Costco Faces False Patent Marking Claims

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a qui tam complaint filed on behalf of the United States, a plaintiff stated false patent marking claims by alleging that Costco marked its premium Kirkland Signature brand diapers with two expired United States patent numbers, knowing that the patents had expired, with intent to deceive the public, the federal district court in Chicago has ruled.

The false patent marking statute (35 U.S.C. §292) provides that “[w]hoever marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word `patent’ . . . for the purpose of deceiving the public” will be fined up to $500 for each offense.”

Knowledge

Costco allegedly marked its Kirkland diaper products with the expired patents that did not cover the items within the packaging. One patent allegedly had expired in October 2007 and the other in September 2009. The complaint also contained facts that could support a reasonable inference that Costco had knowledge that its Kirkland diapers were no longer covered by the patents at issue at the time of marking, the court found.

Costco allegedly had experienced in-house counsel, retained outside intellectual property legal counsel, an internal compliance officer, and a long history of patent litigation. Costco had publicly affirmed its commitment to investing in protecting its intellectual property of its Kirkland brand products.

Fraud Pleading

The claims identified the entity responsible for the alleged fraud, the conduct through which the fraud was accomplished (false patent marking), the item falsely marked, and a temporal and geographical frame of reference for the conduct at issue, according to the court.

The allegations of fraud were pleaded with the particularity required to pass muster under Rule 9(b) of the Federal Rules of Civil Procedure, the court determined.

The November 22 opinion in Englehardt v. Costco Wholesale Corp. will be reported in CCH Advertising Law Guide.

Former Pfizer Sales Rep Awarded $51.5 Million in Marketing Fraud Settlement

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Whistleblower lawsuits filed under the qui tam provisions of the False Claims Act triggered the government investigation that led to Pfizer’s agreement to pay $2.3 billion for fraudulently marketing drugs for off-label uses, according to today’s Department of Justice press release announcing the settlement.

Over $51.5 million of the settlement proceeds were awarded to John Kopchinski, a former Pfizer sales representative, West Point graduate, and Gulf War veteran. Another $50.5 million was divided between five other False Claim Act “relators” or whistleblowers.

Qui Tam

“Qui tam” is short for qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning “[he] who sues in this matter for the king as [well as] for himself,” according to Wikipedia.

Under the False Claims Act, an individual with independent knowledge of false or fraudulent claims made to secure government money may bring suit in the name of the federal government even where that person does not have the traditional “injury in fact” needed to satisfy U.S. Constitution Article III standing requirements. See the August 24, 2009 Trade Regulation Talk posting, “False Claims Act Amendments Expand Liability for Private Sector.”

Pfizer has agreed to pay $1 billion to resolve allegations under the False Claims Act that the company illegally promoted four drugs—Bextra, an anti-inflammatory withdrawn from the market in 2005; Geodon, an anti-psychotic; Zyvox, an antibiotic; and Lyrica, an anti-epileptic drug.

False Claims to Government Health Care Programs

Pfizer allegedly caused false claims to be submitted to government health care programs for uses that were not medically accepted indications and therefore not covered by those programs. The civil settlement also resolves allegations that Pfizer paid kickbacks to health care providers to induce them to prescribe these, as well as other, drugs.

The federal share of the civil settlement is $668,514,830 and the state Medicaid share of the civil settlement is $331,485,170. This is the largest civil fraud settlement against a pharmaceutical company in history, according to the Department of Justice.

Criminal Liability

Pfizer subsidiary Pharmacia & Upjohn Company Inc. has agreed to plead guilty to a felony violation of the Food, Drug and Cosmetic Act for misbranding Bextra with the intent to defraud or mislead.

Under the Food, Drug and Cosmetic Act, a company must specify the intended uses of a product in its new drug application to FDA. Once approved, the drug may not be marketed or promoted for so-called “off-label” uses—i.e., any use not specified in an application and approved by FDA.

Pfizer promoted the sale of Bextra for several uses and dosages that the FDA specifically declined to approve due to safety concerns, according to the Department of Justice. The company will pay a criminal fine of $1.195 billion, the largest criminal fine ever imposed in the United States for any matter. Pharmacia & Upjohn will also forfeit $105 million, for a total criminal resolution of $1.3 billion.

State Consumer Protection Laws

In addition, Pfizer announced that it has reached agreements with attorneys general of 42 states and the District of Columbia to settle state civil consumer protection law allegations related to past promotional practices concerning Geodon. The company will pay a total of $33 million to the settling states.

The settlement documents appear here on the Department of Justice website.

A detailed fact sheet jointly posted by the U.S. Department of Health & Human Services and U.S. Department of Justice is here.

The False Claims Act complaint of John Kopchinski is posted here.

False Claims Act Amendments Expand Liability for Private Sector

This posting was written by Reuben Guttman, Partner, Grant & Eisenhofer, Washington, D.C.

Since the Civil War, the Federal False Claims Act (FCA), now codified at 31 U.S.C. 3729 et seq., has provided a means of redress against private entities whose “false or fraudulent” conduct caused the loss of taxpayer dollars.

While the Federal FCA was promulgated to recover federal monies squandered as a result of wrongdoing, today 23 states—including New York, California, Texas, Florida, Illinois, and Michigan—have their own state False Claims Acts, which provide parallel means of redress allowing for the recovery of state monies lost through fraud or fraudulent conduct.

Standing of Individual Plaintiffs

An individual with independent knowledge of false or fraudulent claims made to secure government money may bring suit in the name of the federal government even where that person does not have the traditional “injury in fact” needed to satisfy U.S. Constitution Article III standing requirements. Subject to certain statutory restrictions, they need not have sustained personal injury; rather they need only have independent knowledge of the wrongdoing

Because these individuals have been assigned a portion of the claim through bounty provisions of the FCA, the Supreme Court has held that, as a partial assignee of the claim through a bounty award, whistleblowers—known as “relators”—have standing to sue on behalf of the government (See Vermont v. Stevens, 529 U.S. 765 (2000)).

The efforts of relators have led to the recovery of billions of dollars for federal and state governments. While a substantial portion of this money has been recovered on behalf of Medicare and Medicaid systems, dollars have also been returned to an array of other government agencies or programs.

Suits Against Government Contractors

The False Claims Acts have even been used to go after contractors that make representations about compliance with statutes and regulations, including those addressing unfair competition, the environment, and labor practices. For example, a false certification of independent pricing attached to a competitive bid may give rise to liability under the False Claims Act where treble damages and civil penalties of between $5,000 and $11,000 can be accorded.

In U.S. ex rel. Bunk v. Birkart et al., the Justice Department, acting in conjunction with “Relators,” successfully sought recovery under the FCA for predicate violations of competition requirements attached to a bidding process.

Under new legislation, the federal False Claims Act (“FCA”) will take an even more prominent role in protecting from fraud the increase of federal spending to meet the nation’s financial crisis. With federal funds going to a range of projects—from state infrastructure “shovel ready” road building to Internet connectivity, green energy innovation and high-tech transportation solutions—there are simply more federal expenditures in the pipeline for the FCA to cover.

Recent Amendments

Specifically, on May 20, 2009, President Obama signed into law Senate Bill 386, the Fraud Enforcement and Recovery Act (“FERA”), which makes important amendments to the FCA. Most significantly, the new legislation clarifies what was known as the “presentment requirement.”

The prior version of the False Claims Act, 31 U.S.C. 3729(a)(1) attached liability for any person who “knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval.” Those defending false claims cases argued that the claim had to be presented to the government itself.

In Allison Engine Co. v. U.S., 123 S. Ct. 2128 (2008), the Supreme Court picked up on this argument and—to some extent—narrowly interpreted the scope of the FCA to potentially exclude from the orbit of liability situations where false claims for payment or approval were presented to private contractors using or intending to use government money.

Recognizing that an extension of this logic could potentially preclude whistleblowers from seeking redress where false claims were presented to private sector agents of the government, or the wrongdoing involved the use of government monies in the hands of a private actor, Congress clarified the intent of the statute by modifying the presentment language.

The amended version of the statute now makes it unlawful to “knowingly present, or cause to be presented, a false or fraudulent claim for payment or approval.” Thus, the amended statute eliminates the phrase “to an officer or employee of the United States government […]”. The amended statute thus places greater importance on the word “claim” itself and defines “claim,” 31 U.S.C. 3729(b)(2), to essentially encompass any false or fraudulent claim made to a private sector entity operating or using government money.

A false claim can now occur even where the private actor is operating on behalf of the government and has not yet been reimbursed, but will be reimbursed, with government monies.

Liability of Bailout-Fund Recipients

Under the new law, bailout-fund recipients’ potential liability under the FCA is clear. Upon passage of the legislation, the President stressed the importance of protecting taxpayer dollars needed for economic recovery under the Troubled Asset Relief Plan (“TARP”), run by the U.S. Treasury to shore up financial institutions, and other stimulus programs. The new legislation has confirmed the ability of private whistleblowers to take action against lenders whose false or fraudulent conduct implicates the misuse of federal dollars.

For those legal practitioners who do not specifically practice under the False Claims Act, it is important to understand that the statute can be a means to seek redress where obligations under a myriad of other laws, a condition of receipt of federal funds, have not been met.

Further information on the False Claims Acts and other whistleblower laws and policy appears here at Whistleblowerlaws.com.