The Role of Section 708 of the Defense Production Act in the Federal Government’s Response to COVID-19: Antitrust Considerations

The Role of Section 708 of the Defense Production Act in the Federal Government’s Response to COVID-19: Antitrust Considerations

Legal Sidebari
The Role of Section 708 of the Defense
Production Act in the Federal Government’s
Response to COVID-19: Antitrust
Considerations
August 24, 2020
Section 708 of the Defense Production Act of 1950 (DPA) authorizes the President to “consult with
representatives of industry, business, financing, agriculture, labor, and other interests in order to provide
for the making by such persons, with approval of the President, of voluntary agreements and plans of
action to help provide for the national defense.” The DPA defines national defense broadly to include,
among other things, preparedness for, responding to, and recovery from national emergencies such as the
Coronavirus Disease 2019 (COVID-19) pandemic. Section 708 also establishes a special defense that may
shield companies cooperating under the DPA from antitrust liability “with respect to any action taken to
develop or carry out any voluntary agreement or plan of action.”
On March 27, 2020, President Trump issued Executive Order (EO) 13911 (Delegating Additional
Authority Under the DPA with Respect to Health and Medical Resources to Respond to the Spread of
COVID-19) as part of the federal government’s COVID-19 response. In that EO, the President invoked
Section 708 to authorize the Secretary of Health and Human Services (HHS) to “provide for the making
of voluntary agreements and plans of action by the private sector.” As the President explained, such
voluntary agreements could “enable greater cooperation among private businesses in expanding
production of and distributing” essential health and medical resources.
This Legal Sidebar examines the scope of Section 708’s antitrust defense. The Sidebar begins by
providing background on Section 708. Next, it discusses a draft voluntary agreement recently unveiled by
the Federal Emergency Management Agency (FEMA) that, if approved by the Attorney General, would
create a Committee for the Distribution of Healthcare Resources Necessary to Respond to a Pandemic.
This committee of government and industry representatives would provide a forum for participants to
solve supply chain bottlenecks and improve distribution methods for essential medical resources. In
certain situations, the draft agreement would also extend antitrust protections to private companies that
assist in the federal government’s COVID-19 response. As FEMA Administrator Peter Gaynor noted, the
antitrust defense incorporated into the draft agreement may al eviate potential participants’ concerns about
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certain litigation risks posed by cooperation under the DPA and provide them with increased regulatory
certainty. However, Section 708 likely would not apply to other types of potential liability arising under
state consumer protection laws. Accordingly, this Sidebar concludes with a discussion of some
considerations for Congress. Because potential exposure to liability under state consumer protection laws
might be a disincentive for some private firms considering whether to cooperate under the DPA, Congress
could amend Section 708 to enlarge the scope of its antitrust defense to encompass this broader class of
claims.
Antitrust Law and Section 708
As CRS has explained, contemporary antitrust doctrine proceeds from the premise that “economic
competition optimizes the al ocation of scarce resources by inducing firms to adopt the most efficient
production methods and price their products at or near their costs of production.” While antitrust law does
not prohibit coordination among competing firms, courts evaluate most types of coordination under the
Rule of Reason, a totality-of-the-circumstances balancing test to determine whether the chal enged act is,
on balance, good or bad for competition. However, some types of coordinated behavior, such as “naked”
price-fixing and market-division agreements, are deemed categorical y unreasonable, and thus are per se
unlawful.
Section 708 authorizes the President to approve voluntary agreements and plans of action among
competing businesses when they may help provide for the national defense. The President may delegate
this authority “to individuals who are appointed by and with the advice and consent of the Senate, or are
holding office by which they have been appointed by and with the advice and consent of the Senate.”
Section 708 establishes precise criteria for when and how the President may authorize a voluntary
agreement or plan of action. The President must first find that “conditions exist which may pose a direct
threat to the national defense or its preparedness programs.” Further, government officials must
collaborate with private companies in developing any voluntary agreement, and companies are subject to
ongoing government oversight. FEMA regulations require, for example, that a government sponsor
“initiate, or approve in advance, each meeting of the participants ... held to discuss problems, determine
policies, recommend actions, and make decisions necessary to carry out the agreement.” Additional y,
participants must agree to maintain records, data, and communications pertaining to the carrying out of a
voluntary agreement and must make such records available to the sponsor, FEMA, the Attorney General,
and the Chairman of the FTC upon request.
When first enacted, Section 708 granted the President sweeping powers to immunize companies from
antitrust liability for any “act or omission to act ... if requested by the President pursuant to a voluntary
agreement or program.” In 1975, Congress amended Section 708 by, among other things, removing the
President’s power to grant companies blanket antitrust immunity, and replacing it with a litigation defense
that private firms may raise in civil and criminal antitrust actions. In a Senate report discussing the
amendments, Congress acknowledged the need to grant businesses antitrust immunity in situations
relating to the creation or implementation of voluntary agreements under the DPA, but it specified that
“immunity from antitrust laws should never be granted except in language that limits and narrows the
extraordinary exempting language.”
In its current form, Section 708 provides private firms engaged in coordinated activity under the DPA
with a defense against civil or criminal claims “brought under the antitrust laws (or any similar law of any
State) with respect to any action taken to develop or carry out any voluntary agreement or plan of action. ”
However, companies must make several showings in order to invoke the defense. Among other things,
companies must show that they (1) fully complied with the DPA and related regulations, (2) “acted in
accordance with terms of the voluntary agreement or plan of action,” and (3) did not engage in conduct
“for the purpose of violating the antitrust laws.”

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FEMA’s Draft Voluntary Agreement
On May 19, 2020, FEMA published a draft voluntary agreement for cooperation under the DPA, after
consulting with the Secretary of HHS, the Attorney General, and the Chairman of the Federal Trade
Commission (FTC). As FEMA Administrator Peter Gaynor explained during a public meeting held on
May 21, 2020:
What we seek to do with this agreement is to provide all of us the space to conduct potentialy
valuable and expedient conversations to find supply chain bottlenecks, identify insufficient
distribution methods, and locate additional resources for critical healthcare resource production. The
voluntary agreement will be a transparent organizing mechanism to address national needs in a
pandemic as identified by FEMA for the manufacture and distribution of critical healthcare
resources.
If approved by the Attorney General, the agreement would create a Committee for the Distribution of
Healthcare Resources Necessary to Respond to a Pandemic to “maximize the effectiveness of the
manufacture and distribution of Critical Healthcare Resources nationwide.” According to the agreement,
committee members would include (1) a FEMA senior executive, appointed by FEMA’s administrator,
who would chair the Committee; (2) representatives from HHS, FEMA, the Department of Justice (DOJ),
and other government agencies; (3) attendees “invited by the Chairperson as subject matter experts to
provide technical advice, or to represent the issues of other government agencies or interested parties,”
and (4) participants from private industry with “substantive capacities, resources or expertise” related to
the production of medical resources. Committee activities would be limited to, among other things, (1)
sharing information relating to manufacturing and supply chain issues, (2) identifying, prioritizing, and
validating critical healthcare resource requirements, (3) sharing information about future demand for
healthcare resources, (4) cooperating in the manufacture, al ocation, and distribution of healthcare
resources, and (5) “carrying out any other activities identified by the Committee that, as determined and
directed by FEMA, are necessary to address the pandemic’s direct threat to the national defense.”
The agreement would also provide that Committee participants can raise Section 708’s defense “with
respect to any act or omission to act necessary to develop or carry out this Agreement,” including acts
related to Committee work. But it would limit the scope of the defense in several ways. The agreement
specifies, for example, that the defense would be available only for acts taken “with the oversight and
approval by the Chairperson or other designated FEMA official.” It also specifies that Section 708’s
defense would not be available for acts taken before a company joins the agreement or for acts taken after
it withdraws.
Considerations for Congress
Some commentators warn that, because companies may only raise Section 708’s defense in civil or
criminal actions brought under state and federal antitrust laws and “any similar law of any State,” the
defense would likely not be available in actions brought under state consumer protection laws.
Consumer protection laws vary from state to state but general y prohibit fraud, deception, and unfair
business practices. In In re: Generic Pharmaceuticals Pricing Antitrust Litigation, for example, a district
court al owed state law antitrust and consumer protection claims to proceed against generic drug
manufacturers for al egedly agreeing to fix the price of generic drugs. Some commentators suggest that,
because consumer protection claims may serve as “antitrust substitutes,” these claims may be “similar” to
antitrust claims, and thus fal within the scope of Section 708’s defense.
This interpretation presents several difficulties. In particular, Section 708 defines the term “antitrust laws”
to exclude laws concerning “unfair or deceptive acts or practices.” As the FTC has explained, “unfair or
deceptive acts or practices” general y refer to consumer protection violations. If Congress believes that

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the goals of the DPA would be better served by granting companies a defense from these types of liability
for “any action taken to develop or carry out any voluntary agreement or plan of action,” it could amend
Section 708 to expand the scope of the statute’s antitrust defense to include consumer protection claims.

Author Information

Joshua T. Lobert

Legislative Attorney

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