FAQs: Are Component Part Manufacturers Entitled to Immunity Under the PREP Act, the CARES Act or the DPA?

Component part manufacturers of important lifesaving and life-protecting equipment have been essential players in the first line of defense against the COVID-19 pandemic. In the previously normal legal context, these manufacturers were afforded legal defenses based upon their limited involvement in the manufacturing process in lawsuits involving products incorporating their component parts. In light of the current pandemic, and the necessarily shifting world and legal scenarios, the route to tort immunity for component part manufacturers should remain open.

The Secretary of the Department of Health and Human Services issued a Public Readiness and Emergency Preparedness (PREP) Act Declaration immunizing many entities and individuals from liabilities arising from the manufacture, testing, development and distribution of – among other things – “covered countermeasures.”¹ With that wide lane of ambiguity, component part manufacturers need to know whether their actions fall under this protective umbrella. These companies have been called upon to do everything they can to help develop and supply the necessary tools the country needs right now, and are helping the nation continue to supply products including critical protective equipment and medical devices.

With that in mind, component part manufacturers will want to know two things:

1. Are they entitled to immunity under the PREP Act, the CARES Act or the Defense Protection Act (DPA)?
2. How can they determine which finished product/original equipment manufacturer companies (OEMs) have contracted with the government or have been ordered by an “Authority Having Jurisdiction” to produce COVID-19-related products such that their end products are likely entitled to immunity?

Recent Tort Immunity Actions and Orders

• On March 10, 2020, the HHS Secretary issued a PREP Act Declaration (the PREP Act Declaration) immunizing defined entities and individuals from liability arising from the manufacture, testing, development, distribution, administration and use of certain COVID-19 response products. Our prior alert explained immunity under the PREP Act Declaration.
• On March 27, 2020, President Trump signed the CARES Act (Coronavirus Aid, Relief and Economic Security Act) to provide emergency assistance to the COVID-19 response. In part, the CARES Act incentivizes businesses to produce and distribute critically needed respiratory protective equipment – like masks and respirators – by granting additional liability protection to these device manufacturers. The CARES Act extended the protections provided for in the PREP Act Declaration to entities and individuals by granting additional liability protection to manufacturers of respiratory protective equipment. We have talked about how the CARES Act expanded immunity in a prior alert as well.
• On April 2, 2020, President Trump issued a Memorandum on Order Under the Defense Production Act Regarding the Purchase of Ventilators. Per this order, the president essentially ordered a number of companies – and their subsidiaries or affiliates – to produce ventilators pursuant to the Defense Production Act of 1950.

What Does This Mean for Component Part Manufacturers?

Under the PREP Act, immunity is granted to entities and individuals who are “covered persons” involved in activities regarding a “covered countermeasure.” While the definition of “covered persons” contains multiple categories, per the express language of the Act, component part manufacturers are included as a defined and covered “manufacturer”:

(4) Manufacturer - The term ‘manufacturer’ includes - (A) a contractor or subcontractor of a manufacturer; (B) a supplier or licenser of any product, intellectual property, service, research tool, or component or other article used in the design, development, clinical testing, investigation, or manufacturing of a covered countermeasure; and (C) any or all of the parents, subsidiaries, affiliates, successors, and assigns of a manufacturer.

42 U.S.C.A. § 247d-6d(i)(4) (emphasis added).

For immunity to attach, however, a “covered person’s” activities must relate to an arrangement with the federal government or be specifically authorized by an “Authority Having Jurisdiction.” March 10, 2020 Declaration under the Public Readiness and Emergency Preparedness Act.²

Many component part manufacturers will not be the entity who contracts or engages with the federal government about a final end-product and/or has specific authorization to act to produce an end-product from a state health department, a governor or other Authority Having Jurisdiction. As a result, best practices for component part manufacturers should include discussions with the OEMs that they do business with on the front end about any such contracts and/or authorizations that may be in place regarding the OEM’s final product. The goal is to determine whether immunity may be readily available. The primary concerns component part manufacturers need to determine include:

• Whether the final product is being provided by the OEM pursuant to a federal contract
• Whether the final product is being provided under some other “arrangement” – for example, was the OEM ordered to manufacture the product pursuant to the DPA?
• Whether the OEM has specific authorization to act from any other Authority Having Jurisdiction

Importantly, verifying various forms of available immunity could depend on asking and receiving affirmative responses to these relatively simple questions. To that end, component part manufacturers should seek answers to these questions from the OEMs they work with and, if possible, seek to incorporate a provision into their supply agreements which would require OEMs to take all necessary actions to avail themselves of the immunities outlined in the PREP Act and PREP Act Declaration, including seeking specific authorization(s) for their activities where possible.

Where Can a Component Part Manufacturer Look to Determine Which Companies Have Contracted with the Government or Which Companies the President Ordered to Produce COVID-19-Related Products?

The Defense Production Act of 1950 empowers the president to order companies to make products. Where the president has ordered a company to produce COVID-19-related products – such as the aforementioned ventilators – those products and their manufacturers are acting pursuant to an “arrangement” with the government, and therefore should benefit from immunity from liability under the PREP Act. 50 U.S.C. § 4557; April 14, 2020 Advisory Opinion on the Public Readiness and Emergency Preparedness Act and the March 10, 2020 Declaration under the Act.³

As a result, the component part manufacturers and their constituent parts provided to these immunized OEMs are afforded the same immunity. As such, component part suppliers may want to avail themselves of a few resources to ascertain in advance whether a company requiring supply of components will already be considered to be engaging in activities that would qualify as immunized before the suppliers finalize any supply agreements involving “covered countermeasures.”

At this point, the roster of companies encompassed by President Trump’s DPA order is limited and easily identifiable by component part manufacturers by looking to the White House’s memoranda summarizing recent DPA orders, such as this one.

Further, the Office of Management and Budget has established a free, searchable website – https://www.usaspending.gov – which lists all federal contract awards. For each federal contract, the website includes the name of the entity receiving the award, the date of the award, the amount of the award, the awarding agency and the award type. Through USAspending.gov, searching for the contracts involving specific OEMs and even products such as “ventilators” is a simple keyword search. Contracts resulting from a DPA order can also be found on this site. For example, the contract resulting from President Trump’s DPA order for “COVID-19 Ventilators” can be found here.

The Takeaways

The PREP Act and PREP Act Declaration confer tort immunity that extends beyond OEMs to component part manufacturers. However, because liability is, at least on its face, limited, component part manufacturers: 1) should try to determine whether the companies they are considering supplying components to have already contracted with the government to provide COVID-19-related products, providing a clear route to immunity, 2) build in a discussion asking whether the company they may be supplying has such a contract or has authority to act from Authority Having Jurisdiction, and 3) include an express provision in any negotiated supply agreement asking the OEM to certify it has taken or will take all necessary steps to avail itself of immunity under the PREP Act. Thoughtful predicate negotiation and contracting now will pay dividends if or when litigation, one day, ensues.

As the number of cases around the world grows, Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.