(a) Except as provided by paragraphs (b) and (c) of this section, a shipment or other delivery of a device which is, in accordance with the practice of the trade, to be processed, labeled, or repacked, in substantial quantity at an establishment other than that where originally processed or packed, shall be exempt, during the time of introduction into and movement in interstate commerce and the time of holding in such establishment, from compliance with the labeling and packaging requirements of section 502(b) and (f) of the act if:

1. (1) The person who introduced such shipment or delivery into interstate commerce is the operator of the establishment where such device is to be processed, labeled, or repacked; or
2. (2) In case such person is not such operator, such shipment or delivery is made to such establishment under a written agreement, signed by and containing the post office addresses of such person and such operator, and containing such specifications for the processing, labeling, or repacking, as the case may be, of such device in such establishment as will insure, if such specifications are followed, that such device will not be adulterated or misbranded within the meaning of the act upon completion of such processing, labeling, or repacking. Such person and such operator shall each keep a copy of such agreement until 2 years after the final shipment or delivery of such device from such establishment, and shall make such copies available for inspection at any reasonable hour to any officer or employee of the Department who requests them.

(d) An exemption of a shipment or other delivery of a device under paragraph (a)(2) of this section shall expire:

1. (1) At the beginning of the act of removing such shipment or delivery, or any part thereof, from such establishment if the device comprising such shipment, delivery, or part is adulterated or misbranded within the meaning of the act when so removed; or
2. (2) Upon refusal by the operator of the establishment where such device is to be processed, labeled, or repacked, to make available for inspection a copy of the agreement, as required by such clause.

(e) As it is a common industry practice to manufacture and/or assemble, package, and fully label a device as sterile at one establishment and then ship such device in interstate commerce to another establishment or to a contract sterilizer for sterilization, the Food and Drug Administration will initiate no regulatory action against the device as misbranded or adulterated when the nonsterile device is labeled sterile, provided all the following conditions are met:

1. (1) There is in effect a written agreement which:

   1. (i) Contains the names and post office addresses of the firms involved and is signed by the person authorizing such shipment and the operator or person in charge of the establishment receiving the devices for sterilization.
   2. (ii) Provides instructions for maintaining proper records or otherwise accounting for the number of units in each shipment to insure that the number of units shipped is the same as the number received and sterilized.
   3. (iii) Acknowledges that the device is nonsterile and is being shipped for further processing, and
   4. (iv) States in detail the sterilization process, the gaseous mixture or other media, the equipment, and the testing method or quality controls to be used by the contract sterilizer to assure that the device will be brought into full compliance with the Federal Food, Drug, and Cosmetic Act.
2. (2) Each pallet, carton, or other designated unit is conspicuously marked to show its nonsterile nature when it is introduced into and is moving in interstate commerce, and while it is being held prior to sterilization. Following sterilization, and until such time as it is established that the device is sterile and can be released from quarantine, each pallet, carton, or other designated unit is conspicuously marked to show that it has not been released from quarantine, e.g., “sterilized—awaiting test results” or an equivalent designation.