CHALLENGING INDIANA’S ATTACK ON THE E-LIQUID INDUSTRY
Join A Coalition Of E-Liquid And Device Manufacturers Leading This Fight

The State of Indiana recently adopted a law (House Enrolled Act 1432/Public Law 176-2015; Senate Enrolled Act 463/Public Law 213-2015) that could wipe out the e-liquid industry in that state and, if not taken off the books permanently, could lead to similar statutes across the country.  The law prohibits e-liquid manufacturers, whether they are located in the state or not, from selling products to retailers and distributors without a permit which requires the manufacturer to comply with expensive and burdensome manufacturing and security protocols.  It also prohibits in-state retailers from selling e-liquids where the manufacturer has failed to obtain a permit or comply with the manufacturing requirements.  Perhaps of most concern, the statute is aimed solely at e-liquids used in “open-system” products, while giving manufacturers and retailers of “closed-system” products a free pass.

Recently, three e-liquid producers and an in-state retailer filed a lawsuit in federal district court challenging the statute on various constitutional grounds (Legato Vapors, L.L.C. et al. v. Cook et al., Case No. 1:15-cv-00761-SEB/TAB (S.D. Ind.)).  While this is certainly good news, the limited number of plaintiffs in the case fails to truly convey the substantial risk that this statute poses to the e-liquid industry as a whole, creating a false impression for the court that the law is not a concern outside a few manufacturers.  The e-liquid industry, however, is known to consist of hundreds, if not thousands, of companies.  It is critically important, therefore, that e-liquid and open-system device manufacturers come together in a broad coalition to join the litigation and make clear for the court that the statute threatens the continued viability of this industry, both in Indiana and abroad.

The lawsuit seeks to enjoin the law based on several constitutional arguments.  For example, the statute reaches beyond Indiana’s borders and regulates the manufacturing of e-liquids throughout the country, thus potentially running afoul of the U.S. Constitution’s Commerce Clause.  This includes cost-prohibitive requirements for “casino-like” security (including 24-7 off-site video surveillance), and the construction and operation of specially-designed “clean rooms” for mixing and bottling e-liquids.  Moreover, the law does not regulate e-liquids used in “closed-system” products despite the fact there is no evidence that e-liquids designed for “open-system” devices are any different in terms of consumer safety.  Drawing such arbitrary distinctions between competing industry segments may violate the Equal Protection Clause.  And any coalition should consider additional arguments not already made in the litigation.  For instance, the Commerce Clause might be implicated if it can be shown that out-of-state burdens and costs imposed on e-liquid companies far outweigh any in-state benefits.

Keller and Heckman (“K&H”) is currently assembling a coalition of e-liquid and device manufacturers to join this litigation and protect their commercial interests.  The coalition could participate in one of several ways – by intervening or joining as an additional plaintiff or, under a more limited approach, filing an amicus (or “friend of the court”) brief.  Either way, the coalition members would be able to leverage their combined expertise, share litigation costs and, most importantly, speak with a collective voice.  K&H is also well-positioned to coordinate this effort.  At K&H we represent a wide spectrum of companies and trade associations servicing a range of diverse industries, and have much experience litigating matters on behalf of industry coalitions.  In particular, the firm has an extensive background in representing the e-liquid industry as the FDA, state agencies, and foreign governments seek to regulate e-cigarettes.  K&H has advised e-liquid manufacturers and trade associations on compliance matters, worked on ingredient and related safety issues, and prepared comments on various federal regulatory proposals, including FDA’s “Deeming Regulation.”  For more on K&H’s e-cigarette practice, visit our website at www.khlaw.com/tobaccoIf your company is interested in joining this coalition or would like to discuss this matter further, please feel free to contact Azim Chowdhury (202-434-4230 or chowdhury@khlaw.com) or Eric Gotting (202-434-4269 or gotting@khlaw.com).