Supreme Court Strikes Down Vermont Prescriber Data Privacy Law . . .

This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.

A Vermont statute regulating the collection and use of data identifying health care providers’ prescribing patterns impermissibly restricted data mining companies’ free speech rights in violation of the First Amendment, the U.S. Supreme Court has determined.

The challenged statute banned the sale, transmission, or use of prescriber-identifiable data (“PI data”) for marketing or promoting a prescription drug unless the prescriber gave consent.

Freedom of Speech

The statute imposed content- and speaker-based burdens on protected expression, so it was subject to heightened judicial scrutiny, the Court said. The creation and dissemination of information were speech for First Amendment purposes.

The law forbade the sale of PI data subject to exceptions based in large part on the content of a purchaser’s speech. It then barred pharmacies from disclosing the information when recipient speakers would use that information for marketing. Finally, it prohibited pharmaceutical manufacturers from using the information for marketing.

The statute disfavored marketing—speech with a particular content. It also disfavored speech by particular speakers, according to the Court.

Specifically, it restricted the practice of “detailing” by data mining companies, which prepared reports helping pharmaceutical manufacturers to refine their marketing tactics. The law allowed PI data to be purchased, acquired, and used for other types of speech and by other speakers. Therefore, the statute went beyond mere content discrimination, to actual viewpoint discrimination.

Whether a special commercial speech inquiry or a stricter form of judicial scrutiny were applied, the statute did not advance a substantial government interest and was not narrowly tailored to serve that interest, in the Court’s view.

Vermont contended that the statute was intended to:

(1) Protect medical privacy, including physician confidentiality, avoidance of harassment, and the integrity of the doctor-patient relationship, and

(2) Achieve the policy objectives of improving public health and reducing healthcare costs.

Assuming that physicians had an interest in keeping their prescription decisions confidential, the statute was not drawn to serve that interest, the Court said. Pharmacies were permitted to share prescriber-identifying information with anyone for any reason except for marketing. Vermont might have addressed physician confidentiality through “a more coherent policy,” but it did not.

Vermont’s goals of lowering the costs of medical services and promoting public health may have been proper, but the statute did not advance them in a permissible way, the Court stated. Vermont sought to achieve those objectives through the indirect means of restraining certain speech by certain speakers. Vermont did not contend that the statute would prevent false or misleading speech. The fear that people would make bad decisions if given truthful information cannot justify content-based burdens on speech, the Court concluded.

The opinion was delivered by Justice Kennedy and was joined by Chief Justice Roberts and Justices Scalia, Thomas, Alito, and Sotomayor.

The Court affirmed a decision of the U.S. Court of Appeals in New York City (CCH Privacy Law in Marketing ¶60,646). The U.S. Court of Appeals in Boston had upheld the validity of similar laws in Maine (IMS Health Inc. v. Mills, CCH Privacy Law in Marketing ¶60,527) and New Hampshire (IMS Health Inc. v. Ayotte, CCH Privacy Law in Marketing ¶60,270), rejecting constitutional challenges in both cases.

Dissenting Opinion

In a dissenting opinion joined by Justices Ginsburg and Kagan, Justice Breyer argued that the statute’s effect on expression was inextricably related to a lawful governmental effort to regulate a commercial enterprise. In Breyer’s view, heightened First Amendment scrutiny of such an effort was not required. In any event, Breyer said, the statute met the First Amendment standard previously applied by the Court when the government sought to regulate commercial speech.

The decision is Sorrell v. IMS Health Inc, CCH Privacy Law in Marketing ¶60,646.


. . . Agrees to Review Telephone Consumer Protection Act Jurisdictional Question

The U.S. Supreme Court has granted an individual’s petition for certiorari requesting review of whether Congress divested the federal district courts of their federal-question jurisdiction under 28 U.S.C. Sec. 1331 over private actions brought under the Telephone Consumer Protection Act.

At issue is a decision of the U.S. Court of Appeals in Atlanta (CCH Privacy Law in Marketing ¶60,637) holding that the individual’s TCPA claims against a debt collection agency could be pursued only in state court.

Six U.S. Courts of Appeals (the Second, Third, Fourth, Fifth, Ninth, and Eleventh Circuits) have held that federal courts lack federal-question jurisdiction over private TCPA actions. The Sixth and Seventh Circuits have taken the contrary position, with the Seventh Circuit reasoning in Brill v. Countrywide Home Loans, Inc., 427 F.3d 446 (2005) that federal courts retained jurisdiction because the TCPA's provision authorizing private actions in state court did not declare state jurisdiction to be exclusive.

The petition for review is Mims v. Arrow Financial Services, LLC, Dkt. 10-1195, filed March 30, 2011, granted June 27, 2011.

Further information regarding CCH Privacy Law in Marketing appears here.

Constitutional Attack on False Patent Marking Enforcement Rejected

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

The qui tam enforcement provision of the false patent marking statute was constitutional, contrary to a pharmaceutical manufacturer's contention that it violated the Take Care Clause of the U.S. Constitution, the federal district court in Chicago has ruled.

The statute (1) made it unlawful to mark a product with, or use in advertising, a patent number in connection with products that are not patented and (2) authorized private, qui tam enforcement suits for awards of up to $500 for every violation.

Take Care Clause

The manufacturer argued that the false marking statute transferred law enforcement authority to private persons without retaining sufficient control for the Executive Branch to satisfy the provision of Article II of the U.S. Constitution that the President “shall take Care that the Laws be faithfully executed.”

The manufacturer relied on Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc. (ND Ohio 2011) CCH Advertising Law Guide ¶64,196, ¶64,242, which held the false marking qui tam enforcement provision unconstitutional.

Government Control

Contrary to the ruling in Unique Product Solutions, however, the direct-control test articulated by the U.S. Supreme Court in Morrison v. Olson, 487 U.S. 654 (1988) was not the deciding factor in a civil action for qui tam enforcement of the false marking statute, the court determined.

The fact that the false marking statute is a criminal statute did not make a qui tam suit a “criminal action” requiring direct government control. The better view of the false marking statute was that it is a criminal statute with a parallel civil enforcement mechanism, the court said.

The government maintained sufficient control because the statute requires the district court clerk to apprise the Director of the Patent and Trademark Office of a qui tam false marking action, and the government may request intervention in false marking cases, the court concluded.

Pending Legislation

The battle in the courts over the constitutionality of qui tam false marking enforcement would be mooted if The America Invents Act, Senate Bill 23, is enacted. The measure was passed by the Senate on March 8.

The legislation would strike the qui tam enforcement provision of the false patent marking statute (35 U.S.C. Sec. 292(b)) and replace it with a new Sec. 292(b) providing that “[a]ny person who has suffered a competitive injury as a result of a violation of this section may file a civil action in a district court of the United States for recovery of damages adequate to compensate for the injury.”

Sec. 2(k) of S. 23 also would provide that only the United States may sue for the statutory penalty of $500 per offense authorized by Sec. 292(a) of the false marking law.

The effective date provision of Sec. 2(k) of S. 23 would make the false marking amendments applicable “to all cases, without exception, pending on or after the date of the enactment of this Act.”

The April 28 opinion in Simonian v. Allergan, Inc. will appear at CCH Advertising Law Guide ¶64,274. Further legislative developments in the area of patent marking and other topics of advertising law will be reported in the Guide.

Further information about CCH Advertising Law Guide appears here.

Illinois Beer Distribution Law Discriminated Against Out-of-State Brewers

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

The Illinois beer wholesalers law, as construed by the Illinois Liquor Control Commission, unconstitutionally discriminated against out-of-state brewers by permitting in-state brewers to distribute their products directly to retailers while withholding that privilege from out-of- state brewers, the federal district court in Chicago has ruled.

The judicially-selected remedy for that discrimination—withdrawal of the self-distribution privilege from in-state brewers rather than extension of the privilege to out-of-state brewers—was temporarily stayed until March 31, 2011, to provide the Illinois General Assembly an opportunity to act on the matter, if it so desired.

Acquisition of Distributor

Out-of-state brewer Anheuser-Busch, Inc. brought suit after a ruling by the Illinois Liquor Control Commission found that its planned acquisition of a 100% ownership interest in an Illinois distributor would violate the beer law, which precluded out-of-state brewers from possessing an ownership interest in a licensed Illinois distributor.

According to the Commission, in-state brewers were permitted to perform the distribution function in Illinois, but out-of-state brewers like Anheuser-Busch were prohibited from doing the same.

Under the Commerce Clause, a law discriminating against interstate commerce is subject to a rule of virtual per se illegality. To avoid the rule, the state must demonstrate that the law advanced a legitimate local purpose that could not be served by reasonable nondiscriminatory alternatives.

Twenty-First Amendment Analysis

The Commission argued that the discrimination at issue affected Anheuser-Busch only insofar as it wanted to act as a distributor. It did not affect Anheuser-Busch in its capacity as a brewer. In applying a Twenty-First Amendment analysis, the Commission concluded that the discrimination was constitutional as long as it had some connection to the distributorship or retail tiers of a state’s three-tier alcoholic beverage licensing system.

The court disagreed, finding that the cases cited by the Commission did not support that view. Those cases held that the Twenty-First Amendment permitted states to enact laws that distinguish between retailers and distributors based on the location of their operations only where discrimination against out-of-state producers was not an issue.

Legitimate Local Purpose

In order to demonstrate a legitimate local purpose that was advanced by the beer law’s discrimination, the Commission contended that Anheuser-Busch’s exclusion from the distributor tier was justified by (1) the relative small size of the current in-state brewers, as compared with Anheuser-Busch, and (2) the importance of regulatory control and the risk of tax evasion.

The argument regarding the small size of the in-state brewers currently distributing beer in Illinois failed because the beer law permitted all in-state brewers to distribute, not just small in-state brewers, and prohibited all out-of-state brewers from distributing, not just large ones, the court determined.

The Commission failed to cite evidence to support its second—regulatory and tax—argument. Case law interpreting the Commerce Clause demanded more than mere speculation to support discrimination. The Commission also failed to establish that the state’s regulatory objectives could not be achieved through nondiscriminatory means.

Because the legislative process offered more flexibility for solving the constitutional deficiency than was available judicially, the enforcement of the court’s chosen remedy was temporarily stayed to permit the legislature to avail itself of a much broader range of possible solutions, if it so chose.

The decision is Anheuser-Busch, Inc. v. Schnorf, CCH Business Franchise Guide ¶14,458.

Trade Regulation Tidbits

This posting was written by Jeffrey May and John W. Arden.

News, updates, and observations:

 President Barack Obama on October 17 commented on Congressional efforts to repeal the antitrust exemption for the health insurance industry. (See October 15, 2009 posting on Trade Regulation Talk.) In his weekly address, the President discussed the industry’s efforts to derail health care reform to protect its profits and bonuses. “[T]hey’re earning these profits and bonuses while enjoying a privileged exception from our antitrust laws, a matter that Congress is rightfully reviewing.” The White House did not go so far as to announce the President's support for legislative efforts to repeal the antitrust exemption. Appearing on ABC’s "This Week with George Stephanopoulos" on Sunday, October 18, David Axelrod, Senior Advisor to the President, was noncommittal on the legislation. “We’ll see what Congress does,” he said.

 A Minnesota-based packaged-ice company and three of its former executives have admitted to allocating customers, have agreed to plead guilty, and have agreed to pay a $9 million criminal fine, the Department of Justice has announced. The company and the individual defendants have agreed to cooperate with the Justice Department's ongoing antitrust investigation into the industry. The separate charges were filed in the federal district court in Cincinnati under seal in September. The seals were lifted on October 13. A news release on the plea agreement appears here on the U.S. Department of Justice Antitrust Division website.

 On October 16, the Maine House Joint Standing Committee on the Judiciary voted to recommend repeal of a recently-enacted state privacy statute, in light of constitutional issues raised by a federal court challenge to the law. The controversial law—“An Act to Prevent Predatory Marketing Practices Against Minors” (Public Law 230)—prohibits the collection of health-related or other personal information for marketing purposes from a minor without parental consent and bars “predatory marketing” to minors.

On August 28, challengers filed an action for injunctive relief in the federal district court in Maine, claiming that the statute violates the First Amendment rights of adults, as well as minors and online operators; violates the Commerce Clause; and is preempted by the federal Children’s Online Privacy Protection Act. On September 2, Maine Attorney General Janet Mills announced that she would not enforce the law, due to her concerns about its constitutionality. (See September 3, 2009 posting on Trade Regulation Talk.) On September 8, U.S. District Court Judge John Woodcock instructed the plaintiffs and Maine officials to work out acceptable language for an order settling the lawsuit. The parties agreed to an order acknowledging the constitutional defects of the law, documenting the state’s promise to refrain from enforcing the law, citing the legislature’s promise to revise the law in the next session, and putting Maine plaintiff attorneys on note that suits brought under the law would have to overcome constitutional questions raised in the action. (See September 14 posting on Trade Regulation Talk.)

After its hearing last week, committee members and staff indicated that a new legislative proposal—curing defects in the current law—would be introduced when the legislature convenes its next session in January 2010. None of the judicial or legislative action thus far repeals the law or bars private actions enforcing the law.

Wisconsin Unfair Sales Act’s Fuel Markup Requirement Is Unconstitutional

This posting was written by Datius Sturmer, Editor of CCH Trade Regulation Reporter.

The motor vehicle fuel provisions of the Wisconsin Unfair Sales Act—mandating a minimum markup above an average terminal price or certain actual costs—were unconstitutional for violating the Sherman Act’s prohibition against restraints of trade, the federal district court in Milwaukee has ruled. An order enjoining the state from enforcing the provisions was therefore warranted.

Price Maintenance Among Competitors

By permitting retailers to match—but not undercut—competitors’ prices and forbidding sales below cost, the Act authorized and enforced resale price maintenance among competitors, “a per se violation of Sec. 1 of the Sherman Act since the early years of national antitrust enforcement.”

The minimum markup percentage created a range in which competitors could engage in collusive parallel pricing, which was exacerbated as the wholesale price of gasoline fluctuated, the court reasoned.

An argument that the restraint of trade amounted merely to a unilateral act of the state’s legislature was rejected. The restraint was not subject to consideration under the rule of reason because it was horizontal, in that it affected competing gasoline retailers in Wisconsin. Data suggested that the law kept gasoline prices higher than would otherwise be the case, thereby benefiting gas station owners at the expense of consumers, the court found.

State Action Immunity

The statutory provisions could not be saved from Sherman Act preemption on the basis of state action immunity, the court added. While the purposes of the restraint—namely, to regulate the sale of merchandise below cost in order to prevent deceptive advertising and unfair methods of competition—were “clearly articulated and affirmatively expressed as state policy,” evidence indicated that the pricing restraint was not actively supervised.

The markup percentage decreed by the statute was changed by the state legislature only once in the Act’s long history, and there was no program or effort to determine whether the “average posted terminal price” referenced by the provisions bore any relationship to the actual price paid by retailers.

A state could not simply authorize price setting and enforce the prices established by private parties, in the court’s view. The state’s purported enforcement efforts to ensure compliance with the Act did nothing to ensure the reasonableness of gas prices in Wisconsin. Through the Unfair Sales Act, the state had essentially displaced competition among gasoline retailers without substituting an adequate system of regulation, the court concluded.

The decision is Flying J, Inc. v. Van Hollen, 2009-1 Trade Cases ¶76,505.