Now Is The Time For Independent Industry Self-Regulation

When French drugmaker Sanofi SA and Danish pharmaceutical giant Novo Nordisk both announced last month that they will lower prices of their insulin products in the United States, close on the heels of a similar announcement by Eli Lilly & Co., the moves were hailed by many in Washington as a long overdue step in lowering Americans' medical bills.

The pricing actions were also seen by some as a viable example of industry self-regulation. It was to a point, but siloed decisions by three companies to lower prices on a singular legacy product in a specific industry is a very narrow example.

Industry self-regulation is about more than the pricing of products, and, in that regard, there are always antitrust implications to consider and manage. Meaningful, lasting industry self-regulation is driven by the adoption of agreed-upon standards developed with an independent third party and backed by accountability mechanisms. In other words, guidelines with teeth.

Now, more than ever, is the time for independent industry self-regulation to take root and grow in the United States.

One reason is the high level of trust in business. According to the "2023 Edelman Trust Barometer" report, business is now the sole institution seen as both ethical and competent, outpacing government and media, which lag far behind business in both competence and ethics. 62% of global respondents do not believe that their values match those of their government leaders, with business more trusted in 22 of 28 countries surveyed. In the U.S., there is a 13-point gap between trust of business (55%) and government (42%).

Another reason for independent industry self-regulation to now be seen as meeting the moment can be found in the political landscape. Less than four months into this Congress, political pundits believe that not much will be accomplished from a legislative perspective as we roll toward the 2024 election cycle. There will be glare from spotlights placed on issues of concern, to be sure, but there likely will not be much heat or light from meaningful legislation making it through a divided Congress.

And according to a key decision published last June — West Virginia v. Environmental Protection Agency — the U.S. Supreme Court takes the position that explicit legislation passed by Congress and signed into law by the president is required for federal agencies to take regulatory action on "major questions."

The implications of this decision, which was covered initially as a setback for the EPA, now make clear that federal agencies have a new hurdle to clear before taking "certain actions" on those questions.

Those "certain actions" are best summarized in Justice Neil Gorsuch's concurring opinion for the Supreme Court majority in West Virginia v. EPA, which stated that "administrative agencies must be able to point to 'clear congressional authorization' when they claim the power to make decisions of vast 'economic and political significance.'"

The concept behind the decision covers both sides of the same coin: If Congress wants something significant to be done by federal regulators, then the authorizing words written into a law must be explicit. And if federal agencies want to write rules, then Congress must provide them the express power to do so.

While the Supreme Court may take an opportunity to further clarify what the major-questions doctrine means in the recently argued student debt relief cases, Biden v. Nebraska and U.S. Department of Education v. Myra Brown, businesses should think about what they can do to enhance trust in the marketplace now.

Indeed, this dual political — and legal — reality creates an opening for independent industry self-regulation to assert itself as a viable option for more industries to participate in voluntarily, utilizing this "soft law" mechanism to solve some of the hardest business questions.

What is independent industry self-regulation? It is not a CEO of a company testifying before Congress saying in effect: "We've got this. Just leave us alone and we'll do the right thing." Nor is it a vertical industry trade association policing its own members, though such efforts are laudable.

Independent industry self-regulation consists of two key components, each critical. It is independent — administered by a third party with no personal stake in the guidelines it writes, the rules it sets or the decisions it renders. And it is meant not just for one company, but for an entire industry, or cross-industry thereby ameliorating worry of competitive advantage if rules are not followed.

There are many models of industry self-regulation, adaptable to various situations and even new platforms, such as the metaverse. Most models have a prescriptive element: Follow the guidelines, and you will not run into trouble.

One example in my organization is the Children's Food and Beverage Advertising Initiative — a pledge program. It was created in 2007 with 10 of the nation's largest food companies as participants, a number that has now grown to 21.

All participants follow the CFBAI's core principles, which set requirements regarding food advertising to children. The core principles encompass an advertising commitment and an elementary school commitment. The CFBAI monitors and reports on participants' compliance with these commitments in annual reports.

The CFBAI's core principles have regularly been updated to reflect changes in children's media environment and evolving U.S. dietary and nutrition guidance. Other well-developed programs in the U.S. address specific concerns about advertising and marketing to children including the Electronic Software Ratings Board guidelines and the Classification and Rating Administration of the Motion Picture Association.

There are also programs ensuring that the advertising of alcoholic beverages are not targeted to those under the legal drinking age, including the Distilled Spirits Council of the United States' Code of Responsible Practices for Beverage Alcohol Advertising and Marketing, the Beer Institute's Advertising and Marketing Code, and the Wine Institute's Code of Advertising Standards.

All of these programs employ dynamic standards that are regularly updated to reflect the United States' rapidly evolving advertising landscape. The standards reflect both consumer and industry concerns and provide a tailored response to the concerns that reflect the U.S. system of advertising and marketing and its underlying legal, regulatory and constitutional framework.

Another example is more transactional in nature. The National Advertising Division, part of BBB National Programs, resolves truthful advertising disputes. If a company believes that another company cannot support the claims it is making in its national advertising, it can challenge that advertising with the National Advertising Division rather than go to federal court, file a complaint with the Federal Trade Commission or write a threatening letter.

This type of alternative dispute resolution can be effective in helping to resolve conflicts in both business-to-business and business-to-consumer settings, and the concept is receiving increasing focus within the litigator community.

All workable models of independent industry self-regulation include consequences, so that if a company does not follow the rules, its actions are called into account through a published case decision or via a referral to a government agency such as the FTC.

This adjacency to the government is one of the less-recognized aspects of independent industry self-regulation. Meaningful self-regulation does not occur in a vacuum; instead, independent programs develop policies and procedures that often mesh with existing laws and applicable regulations.

Some observers have questioned whether the Supreme Court decided West Virginia v. EPA correctly.

But regardless of where one stands on that question, there is now a higher likelihood that new federal agency action will be subject to court challenges with several high-profile examples — including President Joe Biden's loan forgiveness plan — already in play.

This new reality provides an opportunity for business to play a meaningful role in finding solutions to relevant public policy issues through the exploration — and potential widespread adoption — of independent industry self-regulation.

Originally published on Law360