Nobody seemed surprised. There were inklings during the presidential campaign as the plaintiffs’ bar affirmed its support of Barack Obama. Then came the Supreme Court’s March decision rejecting pre-emption in the game-changing Wyeth v. Levine, followed the very next day by legislation Rep. Frank Pallone Jr., D-N.J., introduced, aimed at overturning the high court’s decision in Riegel v. Medtronic by retroactively barring pre-emption for all litigation involving medical devices from 1976 to the present.

But on May 20, President Obama officially heralded in the next chapter in the ongoing debate over federal pre-emption by issuing a memorandum clarifying his administration’s position. Federal agencies can pre-empt state laws, he wrote–but only when there’s a sufficient legal basis for such displacement.

Obama emphasized his regard for each state’s right to decide what is best for its citizens based on the “circumstances and values” unique to its region. “State and local governments have frequently protected health, safety and the environment more aggressively than has the national government,” he wrote.

The president ordered federal agencies to review all regulations created during the past 10 years to determine whether the pre-emption clauses that appear in some preambles are justified. Where an agency deems a pre-emption clause inappropriate, it will amend the rule to remove the passage, potentially impacting product liability litigation for everything from mattress flammability to the safety of food additives.

This move reverses a Bush-era policy that inserted pre-emption clauses into the preambles of numerous regulations created during his term. This pro-business model sought to halt litigation at a motion to dismiss, protecting companies from having to accommodate inconsistent standards across the 50 states.

While some fear Obama’s memo will provoke a deluge of product liability litigation, others see the move as purely political as the president seeks to distance himself from his predecessor’s policies.

“The president’s memo is not an end to the pre-emption defense per se,” says Arnold Friede, counsel at McDermott Will & Emery and former associate chief counsel at the Food and Drug Administration (FDA). “It’s just a recognition that it’s going to be limited to a very narrow class of cases where the federal government has spoken directly and precisely on an issue.”

Rule Review Redo

The change in policy feels very familiar to John F. Cooney, a Venable partner who served as a deputy general counsel in the Office of Management and Budget during the Reagan administration. In 1987, Cooney helped President Reagan process an executive order directing federal agencies to examine their statutory authority and refrain from improperly supplanting state control.

“President Reagan was simply reminding the agencies to carry out their duty, but to do it in a way that expressed his concern with the appropriate role of the states in the federal system,” Cooney says.

Though the plaintiffs’ bar cited the order in pre-emption cases for years, he says the courts never gave it independent legal weight because it wasn’t designed to give new rights to litigants–only to reinforce the courts’ duty to manage the power of federal agencies.

While Bush intended his order to stem litigation, Peter Reichertz says it, too, functioned primarily as a political move. “To the extent it did anything, it may have created more hurdles to overcome because people would allege there was pre-emption,” says the Sheppard Mullin partner. Since the clause appeared in preambles but not the rules themselves, he says courts didn’t always interpret pre-emption as an actual rule.

Compliance Conundrum

The largest potential headache companies face is the notion they must comply with regulations across the 50 states rather than an overarching rule handed down from a federal agency.

Andrew Bayman, a partner at King & Spalding, downplays the idea that the states protect health and safety more aggressively than the federal agencies. Federal agencies have the resources and experience to determine what’s in consumers’ best interests, he says, when, in many cases, no state equivalent to the agency exists.

“You’ve got agencies with the technical know-how that promulgates these standards, and they will be second-guessed by laypeople in various states,” he says.

Meeting a multitude of varied regulations is particularly problematic for drug labeling, where slightly different rules in each state could lead to pages of warnings too cumbersome for many consumers to read, Bayman says. “The important information gets lost in all the other stuff that doesn’t need to be in there,” he says. “That’s the FDA’s job–to strike the balance between warning about safety risks without overloading.” (See “Pre-emption Rejection,” May 2009.)

Still, the threat of litigation can be one way to ensure manufacturers keep up with evolving scientific revelations, even when understaffed and underfunded agencies haven’t had the opportunity to amend their rules, says Harry W.R. Chamberlain II, a shareholder at Buchalter Nemer.

“Part of the consumer safety equation is we have this backup, which is the laboratory of the courtroom, that allows these arguments to be made and allows differing scientific views to be presented to a jury,” he says. “That’s another inducement for business to make products safer.”

Leveling Litigation

Bush’s order sought to reduce product liability litigation by establishing both the minimum and maximum safety standards within the federal rules, particularly those designed by the FDA, Cooney says. As was the case with Reagan’s order, he says Obama’s memo probably will be cited in forthcoming lawsuits, but it’s unlikely to increase the number of lawsuits.

The degree to which Bush’s order actually reduced litigation was grossly exaggerated, Bayman says. While some claims were tossed at a motion to dismiss, courts allowed many more to progress–and several in the pipeline before Obama’s memo, such as Levine, already narrowed the reach of pre-emption.

Nonetheless, Bayman believes the new administration’s policy will move more product liability suits through the courts. “You could take some comfort before in saying, ‘We comply with federal law,’” he says. “Now, it’s less clear. It will be decided on a case-by-case basis.”

While there may be more litigation, Friede says not to expect an overwhelming rush of new cases.

“With or without pre-emption, the floodgates are open, and pharma companies are getting sued left and right for anything and everything,” he says. “But this does eliminate one area where the industry thought it might have a categorical defense.”