In February 2020, Acetris Health, LLC, a generic pharmaceutical distributor, challenged the VA’s interpretation of the Trade Agreements Act of 1979 (TAA) and the Federal Acquisition Regulation (FAR) in the United States Court of Federal Claims. The government appealed judgment by the Claims Court in favor of Acetris declaring the VA misinterpreted the TAA and FAR. The VA interpreted the TAA and FAR to define the country of origin of a pharmaceutical product as the country where a product’s active ingredient is manufactured.
The TAA prevents the VA from purchasing “products from foreign countries." It was passed to “encourage foreign countries to enter reciprocal government-procurement trade agreements.” The agreements prevent foreign countries and the United States from discriminating from products from each other. The TAA defines products from a country as:
Wholly the growth, product, or manufacture of that country or instrumentality, or 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.
The FAR defines U.S. made products as:
An article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce…
Claims Court Case Background
Acetris provides pharmaceuticals to the federal government. Its pharmaceutical products are obtained from Aurolife Pharma LLC, which obtains them from a location in New Jersey. However, the active pharmaceutical ingredient (API) is made in India. Acetris had contracts to supply the VA with pharmaceutical products in 2017. The VA requested it recertify its compliance with the TAA, to which Acetris responded its products were “TAA compliant.” The VA disagreed with this assertion. In January 2018, The Customs and Border Protection (CBP) ruled Acetris’ products were products from India because “their API’s were made in India and no substantial transformation occurred in the United States.”
In March 2018, Acetris challenged the VA’s interpretation of the TAA and FAR to exclude Acetris’ products in the Court of Federal Claims. Acetris argued its products were U.S.-made products and not of India because they were manufactured into tablets in the U.S. The U.S. government requested the Claims Court dismiss the suit. It argued Acetris lacked standing because it was the highest bidder and would not have won the contract if it were TAA compliant. The Claims Court rejected the government’s motions and granted Acetris declaratory and injunctive relief.
The government appealed the Claims Court judgment. The U.S. Court of Appeals held an “actual controversy must exist not only ‘at the time the complaint is filed,’ but through ‘all stages’ of the litigation.” It stated Acetris high priced offer would lead it to not being awarded the contract. It would not be able to show prejudice from the VA’s flawed interpretation of the TAA and FAR. However, the Appeals Court found the case was not moot because Acetris’ challenge is not limited to the contract procurement. It cited Lujan v. Defs. of Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130, 2136, 119 L. Ed. 2d 351 (1992), to show an injury-in-fact may be “the inability to compete on an equal footing in the bidding process,” not just the loss of a contract. The Court found Article III standing in this case where Acetris alleged it to be unlawfully disadvantaged to compete for a government contract such that it is “very likely” to bid on in the “relatively near future.”
Country of Origin Determination
The Appeals Court rejected the U.S. government’s argument the CBP’s country-of-origin determination as binding on the VA. It noted the government’s admission “there is 'not a requirement' for the VA to defer to the CBP’s determination."
The Appeals Court’s holding on the VA’s interpretation of the TAA and FAR rested on whether Acetris’ products were made in the U.S. or India. The Court found it “clear” the final product procured is the pharmaceutical pill, not the ingredients of the pill. It concluded Acetris’ tablets did not meet the prong of the TAA’s country of origin test. The Court also stated the FAR did not bar Acetris’ products. Rather than adopting TAA’s country-of-origin test, the FAR defines products made in the U.S. as articles that are “mined, produced, or manufactured in the United States or that is substantially transformed in the United States.” According to the government, Acetris’ products were not “manufactured” in the U.S. because they were not “substantially transformed in the U.S.” The Appeals Court cited the Supreme Court case, Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556, 28 S. Ct. 204, 52 L. Ed. 336 (1908), which defined the word “manufacture” as when “a new article is produced of which the imported material constitutes an ingredient or part.” The API made in India constitutes the “ingredient or part” of the tablets made in New Jersey. The Appeals Court stated the FAR “reflects an intent not to require “substantial transformation.” The Appeals Court concluded the Court of Federal Claims judgment erroneous.
The Court of Appeals concluded the case is justiciable and the VA misinterpreted the TAA and FAR to exclude pharmaceutical products Acetris produced in the U.S. For more information on this case, or if you have concerns with the VA, contact Whitcomb Selinsky PC at (303) 534-1958