Monday, April 6, 2020
In my post last week, I mentioned the President's invocation of the Defense Production Act during the current COVID-19 crisis. I was immediately curious about this law when news of the President's March 27 memorandum focused on General Motors and ventilator production hit my radar screen (a/k/a, my laptop, which has effectively become my lap these days). Surely, it must be unusual for the U.S. government, I thought, to direct the nature, means, and timing of production and supply. That seems antithetical to the spirit, if not the letter, of U.S. capitalism. However, the more I read, the less curious and concerned I am, at least for the moment. Perhaps some of the reporting in this area is more geared to generating a splashy news item than, well, alerting us to something truly unusual or troubling. Nevertheless, I will make a few foundational points on the Act here. I may have more to say later.
The Defense Production Act of 1950 can be found in Chapter 55 of Title 50 of the U.S. Code. The Act recognizes that "the security of the United States is dependent on the ability of the domestic industrial base to supply materials and services for the national defense and to prepare for and respond to military conflicts, natural or man-caused disasters, or acts of terrorism within the United States." 50 U.S.C. § 4502(a)(1). To meet these and other requirements, the Defense Production Act "provides the President with an array of authorities to shape national defense preparedness programs and to take appropriate steps to maintain and enhance the domestic industrial base." Id. at § 4502(a)(4).
The President's highly publicized General Motors memorandum referenced above is only one of a number of formalized presidential actions citing to or using the Defense Production Act in the war against COVID-19. That memorandum directs the Secretary of Health and Human Services to "use any and all authority available under the Act to require General Motors Company to accept, perform, and prioritize contracts or orders for the number of ventilators that the Secretary determines to be appropriate." The General Motors memorandum follows on a March 16 executive order delegating specified presidential powers under Section 101 of the Act to the Secretary of Health and Human Services. An April 2 memorandum directs the Secretary of Homeland Security "through the Administrator of the Federal Emergency Management Agency (Administrator), . . . [to] use any and all authority available under the Act to acquire, from any appropriate subsidiary or affiliate of 3M Company, the number of N-95 respirators that the Administrator determines to be appropriate." A second April 2 memorandum directs the Secretary of Health and Human Services, "in consultation with the Secretary of Homeland Security, . . . [to] use any and all authority available under the Act to facilitate the supply of materials to the appropriate subsidiary or affiliate of the following entities for the production of ventilators: General Electric Company; Hill-Rom Holdings, Inc.; Medtronic Public Limited Company; ResMed Inc.; Royal Philips N.V.; and Vyaire Medical, Inc." Finally, an April 3 memorandum directs the Secretary of Homeland Security "through the Administrator of the Federal Emergency Management Agency, in consultation with the Secretary of Health and Human Services, . . . [to] use any and all authority available under section 101 of the Act to allocate to domestic use, as appropriate, . . . [specified] scarce or threatened materials designated by the Secretary of Health and Human Services . . . ." The President also issued a related statement on April 3 that decries "wartime profiteering."
Although the use of the Defense Production Act in directing production during the ongoing COVID-19 crisis may be novel in its nature or scale, Fortune reports that the Act is used "routinely" to prioritize contracts relating to military procurements and in response to natural disasters. Other past uses also are mentioned in that Fortune article. None of the President's actions to date invoking the Act as to production by specific firms is in the form of an executive order. However, the President is afforded many powers under the Act, see 50 U.S.C. § 4554(a) (providing in relevant part that "the President may prescribe such regulations and issue such orders as the President may determine to be appropriate"), although they are subject to certain limitations (including, e.g., broad-based restrictions relating to "wage or price controls" and "chemical or biological weapons" under 50 U.S.C. § 4514).
Even without the issuance of enforceable presidential orders, however, those charged with manufacturing under the various presidential memoranda are (and in some cases, prior to presidential action, were) scrambling to make up for lost time. A report published over the weekend in The Washington Post describes the status of some of their efforts. CNBC's similar report is here. Time weighed in a few days earlier with its story. Finally, an earlier report from The New York Times offers historic details relevant at that time. Private industry has been stepping up in so many ways during the pandemic. With all the hullabaloo around the Defense Production Act, we all should know about and be proud of that.
As for the actual COVID-19 business operational effects of the powers afforded to the President under the Defense Production Act, they remain to be seen. My interest has been whetted, however, and I will be paying attention to future invocations of the Act not only in the COVID-19 crisis, but also in other contexts. My perception is that it is one of the lesser-known laws that can impact business in a significant ways if the full force of its provisions is employed. It is legislation--even 70 years out--that all of us business lawyers and law professors should be aware of.