WESCCON 2010 FDA Detentions and Refusals October 23, 2010

1. WESCCON 2010FDA Detentions and RefusalsOctober 23, 2010 © MS&K 2010

2. Susan Kohn Ross, Esq. Mitchell Silberberg & Knupp LLP 11377 West Olympic Boulevard Los Angeles, CA 90064 (310) 312-3206, Fax (310) 231-8406 skr@msk.com www.msk.com © MS&K 2010

3. Food Drug + Cosmetic Act • Food – exceptions meat, poultry + eggs • Biologics • Cosmetics • Medical devices • Radiation-emitting devices • Anything that goes on or in the body © MS&K 2010

4. Foreign Trade Zones • Outside Customs territory of the United States for Customs import procedures • Regulated products in foreign trade zones must comply with those laws that come within the purview of the FDA, as zones are part of the U. S. and movements of regulated products into or out of such zones, including export, constitute interstate commerce. © MS&K 2010

5. What You Do Not Want To Have Happen © MS&K 2010

6. ChemNutra -Melamine Case • ChemNutra sourced wheat gluten from Suzhou Textiles, Silk Light Industrial Products, Arts and Crafts Import/Export Co., Ltd. (SSC) • SSC sourced from Xuzou Anying Biologic Technology Development Co., Ltd. (XAC) • XAC was the exporter and ChemNutra was the importer © MS&K 2010

7. More Facts • Wheat gluten is used as a binding agent in the manufacture of certain types of pet food. • It was to have a 75% minimum protein content. • Wheat gluten is subject to mandatory inspection by AQSIQ upon export from China. • The export shipment was misclassified under 3504.0090 – peptones, other derivates and other protein substances - and so not inspected by AQSIQ. © MS&K 2010

8. And Still More Facts • Sally Miller is a Chinese national • She has a food chemistry engineering degree from a Chinese university • She claimed to be an ISO-9000 certified chief auditor • She, her husband and the company were indicted in Kansas City by the U.S. Attorney © MS&K 2010

9. Allegations • Due to Sally Miller’s training – • She should have known that classification under 3504.00, HTS, would evade inspection in China • She should have known that classification under 1109.00, HTS, would subject the gluten to inspection • What is on the import v the export documents? What is filed in the exporting country? © MS&K 2010

10. It Gets More Bizarre • The Millers concealed the misclassification from their customers • The melamine “fraudulently” created the appearance of a higher protein level • The wheat gluten was deliberately labeled and coded so it would not be subject to compulsory inspection at time of export. © MS&K 2010

11. The Indictment • 13 counts • Misbranded food. • 13 counts • Adulterated foods © MS&K 2010

12. Felony Count • Conspiracy to commit wire fraud • Interstate and international wire transfers • Overt acts – • E-mail communications focused on 1109.00.10 • Wheat protein description, and not wheat gluten • Sally Miller questioned the supplier about the correct classification – 3504 v 1109 • Failure to disclose the supplier was not the manufacturer • Certificates of analysis were issued by the supplier and by the importer separately - which HTS was stated? • Failure to truthfully respond to a quality complaint © MS&K 2010

13. Disposition • Guilty pleas from ChemNutra and each of the Millers • ChemNutra - $25,000 fine • Milles - $5,000 fine each • $24 million in the civil settlement © MS&K 2010

14. FDA Issues © MS&K 2010

15. Admissibility Decisions • OASIS is the automated FDA system used to process information and make admissibility determinations for shipments of foreign-origin FDA-regulated products seeking to enter U.S. commerce • PREDICT – Database still being built © MS&K 2010

16. Manufacturer + Shipper • Must be accurate for screening purposes: • FDA Manufacturer is the site-specific location where the product is manufactured, produced or grown. • FDA Shipper is the actual shipper of the product identified on freight bills or bills of lading and is often the same as the commercial invoicing party. © MS&K 2010

17. FDA Product Code • Describes a product or a group of products • Use Common Name to specify the product further than Product Code definition • If product has more than one name (e.g., a fish known under several regional names), the Product Code may have several different synonymous definitions • FDA Product Code is a seven-character alphanumeric string composed of five components: the Product Industry Code, the Class Code, the Subclass Code, the Process Indicator Code, and the Group Code © MS&K 2010

18. Example - Product Code:16WEE14 • Product: CHOWDER/SOUP/STEW/BISQUE, MIXED FISHERY/SEAFOOD PRODUCTS, METAL, COMMERCIALLY STERILE • Product Industry Code: a two-character string that represents the industry to which the product belongs. In our example: 16 - FISHERY/SEAFOOD PROD • Class Code: a one-character string that further classifies the product within an industry. In our example: W - MIXED FISHERY/SEAFOOD PRODUCTS © MS&K 2010

19. More About - Product Code:16WEE14 • Subclass Code (Packaging Method): single character representing the packaging method. No relation to the Product's Class. Each Product Industry has an associated set of Subclasses. In our example: E - METAL • Process Indicator Code (Process Applied): single character representing process applied to the Product. Each Product Industry has associated set of Process Indicator Codes (PICs). In our example: E - COMMERCIALLY STERILE © MS&K 2010

20. Still More - Product Code:16WEE14 • Group Code: two character string representing specific group of Products within Product Industry and Class. In our example: - 14 - CHOWDER/SOUP/STEW/BISQUE, MIXED FISHERY/SEAFOOD PRODUCTS • Product Code Builder (for Foods) – tool for locating and building Product Codes • Common problems © MS&K 2010

21. Medical Device Classification • Find the regulation number that is the classification regulation for the device: • Go directly to the classification database and search for a part of the device name, or, • If you know the device panel (medical specialty) to which your device belongs, go directly to the listing for that panel and identify your device and the corresponding regulation © MS&K 2010

22. FDA Entry Follow-up • Monitor the status of all FDA entries • Communicate with your importer - customer about all FDA Notices • Use only written, dated and traceable communications with FDA and the importer - customer • Goods should be held intact until an FDA released is received • Read Notices – watch dates, time limits, terms – how do you calendar deadlines and follow-up? © MS&K 2010

23. More Follow-ups • Alert the importer to hold merchandise until released and do so timely! • While pending, lots should be marked as on hold – what should the label say? • If the goods are in a third party or customer warehouse, advise the importer to provide written instructions about the FDA hold to the warehouse © MS&K 2010

24. FDA Sampling

25. FDA Action/Sampling • FDA regulation requires that the owner or consignee is given notice of samples collected and also samples that "will be" collected – triggers the conditional release period • The regulation also requires the owner or consignee "shall hold such article and not distribute it until further notice from the district director or the collector of Customs of the results of examination of the sample." © MS&K 2010

26. Checklist • Read the Notice • Make sure the importer has timely received and understands the Notice and what, if anything, he must do • Ask the importer to copy you on any written notification to FDA re availability for sampling • Use e-mail and/or faxes to confirm © MS&K 2010

27. Actions at Entry/Line Level • FDA REVIEW: All FDA regulated articles in the entry must be held intact and not distributed, pending receipt of written notice or additional message from FDA. • FDA HOLD: Further FDA action is being taken on one or more lines in the entry. © MS&K 2010

28. More at Entry/Line Level • FDA DO NOT DEVAN: All containers or trailers comprising this entry must be held unopened pending FDA examination, or receipt of written notice or additional message from FDA. (importer/consignee and/or filer) Notify FDA when the containers or trailers will be available. All FDA regulated articles will be examined or sampled by FDA. Following CBP release, the unopened containers or trailers may be moved to a location approved by FDA. © MS&K 2010

29. Still More at Entry/Line Level • FDA EXAM/SAMPLE: All FDA regulated articles in the entry must be held intact and not distributed, pending receipt of written notice or additional message from FDA. (importer/consignee and/or filer) Notify FDA when the products will be available. The articles will be examined or sampled by FDA. Following CBP release, the article may be moved to a location approved by FDA. © MS&K 2010

30. Release or Detention

31. Release Notice • Issued whenever FDA has no further interest in a lot for which a Notice of Action/Sampling has been issued • Issued to the importer of record with copy to CBP and FDA district office • Broker may be copied © MS&K 2010

32. Types of Release • "STRAIGHT" RELEASE:Issued when it appears, from sample examination or otherwise, that merchandise, for which a Notice of Sampling has been issued, is in compliance with the law • RELEASE WITHOUT EXAMINATION:When a sample for which a Notice of FDA Action/Sampling has been issued cannot be examined, a Notice of FDA Action/Release Notice is issued amended as follows: "RELEASED WITHOUT EXAMINATION MAY PROCEED WITHOUT FDA EXAMINATION ON THE RESPONSIBILITY OF THE IMPORTER" © MS&K 2010

33. More Types of Release • RELEASE WITH COMMENT:Importation did not fully comply, but the minor violation does not warrant detention   • RELEASE AFTER DETENTION: In response to the Notice of Detention and Hearing: • Importer of record or other party presented evidence of compliance or • Merchandise is reconditioned to FDA's satisfaction © MS&K 2010

34. Checklist • Review the Notice – verify whether all pending FDA items are resolved • Verify that the importer has timely received and understands the Notice, the deadline date, and the status of all goods • If released with comment, the importer should correct the problem on future shipments – what should the broker do? © MS&K 2010

35. Notice of Action/Detained • Gives notice of the right to a hearing • Identifies alleged violations • There must be evidence of the violation which may be based on an examination of sample or the documents • Respond in writing within ten (10) days of date of detention (extension may be granted) • Apply for reconditioning vs. hearing © MS&K 2010

36. Nature of Detention • Salmonella, filth, mold, decomposition, other similar violations • Medical device label does not meet requirements • 510K number reported incorrectly • Getting involved in solution vs. keeping importer informed of status and options © MS&K 2010

37. Checklist • Review the Notice – verify whether all pending FDA items are resolved • Verify that the importer has timely received and understands the Notice, the deadline date, and the status of all goods • If released with comment, the importer should correct the problem on future shipments – what should the broker do? © MS&K 2010

38. Label • Can mean – • Label on the product • Instruction label or product insert • Packaging • Website claims • Claims on third party websites © MS&K 2010

39. Should you handle these problems?Should you refer the importer to an FDA specialist or attorney?What happens if the goods have been distributed?

40. FDA Refusal of Admission

41. Checklist • Review the notice • Verify the importer timely received and understands the notice – and knows the status of all the imported items • Where is the merchandise? • Recall? • Export or destroy? © MS&K 2010

42. Sesame Seeds

43. Just The Facts • Goods sat at third party warehouse labeled as on hold pending FDA approval • Warehouse mistakenly distributed some bags which were shipped out of state • Notice of Detention was received • Customer was notified – bakery – issued a recall • Warehouse then wrongly released another group of bags to a buyer which mixed them into a product which was ready to market – 7 = 166 • Importer had to repurchase the entire lot • Civil penalty for the “lost” lots • Criminal prosecution – misdemeanor by City Attorney © MS&K 2010

44. Exportation or Destruction • Must be under CBP supervision • Describe goods, quantity, weight accurately – match FDA and import documents • CBP Form 7512 or 3499 must be properly executed and submitted • Within 90 days of date of refusal © MS&K 2010

45. Bond Actions

46. Notice of Redelivery - 72FR4423 • Issued by CBP based on FDA report • Within 30 days of the end of the conditional release period which ends upon: • issuance by the FDA of may proceed, or • notice of refusal of admission, or • expiration of 30-day period after release of goods • FDA may extend the general 30-day conditional release period through notification to the importer identifying necessary testing • Importer of record has 30 days from Notice date to redeliver © MS&K 2010

47. If a May Proceed is issued, can a redelivery notice still be issued within 30 days?72FR4423

48. Bond Violations • Distribution: • before FDA has decided to sample • after FDA elected to sample but before collection • of apparently violative goods, before or after receipt of Notice of Detention and Hearing • for sale before FDA can inspect and/or sample merchandise relabeled or reconditioned per approved Form FD-766 • of a shipment for which a Notice of Refusal of Admission was issued © MS&K 2010

49. Liquidated Damages • Assessed at three times the value of the refused merchandise not redelivered • What is the basis for mitigation? • Petitions reviewed by FDA • CBP must follow FDA’s recommendations • FDA has its own factors and mitigation guidelines © MS&K 2010

50. U.S. vs. Pressman-Gutman • CIT found CBP’s redelivery demand was untimely • CBP “conditional release period” begins when CBP requests a sample and ends when it is received – long standing interpretation • CBP extended periods 90 days pending lab analysis • Liquidated damages cancelled © MS&K 2010