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

My colleague Barbara Pfeffer Billauer and I wrote in August on recent Supreme Court rulings that brought sweeping changes to the way government regulation works in the United States – shifting power from regulators to the courts.

The most important, Runner Bright Enterprises against Raimondo (2024), stripped of the four-decade-old “Chevron Doctrine” (also known as Chevron Deference), which had determined that courts should leave the interpretation of ambiguous statutes to federal agencies until Congress has ruled on the specific issue at hand. We argued that the end of deference and Establishment of the right of “judicial veto” will be especially important, we argued, among agencies with esoteric subject matter expertise that interpret laws, because it will facilitate legal challenges to established government consumer protections. These safeguards are the responsibility of agencies within the Department of Health and Human Services and other agencies such as the EPA, NOAA, NRC and OSHA.

We argued that the decisions ‘took the prudence out of case law’, creating a climate of uncertainty and distrust of government policy.

More recently, in a article in the Harvard business review, scholars Blair Levin and Larry Downes delved deeper into the implications of the “judicial veto” of regulatory policy for corporate America.

Their pessimistic view is that these SCOTUS decisions, far from the business-friendly environment many expected, threaten to stifle investment, stifle innovation – including the development of new products regulated by federal agencies like the FDA and EPA – and promote dominance of established companies.

The new landscape of the ‘judicial veto’

According to Levin and Downes, two Supreme Court decisions form the backbone of this transformation. First, inside West Virginia v. EPA (2022)the Court significantly limited the EPA’s ability to regulate carbon emissions, long considered a core part of its authority. This case introduced the doctrine of big questionswhich stipulates that federal agencies cannot issue regulations that have major economic or policy effects without explicit approval from Congress.

In 2023, the Court delivered the decisive blow by overturning the Chevron Doctrine, which for nearly four decades had required courts to defer to agencies’ interpretations of ambiguities in statutes, effectively giving regulators the freedom to impose laws on their interpret and enforce work area. expertise.

Chevron was important to regulators; the decision had been cited more than 18,000 times during the 40 years it was in place. By rescinding Chevron, the Court shifted the final say on regulatory issues to the judiciary and granted a “judicial veto” to the nearly 900 federal judges in the US. and find a judge sympathetic to their cause — which will likely trigger a wave of legal challenges to many new rules.

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

1. Multiplication of the number of decision makers
2. Extending the timeline of policy unpredictability
3. Favoring established companies over newcomers

Multiplying decision makers and discounting expertise

Under the previous regulatory framework, federal agencies primarily mediated how laws were interpreted and enforced. They employed subject matter experts to draft, revise, and adapt regulations based on scientific and technological advances and the changing needs of the industry.

With the shift to judicial oversight, the review of new rules is now the responsibility of judges who have no expertise in what they are reviewing; most lack the specialized knowledge that agencies bring to the table in rapidly evolving technologies such as artificial intelligence (AI), biotechnology, cryptocurrency or nuclear energy. Without this necessary expertise, judges who must rule on the legality of new rules will be at the mercy of litigants’ ‘hired’ experts, inevitably resulting in a number of fragmented, inconsistent decisions that vary from jurisdiction to jurisdiction.

For example, when the first biopharmaceutical, human insulin (Humulin), produced in genetically engineered bacteria, was submitted to the FDA in the 1980s for approval, the FDA made a momentous decision that was not written into law. They decided because regulators (of which I was one and led the review team) already had extensive experience with animal insulins and drugs derived from microorganisms, and the genetic engineering techniques used were seen as an extension or refinement by the scientific community. these methods did not require fundamentally new regulatory paradigms. This made the approval of human insulin possible in record time. It turned out to be a historic, precedent-setting decision – one that could have been challenged under the current post-Chevron rules, delaying approval of life-saving products.

Furthermore, as regulations are invalidated at the federal level, states may step in to fill the void with their own often conflicting regulations, sometimes driven by politics rather than appropriate expertise. The resulting patchwork of state laws would make it more difficult for companies, especially those in emerging industries, to navigate the regulatory landscape.

Extending the timeline of unpredictability

In addition to multiplying the number of decision-makers, the judicial veto also means that companies have to wait longer for regulatory certainty. Under Chevron, companies could expect a decision on most regulations within a year or two, with the agencies’ expertise determining the outcome. The courts often failed these agencies, meaning that companies that had routine contact with regulators had a fair idea of ​​how new rules would play out and within what time frame.

Now that timeline is likely to be extended as many new regulations face legal challenges. With cases moving through the courts at the usual pace, companies could wait five to seven years before knowing what final rules they must comply with. Such prolonged uncertainty is especially damaging to venture capital and private equity firms, which invest in long-term growth, especially in emerging industries. For example, investors in AI, nuclear power, pharmaceuticals, and biotechnology might hesitate to put money into companies without knowing whether the regulatory landscape will allow these companies to succeed. And if judges do make decisions, there is nothing to prevent the new guidelines from being set aside in subsequent proceedings.

The balance is tilting in favor of established companies

The judicial veto also tilts the regulatory playing field in favor of established companies – who have the legal and financial resources to navigate this new reality – in favor of newcomers and early-stage investors. They can afford to challenge regulations in court and can use lawsuits as a tool to delay or block new rules that would promote competition.

A less competitive future?

In theory, the judicial veto could stimulate investment in some sectors, especially those that benefit from reduced regulation. For example, the limitation of the EPA’s authority West Virginia v. EPA might encourage investments in fossil fuels like coal – but environmental groups will be ready with endless lawsuits that could be settled 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 more difficult for entrepreneurs and startups to disrupt markets and challenge incumbents. As one experienced management consultant predicted, “Process chaos is in our future.” The promise of less regulation could be offset by the costs of navigating a fragmented, unpredictable, and protracted regulatory landscape.

Levin and Downes’ sardonic conclusion: “(The) judicial veto doctrine can reduce or delay investment in a wide range of industries and businesses. Unless one invests in law firms.”

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