COFC decision finding that pharmaceuticals, which contained an active ingredient from India, complied with the Trade Agreements Act is affirmed. The Federal Circuit held that the protester had standing to challenge the agency’s interpretation of the TAA. Although the protester did not have a substantial chance of receiving the award it protested, it had standing to protest future procurements that implemented the agency’s interpretation of the TAA. The court also held that the protester’s previously-filed suit before the Court of International Trade did not preclude it from filing a COFC protest. Finally, the court held that nothing in the Trade Agreements Act or the FAR dictates that a product’s country of origin is determined by the country in which its active ingredient is manufactured. Although the active ingredient in the protester’s pills was manufactured in India, the pills themselves were still manufactured (or substantially transformed into pills) in the U.S. and thus qualified as U.S. products.
Acetris Health LLC had a contract with the Department of Veterans Affairs to supply Entecavir tablets used to treat hepatitis. The VA notified Acetris that it did not believe the company was in compliance with the Trade Agreements Act (TAA). The TAA prohibits government procurement of products from a foreign country unless the country is party to a WTO agreement. Acetris sourced the active ingredient in Entecavir from India, which is not a party to a WTO agreement. The VA instructed Acetris to obtain a country of origin determination for Entecavir from Customs and Border Patrol (CBP).
CBP determined that Entecavir was a product of India because its active ingredient was made in in India. Acetris challenged this determination in the Court of International Trade (CIT). To avoid a termination for default, Acectris and the VA agreed to a no-cost cancellation of the Entecavir contract.
Thereafter, the VA issued a new solicitation for Entecavir. The VA indicated that for this solicitation, it would continue to rely on CBP’s determination of the TAA concerning active ingredients—that is, if the active ingredient for Entecavir is made in another country, then the drug is a product of that country. Acetris filed a protest with the Court of Federal Claims, challenging the VA’s interpretation of the TAA.
While the protest was pending, Acetris submitted a bid in response to the Entecavir solicitation. Acetris bid was the highest; the VA awarded the contract to the lowest bidder.
The government then moved to dismiss Acetris’ protest , arguing that (1) because it lost the Entecavir contract, Acetris no longer had standing to maintain the protest; and (2) the filing of CIT suit divested the COFC of jurisdiction. The COFC denied the motion to dismiss.
As to merits, the COFC agreed with Acetris; despite having an active ingredient from India, the Entecavir tablets were manufactured in the U.S. The government appealed to the Federal Circuit.
On appeal, the government alleged that the case was moot because Acetris was not the lowest bidder for the Entecavir solicitation. The court agreed that the case was moot insofar as Acetris challenged the Entecavir procurement; the company would not have received award even if it were correct on the merits of its challenged to the VA’s interpretation of the TAA.
But the court reasoned that Acetris’ lack of standing to challenge the Entecavir procurement did not moot the case. The U.S. Supreme Court holds that Article III injury exists when a bidder is unable to compete on equal footing in the bidding process. The VA will certainly procure more pharmaceuticals, and Acetris is very likely to bid on those procurements. Thus, Acetris still has constitutional standing to challenge the VA’s interpretation of the TAA.
The court then reasoned that Acetris also has statutory standing. Under the Tucker Act, the COFC has jurisdiction over an interested party’s challenge in connection with a procurement or a proposed procurement. Acetris broadly challenged the VA’s interpretation of the TAA in connection with both existing and proposed procurements. Acetris had standing because the government took a definitive position as to the interpretation of the TAA that would exclude Acetris from future procurements. The Tucker Act’s reference to “proposed procurements” encompasses future procurements by an agency.
The government also contended that Acetris previously-filed CIT suit divested the COFC of jurisdiction under 28 U.S.C. 1500. That statute provides that the COFC shall not have jurisdiction of any claim to which plaintiff has pending in another court.
Applying U.S. Supreme Court precedent, the court noted that whether the COFC has jurisdiction over a suit that has been filed in another is assessed under the principles of res judicata as they existed when the predecessor to § 1500 was enacted in 1868.
Applying those principles, the court found that the CIT action and the COFC action were not the same and thus the COFC action was not precluded. First, one of the Acetris’s CIT claims was that the contrary to the CBP’s ruling, Acetris’ products are manufactured in the U.S. under the FAR. The CIT, however, has no jurisdiction to review a CBP decision on Acetris’ FAR compliance. Any decision by the CIT on this claim would not have preclusive effect.
Additionally, in the CIT case, Acetris challenged the CBP’s act of issuing a TAA determination. In the COFC action, however, Acetris challenged the VA’s actions in adopting the interpretation of the TAA and the FAR that excludes products manufactured in the U.S. with a foreign active ingredient. Thus, the CIT and COFC cases did not arise out the same acts.
The court further found that the CIT and COFC cases would not rely on the same evidence. In the CIT case, Acetris contended that its products were TAA-compliant because they are products of the United States having been transformed in the United States. In the COFC case, on the other hand, Acetris contended that its products are TAA-compliant because they are not products of India because they are neither manufactured nor substantially transformed in India. Thus, an adverse ruling in the CIT case—that is, a finding that the pills were not products of the United States—would not necessarily preclude Acetris’ COFC claim—i.e., that the pills are not products of India. It is possible for the pills to be not products of the U.S. and not products of India.
As to the merits of the case, the Federal Circuit agreed with the COFC. The government argued that the pills were products of India because the active ingredient is made in India. But the court found there was no Supreme or Circuit court authority holding that a product’ss country of origin is determined by the country in which its active ingredient is manufactured. Rather, the court reasoned, it is clear that under the TAA, the “product” is the final product procured, which in this case would be the pill itself rather than its ingredients. Acetris’ tablets were not foreign products under the TAA because they were not manufactured in India or substantially transformed in India.
The court also found that the FAR’s Trade Agreements clause did not bar Acetris’ products. The FAR provides that the contractor must deliver U.S. made end products. The regulatory history of the term “U.S.-made end product” was clear that the source of a products active ingredient is irrelevant. When the term was introduced to the FAR in 1998, the government explained in the Federal Register that a U.S. made product is one made or transformed in the U.S. regardless of the source of its components.
Although the Federal Circuit affirmed the COFC on the merits, it found the COFC’s remedy “imprecise and confusing.” The Federal Circuit remanded to the COFC to simply declare that (1) under the TAA a pharmaceutical that has an active ingredient from India is not a product of India; and (2) under the FAR, a U.S. made product may include an active ingredient manufactured in another country.
Acetris is represented by Stephen E. Ruscus, James D. Nelson, David B. Salmons, and Donna Lee Yesner of Morgan, Lewis, & Bockius LLP. The government is represented by Daniel B. Volk, Joseph H. Hunt, Robert Edward Kirschman, Jr., and Patricia McCarthy of the U.S. Department of Justice as well as Jennifer Claypool of the Department of Veterans Affairs. Amicus curiae, The Association for Accessible Medicines, is represented by Kyle R. Jefcoat of Latham and Watkins as well as Genevieve Patricia Hoffman and Jeffrey Francer.
