Pfizer Ordered to Pay $95 Million for Deceptive Marketing of Neurontin

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

Pharmaceutical company Pfizer, Inc. violated the California Unfair Competition Law (UCL) by marketing its prescription drug Neurontin for a number of off-label uses and deceptively representing the efficacy of the drug for certain uses, according to the federal district court in Boston.

Based on these violations, Pfizer was ordered to pay restitution of more than $95 million to the Kaiser Health Care Plan for its payment of reimbursements in excess of the cost of alternative drugs that would have been as effective as or more effective than Neurontin.

Off-Label Marketing

Neurontin was approved by the Food and Drug Administration for the treatment of epilepsy in 1993, but Pfizer began marketing the drug for the treatment of migraines, bipolar disorder, and other conditions for which there was no scientific proof.

After spending about $200 million on Neurontin from 1996 to 2004, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals (collectively Kaiser) filed the UCL claims—along with civil RICO claims—in federal district court in Boston.

In March 2010, a jury found that Pfizer engaged in a RICO enterprise that committed mail and wire fraud in the marketing of Neurontin and awarded Kaiser more than $47 million, which was trebled to more than $142 million. The court then took up the issue of whether the conduct violating the federal RICO law also violated the UCL.

Fraudulent Business Practices

In order to state a claim under the fraud prong of the UCL, Kaiser needed to show that members of the public were likely to be deceived by the misrepresentations and false advertising. Evidence of actual reliance on the misrepresentations was also required. Reliance is proven through evidence that the misrepresentation was an immediate cause of the injury-producing conduct and that the injury would not have happened but for the misrepresentations.

Kaiser presented sufficient information to meet the causation requirement of the UCL, according to the court. The UCL requires evidence of an actual reliance on the alleged misrepresentations. It was reasonable to conclude that Kaiser would not have sanctioned the use of Neurontin had it known of the misrepresentations about the efficacy of the drug and that physicians would have changed their prescribing behavior had Kaiser changed its policy towards Neurontin.

Standing

Pfizer argued that Kaiser Hospitals did not have standing because it did not actually purchase the drugs. However, Kaiser Foundation Health Plan was partnered with Kaiser Hospitals, and Kaiser Foundation Health Plan had standing to bring the claim. Thus, a ruling on independent standing was unnecessary. Any damages would be awarded to the health plan.

Pfizer further argued that Kaiser could not recover damages under the UCL for the cost of Neurontin prescriptions written outside of California. However, Massachusetts choice-of-law rules apply the law of the state where a plaintiff takes action in reliance on misrepresentations. Thus, the UCL applied because Kaiser was located in California, was targeted by the company in California with the false representations, and relied on the misrepresentations in California.

Statute of Limitations

Although the law in California as to whether the discovery rule applies to UCL claims as a whole is unsettled, the rule applied in this case because the claims were based on fraud. Courts have also applied the fraudulent concealment rule to UCL claims. Pfizer argued that many of the claims in the multidistrict litigation were barred by the UCL four-year statute of limitations because the claim was filed more than four years after the allegedly illegal activity took place.

Pfizer fraudulently concealed the negative testing and information that formed the basis of the UCL claim, according to the court. The claim accrued in 2002 when the fraud became known publicly through a whistleblower suit filed against the company. The unsealing of a related suit in Delaware did not put a hospital in California on notice.

Remedies

The UCL empowers courts to restore any money or property that may have been acquired by means of such unfair competition. Kaiser could recover amounts it paid for the drug as a result of the misrepresentations even though the hospital purchased the drug through a wholesaler or other intermediary rather than directly from Pfizer. The appropriate measure of damages was the difference between the cost of the drug and the cost of the cheaper and more optimal drug that would have been prescribed, according to the court.

The November 3 decision is In re Neurontin Marketing and Sales Practices Litigation, CCH State Unfair Trade Practices Law ¶32,159.

Further information about CCH State Unfair Trade Practices Law appears here.

FTC Orders Marketers of “Cancer Cures” to Stop Deceptive Claims

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

A unanimous Federal Trade Commission (FTC) has concluded that Daniel Chapter One, an herbal products company, and its executive violated the FTC Act while marketing four dietary supplements—BioShark, 7 Herb Formula, GDU, and BioMixx—as cancer cures and treatments.

Chief Administrative Law Judge D. Michael Chappell’s August 2009 initial decision, finding against the marketers, was upheld in an opinion written by Commissioner J. Thomas Rosch.

Jurisdiction

At the outset, the Commission explained the FTC's jurisdiction over the respondents. The marketers contended that the agency lacked jurisdiction because they were a religious ministry organized and operated for charitable purposes.

The FTC's jurisdiction extended to a corporation organized to carry on business for its own profit or that of its members. By engaging in commercial activities, the marketers operated a commercial enterprise. They were not a business organized or engaged in only charitable purposes outside the FTC's jurisdiction, the Commission explained.

Constitutional Challenges

In upholding the ALJ's decision, the Commission rejected a number of arguments raised by the marketers under the Due Process Clause and the First Amendment of the U.S. Constitution. The marketers contended that the ALJ improperly shifted the burden of proof to them and banned truthful statements about dietary supplements.

Attorneys for the FTC were not required to produce evidence that consumers were actually misled by the marketer's promotional efforts and representations in order to assess the “overall net impression” of the advertising. Therefore, the Commission rejected the marketers' contention that the ALJ's failure to require the FTC attorneys to do so amounted to resorting to “presumptions” or “shifting the burden of proof” to the marketers in violation of the Due Process Clause and the First Amendment.

The ALJ and the Commission determined the “overall net impressions” of the representations, based not only on the text of the advertisements itself, but also on the interaction of other factors that operated to create that impression, such as testimonials, bold type, visual images, and mutually reinforcing language.

The Commission also rejected the argument that the marketers' representations about the efficacy of the supplements were merely ideas, opinions, beliefs, or theories, protected by the First Amendment. Rather, the advertising included representations of fact.

The marketers made assertions not just about what they believed those products might do, but represented that the supplements would treat or cure cancer, prevent or shrink tumors, and ameliorate the side effects of radiation and chemotherapy, the Commission concluded. The representations were commercial speech, which was accorded less protection than other constitutionally protected forms of speech.

Moreover, any disclaimers made by the marketers did not dispel the overall net impressions that the products would treat or cure cancer.

The ALJ did not violate Due Process in reaching his findings of fact under a “preponderance of evidence” standard instead of a “clear and convincing evidence” standard, it was noted. Under both the Administrative Procedure Act and the Commission’s rules, the proper standard to be applied in FTC Act cases challenging deceptive practices was the preponderance of evidence standard.

Substantiation

The challenged representations were not substantiated, the Commission also concluded. The representations needed to be substantiated by “competent and reliable scientific evidence.” However, the marketers did not possess or rely on any competent and reliable scientific evidence to support the overall net impressions conveyed by the advertisements at issue.

Remedies

The Commission upheld the ALJ's order that prohibited the marketers from making any representation about the efficacy, performance, or health-related benefits of any dietary supplement, food, drug, or other health-related product, service, or program, unless the representation was true, non-misleading, and, at the time it was made, substantiated by competent and reliable scientific evidence. However, the order was modified in the interest of brevity to the extent that it required notice of the agency's determination to customers.

The Commission rejected the marketers' contentions that the remedy would violate the Religious Freedom Restoration Act of 1993 or would unconstitutionally encroach on their rights under the religious guarantees of the First Amendment.

The order imposed no burden on the exercise of religion. It only applied to the marketers' commercial advertising, according to the Commission.

The Commission’s decision and final order, issued December 18, 2009, and announced on December 24, 2009, In the Matter of Daniel Chapter One, a corporation, and James Feijo, FTC Docket No. 9329, will appear at 2009-2 Trade Cases ¶76,853.