Defense Production Act - 4 Things Companies That Make Or Sell Medical Personal Protective Equipment Need To Know

WHAT IS THE DEFENSE PRODUCTION ACT?

The Defense Production Act (DPA) originated in 1950 as a response to concerns that arose during the Korean War. It allows for the President to shape the domestic industrial base for national defense preparedness, which includes emergency preparedness activities. The three key powers established under the DPA address prioritization, allocation and incentives.

1. The DPA authorizes the President to require businesses to accept and prioritize contracts (either with the U.S. government directly or as a subcontractor to a higher tier contractor supporting the U.S. government) for materials and services necessary for national preparedness.
2. The DPA allows the President to allocate materials, services and facilities as deemed necessary and appropriate by, for example, ordering the domestic industrial base to increase production and supply of specifically designated scarce or critical materials. Further, the President can use the authority granted in the DPA to prohibit hoarding and price gouging of scarce or critical materials.
3. To support these efforts, the DPA authorizes the President to provide incentives, such as loans, loan guarantees and purchase commitments.

Critically, many conditions of the DPA are waived in national emergencies, and President Trump declared COVID-19 a national emergency on March 18, 2020. This gives the President even broader authority to use the DPA.

WHAT IS THE ADMINISTRATION DOING RELATED TO THE DPA?

The U.S. Administration is now taking actions through the DPA that ultimately may restrict the export of medical personal protective equipment under local laws and regulations. President Trump signed an Executive Order on April 3 authorizing the U.S. Department of Homeland Security (DHS) through Federal Emergency Management Agency (FEMA) to “allocate to domestic use as appropriate” five scarce materials, to ensure that these go to America’s healthcare workers rather than being exported.

In addition, President Trump has issued executive orders, memos, and statements mandating that “no person shall accumulate in excess of the reasonable demands of business, personal, or home consumption, or for the purpose of resale at prices in excess of prevailing market prices, materials which have been designated by the President as scarce materials or materials the supply of which would be threatened by such accumulation.” In other words, hoarding or price gouging personal protective equipment (PPE) that has been designated scarce by the U.S. Department of Health and Human Services (HHS) is illegal.

To date, the Administration has not officially used the DPA to restrict exports in any published order. However, the possibility looms and other countries have expressed concerns regarding blocking trade of essential goods and services.

WHAT RESOURCES ARE CONSIDERD SCARCE?

• N-95 Filtering Facepiece Respirators, including devices that are disposable half-face-piece non-powered air-purifying particulate respirators intended for use to cover the nose and mouth of the wearer to help reduce wearer exposure to pathogenic biological airborne particulates
• Other Filtering Facepiece Respirators (e.g., those designated as N99, N100, R95, R99, R100, or P95, P99, P100), including single-use, disposable half-mask respiratory protective devices that cover the user’s airway (nose and mouth) and offer protection from particulate materials at an N95 filtration efficiency level
• Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges
• PPE surgical masks, including masks that cover the user’s nose and mouth and provide a physical barrier to fluids and particulate materials
• PPE exam gloves or surgical gloves

WHAT ARE THE PENALTIES?

The U.S. Department of Justice (DOJ) is responsible for enforcing the DPA and has created the COVID-19 Hoarding and Price Gouging Task Force, to address enforcement issues. Enforcement actions are already underway and willful violations may result in a fine of $10,000 or imprisonment for one year.

WHAT DOES THIS ALL MEAN FOR EXPORTERS?

Manufacturers, resellers, distributors and brokers of medical supplies identified as scarce by HHS and subject to U.S. jurisdiction should tread carefully in any export of any of these materials. We have four key takeaways:

1. The DPA prohibition on the hoarding and price gouging of PPE is already in effect and violations can evidently lead to confiscation and redistribution of the PPE in question.
2. While most companies are not currently legally prohibited from exporting the PPE, they should prepare for a possible prohibition on export in the near future. The Administration has set the stage for future export restrictions on PPE and other designated medical supplies.
3. Going forward with exports of PPE and medical equipment may draw the attention of Department of Health and Human Services and the Department of Homeland Security as well as the President, potentially spurring a direct order to the exporter under the DPA or triggering broader export restrictions overall.
4. Finally, given the totality of the COVID-19 pandemic, companies may be risking adverse publicity and reputational damage from continuing exports of designated medical equipment. 

Based on research and information provided to the RV Industry Association from the Arent Fox, LLC law firm.