Background
The Tobacco Control Act generally bars manufacturers from marketing new tobacco products without FDA authorization. To obtain authorization, an applicant must show that its product is appropriate for the protection of public health, a determination requiring FDA to balance the likelihood that nonusers will begin using tobacco products against the likelihood that existing users will stop.
Vertigo Vapor and Max & Zach’s Vapor Shops joined other manufacturers and retailers in challenging FDA marketing denial orders involving electronic nicotine delivery products. FDA applied a comparative-efficacy standard under which applicants seeking authorization for flavored products had to provide reliable evidence that those products offered greater cessation or switching benefits than tobacco-flavored alternatives. The petitioners argued that FDA had transformed that standard into a binding, across-the-board requirement without using the Administrative Procedure Act’s notice-and-comment process.
Intervening Supreme Court and Fifth Circuit decisions foreclosed the petitioners’ arguments that FDA had arbitrarily changed its evidentiary position and that the comparative-efficacy standard was a “tobacco product standard” under the Tobacco Control Act. Those decisions, however, expressly left unresolved whether the standard was a substantive rule requiring notice and comment under the APA.
The Court’s Holding
The Fifth Circuit granted the petitions for review, vacated FDA’s marketing denial order, and remanded. It held that the comparative-efficacy standard was a substantive rule because it prospectively affected an unbounded class of applicants, constrained agency reviewers’ discretion, and effectively required applicants to submit comparative-efficacy evidence to obtain authorization. The court relied on FDA’s internal memoranda, the standard’s uniform application, and the agency’s denial of more than one million applications for flavored products.
The court rejected FDA’s contention that it could establish the requirement through informal adjudication. Although agencies generally may develop policy through either rulemaking or adjudication, the court concluded that FDA used individual application decisions to impose a rigid, generally applicable rule developed internally rather than a case-specific standard derived from the facts of a particular adjudication. Because the agency adopted that substantive rule without notice and comment, it violated the APA.
The court did not decide whether FDA acted arbitrarily or capriciously in applying the standard to menthol, tobacco-flavored, or zero-nicotine products. It also expressed no view on the course FDA or the petitioners should take on remand, stating that FDA could reconsider the rule, adopt it through APA-compliant procedures, or pursue other appropriate proceedings.
Key Takeaways
- An agency policy may qualify as a substantive rule when it binds agency decision-makers, determines regulated parties’ rights or obligations, and applies prospectively to a broad, open-ended class.
- The Fifth Circuit held that FDA could not use informal, application-by-application adjudication to impose its rigid comparative-efficacy requirement across the flavored e-cigarette market.
- The ruling vacated the challenged marketing denial order on procedural grounds without deciding whether the affected products satisfy the statutory public-health standard.
Why It Matters
The decision requires FDA to revisit marketing decisions based on its comparative-efficacy standard and may affect numerous manufacturers whose flavored-product applications were evaluated under the same approach. If FDA wants to retain the requirement as a generally binding standard, the court indicated that the agency must use procedures allowing regulated parties to receive notice and participate in its development.
More broadly, the opinion limits agencies’ ability within the Fifth Circuit to establish generally applicable, binding requirements through informal adjudications. It emphasizes that an agency’s characterization of its action does not control when the policy operates in practice as a substantive rule.