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General Counsel in 2019

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As awareness of the General Data Protection Regulation (GDPR) increases, companies are scrambling to protect customers’ personal data. What might this mean for life science companies in the United States? Darshan discusses the implications of the recent law and other major legal issues facing life science companies in 2019.

 
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February 18, 2020

Darshan: We're going to be discussing a few different issues. We're going to start focusing and talking about just a recap of how 2019 went. And we're going to start by talking a little bit about should we think about the typical general counsel. Think about the typical lawyer. What are the big legal issues that happened in 2019?

Narrator: This is the Darshan Talks Podcast, Regulatory Guy, Irregular Podcast, with host Darshan Kulkarni. You can find the show on twitter @darshantalks or the show's website at darshantalks.com.

Darshan: So, let's start with the basics. One of the big things that happened if you are a US attorney, is how you engage with contractors. And this was unusual and unexpected because if you're a startup, if you're a mid-sized company, or even if you're a large company, you probably use a lot of consultants. Now, there was a April 2018 California Supreme Court decision, that has implications that kick in mostly starting 2019. And essentially, it changed the rules. What it came out and said is that there's a new test for employers. So if you're an independent contractor, the independent contractor must be free to perform their work as they wish. And they must be in a different line of work from the company contracting them, and must operate their own business.

Darshan: So, what they really were initially going after were the Airbnb's of the world, and the Ubers of the world. But, it obviously has major implications on companies that aren't those types of companies. So, if you are a car driving company, the idea that all your drivers are consultants or contractors may not work as well. However, if you are a biotech, or if you are a medical device company, or you are some kind of health company, recognize that if you're in a startup phase, you're often using people as consultants and contractors, and that may not necessarily fly.

Darshan: The impact of this is an additional 20 to 30% in labor costs, when you include Social Security and Medicare taxes, and unemployment and disability insurance. All of this suddenly adds up. Again, remember you're now suddenly exposed to all kinds of liability, including discrimination, sexual harassment. If you are using consultants out of California, if you are a business based in California, consider these issues.

Darshan: The other thing that came into play is GDPR. As we know, that really started occurring more in 2018; however, the impact of that is really coming out in 2019. The overall awareness levels are high; however, how this actually impacts the life sciences sector is a little bit up in the air. It seems to vary from company-to-company. There are companies aware of it, there are companies who are not, and I'm not necessarily talking about small companies. I've heard through the grapevine that CROs are telling sponsors to stay outside the European Union because of the implications of that, and because of the methods that have to be taken to protect personal data that belongs to individuals.

Darshan: Essentially, if you are a company that's processing personal data in relation to the offering of goods or services to individuals in the EU. Or, if you monitor the behavior of individuals in the EU, you probably need to comply with GDPR. Obviously, if you're doing clinical trials in the EU, that very much falls under the ambit of what GDPR includes. As we said that there are a lot of the European companies are aware of this. Non-European companies are mostly going, "Well, I'm not subject to it." Well, that's not necessarily true. The US Secretary of Commerce himself has come out, or herself, I'm actually not sure who the US Secretary of Commerce is right now. They've voiced concerns about the uncertainty around GDPR. They state, and I quote, "GDPR creates serious and unclear legal obligations for both private and public sectors, including the US Government. We do not have a clear understanding of what is required to comply, and this could disrupt Transatlantic cooperation on financial regulation, medical research, emergency management, and important commerce."

Darshan: Obviously, it's one thing to talk about it if this was a monolith of information. However, each member state in the European union is free to implement derogations or exemptions for scientific research purposes, which interestingly, is actually undefined in GDPR. So, member states can derogate from the GDPR position, the idea of subject right to access, rectify, or restrict processing, etc., etc., etc. And this is going to become interesting because as you continue, some states are going to say, "You know what? We won't require it as much." And if you're doing studies of those states, good for you. However, if you're planning on selling in those states, you're going to have other implications that kick in. So stay tuned, keep looking out for GDPR. Just because you're not a European company doesn't mean you aren't subject to it.

Darshan: We were recently dealing with another situation. I was dealing with this one situation where you had a company that is a, how should I put this, where we were using them to hire a new individual. And, remember, even that type of company, maybe collecting information from people within the EU, make sure that they're compliant because you made then be subject to those requirements as well.

Darshan: Then let's talk about non-competes, and that's been interesting. Because non-competes, for the most part, are almost boilerplate. You leave them in most executive contracts, and in non-executive contracts as well. But there's been a pushback on them. For example, Massachusetts has this rule that they'll allow for garden leave for businesses. Garden leave being sort of a term dejour, if you will, for businesses to pay workers during the period that they're barred from working for competitors. So you can't just say, "You can't work," you've got to pay them for that period.

Darshan: You can't use a trade secret defense. So, anyone who actually intends to steal trade secrets, just because you have a non-compete, it doesn't necessarily mean that it's a get out of jail free. So you can't really take that information and say, "You know what? My state doesn't necessarily appear to non-competes, so we aren't going... So I can actually walk over to trade secrets." Courts have actually pushed back on that. States like Colorado have actually come out and said that, "We aren't going to allow for the blue line or the blue pencil clauses." Essentially what that means is if you read any kind of general executive contract, what it will often say is things like, "You know what? This is a contract, but if a court disagrees, court you can take out the pieces that you think are inapplicable or unenforceable, and the rest of the contract stands." And courts have come back and said, "No, no, no. You can't actually make the court your agent, and said that they can fix everything." So, stay tuned, stay aware that that may not always work.

Darshan: At a practical level, I'm still seeing a lot of companies still adhere to that, because it's just simpler, because there are so many different variations and otherwise you'd have to create a new contract for every one of the different states, and that can get extremely expensive very, very quickly.

Darshan: Indiana, for example, goes into non-solicitation clauses. And, they actually looked at brokers and they said that if you are a broker, you don't violate your non-solicitation clause if you engage in good faith communications to clients, informing them of job changes. Essentially, if your executive leaves, and they worked for your company, just because they inform the previous people that they're moving to a new place, that may not necessarily father the non-solicitation clause for non-compete agreement. So that's kind of interesting.

Darshan: So we talked about three things so far. We've talked about the non-competes, we've talked about GDPR, and we've talked about the California 1099 ,standards and the implications there are now. We talked about GDPR, but let's go back, and is GDPR necessarily just a European thing? Generally speaking, the major impact is on European companies. However, several US states have started following their own version of GDPR and have put things into place. The most notable one of them being California CCPA. And that's their own version of GDPR. So again, if you are a company that's either dealing with California or is in California, be aware. If you have gross revenues over 25 million you buy or receive for commercial purposes or sell or share for commercial purposes the personal information of 50,000 or more consumers, households, or devices. So if you're an ad agency, that starts kicking in. If you derive a 50% or more of your annual revenue from selling consumers' personal information, that starts kicking in.

Darshan: Now just be careful. If you are a company, for example, a life sciences company, and you're dealing with big data, and that data is being sold, and that may be implicated in some ways. And again, I've seen variations of this before. Be careful, you may be subject to the CCPA. People think of CCPM more as an advertising law, and it has the primary impact on promotion and advertising, but that's not the only place it has an impact. And again, they define things like consumer and personal information, but personal information is anything that identifies, relates to, describes, or can be associated with linked directly or indirectly with a consumer household. So if you're a patient, maybe. But now here are the exemptions, and this is what makes it interesting.

Darshan: Personal information process pursuant to HIPAA, CMIA in certain clinical trials, may be exempt from it, but that does not provide a blanket exemption for all processes involving patients or healthcare, health information customers. So, does that mean you have a safe space? Not necessarily. Stay tuned, talk to your lawyer, find out what actually applies to you. And you may have to actually have a full-blown compliance assessment to help you with that.

Darshan: Judicial deference to FDA decisions. If you're a general counsel, if you are an attorney working with life sciences companies, stay aware of this. The Supreme Court in June placed new guardrails on this idea that you always have to defer to the administrative agency, the FDM, in this situation. Supreme Court came out and said, "No, no, no. This deference only applies if there is an ambiguous regulation. However, if it's not ambiguous, you don't necessarily have to defer to the FDA." That could have major implications.

Darshan: Now, having said that, that was number five. You had your judicial deference, you had your CCPA, you and your non-compete. You had your GDPR, you had your California 1099 issues. But, remember, in the last month of 2019, drug re-importation came onto the table. And HHS proposed new rules saying that states may import cheaper prescription drugs from Canada, and it's a proposed rule at this time, but essentially it lets states submit proposals to the FDA for authorization to import prescription drugs from Canada, which would then be tested for quality and relabeling. And, states like Maine, Colorado, Vermont, and New Hampshire have expressed an interest in this new pathway. On the other hand, it also helps drug manufacturers import FDA-approved drugs manufactured abroad, to allow for the sale of these drugs at lower prices that are currently offered to American consumers. So this might be helpful as well.

Darshan: So, stay tuned. That's your other issue that if you are general counsel, you should be thinking about, you should be considering. Stay tuned, we'll talk about what does this make 2020 look like as we continue.

Narrator: This is the Darshan Talks Podcast, Regulatory Guy, Irregular Podcast, with host Darshan Kulkarni. You can find the show on Twitter @darshantalks or the show's website at darshantalks.com.

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