Regulatory DevelopmentsJune 10, 2014
On June 6, 2014, the U.S. Environmental Protection Agency (EPA) announced that Liphatech, Inc. (Liphatech), a pesticide manufacturer based in Milwaukee, WI, paid a $738,000 civil penalty for Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) violations. The vast majority of the penalty was based on violations of FIFRA Section 12(a)(2)(E), because, EPA alleged, Liphatech failed to identify Rozol, a rodenticide used to control prairie dogs, as a Restricted Use Pesticide (RUP) in its advertisements for the product. While this part of the Administrative Law Judge (ALJ) decision imposing the penalty is not likely to present any new compliance issues for registrants and EPA, $40,000 of the penalty is based on a construction of FIFRA Section 12(a)(1)(B) that, if applied beyond this case, could materially and inappropriately constrain the ability of pesticide registrants to make efficacy claims in their advertisements. EPA's press release is available online.
EPA described the $738,000 penalty paid for Liphatech as the "largest penalty ever imposed by an administrative law judge for FIFRA violations," although much larger penalties have been assessed pursuant to negotiated civil enforcement orders or in the context of criminal prosecutions. Region 5 of EPA originally sought a penalty of $2,891,200, but numerous counts in the original administrative Complaint were subsequently dismissed.
The penalty was first imposed in a March 12, 2014, initial decision by Chief ALJ Susan L. Biro. Liphatech had 45 days to decide whether it would appeal the decision to the EPA Environmental Appeals Board. Liphatech did not appeal, and was then afforded an additional 30 days to pay the penalty once the initial decision became final.
In her decision, Judge Biro imposed a penalty of $698,000 for 2,140 instances where Liphatech reportedly did not identify Rozol as an RUP in advertisements in violation of FIFRA Section 12(a)(2)(E). These 2,140 counts included 2,117 separate advertisements for Rozol that ran on small local radio stations in states where prairie dogs are considered a problem. Liphatech did not contest its basic liability for the violations underlying these 2,140 counts, but it did argue that every discrete radio advertisement should not be treated as a separate violation.
Of the 91 counts in the original Complaint charging violations of FIFRA Section 12(a)(1)(B), 71 were dismissed, either because Judge Biro determined that particular advertisements did not constitute an "offer for sale," or because EPA did not show a sufficient factual nexus between purported "unapproved claims" and a particular sale or distribution by Liphatech. Pursuant to the 20 remaining counts under FIFRA Section 12(a)(1)(B) in the Complaint, Judge Biro imposed a penalty of $40,000. Given the small contribution of the Section 12(a)(1)(B) counts to the total penalty, it can be inferred that Liphatech would not have elected to appeal the decision solely to contest this part of the decision. Unfortunately, it is the construction of Section 12(a)(1)(B) in the decision concerning these 20 counts that could represent a compliance headache for registrants and for EPA.
FIFRA Section 12(a)(1)(B) makes it unlawful to distribute or sell "any registered pesticide if any claims made for it as a part of its distribution or sale substantially differ from any claims made for it as a part of the statement required in connection with its registration..." In its June 6, 2014, press release, EPA stated that the claims made by Liphatech in this instance "overstated the efficacy and safety of the pesticide," but it was not the accuracy of Liphatech's efficacy claims on which the decision turned. Rather, the question was whether or not the claims "substantially differed" from claims made as part of the registration process. In its press release, EPA characterized the efficacy claims made by Liphatech as "unapproved claims."
The statutory construction issue under FIFRA that could be problematic for both registrants and EPA involves the status of efficacy claims that are commonly made by registrants in their advertisements or promotional literature. It should be apparent that pesticide manufacturers need to be able to make claims concerning the efficacy of their products in order to communicate effectively with prospective customers. The 1978 amendments to FIFRA included a provision in FIFRA Section 3(c)(5) authorizing EPA to "waive data requirements pertaining to efficacy, in which event the Administrator may register the pesticide without determining that the pesticide's composition is such as to warrant proposed claims of efficacy." Moreover, the legislative history of this amendment reflects an expectation by Congress that registrants would continue to communicate efficacy information to customers through advertising and other means. The conflict between this provision and the construction of FIFRA Section 12(a)(1)(B) promoted by Region 5 was the principal subject of a non-party brief filed by the pesticide trade association CropLife America early in the Liphatech proceeding, but the statutory construction issues posed by the 1978 amendments were not addressed in Judge Biro's ultimate decision.
Under the authority granted to EPA by FIFRA Section 3(c)(5), EPA waived submission of efficacy test data except for those products used to control microorganisms "that pose a threat to human health and whose presence cannot be observed by the user..." To obtain a registration for other types of products, registrants are still required to conduct efficacy testing, but the studies are not typically submitted to or reviewed by EPA. The purpose of the 1978 amendment was to conserve the EPA resources that would otherwise be devoted to review of pesticide efficacy data. Thus, a presumption that efficacy claims must be "approved" by EPA before they can be included in advertisements or promotional literature poses a dilemma both for registrants and for EPA.
To the extent that the Liphatech decision can be interpreted implicitly to require registration applicants to submit efficacy claims that may be used in advertising or promotion to EPA as part of the registration process, it is troubling. Although some registrants currently elect to submit "optional marketing claims" as part of their registration package, registrants rarely submit efficacy data to EPA for those pesticides that are not used to control pathogens. If registrants conclude that it would be prudent to submit their proposed efficacy claims to EPA for review and approval, and EPA actually reviews these claims to see whether they are supported by data, this would materially undermine the decision by EPA to waive submission of efficacy data. On the other hand, registrants that elect not to submit such efficacy claims to EPA could face new compliance issues when they place advertisements or prepare literature promoting the efficacy of their products. Registrants should consider the potential impact of the decision in this regard on their product advertisements and claims.