The Evolution of Genetic Health Testing Regulation

By: Chad Ozbeki

After the completion of the Human Genome Project in 2003, a Silicon Valley-based startup developed and began commercializing a genetic health test kit.[1]  With the aim of democratizing personal health care data and empowering consumers, the startup bypassed the medical provider community and marketed their genetic health test directly to consumers.[2]  This was a disruptive game-changer—the test kit provided insight into a given consumer’s ancestry and a prospective outlook of their genetic predisposition to several diseases and conditions.[3]  After raising a considerable amount of capital, bringing on a team of Silicon Valley veterans, and developing a product capable of testing for more than 250 diseases and conditions, it all came to a screeching halt with a warning letter from the Food and Drug Administration (“FDA”).[4]  For disruptive startups in a highly regulated industry like health care, regulatory ambiguity cuts both ways—it can present as tremendous upside potential or, conversely, predispose a company to an early demise.

Stunted Growth

The direct-to-consumer genetic testing market came to a standstill in November 2013.  The FDA issued the aforementioned warning letter to 23andMe—a pioneer of direct-to-consumer genetic health testing—and declared their genetic health testing kit to be in violation of the Food Drug & Cosmetic Act (“FD&C Act”). [5]   A warning letter is an official FDA notification issued to a company after the agency has identified a significant violation, which then requires the company to address the violation and communicate a remediation plan within a given timeframe.[6]  Pursuant to section 201(h) of the FD&C Act, the FDA declared 23andMe’s genetic health testing kit to be a device based on its intended “[u]se in the diagnosis of disease or other conditions or in the cure, mitigation, treatment, or prevention of disease, or is intended to affect the structure or function of the body” and, therefore, in violation of the FD&C Act because it had “[n]ot been classified and [required] premarket approval or de novo classification.”[7]  As a result, the test kit was effectively reduced to a genetic testing tool for ancestry.[8]

Learn and Adapt

In 2015, in a first step for the FDA, the agency approved the first direct-to-consumer genetic carrier test—a category of genetic health testing focused on consumers who may be at risk for passing on a recessive genetic disorder to their children (e.g., Bloom Syndrome).[9]  This approval was based on two policy rationales that must be included as strategic imperatives for any startup planning to enter the genetic health testing market.  The first is grounded in consumer access.  The FDA has taken the position that in “[m]any circumstances it is not necessary for consumers to go through a licensed practitioner to have direct access to their personal genetic information.”[10]  To that end, this category of genetic health testing has been exempted from pre-market review.  The second policy rationale is grounded in consumer safety and protection.  In its approval, the FDA placed carrier genetic tests in a lower device classification (class II) to reduce the regulatory burden and, therefore, subjected this category of genetic health tests to general and special regulatory controls designed to ensure safety and effectiveness.[11]  In an effort to further enhance consumer safety and protection, the FDA required the genetic carrier test to present test results in a way “[t]hat consumers [could] understand and use,” and include a product label explaining what the results could potentially mean.[12]  This is akin to the approach the FDA utilizes with other direct-to-consumer tests (e.g., pregnancy tests).[13] 

Dynamically Evolving  

These twin policy aims are the underpinnings of FDA’s evolving approach to regulating direct-to-consumer genetic health tests—now referenced as genetic health risk tests, or “GHRs.”  Consumers are becoming more engaged in their own health care in many ways, such as counting their steps, tracking their heart rates, and monitoring their sleep patterns—just to name a few.  And, similar to these new technology-derived insights, GHRs also present an opportunity for consumers to learn more about their health and make more informed lifestyle choices.[14]  However, the public health benefits of increased consumer engagement and access to personalized health care insights also presents a unique challenge.  As the FDA Commissioner has stated, “[t]hese technologies don’t fit squarely into our traditional risk-based approach to device regulation.”[15]

In April of this year, the FDA approved the first direct-to-consumer GHR for ten (10) diseases and conditions, which includes Parkinson’s disease, late-onset Alzheimer’s disease, and Celiac disease.[16]  Like the aforementioned genetic carrier test approval, the newly approved GHR is subject to general and special controls to ensure safety and effectiveness.[17]  Both approvals granted marketing rights to the same trailblazing startup—none other than 23andMe.  And, with this approval, the agency signaled its plans toward regulating GHRs.  That is to say, the FDA exempted “[a]dditional 23andMe GHR tests from FDA’s premarket review” and stated that tests “[f]rom other makers may be exempt after submitting their first premarket notification.”18

The regulatory shift to reviewing and approving the company manufacturing the genetic health test, rather than the specific test itself, was reinforced in FDA’s recently announced plan to streamline the development and regulatory pathway of GHRs.19  The agency intends to implement “[a] novel regulatory approach…that applies proper oversight in a flexible, new way.”20  In other words, the FDA plans to execute a one-time review of a company to ensure it meets certain FDA requirements and, once approved, subsequent tests from an “FDA-approved” company will be exempt from premarket review.21  The implications of this “firm-based” regulatory framework22—similar to that of the digital health pre-certification pilot—will allow GHRs to enter the marketplace, and strikes a balance between the aforementioned twin policy aims of consumer access and consumer safety and protection. 

Conclusion

Regulatory ambiguity can present as an unwelcomed malady threatening a startup’s viability, while also presenting as an opportunity to disrupt an industry and engage with regulators to shift the traditional paradigm.23  The recent regulatory shift provides clarity to entrepreneurs entering the direct-to-consumer genetic health testing market.  And, unlike more established startups in this rapidly evolving industry—“established” is a relative term—newly funded startups have more clarity on what processes, methodologies, and controls must be in place prior to engaging with regulators.  This translates to smarter capital allocation and more predictability in developing and executing a go-to-market strategy.  In other words, startups now have a better understanding of the “input” needed to secure FDA approval.  Therefore, this four-year evolutionary snapshot of the genetic health testing regulatory framework highlights the risk of regulatory ambiguity, and the important impact startups can have in shifting the landscape.

[1] Wired (Nov. 2007)

[2] Fast Company (Oct. 2015)

[3] Wired (Nov. 2007)

[4] Fast Company (Oct. 2015)

[5] FDA Warning Letter (Nov. 2013)

[6] FDA Warning Letter FAQ (Nov. 2017)

[7] FDA Warning Letter (Nov. 2013)

[8] Fast Company (Oct. 2015)

[9] FDA Press Release (Feb. 2015)san test kit 2015)ragraph becauslast four years.nderstanding the evolution of FDA'dMe is introduced in the next paragraph becaus

[10] FDA Press Release (Feb. 2015)

[11] FDA Regulatory Controls (June 2014)

[12] FDA Press Release (Feb. 2015)

[13] FDA Press Release (Feb. 2015)

[14] FDA Commissioner Statement (Nov. 2017)

[15] FDA Commissioner Statement (Nov. 2017)

[16] FDA Press Release (April 2017)

[17] FDA Press Release (April 2017)

18 FDA Press Release (April 2017)

19 Stat News (Nov. 2017)

20 FDA Commissioner Statement (Nov. 2017)

21 FDA Commissioner Statement (Nov. 2017)

22 FDA Commissioner Statement (Nov. 2017)

23 Fast Company (Oct. 2015)

Law Firms Must Adapt to Remain Relative

By: Stephen Anderson

Law and Tech

Much like oil and water, the legal industry and technology have never seemed to be very compatible.  Whether it is the outdated filing systems in many courts around the nation or the hesitation to make use of new technology, our country’s legal framework has failed to utilize the significant leaps in technology that have taken place over the past few decades. Regardless of the reason, this is cause for concern. However, slowly but surely, technology has started to become integrated into the law and its administrative framework in recent years. Specifically, some legal technology startups have made some serious inroads into these law firm silos.

Overall, legal tech startups are growing in prominence and sheer size.  Arguably, the most impressive aspect of tech startups is the multitude of ways they are affecting the legal industry.  Online service providers, such as Rocket Lawyer, have become mainstream, alternative options for straightforward legal aid.  Legal markets such as Intellectual Property software and practice management software have all seen a large increase in the presence of startups.  Additionally, new markets such as eDiscovery can attribute their rise (and, to a certain extent, their existence) to legal tech startups.  This is only the beginning.  The legal industry is in a dire need of a technological disruption, by which, legal tech startups may improve on a variety of aspects of the industry.  A great example of such potential is Relativity, formerly known as kCura. [1]

The Potential of Relativity

At a basic level, Relativity helps law firms and corporations organize data through their eDiscovery software platform, which subsequently cuts their costs and saves them significant time.  Although that may sound simple enough, the ability to comb through data in a much more efficient manner is priceless for law firms.  While Relativity’s current business plan is exciting, it may be just the tip of the iceberg. 

The eDiscovery market is primed to take off.  The market is estimated to become a $20 billion-dollar business within the next 5 years, and many eDiscovery companies are not going to stop at legal.  They believe there is opportunity for growth into a number of different industries. [2] If that is not exciting enough, the real potential lies within Relativity’s platform. Simply put, their platform has the ability to play a large part in the continued growth of legal tech startups.  

To better appreciate the potential that Relativity’s platform provides, it is first necessary to understand Relativity, and its many capabilities, itself.  The company and its suite of products revolve around data, and their ability to quickly utilize that data in a number of different ways that are useful to law firms and companies alike.  To give a frame of reference on the amount of data that Relativity manages, here are a few statistics.  They have 95 billion files under management, over 160,000 active users, and over 13,000 unique organizations that use the Relativity platform.  Additionally, 75 of the Fortune 100 companies and 195 of the Am Law 200 use Relativity. [3].  Whether a law firm needs to prepare evidence for litigation or work through corporate data pertaining to a merger, Relativity’s eDiscovery software is key to their tasks.  Needless to say, Relativity is already having a significant impact on the legal industry.  Now, their platform could make that impact even larger by supporting not only their own product, but those of other tech startups, as well.

The Hub: Relativity’s Playground

The platform allows third parties, such as legal support professionals, independent consultants, and software providers, to extend Relativity’s functionality by integrating applications into the platform.  They do this under an umbrella they call the Relativity App Hub (the “Hub”).  The goal of the Hub is to allow Relativity’s users to have options regarding solutions to a number of problems they may face across the various stages of eDiscovery.  The possibilities do not end there.  While the platform is used for eDiscovery, the Hub also fosters applications aimed at solving data challenges outside this service.  All of these applications are prime examples of innovative solutions to the traditional legal framework.  The process is relatively simple.  Once you are a Relativity client, you have access to the Hub, which integrates the applications made by separate tech startups onto the Relativity platform.

A brief look at Relativity’s website shows applications that can be utilized on their platform, with a variety of potential uses ranging from contract analysis to project management. [4] Take for example Heretik, an application for contract review utilizing machine-learning capabilities. [5] As such, Heretik expands the scope of Relativity by allowing consumers to have more efficient and cost effective contract review across a number of teams by eliminating tedious tasks that are essential to contract review.  Although this may sound simple, the heart of its accomplishment should not be overlooked.  Eliminating time-consuming tasks through machine learning allows law firms to allocate human capital and financial resources to much more important and useful tasks.

At the end of the day, the biggest challenge for Relativity and its competitors is educating its consumers.  As previously discussed, law firms are notoriously resistant to change.  As a result, Relativity and its Hub represent an innovative solution to the steep learning curve that accompanies much of new technology nowadays. Law firms will not have to spend time (and money) to teach their lawyers and professional staff how to use any unfamiliar software that is built on the Relativity platform.  The staff will be familiar with Relativity and, therefore, should learn how to operate any new applications on the Hub seamlessly.  Most of the applications on the Hub will include another paywall, but the decision regarding whether or not to pay additional fees is one for Relativity’s clients to make.  For savvier clients, the Hub also gives them the ability to create their own custom Relativity applications.  The fact that law firms now have these options is an achievement in and of itself that should be celebrated.

Future Aspirations

Lets face it - a lawyer learning new technology can be a recipe for disaster.  Generally speaking, it is in our nature to become accustom to a certain way of accomplishing certain things, especially in regards to technology (look no further than Apple dependency and many peoples reluctance to use and fully utilize Excel).  Lawyers and the law industry are no different.  Although a platform such as Relativity has not been utilized (or scaled) in the legal industry before, Relativity and its supporters should look to Salesforce as inspiration.  Salesforce is clearly much bigger than Relativity, but, nevertheless, it has had a number of successful companies built on top of its platform.  They may not reach the same heights, but at the very least there is a successful blueprint readily available.

At the end of the day, the benefits provided by legal innovations improve the services provided to the client.  Law firms save time and money, Relativity cultivates innovation in the legal tech startup space, and lawyers themselves are able to purse through and utilize data that in a more efficient manner than ever before. Simply put, law firms, big and small alike, will (eventually) use technology reflective of the time we live in.  In order to improve client service, the standard in the legal industry should be to remain abreast of available technological services. Tech startups are at the heart of that aspiration and Relativity is an early example of a company providing a means for them to reach the legal world. 

The KOM of Data Privacy and Utilizations

By: Esteban Múnera

The Big Data Challenge

Data privacy was once viewed primarily as a narrow legal niche, mainly relevant for a handful of industry segments, with very little impact on most lawyers and most companies.  Today, particularly in the past few years, data privacy and security have become regular front page news with the need for substantial attention in virtually every company.  Behind the scenes, regulators vie for jurisdiction on enforcement issues, and legislators at all levels attempt to balance between personal interests and the potential gains for society from data.  As a result, you cannot run a meaningful company without an effective information security program. By the same token, you cannot benefit appropriately from the information available to you without understanding how privacy laws and regulations impact big data and overall data analysis.

The big data challenge involves both private enterprise and government seeking greater insights into people’s behaviors and sentiments which may aid product and process discovery, productivity, and policymaking.  This post will provide a primary overview of the legal considerations of data privacy.  U.S. and international privacy regulations aside, all lawyers must advise their respective clients on potential data privacy threats and beneficial utilizations.  As the example below illustrates, this line between privacy and utilizations is not always clear and constantly changing.

Case Study: Strava

            In 2009, Strava, launched their site, and opened a virtual community for athletes.  “The Social Network for Athletes”, is a website and mobile app used to track athletic activity via satellite navigation and compete virtually against other users (e.g., King of the Mountain segment challenges, or “KOMs”).  There are a number of features available which include the ability to search the database for routes, athletes, and local challenges.  Athletes can “follow” each other and activities are automatically grouped together when they occur at the same time and place (for example, taking part in an organized marathon/sportive or group run/ride).  In addition, athletes can give “Kudos” (similar to a Facebook Like) and comment on each other’s activities, and upload photos to activities.

This year, Strava celebrated a major milestone: the one-billionth activity shared to their social network for athletes.  As a rapidly growing social network for athletes, Strava saw one million new users every 40 days, and athletes share a staggering average of 1,382,138 activities per day. Athletes on Strava have covered 12,967,788,011 miles—the equivalent of 54,281 trips to the moon! And if you thought Instagram was the only player in the social network space, the platform also sees a whopping 17 million feed views per day, 55 million comments and kudos each week, and 2.2 million photos uploaded per week.[1]

The Business = Data

Although Strava offers a premium subscription business, most users are “weekend-warriors” who opt for the free service option.  Premium subscription according to Strava is for “the athlete who squeezes every drop out of their sport” through advanced data analytics.[2]  Unsurprisingly, these premium perks prove to be superfluous and financially prohibitive for the majority of its consumer base.

In addition, unlike online music providers, Strava is completely add-free for both premium and non-premium users.  Strava’s new CEO, James Quarles, explained that ads are not where he is steering Strava’s business line.  He believes that for ads a certain kind of scale and user expectation is needed.  He should know - Quarles brings to Strava invaluable experience as most recently the VP of Instagram Business and previously Regional Director of Facebook in Europe, the Middle East and Africa.

So how does Strava make money?  As the Quarles explained, it has a “metro business” (Strava Metro) which aggregates and anonymizes commute data to sell back to a city’s department of transportation so they can better plan pedestrian bicycle routes in cities.  Although it may see like Strava Metro is a broad departure from its primary service, this invaluable data has the potential to inform every respective athlete’s city on questions of infrastructure.  It is the most powerful example of advocacy and awareness.  In the long run, pun intended, the tracked data will lead to new bike paths, bike lanes, and improved infrastructure

So, as with any social network – as the community grows, the types of business and data abstractions will grow.  But with the good, comes the bad.

Location-Based Dangers – The Strava Run Map and FlyBy

As a lifelong runner, I’ve become adept at predicting the best times, routes, and strategies to jog in cities while avoiding street impediments.  From circumventing stops at traffic lights to seeking quiet streets, I have adopted behaviors that may put my personal safety at risk.  To make matters worse, Strava may broadcast the route of my daily runs, including the starting location (i.e., my home address).  Furthermore, the new Strava Flybys feature allows you to see your run/ride, plus the run/ride of anyone else you ran/rode with, or who crossed your path.  So even if you were on the same road for just a couple of minutes, you can then view where the other athlete went.

To help combat privacy threats, Strava allows its users to customize the information he or she shares to satisfy the balance between being social and being private that feels right to the user.  The issue is that many users still do not understand how public their activities on the site are.  There is a misconception that since this a platform for athletes, there are no bad actors using the information available to them.  This is simply not true.

For Flybys, athletes can specifically opt-out of being part of Flybys features by selecting the appropriate option under their privacy settings area. f they do this their activity is not included in any Flyby replays.  Again, the issue is that many users do not know about this function or its opt-out option.  The Flybys feature is not part of the main platform, instead it is only available via a link on individual activity pages.

Creative Solutions

Privacy controls should not be an issue an active user, such as myself, should have to Google.  Like the modern trend in writing and displaying legal terms and conditions, privacy control options should be presented at the inception of a new account in a clear and plain manner.  These options should include direct implications of a user’s choice.  For example, choosing a private account setting control does not necessarily exclude your activities from public segment and challenge leaderboards.

Recently, Strava has responded to feedback from its community with a new feature, Beacon.  This service provides Premium members the ability to turn on Beacon before an activity, which allows up to three safety contacts are able to see their location on a map in real- time.  The problem, however, is that the majority users are not Premium members.  Creative solutions like Beacon, or some non-premium variety, need to be uniformly applied for all its users.  Personal and data security is a threat to all – no matter the athletic ability.

[1] https://blog.strava.com/2016-stats/

[2] https://www.strava.com/premium

“MAP” Agreements: an arrow in your quiver

By: Benjamin Ruano

Entrepreneurs with a steadfast vision of introducing into the marketplace a uniquely useful or innovative product — those who skillfully craft its every contour and element of design, scrupulously examine and select its component parts, and exuberantly market the product to consumers and investors — understandably become crestfallen upon seeing their product advertised by retailers for much less than their suggested retail price.  This scenario represents more than a mere stab at one’s ego or emotions, it may even adversely impact a nascent business.  Entrepreneurs and manufacturers, however, have a potentially useful arrow in their quivers to contend with this dismaying situation: Minimum Advertised Price (“MAP”) agreements.

Of “value” and “price”

Most, if not all, things have no intrinsic value; “value” is a human construction, the argument goes (pardon the philosophical conjecture, but there is a point to this). “Value” in the marketplace, then, may be seen as an edifice of worth erected by consumers, retailers, entrepreneurs, advertisers and manufacturers alike.  For instance, a consumer may perceive a product’s value (and the price she is willing to pay) to be much higher than the value or price a retailer ascribes to the same product. 

As droves of consumers, retailers, manufacturers, and the like, proceed to weigh-in on their perceived value of a given product, over time the outward-facing sticker-price will begin to approximate and reflect the aggregated view of marketplace actors.  This is a manifest oversimplification of how goods and services are priced (lest We forget supply and demand); but it is nevertheless a useful exercise in coming to terms with the fact that the prices of products you put forth into the marketplace are often in discord with how you as entrepreneurs value them.  Indeed, in the aftermath of cold appraisal by rational actors—whom are largely disinterested in the viability of your company—you may not always end up with a price with which you are content. 

To wit, there is a great tension between the aims of retailers and manufacturers. Retailers are in a highly competitive market and face pressures to advertise and sell at the lowest possible price; entrepreneurs and manufacturers, meanwhile, desire strong sales but also rely on particular price-floors to draw accurate revenue projections and confidently enter into financing agreements—and in some cases, to merely stay afloat.

A primer: “MAP” Agreements

Some market participants, such as large retailers that both advertise and sell products (e.g. Target and Amazon), have a disproportionate impact on where the price-dust settles.  If certain products are being advertised (and sold) for far less than cost, it can hurt brand and product value while also hurting other retailers who are selling a product at MSRP (“Manufacturer Suggested Retail Price,” typically the total cost of producing a product plus an embedded profit margin).  In a competitive marketplace, this scenario spurs a “race to the bottom” for retailers just looking to make sales by dramatically undercutting on price; this is especially critical for online retailers who more frequently are faced with new competitors.1 In an effort to guard against this “race to the bottom,” Minimum Advertised Price (“MAP”) agreements were conceived and quickly began to sprout about the marketplace.  “MAP” is the lowest price a retailer can advertise a manufacturer’s product in online ads or print – note, this does not affect the price at which a certain product can be sold while in-store. 

There are many pros linked to “MAP” agreements for manufacturers and retailers: 2   

For Manufacturers

For Retailers

Protects brand equity

Maintains product value

Eliminates free-riding

Controls downstream prices

Coordinates channels prices

Protects profit margins

Prevents price cascading

Helps marketing efforts

Drives revenue growth

Collusion? Hardly.

Since minimum advertised pricing only relates to advertised pricing and does not tell a retailer at which price they can actually sell it in their store, this type of collusion between manufacturers and retailers is perfectly legal under U.S. antitrust statutes.  Departing from a 96-year-old precedent, the Supreme Court of the United States in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007) found that such agreements actually promoted competition and were per se “legal” – the only exception lying in situations where the price agreements are abused for illegal anticompetitive purposes, determined on a case-by-case basis and analyzed under the Court’s “rule of reason” standard.3

Two items are relevant to note: First, unauthorized retailers—those with no formal relationship with the manufacturer—are not bound by “MAP” agreements.  Second, that online retailers have figured out a way to sell products for prices below “MAP” and skirt such agreements, with the blessing of the Federal Trade Commission (“FTC”) and the courts.4  In short, the FTC says that the price displayed in a secure or encrypted shopping cart is not subject to “MAP” agreements because it is technically not “advertising” once in a private cart.  Have you ever seen, while online shopping, text to the effect of “price displayed in shopping cart?”  You can thank a savvy lawyer for that.

To “MAP,” or not to “MAP”? An entrepreneur’s soliloquy.  

A written, formally-executed “MAP” agreement between a manufacturer and retailer stating minimum pricing not only carries the potential benefits enumerated above, it also bears all the hallmarks of a contract - including legal remedies for noncompliance. This is somewhat comforting, but one taking this route must contemplate the legal costs associated with drafting a bespoke agreement, as well as the possibility that a retailer will eschew doing business with your company entirely, in terse response. 

By comparison, in the event that no “MAP” agreement is signed, manufacturers have far less authority, and legal backing, to enforce their regulations or purely internal policies.

There is also the issue of enforcement.  Supposing a “MAP” agreement was entered into and a retailer advertised your product below “MAP,” you would be entitled to pull your products from the retailer and restrict them from selling the product again.  (Which begs the question: how many entrepreneurs have the constitution and willingness to pull a successful product from a big-box store or online marketplace?)  Moreover, if dozens (or hundreds, or more) of these agreements are executed, consistent enforcement can be unruly and costly.  Yet, by not consistently enforcing them you may inadvertently suggest to your retailers that they can renege on the agreement with impunity, effectively defeating your original purpose. 

Nevertheless, these agreements seem to work.  A recent study on this topic, undertaken by researchers at the Kellogg School of Management, revealed that just 15% of authorized retailers do not comply with their “MAP” agreements.  As a best practice, the researchers suggested, manufacturers should have “a little flexibility” in “MAP” pricing definitions, which can actually benefit all parties.  Manufacturers should understand that retailers are competing for business, and in consideration of this there may be a stipulation, for example, that a retailer is in violation only if it prices a specific product at least $10 lower than the “MAP”.  Such flexibility might make it easier for the retailer to agree to enter into the agreement and might help manufacturers direct their limited resources at more egregious “MAP” violations.

Ultimately, affixing your best business judgment to the question of whether or not you should implement a “MAP” agreement is a worthwhile initiative—particularly as regards the “value” of your product.  Indeed, by utilizing a “MAP” agreement you can at least afford yourself a more pronounced say as to what “value” (and price) you think your product should be accorded in the marketplace.

 

Deregulating the Entrepreneur

By: Tyler Archer

A robust entrepreneurial spirit is a defining characteristic of American workers and businesspeople—and with good reason. Of the roughly 25 million businesses operating in the United States in 2015, about 23 million were sole proprietorships or partnerships.[1] Ninety percent of American companies have fewer than 20 employees[2] and companies with fewer than 500 employees account for roughly 65% of all net new jobs.[3] Half the American workforce clocks in everyday at a small business.[4] The statistics roll on – America is a small business nation.

Elected officials on both sides of the aisle often sing the praises of small businesses, but less often they pass laws or support reforms that could make it easier for small businesses to do what they do best: allow individuals to make their dreams reality. Perhaps the best example of a well-intentioned government action getting in the way of the entrepreneur is occupational licensing. For a growing list of occupations, government permission is required to enter the market. A recent 50-state survey of occupational licensing found that for over one hundred jobs the average requirements included $200 in fees, nine months of training, and at least one exam.[5] The report offered two other important findings. First, occupational licensing is random: only 15 of the studied professions are licensed in 40 or more states and the average job only requires a license in fewer than 25 states. Second, the difficulty of entering a profession often does not correspond with its perceived difficulty or the health and safety risks. One notable example in Massachusetts is that Barbers requires ten times more training hours than EMTs. These inconsistencies raise questions about whether licenses are necessary for public safety or result from political motives such as cronyism—wherein established businesses benefit from making it more difficult for competitors to enter the market.

To make matters worse, occupational licenses tend to disproportionately impact low- and moderate-income jobs. One illuminating story comes from Tupelo, Mississippi.[6] In 1995, Melony Armstrong, a young African-American mother of four, wanted to open her own business braiding hair in styles common among Africans and African-Americans. To become a braider, Melony completed 300 hours of coursework—though none covered braiding—to earn her wigology license. After years as the state’s only braider, Melony wanted to pass her skills on to the next generation of young African-American girls. In stepped the government. The state’s Board of Cosmetology required Melony to obtain a cosmetology license (an additional 1,200 hours), then a cosmetology instructor’s license (another 2,000 hours), and then apply for a school license. None of these 3,500 hours covered anything related to braiding or teaching others how to braid. Melony had had enough and filed a lawsuit to break down these regulatory barriers. In 2005, the lawsuit ended when Mississippi Governor Haley Barbour signed legislation allowing braiders to practice and teach their craft without any workshop hours, license, or school—just a $25 registration fee and continuing compliance with state and local health codes. Since 2005, 300 other women have opened braiding businesses in Mississippi, thereby gaining financial independence under the banner of entrepreneurship. Melony’s story has become the prime example of the cumbersome barriers-to-entry government erects in the face of entrepreneurs and what can happen when it gets out of the way.

 Excessive or poorly implemented regulation is another way well-intentioned government actions can impede entrepreneurs. Moving beyond the everyday complaints of monotonous paperwork and “bureaucracy” easily found in workplaces around the country, recent studies have attempted to find empirical evidence of the dampening effect regulations can have on small businesses. The evidence appears most readily when considering how legislators and bureaucrats draft regulations. In general, as a business grows it triggers more and more regulation. Two of the most common triggers occur at 50 and 250 employees. For many businesses on these margins, the additional regulatory cost of hiring that next employee can outweigh the benefit that employee would bring, and small businesses choose to delay expansion. This plays out in Department of Labor statistics on the distribution of private small businesses by employee-size. In what would otherwise be a relatively flat distribution for firms, two bunches appear at sizes 20-49 and 100-249, just before these “regulatory cliffs”.[7] This is not just an American phenomenon. A recent study of French small businesses by the London School of Economics revealed this bunching effect—but to a more dramatic degree.[8]

For the wonkier among us, in a first-of-its-kind study, economists at George Mason and Duke universities attempted to estimate the cumulative cost of regulations on the American economy.[9] By analyzing 22 industries over a 35-year period, they estimated that regulations have reduced the economy 0.8% annually—roughly 25% in total—translating to $4 trillion in lost economic growth in just one year. Put another way, that is roughly $13,000 per capita.

None of this is to say that all licenses or regulations are bad, or that we would be better off with an unfettered free-for-all. Certain benefits—such as environmental and human health—are difficult if not impossible to measure in economic terms. Rather, data and stories like the above should serve as lessons for legislators and regulators, and encourage them to consider the individual impacts of the laws and rules that they propose, as well as the overall regulatory burden they place on the economy.

Re-assessing occupational licensing is an easy option. Another could be designing future regulations to take gradual effect rather than at steep bureaucratic cliffs. Increasing accountability by putting regulations up for periodic review or requiring particularly costly regulations to have legislative approval are just some of the many ideas to modernize and streamline the way governments interact with and effect small businesses. If our lawmakers can focus on reducing barriers to entry, easing pressure on marginal firms, and limiting the corrupting power of cronyism, entrepreneurship will continue to be a driving force in the American economy, improving people’s lives and solving many of the problems bureaucrats seek to address in the first place.

 

I’m a Start-up: Should I Use Rocket Lawyer to Help Me with my Legal issues?

By: Rebecca Ney

The Moment of Truth in the Legal Industry, or Is It?

There are websites, such as Rocket Lawyer, Contractology, Avvo, LegalZoom, and Template Monster that allow entrepreneurs and companies to find legal templates and gain legal advice. These websites bypass the process of retaining the services of an attorney or law firm.

The relationship between the user and the website is akin to several other popular apps and websites: OpenTable allows the diner to make a reservation, instead of speaking to the hostess at a restaurant; Uber allows the rider to find a ride instead of hailing a taxi or speaking to the dispatcher at a car service company; TurboTax allows the tax payer to file taxes instead of consulting with a tax accountant; and WebMD enables a sick person to diagnose his or her ailments remotely instead of heading to the doctor’s office. The parallel is that these websites and apps remove the human element from the equation. Even David Byrne sees the parallels.

The legal profession, as with many industries, is in flux due to the “disruption” emanating from Silicon Valley. A recent New York Times article, “A.I. Is Doing Legal Work. But It Won’t Replace Lawyers, Yet,” provides an overview of this disruption. The article concludes that there are specific and niche legal services that businesses are willing to pay for, yet, some of the more routine legal work can now be completed by A.I.

Where does this leave the start-ups and entrepreneurs seeking legal advice? The below sections of this post outline both sides of the discussion, and provide you with answers to this question.

The Benefits of Legal Advice Websites

As a start-up or a small business, online legal resources are attractive options because googling, “how to form a C-Corp” and finding the answer with the click of the mouse seems more bearable and less time-consuming than contacting an attorney and paying legal fees.

There is a myriad of ostensible benefits to these legal advice websites:

·         Cost savings;

·         No need to be in direct with an attorney;

·         Clearer ownership and control over the process;

·         Provides entrepreneurs with foundational legal knowledge;

·         Free and direct access to legal resources;

·         And again, cost savings.

The cost may be the biggest reason that a young company would want to avoid retaining legal counsel. Especially, at an early stage, a start-up likely does not have the funds to hire a lawyer. Furthermore, these legal advice websites bring legal advice to the masses. Arguably, this creates a more informed body of entrepreneurs. Lastly, these advances also help lawyers: the websites enable lawyers to focus on the gray areas of clients’ issues, while allowing these websites to handle the rote drafting.

Through the advent of these websites, legal advice is a Google search away (and does not break the bank). The question becomes: why do I need a lawyer if Rocket Lawyer provides all the answers?

The Risks Associated with Legal Advice Websites

While these websites provide entrepreneurs with immediate access to legal resources, issues may arise during this process. An entrepreneur may not be versed in legal vernacular, and as a result, the information that the user inputs into the legal service website may be incomplete or inaccurate. In turn, the answer that the website automatically spits out may be wrong. This will place the entrepreneur at a disadvantage.

Furthermore, young entrepreneurs may not know that they may benefit from the services of a lawyer. As such, an entrepreneur may blindly follow the advice provided by these websites, without knowing the nuances that only a discussion with an expert could provide. Lastly, the websites may not be up-to-date on the most recent legal advice, or there may be different state requirements, and the website only provides federal information.

There Is a Balance to Strike

Lawyers are not going away anytime soon. According to a Massachusetts Institute of Technology (MIT) study, the authors, “estimate that automation has an impact on the demand for lawyers’ time that while measureable, is far less significant than popular accounts suggest.”

Instead, according to a McKinsey & Company study, the automation will transform, and not eliminate jobs. This type of change will enable certain tasks to become automated. Furthermore, according to a Harvard Business Review article, these automated systems will create consistent precedents, streamline documents, and allow for routine tasks to be taken on by machines. These developments will ultimately allow lawyers to focus on less menial tasks, and instead, focus their energies on “the tricky stuff that calls for judgment, creativity, and empathy.”

Proceed with Caution:

The Best Ways to Use the Legal Advice Websites

While the legal advice websites may have many benefits, there is a certain way to use them.

Below is a general step-by-step process to follow:

·         First, look at the various websites to get a lay of the legal land. If you are unsure whether you want to form a C-Corp or an LLC, look at the websites to inform you. You will be able to gain a better sense of the language and the issues relevant to your business.

·         Once you believe that you have hit a wall in your research, try contacting a law firm or one of the free local legal clinics listed below.

·         At that point, get the conversation started: you can provide the clinic or the lawyer with the information that you have at that time and let them know your future goals. You want to paint a clear picture so that the experts have all the relevant information.

·         Then, allow the experts to provide you with their analysis and advice.

·         In the end, you can combine your research in conjunction with the experts’ advice to help you land on the best results.

In forming your business, hiring employees, granting stock options, and selling your product, you have put in a lot of time and energy to create your business. Thus, you want to ensure that all your I’s are dotted and T’s are crossed.

In conclusion, this is not the reckoning moment for the legal industry. Lawyers can work in conjunction with automation; and start-ups can work in conjunction with lawyers. There should be a symbiotic and successful relationship amongst these parties.  

Next Steps for Entrepreneurs

If you are an entrepreneur or young start-up looking for free legal advice in the Boston-area, here are some legal clinics at the local law schools:

o   Boston College Law School Entrepreneurship & Innovation Clinic

o   Boston College Law School Community Enterprise Clinic

o   Boston University Law School Entrepreneurship & Intellectual Property Law Clinic

o   Northeastern University School of Law Community Business Clinic

o   Suffolk Law School Intellectual Property & Entrepreneurship Clinic

o   UMass Law Community Development Clinic

o   Harvard Law School Community Enterprise Clinic

o   Harvard Law School Transactional Clinic

Please make sure that the clinic’s type of legal service is relevant to your business.

We wish you the best of luck on the success of your business.

 

 

“The Need for Speed” in Regulating Digital Health

By: EIC Student

The first half of 2017 saw a record $3.5 billion invested in more than 180 digital health startups.[1]  With seven deals exceeding the $100 million mark, and with an average investment of more than $18 million, investors are putting a considerable amount of capital in digital health.[2]  As the digital health industry continues to mature and more investment floods into the space, the entrepreneurs pioneering these new technologies are ultimately tasked with positioning their startups, and their respective investors, for a handsome exit.  Like other industries, these startups will need to flawlessly execute a product launch and successfully differentiate themselves in order to drive revenue and gain market share.  Yet, unlike other industries, the U.S. health care system is one of the most heavily regulated.  Political risk and regulatory ambiguity can stymy a go-to-market strategy and derail a product launch.  Leaving the former to those on the “Hill,” the FDA has started to address the latter in their recently announced Digital Health Innovation Plan.

What is Digital Health?

Consumers are becoming more engaged in their own health care in many ways—often through technology-enabled innovations that provide new personalized insights.[3]  And, depending on who you ask, the term “digital health” may be defined as a mobile app that counts their steps and tracks their heart rates; an IT solution that enables their family doctor and emergency room physician to view the same medical record; or even, tech-enabled exercise equipment.  In other words, digital health is a term used in a wide range of contexts.  Similarly, the FDA’s characterization is broad and expansive.  Digital health is described as a class of products spanning categories such as mobile health, health information technology, wearable devices, telehealth and telemedicine, and personalized medicine.[4]

The FDA recognizes the power of digital health to reduce system inefficiencies and costs, improve access to care and increase quality, while also making medicine more personalized.[5]  And, in recent years, the agency has designed policies that allow lower risk technologies, such as mobile medical applications and general wellness products, “[t]o be readily available to [consumers] while assuring these connected products continue to be high-quality, safe and effective.”[6]  For example, the agency has stated it will not focus regulatory oversight on products that simply “[p]romote a healthy lifestyle”—which may include exercise equipment, video games, or software programs.[7]  While a step in the right direction, this did not alleviate the regulatory ambiguity entrepreneurs face when their rapidly evolving innovations are subjected to the traditional FDA regulatory framework.

That is, until now.  The 21st Century Cures Act—a bipartisan initiative signed into law late last year—aims to “[a]ccelerate medical product development and bring new innovations and advances to patients who need them faster and more efficiently.”[8]  One way this groundbreaking legislation seeks to achieve this objective is through re-thinking what a “device” actually is.  More specifically, the Cures Act—as those in the know commonly refer to it—amends the term “device” in section 201(h) of the Food Drug & Cosmetic Act (“FD&C Act”) to exclude certain software functionality, such as software for administrative support and managing a healthy lifestyle.[9]  The FDA has recognized that the traditional regulatory approach to “[h]ardware-based medical devices is not well suited for…software-based medical technologies.”[10]  And, pursuant to the Cures Act, the FDA is required to—and is currently in the midst of—implementing new policies to shape the way “[l]ower risk digital health technology including software” will be regulated.[11]

Digital Health Innovation Plan

In response to the Cures Act and the rapidly evolving digital health industry, the FDA has outlined its regulatory approach as a balance between two core policy principles: fostering digital health innovation and protecting public health.[12]  This vision is embodied in the recently announced Digital Health Innovation Action Plan, which takes an integrated approach to refining polices and providing guidance, growing expertise in digital health and software development, and re-thinking digital health product oversight.[13]  As the FDA Commissioner has stated, “FDA’s traditional approach to medical devices is not well-suited to these products.”[14]

The cornerstone to this new regulatory approach is the Pre-Certification Pilot program, which marks a fundamental shift from the traditional regulatory framework.  Instead of primarily focusing on the specific product to be launched into the market place, the FDA will first look at the software or digital health technology developer.[15]  In other words, the FDA will review and approve the company, not the specific product.  Therefore, once a company is “pre-certified”—hence the pilot’s namesake—their subsequent products will be exempt from pre-market review, and will allow for an almost immediate product launch and collection of post-market data.[16]

Tell Me More

Software-as-a-medical-device, or “SaMD” for short, includes software used for one or more medical purposes that are not part of the device’s intended use, and does not control the device’s hardware.[17]  For example, SaMD may utilize a device’s microphone to detect abnormal breathing patterns.[18]  This category of digital health remains subject to the section 201(h) “device” definition, and is the focal point of the Pre-Certification Pilot.[19]

The pilot is designed to be a learning process for all stakeholders.  Staying true to the twin policy underpinnings guiding FDA’s larger digital health plan (i.e., fostering innovation and protecting public health), the pilot seeks to inform the development of a regulatory framework that balances the reduction of time and cost to market entry with ensuring the safety and effectiveness of these technologies.[20]  At first, the FDA will be working with just nine (9) initial participants, ranging from small startups, such as Pear Therapeutics, to large enterprises, such as Apple and Samsung.[21]  Participants will have the ability to get their products to market faster, capture and utilize real-world evidence in product iterations, and gain regulatory predictability, while providing the FDA with feedback on how best to design, test, and evaluate the benefits and risks of digital health products.[22]

The Bottom-line

The recently announced Digital Health Innovation Action Plan and Pre-Certification Pilot provides digital health startups—and their respective investors—with clarity on how the agency intends to regulate the space.  This pilot will continue the trend of industry collaboration and introducing practical policies, which in turn should translate to more predictability for startups—especially with the development and execution of a go-to-market strategy.  And, with the level of recent investment in the space, coupled with the broad and expansive digital health category, this pilot illuminates the agency’s approach to regulating these new technologies.  This brief overview of the evolving digital health regulatory framework highlights FDA’s approach to removing regulatory ambiguity, and the role startups can play in guiding the ever-changing landscape.

 

[1] Rock Health Mid-Year Funding Report

[2] Rock Health Mid-Year Funding Report

[3] FDA Announcement July 2017

[4] FDA Digital Health overview

[5] FDA Digital Health overview

[6] FDA Digital Health Innovation Plan

[7] FDA General Wellness Products Guidance

[8] FDA 21st Century Cures Overview

[9] FDA Digital Health Innovation Plan

[10] FDA Digital Health Innovation Plan

[11] FDA Digital Health Innovation Plan

[12] FDA Digital Health Innovation Plan

[13] FDA Webcast

[14] FDA Announcement July 2017

[15] FDA Announcement July 2017

[16] FDA Webcast

[17] FDA Digital Health Criteria

[18] FDA Digital Health Criteria

[19] FDA Webcast

[20] FDA Digital Health Innovation Plan

[21] FDA Announcement September 2017

[22] FDA Webcast