Registration of Manufacturers and Importers of Controlled Substances

SUMMARY: This final is issued by the Drug Enforcement Administration to

eliminate the requirement of an administrative hearing on objections,

raised by third-party manufacturers, to the registration of certain

bulk manufacturers of controlled substances. This action amends the

current regulation and removes the third-party manufacturer hearing

provision when requested by another applicant or registrant. Other

applicants and registrants may still submit written comments and

objections for consideration by DEA and may participate in hearings on

bulk manufacturer applications requested by the applicant. This final

rule amends the regulation concerning withdrawal of applications to be

consistent with this action.

EFFECTIVE DATE: July 20, 1995.

FOR FURTHER INFORMATION CONTACT:

Julie C. Gallagher, Associate Chief Counsel, Diversion/Regulatory

Section, Office of Chief Counsel, Drug Enforcement Administration,

Washington, DC 20537, telephone (202) 307-8010.

SUPPLEMENTARY INFORMATION: On October 7, 1993, DEA published a notice

of proposed rulemaking (NPRM) in the Federal Register (58 FR 52246) to

amend its regulations to eliminate the third-party manufacturer hearing

requirement for objections to the registration of certain bulk

manufacturers and importers of controlled substances. The DEA proposed

to amend two sections of its regulations, specifically 21 CFR

1301.43(a) and 1311.42(a), wherein DEA is required to hold an

administrative hearing on an application for registration to

manufacture or import a bulk Schedule I or II controlled substance when

requested to do so by any current bulk manufacturer of the substance(s)

or by any other applicant for a similar registration. The NPRM proposed

to modify section 1301.43(a) and provide for a hearing only when DEA

``determines that a hearing is necessary to receive factual evidence

and/or expert testimony with respect to issues raised by the

application or objections thereto.''

On June 14, 1994, DEA published a Supplemental Notice of Proposed

Rulemaking (SNPRM) in the Federal Register (59 FR 3055) proposing to

eliminate altogether the third-party manufacturer hearing regulation,

section 1301.43(a). DEA would continue to hold hearings when requested

by the applicant pursuant to an order to show cause, section 1301.44.

DEA would continue to solicit written comments or objections from

current registrants and applicants concerning an application for

registration. Current registrants and applicants would also be granted

an opportunity to participate in any hearings conducted pursuant to

section 1301.44.

The SNPRM provided notice that DEA would not change the hearing

provision relating to registration of importers, section 1311.42(a),

because of the statutory requirements under 21 U.S.C. 958(i). Section

958(i) states that DEA shall provide current bulk manufacturers of

controlled substances an opportunity for a hearing prior to issuing an

importer registration to another bulk manufacturer. With an existing

statute in effect, DEA is not empowered to adopt regulations that

contravene the express language of that statute.

Five comments were received in response to the NPRM. Three comments

were received concerning the SNPRM, although one commentor had

previously commented on the NPRM. To the extent that comments received

in response to the NPRM are relevant, they have been considered. Of the

seven independent commentors, two supported removing the mandatory

third party hearing provision while five commentors opposed the

proposed rulemaking.

One commentor that supported the proposed rule provided an example

of its own experience as an applicant for a bulk manufacturer

registration to demonstrate how ``currently registered manufacturers

use the regulatory hearing requirement to deter others from applying or

to delay entry of their competitors in the marketplace.'' The five

opposing commentors advanced numerous arguments and proposed

alternatives to the proposed rule, their primary concerns are

summarized below.

Three commentors believed that elimination of the third-party

manufacturer hearing regulation would be contrary to Congress' intent

that DEA should limit the number of bulk manufacturers in the United

States where supply and competition are adequate. One of these

commentors noted that the United States had been a party to several

international agreements recognizing the need to limit licensing of

drug manufacturers. This commentor then argued that the Narcotic

Manufacturing Act (NMA) of 1960, which specified limitations on the

licensing of bulk manufacturers of controlled substances, provided

historical precedent for similar limitations within the Controlled

Substances Act (CSA). Similarly, two commentors argued that the

proposed rule would run contrary to the intent of Congress to limit the

number of bulk manufacturers of controlled substances to the most

qualified applicants, and thus, limit the possible diversion of these

controlled substances. One commentor interpreted the mandate of

``limiting'' registration under 21 U.S.C. 823(a) of the CSA as

prohibiting DEA from approving additional registrations if there

already exists uninterrupted supply and adequate competition.

The final rule is not contrary to either the direct or implied

intent of Congress in passing the CSA. The final rule does not alter

the DEA's responsibility to apply the factors set forth in 21 U.S.C.

823(a) to applications for bulk manufacturer registrations. While the

commentors provide persuasive arguments regarding possible

Congressional intent in the enactment of 21 U.S.C. 823(a), such

arguments are irrelevant to the issue of whether the

[[Page 32100]] regulations should provide for a third-party

manufacturer hearing. The express language of the statute does not

provide a hearing right to bulk manufacturer registrants or applicants

regarding the registration of a bulk manufacturer, nor can such a right

be inferred. See Comprehensive Drug Abuse Prevention and Control Act of

1970, Committee on Interstate and Foreign Commerce, H.R. Rep. No. 91-

1444 (Part 1), 91st Cong., 2d Sess. (1970) (CSA). Moreover, even

assuming that Congress intended to limit the number of bulk

manufacturer registrants, the final rule does not purport to increase

the number of such registrants. It is also worth noting that the

regulations, 21 CFR 1301.43(b), provide that DEA is not required to

limit the number of manufacturers even if the current registrants can

provide an adequate supply, as long as DEA can maintain effective

controls against diversion.

Another commentor suggested that Congress intended that DEA

``implement such procedural safeguards when it enacted the CSA.'' This

comment ignores the fact that neither 21 U.S.C. 823(a) nor 21 U.S.C.

824 provides for a third-party manufacturer hearing. Moreover, as one

commentor noted, the procedural requirements of the APA are not

affected by the removal of the third-party manufacturer hearing

provision. Significantly, at the time of promulgation of the CSA,

Congress afforded a third-party manufacturer hearing opportunity to

current bulk manufacturers on the importer applications of other bulk

manufacturers for Schedule I and II controlled substances. See 21

U.S.C. 958(i). Thus, a plain reading of the statute demonstrates that

Congress did not intend to require a third-party manufacturer hearing

for applications to bulk manufacture Schedule I and II controlled

substances.

It is also not inconsistent to allow hearings on import

registration applications but deny them for bulk manufacturers, as one

commentor suggested. First, registrations to import Schedule I and II

controlled substances are arguably granted under more limited

conditions than manufacturer registrations. See 21 U.S.C. 952. Also, it

is worth noting that the statute provides for the opportunity for a

hearing where a current bulk manufacturer has applied for an importer

registration. Thus, it can be inferred that Congress was concerned with

the potential impact on domestic competition by existing bulk

manufacturers who wanted to import controlled substances as well.

One commentor suggested that more companies will attempt to obtain

a DEA registration because they could avoid the scrutiny of other bulk

manufacturers and that DEA would have to increase personnel to conduct

additional investigations and meet the greater demand for

registrations. This commentor argued that it would be highly

inadvisable to ``ease the entry'' of additional bulk manufacturers and

promote creation of a class of ``opportunistic'' bulk manufacturers who

would seek to produce products which are temporarily profitable, and

felt no obligation to supply for the requirements of the U.S. market.

These comments presume that removal of the third-party manufacturer

hearing process would ``ease the entry'' of additional bulk

manufacturers or that the applicant would be subject to less

``scrutiny.'' Such is not the case. DEA will continue to apply the same

factors required by 21 U.S.C. 823(a) to evaluate applications for

registrations of bulk manufacturers. Where DEA discovers information

which warrants proceedings to deny a registration, either through its

own investigation or as provided through comments of other

manufacturers, it will issue an order to show cause seeking to deny the

application for registration.

Two commentors found that DEA's conclusion regarding abuse of the

regulatory hearing requirement is not supported by the record which

reveals that in the last 20 years, DEA has held as few as five

evidentiary hearings on importer or bulk manufacturer applications at

the request of a current registrant. However, one of these commentors

acknowledged that it believed that objections raised in a prior hearing

involving one of its subsidiaries ``lacked substantive merit.'' More

importantly, one commentor, who supported removing the third-party

manufacturer hearing regulation, provided two examples in which it

believed other manufacturers had used the hearing process for anti-

competitive purposes and to delay entry into the marketplace.

Notwithstanding the limited number of evidentiary hearings during the

past twenty years, the final rule seeks to discourage potential future

abuse of the hearing process.

Four commentors argued that the submission of written comments

would be insufficient because either the comment period would be too

short or because of the inability to produce witnesses and conduct

cross-examination. One of these commentors suggested that this proposal

would make it ``impossible for any currently registered bulk

manufacturer to provide meaningful information to the Administrator''

on these applications. Two of these commentors stated that 30 or even

60 days would be insufficient to prepare meaningful comments on an

application.

First, regarding all subsequent manufacturer applications, DEA will

not consider a comment period less than 60 days. Second, DEA maintains

that 60 days is sufficient time for interested parties to submit

adequate comments and documentation to notify DEA concerning potential

issues that warrant DEA issuing an order to show cause. There is no

evidence that DEA would fail to consider such evidence prior to making

a final determination. Moreover, these individuals could still

participate in any hearing, requested after the issuance of an order to

show cause, thereby providing an additional opportunity to present

evidence.

DEA does not suggest that written comments are a replacement for

direct testimony or cross-examination. However, DEA does argue that

applicants should not be subjected to the rigors and delay accompanying

an administrative hearing absent some prior good faith belief and

evidence that such procedure is warranted. Further, this final rule

will foreclose current registrants and applicants from using the third-

party manufacturer hearing process as a forum for discovery of non-

relevant information from its competitors, such as marketing and

pricing data.

Two commentors suggested that DEA consider adopting procedures to

prevent abuse of the third-party manufacturer hearing provision such as

utilizing motions for summary judgement or requiring written

submissions prior to the hearing. The final rule, in effect, resolves

both issues because (1) DEA will only issue an order to show cause

where it has a good faith basis that the applicant's registration

should not be granted and (2) other bulk manufacturers will be required

to submit substantive written comments within a reasonable time, after

an application has been submitted.

Three commentors stated that the current hearing process enables

third-parties to present relevant and useful information to DEA that

might not otherwise be available because of limited agency resources or

otherwise. DEA acknowledges the critical role that third-parties

provide in identifying issues related to the registration of bulk

manufacturers. DEA does not intend to discourage such participation.

However, the final rule provides DEA with the authority necessary to

protect the interests of applicants and current registrants

alike. [[Page 32101]]

Finally, four commentors requested a hearing on the issue of the

third-party manufacturer hearing provision pursuant to 21 U.S.C. 875.

Unlike other rulemaking conducted pursuant to the CSA, the present

rulemaking presents no requirement that the rule be made on the record

after opportunity for a hearing. For example, 21 U.S.C. 811(a) requires

the opportunity for a hearing whenever there is a proposed rescheduling

of controlled substances. In addition, 21 U.S.C. 875 identifies general

powers available to DEA when exercising its authority under the CSA.

Thus, 21 U.S.C. 875 complements existing hearing provisions under the

CSA rather than conferring independent hearing authority. In any event,

DEA believes that the notice and comment conducted pursuant to this

rulemaking enabled interested parties to provide meaningful comment on

the final rule.

The final rule removes the mandatory third-party manufacturer

hearing requirement while retaining the hearing provision pursuant to

an order to show cause. The proposed change as provided herein does not

violate statutory intent but instead comports with sound principles of

substantive and procedural due process. Eliminating the hearing

requirement except when requested by the applicant after issuance of an

order to show cause, supports the statutory and regulatory mandate that

an applicant for registration as a bulk manufacturer shall have the

burden of proof at ``any hearing'' that the requirements of

registration are met. See 21 CFR 1301.55. The Administrative Procedures

Act (APA) which controls these matters further provides that ``[e]xcept

as otherwise provided by statute, the proponent of a rule or order has

the burden of proof.'' See 5 U.S.C. 556(d).

The final rule eliminates the problem of multiple hearings which

not only promotes judicial economy but also avoids the anomalous result

of DEA conducting administrative hearings which are not dispositive of

the ultimate issue of whether an applicant should be registered. For

example, because DEA must issue an order to show cause whenever it

takes action to deny an application, 21 U.S.C. 824(c), under the

current regulation a second hearing would likely be required when DEA

decided to deny an application after a hearing held pursuant to a

``third-party'' request. Further, this second hearing would involve

many of the same issues raised in the prior proceeding. The primary

objective of the final rule is to limit abuse of the regulatory hearing

process.

For the above-stated reasons and in the absence of express

statutory language governing the right to an evidentiary hearing by

bulk manufacturers concerning the application for registration of bulk

manufacturers of controlled substances, as well as the absence of

language in the legislative history of the CSA that would imply

Congressional intent in this regard, 21 CFR 1301.43 shall be amended.

The Deputy Assistant Administrator hereby certifies that the final

rule will have no significant impact upon those entities whose

interests must be considered under the Regulatory Flexibility Act, 5

U.S.C. 601, et seq. The registrants and applicants who use, or are

affected by, the hearing covered by these regulations are typically not

small entities.

The final rule is not a significant regulatory action pursuant to

Executive Order (E.O.) 12866 and therefore, has not been reviewed by

the Office of Management and Budget. This action has been analyzed in

accordance with the principles and criteria in E.O. 12612, and it has

been determined that the proposed rule does not have sufficient

federalism implications to warrant the preparation of a Federalism

Assessment.

List of Subjects in 21 CFR Part 1301

Administrative practice and procedure, Drug traffic control and

security measures.

For the reasons set forth above and pursuant to the authority

vested in the Attorney General by 21 U.S.C. 821 and 871(b), as

delegated to the Administrator of the Drug Enforcement Administration,

and redelegated to the Deputy Assistant Administrator, Office of

Diversion Control by 28 CFR 0.100 and 0.104, the Deputy Assistant

Administrator, Office of Diversion Control hereby amends part 1301 of

Title 21, Code of Federal Regulations to read as follows:

PART 1301--[AMENDED]

1. The authority citation for part 1301 continues to read as

follows:

Authority: 21 U.S.C. 821, 822, 823, 824, 871(b), 875, 877.

2. Section 1301.37, paragraph (a) is revised to read as follows:

Sec. 1301.37 Amendments to and withdrawal of applications.

(a) An application may be amended or withdrawn without permission

of the Administrator at any time before the date on which the applicant

receives an order to show cause pursuant to Sec. 1301.48. An

application may be amended or withdrawn with permission of the

Administrator at any time where good cause is shown by the applicant or

where the amendment or withdrawal is in the public interest.

* * * * *

3. Section 1301.43, paragraph (a) is revised to read as follows:

Sec. 1301.43 Application for bulk manufacture of Schedule I and II

substances.

(a) In the case of an application for registration or

reregistration to manufacture in bulk a basic class of controlled

substance listed in Schedule I or II, the Administrator shall, upon the

filing of such application, publish in the Federal Register a notice

naming the applicant and stating that such applicant has applied to be

registered as a bulk manufacturer of a basic class of narcotic or

nonnarcotic controlled substance, which class shall be identified. A

copy of said notice shall be mailed simultaneously to each person

registered as a bulk manufacturer of that basic class and to any other

applicant therefor. Any such person may, within 60 days from the date

of publication of the notice in the Federal Register, file with the

Administrator written comments on or objections to the issuance of the

proposed registration.

* * * * *

4. Section 1301.44 is amended by redesignating paragraph (b) as

paragraph (c) and adding a new paragraph (b) to read as follows:

Sec. 1301.44 Certificate of registration; denial of registration.

* * * * *

(b) If a hearing is requested by an applicant for registration or

reregistration to manufacture in bulk a basic class of controlled

substance listed in Schedule I or II, notice that a hearing has been

requested shall be published in the Federal Register and shall be

mailed simultaneously to the applicant and to all persons to whom

notice of the application was mailed. Any person entitled to file

comments or objections to the issuance of the proposed registration

pursuant to Sec. 1301.43(a) may participate in the hearing by filing a

notice of appearance in accordance with Sec. 1301.54. Such persons

shall have 30 days to file a notice of appearance after the date of

publication of the notice of a request for a hearing in the Federal

Register.

5. Section 1301.54, paragraph (a), (b), (c) and (d) are revised to

read as follows: [[Page 32102]]

Sec. 1301.54 Request for hearing or appearance; waiver.

(a) Any person entitled to a hearing pursuant to Secs. 1301.42,

1301.44, or 1301.45 and desiring a hearing shall, within 30 days after

the date of receipt of the order to shown cause, file with the

Administrator a written request for a hearing in the form prescribed in

Sec. 1316.47 of this chapter.

(b) Any person entitled to participate in a hearing pursuant to

Sec. 1301.44(b) and desiring to do so shall, within 30 days of the date

of publication of notice of the request for a hearing in the Federal

Register, file with the Administrator a written notice of intent to

participate in such hearing in the form prescribed in Sec. 1316.48 of

this chapter. Any person filing a request for a hearing need not also

file a notice of appearance.

(c) Any person entitled to a hearing or to participate in a hearing

pursuant to Secs. 1301.42, 1301.44, or 1301.45 may, within the period

permitted for filing a request for a hearing or a notice of appearance,

file with the Administrator a waiver of an opportunity for a hearing or

to participate in a hearing, together with a written statement

regarding such person's position on the matters of fact and law

involved in such hearing. Such statement, if admissible, shall be made

a part of the record and shall be considered in light of the lack of

opportunity for cross-examination in determining the weight to be

attached to matters of fact asserted therein.

(d) If any person entitled to a hearing or to participate in a

hearing pursuant to Secs. 1301.42, 1301.44, or 1301.45 fails to file a

request for a hearing or a notice of appearance, or if such person so

files and fails to appear at the hearing, such person shall be deemed

to have waived the opportunity for a hearing or to participate in the

hearing, unless such person shows good cause for such failure.

* * * * *

6. Section 1301.55, paragraph (a) is revised to read as follows:

Sec. 1301.55 Burden of proof.

(a) At any hearing on an application to manufacture any controlled

substance listed in Schedule I or II, the applicant shall have the

burden of proving that the requirements for such registration pursuant

to section 303(a) of the Act (21 U.S.C. 823(a)) are satisfied. Any

other person participating in the hearing pursuant to Sec. 1301.44(b)

shall have the burden of proving any propositions of fact or law

asserted by such person in the hearing.

* * * * *

Dated: June 14, 1995.

Gene R. Haislip,

Deputy Assistant Administrator, Office of Diversion Control, Drug

Enforcement Administration.

[FR Doc. 95-15058 Filed 6-19-95; 8:45 am]

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