Listing System (DRLS).  Once firms receive confirmation of registration from the FDA, they may begin operations.

Of particular note for distilleries and other companies using consumable alcohol, the alcohol must be “denatured” (by incorporating an additive to make the product unfit for consumption) before the hand sanitizer may be distributed.

Labeling and Marketing Concerns

In addition to following the FDA’s guidelines, businesses should be aware of labeling and marketing issues that can lead to enforcement actions, as well as civil or criminal litigation.  An instructive case involves GOJO Industries Inc. (“GOJO”), which makes PURELL® hand sanitizer.  On January 17, 2020, the FDA issued GOJO a warning letter regarding labeling and marketing statements, including statements that “suggest that PURELL® Healthcare Advanced Hand Sanitizers, which are formulated with ethyl alcohol, may be effective against viruses such as the Ebola virus, norovirus, and influenza.”  The FDA noted that, given these statements, PURELL® Healthcare Advanced Hand Sanitizers qualify as new drugs under section 201(p) of the FD&C Act, 21 U.S.C. 321(p), and that they may not be distributed or sold in interstate commerce without the FDA’s prior approval.

On February 1, 2020, a class action was filed against GOJO in the Southern District of New York, citing the FDA warning letter and bringing claims for negligent misrepresentation, violations of state consumer protection laws, violation of the Magnusson-Moss Act, and fraud and unjust enrichment.  Gonzales v. Gojo Industries, Inc., Case No. 1:20-cv-00888 (S.D.N.Y., filed Feb. 1, 2020).  Gonzales seeks certification of a nationwide class of all purchasers of PURELL® Healthcare Advanced Hand Sanitizers, and similar class actions against GOJO have now been filed in Ohio and California as well.

Businesses may also be criminally liable for producing and/or distributing falsely or misleadingly labeled or advertised products.  Under the Federal Food, Drug, and Cosmetic Act of 1938, for example, it is illegal to distribute a covered product (such as hand sanitizer) in interstate commerce that is “misbranded”—that is, if the product labeling does not meet set requirements. See 21 U.S.C. § 331(a)-(c).

This serves as a timely reminder that any business producing or distributing hand sanitizer should ensure its labeling and/or marketing claims are true, accurate, and in strict compliance with regulatory requirements.  Before undertaking this transition, businesses should consult with an attorney to fully examine their potential exposure.  During these unprecedented times, employees should be encouraged to remain vigilant and follow internal protocols on reporting suspected fraudulent activity and/or procedures not adhering to federal requirements.

COVID-19: Accessing European Governments’ Financial Support

Throughout Europe governments have sought to support businesses in financial distress due to COVID-19 in three ways – by giving them money, by lending them money and by relieving them of their bills and financial commitments.  European governments are doing a mix of all three. To provide a quick and easy guide to what support is available to these businesses, our colleagues have prepared a comprehensive and practical European Summary of Government Financial Support guide.

Our guide provides a summary of the government financial support that is available in key European countries, along with an outline of the support available from the European Commission. Our guide provides details about the types and level of funding available, eligibility, how to apply and when it will be available.

Practical Help

If you would like to speak to any of the authors of the guides, please telephone or email the author directly using the contact details in the guide.

In today’s “new world”, the opportunity to talk through your issues may be critical to your business.

How We Can Support You

  • Our complimentary online tool, to help you self-assess your contingency arrangements, is still available, with the option to receive a contingency planning template.
  • For the latest updates on managing business risk during COVID-19, subscribe to Restructuring GlobalView and Down The Wire.
  • Sign up to our dedicated resource center brought to you by a multidisciplinary team, to keep you informed of the latest developments and provide comprehensive insight for businesses on the legal, regulatory and commercial implications of COVID-19.

Accessing Financial Support – Guides for Belgian, Czech, French, Italian, Polish, Slovakian, and Spanish businesses

Our colleagues at the Restructuring GlobalView Blog have prepared guides to assist businesses in Belgium, the Czech Republic, France, Italy, Poland, Slovakia, and Spain to understand what financial support packages are available in those countries.  These guides provide a country-specific overview of the package, eligibility, how to apply, and when it will be available.  Click below to read the guides for each country:

Accessing financial support – a guide for Belgium businesses

Accessing financial support – a guide for Czech Republic businesses

Accessing financial support – a guide for French businesses

Accessing financial support – a guide for Italian businesses

Accessing financial support – a guide for Polish businesses

Accessing financial support – a guide for Slovakian businesses

Accessing financial support – a guide for Spanish businesses

Webinar: Tools to Navigate the Financial Crisis Related to COVID-19

Our colleagues, Hon. John A. Boehner, Karol Denniston, Ed J. Newberry, and Stephen D. Lerner, will be joining the American Bankruptcy Institute (ABI) and FTI Consulting professionals for a webinar deciphering the most recent federal stabilization programs and developments and providing unique and practical advice for business leaders and professionals. The panel will also discuss how best to successfully navigate the liquidity and financial issues arising in the wake of the COVID-19 pandemic.

For more information, and to register for this free webinar on Monday, April 6, 2020, please click here.  ABI membership is not required to register for the webinar; please use Chrome to register if you encounter difficulties using Internet Explorer.

Coronavirus (COVID-19) Update – Legal Issues in Germany

As world leaders respond to the COVID-19 pandemic, businesses around the world have been forced to adapt.  Our colleagues in Germany, Dr. Jens Rinze, Martin H. Falke, Dr. Christian Bleschke, Tanja Weber, Dr. Andreas Fillmann, Markus Schmucker, Jörg Staudenmayer, and Siemer Krümpelmann, have prepared a comprehensive overview of the key legal issues for businesses with operations in Germany to consider, together with some practical steps for businesses to take.  Read the full report below:

CARES Act – Economic Assistance to Business Enterprises, States and Municipalities & Securing Stimulus Funding for Small Businesses

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020.  The CARES Act includes a range of extensive loan and grant programs that are vital to businesses across the country, including some US$500 billion in funding for the Department of Treasury that is expected to be leveraged by the Fed to produce more than US$4 trillion in lending to businesses, and possibly states. 

Our Policy and Financial Services colleagues James J. Barresi, James C. Sivon, David Stewart, Edward J. Newberry, and Brandon C. Roman have produced an excellent summary of the extensive new Department of Treasury and Fed lending programs entitled “CARES Act Economic Assistance to Business Enterprises, States and Municipalities.”  This report provides detailed information on multiple lending facilities established by the Fed to support business liquidity as well as Treasury Department direct lending to air carriers, cargo air carriers, and for businesses “critical to maintaining national security.”  Read the full report below: 

The CARES Act also provides more than US$360 billion in immediate loan assistance for small businesses, including (a) an expanded Economic Injury Disaster Loan (EIDL) program; and (b) the Paycheck Protection Program (PPP), administered under the Small Business Administration’s 7(a) program. 

Our colleagues Pablo E. Carrillo, Kirk D. Beckhorn and Karen R. Harbaugh have produced a comprehensive report, entitled “Securing CARES Act Stimulus Assistance for Small Businesses,” providing guidance for small businesses seeking to secure stimulus funding to stay afloat during this unprecedented pandemic.  The report answers important questions for small businesses which may need federal support including: what programs are created and funded by the Act, who is eligible for these programs and, based on information available so far, how the programs will work.

Read the full report below: