With Chevron Doctrine overturned, new ‘judicial veto’ of regulations will harm science and business

My colleague Barbara Pfeffer Billauer and I wrote About recent Supreme Court decisions in August that created sweeping changes in the operation of government regulation in the United States and shifted power from regulatory agencies to the courts.

Most importantly, Loper Bright Enterprises – Raimondo (2024), eviscerated forty years of history”Chevron Doctrine” (aka the Chevron Deference) held that courts should defer interpretation of ambiguous statutes to federal agencies unless Congress weighed in on the specific issue at hand. The “judicial veto” would be particularly important in agencies with substantial expertise in interpreting statutes because those measures , we argued, is the responsibility of agencies within the Department of Health and Human Services and other agencies, such as EPA, NOAA, NRC, and OSHA.

We argued that the decisions “eliminate prudence in jurisprudence” and create an environment of uncertainty and mistrust regarding public policy.

More recently, a article inside Harvard Business Review, Academics Blair Levin and Larry Downes have further expanded on the consequences of the “judicial veto” of regulatory policies for U.S. business.

Their pessimistic views are a far cry from the business-friendly environment many expect; these SCOTUS decisions threaten to stifle investment, stifle innovation (including the development of new products overseen by federal agencies such as the FDA and EPA), and reinforce the dominance of incumbent companies.

The new version of “Judicial Veto”

According to Levin and Downes, two Supreme Court decisions form the backbone of this transformation. First, in West Virginia – EPA (2022)The court significantly restricted the EPA’s ability to regulate carbon emissions, long considered a core part of its authority. This case introduced: important questions doctrineA law that provides that federal agencies cannot issue rules that have major economic or political effects without the express approval of Congress.

In 2023, the Court dealt a decisive blow by overturning the Chevron Doctrine, which for almost 40 years had required courts to defer to agency interpretations of ambiguities in the law, giving regulators the freedom to effectively interpret and apply the laws in their field. expertise.

Chevron was important to regulators; decision was quoted It was used more than 18,000 times over 40 years. By striking down Chevron, the court handed the final say on regulatory matters to the judiciary, granting a “judicial veto” to nearly 900 federal judges across the United States. This means that plaintiffs trying to block a regulation can now “judge shop” – and are likely to find a judge who is sympathetic to their case; This will likely lead to a wave of legal challenges to many new rules.

According to Levin and Downes, contrary to the belief that less regulation promotes a better business environment, SCOTUS decisions are likely to have the opposite effect. Rather than promoting a stable and predictable regulatory framework, a judicial veto will increase uncertainty in three ways:

1. Multiplying the number of decision makers
2. Extending the timeline for policy-related unpredictability
3. Preferring established businesses over newcomers

Multiplication of decision makers and reduction of expertise

Under the previous regulatory framework, federal agencies primarily decided how to interpret and enforce laws. They engaged subject matter experts to design, review and adjust regulations according to scientific and technological advances and evolving industry needs.

With the change in judicial review, review of new rules now falls into the hands of judges who have no expertise in what they are evaluating; many lack the specialized knowledge that institutions bring to the table on rapidly evolving technologies such as artificial intelligence (AI), biotechnology, cryptocurrency or nuclear energy. Without this necessary expertise, judges tasked with ruling on the legality of new rules will be at the mercy of plaintiffs’ “gun-for-hire” experts and will inevitably make some fragmented, inconsistent decisions that vary by jurisdiction.

For example, in the 1980s, when the application for approval of the first biopharmaceutical human insulin (Humulin) produced in genetically modified bacteria was submitted to the FDA, the agency made a very important decision that was not specified in the legislation. They made the decision because the regulators (among whom I led the review team) have extensive experience with animal insulins as well as drugs derived from microorganisms, and the genetic engineering techniques used were viewed by the scientific community as an extension or improvement. Neither of these methods required fundamentally new regulatory paradigms. This allowed human insulin to be approved in record time. This turned out to be a historic, precedent-setting decision; It was a decision that could be challenged under existing post-Chevron rules, delaying approval of life-saving products.

Additionally, as regulations are overridden at the federal level, states may step in to fill the gap with their own, often conflicting, rules, sometimes driven by politics rather than appropriate expertise. The resulting state laws will make it harder for businesses, especially those in emerging industries, to navigate the regulatory landscape.

Extending the timeline of unpredictability

In addition to increasing the number of decision-makers, judicial vetoes also increase the amount of time businesses will have to wait for regulations to be finalized. According to Chevron, businesses can expect to reach a decision on most regulations within a year or two, with the outcome guided by the agency’s expertise. Courts generally respected these institutions; This meant that businesses that routinely interacted with regulators had a reasonable understanding of how the new rules would be implemented and over what timeframe.

This timeline will likely be extended as many new regulations face legal challenges. While cases move through the courts as quickly as ever, businesses may have to wait five to seven years to learn the final rules they must follow. Such prolonged uncertainty is particularly damaging for venture capital and private equity firms that invest in long-term growth, especially in emerging sectors. For example, investors in artificial intelligence, nuclear energy, pharmaceuticals, and biotechnology may be hesitant to pour money into companies without knowing whether the regulatory environment will allow these businesses to succeed. And once the judges rule, nothing will stop the new rules from being set aside in subsequent hearings.

Tipping the scales in favor of established businesses

The judicial veto also tilts the regulatory playing field in favor of established businesses that have the legal and financial resources to navigate this new reality, rather than new entrants and early-stage investors. They may have the luxury of challenging regulations in court and can use litigation as a tool to delay or block new rules that would promote competition.

A less competitive future?

In theory, a judicial veto could encourage investment in some sectors, especially those that benefit from reduced regulation. For example, limiting the EPA’s powers West Virginia – EPA It could encourage investment in fossil fuels like coal, but environmental groups will be bracing for endless cases that could be decided in different jurisdictions. It is not difficult to predict that chaos will be inevitable in many cases.

The uncertain regulatory environment created by the judicial veto will make it difficult for entrepreneurs and start-ups to disrupt markets and challenge incumbents. As one experienced management consultant predicted: “Litigation chaos is in our future.” The costs of navigating a fragmented, unpredictable, and protracted regulatory environment may outweigh the promise of less regulation.

Levin and Downes’ cynical conclusion: “(The judicial veto doctrine) can reduce or delay investment in a wide range of sectors and businesses. Unless it is invested in law firms.”

An earlier version of this article was published by the Genetic Literacy Project.