In our prior posts on “Preemption Lite” and “Then There Were Seven,” we discussed the impact of certain “safe harbor” provisions under state consumer fraud acts where the violations being claimed involved FDA-regulated activities.
We’re pleased to report that one of those cases, Pennsylvania Employee Benefit Trust Fund v. Zeneca, Inc., 2005 WL 2993937, at *4 (D. Del. Nov. 8, 2005), has just been affirmed by the Third Circuit. Here’s a link to the Third Circuit’s website, where the Zeneca opinion is number one on the list as we write this. It will undoubtedly appear on the services soon, but hasn’t yet.
One unusual aspect is that we’re pleased (notoriously picky that we are) even though the Third Circuit actually reversed on the ground for which our posts cited the district court opinion. The court found that the particular consumer fraud statute in question (Delaware’s) contained a safe harbor written in terms of conduct regulated by the “Federal Trade Commission.” It then held that the FDA’s approval process for advertisements was too attenuated a link to anything that the FTC had approved to fall within the state statute’s safe harbor.
So why are we pleased at being back down to six safe harbor opinions? What’s the title of this post? The Third Circuit went on to affirm the district court’s result on an even better and more generally applicable ground – implied conflict preemption. We’ll trade a state-specific ruling for a generally applicable decision under federal law any day. Especially if it’s by the same court that will eventually hear the Colacicco appeal, previously mentioned here and here.
So what’s the Zeneca case about? It’s a claim that direct-to-consumer (“DTC”) advertisements about a FDA-approved prescription drug (Nexium) violated state consumer fraud laws of, initially, all 50 states by making certain statements that were consistent with the drug’s FDA-approved advertising. As usual, in such actions, nobody got hurt – it’s one of what we call “strike suits” by persons seeking only economic losses for allegedly misleading advertisements that allegedly induced purchases of drugs that were safe and effective for the prescribed indication. In this particular instance, the plaintiffs were third parties who reimbursed the cost of the prescriptions.
According to the Zeneca opinion, one of the studies upon which the FDA approved the drug showed a “statistically significant healing rate,” over a competing product. Slip op. at 5. The FDA approved the doses that had been studied. Id. The allegedly misleading DTC campaign was also based upon this study. Id. The other drug became considerably cheaper, as its status changed to over-the-counter.
The Delaware statute that the class action eventually boiled down to contains a “safe harbor” for “any advertisement or merchandising practice which is subject to and complies with the rules and regulations, of and the statutes administered by, the Federal Trade Commission.” Slip op. at 8, quoting 6 Del. Code §2513(b)(2). That presented a problem, as the relevant regulatory actions were by the FDA rather than the FTC. The court goes through an interesting analysis of the history of FDA/FTC interactions in the prescription drug field, and the difference between “labeling” and “advertising.” Slip op. at 9-18. The net result is that the FDA’s authority over “labeling” is too far removed from the FTC’s authority over “advertising” for to be encompassed by a safe harbor stated solely in terms of FTC-compliant activities. Id. at 18-19 (citing requirement to “liberally” construe the Delaware statute).
Thus the Third Circuit turned to preemption to affirm dismissal of the action – and did so with a vengeance. The court found that the district court had properly applied “implied conflict preemption.” Slip op. at 19. The question, as the Third Circuit put it, was “whether state consumer fraud laws pose an obstacle to the FDA’s congressionally-mandated regulation of prescription drug advertising.” Id. at 20.
The court found the FDA’s regulation of drug “safety” to be “critical” to its analysis. Id. That safety regulation included review and analysis of clinical trials:
During the approval process, the Secretary may determine, “based on relevant science, that data from one adequate and well-controlled clinical investigation and confirmatory evidence (obtained prior to or after such investigation) are sufficient to establish effectiveness….” Id. (emphasis added). Such data and evidence constitute “substantial evidence” under 21 U.S.C. §355.
Slip op. at 21.
The court then points out that that the FDCA, in 21 U.S.C. §352(n), specifically exempts compliant advertisements from the false advertising provisions of the Federal Trade Commission Act. Slip op. at 21-22. Then the court discusses a number of other relevant FDA regulatory requirements: the information that prescription drug advertising must include; the FDA’s definition of a “true statement” is in such advertising; the many reasons why the FDA can find advertising to be false; and the FDA’s sanctions for a false advertisement. Id. at 21-24.
The court characterizes the FDA’s supervision of prescription drug advertising as “ongoing and extensive”:
The degree of discretion inherent in the regulations demonstrates that the FDA envisioned itself occupying an ongoing and extensive role in the supervision of prescription drug advertising. However, neither the language of the FDCA nor the regulations explicitly preempt state consumer fraud law.
Id. at 24 (citing various regulatory materials).Thus any preemption had to be implied from the conflict between the particular claims and the FDA’s regulatory scheme. In a footnote, the court disposed of the presumption against preemption:
The prevention of consumer fraud has traditionally been within the purview of the states. This historical preference does not foreclose the possibility of preemption, where applicable. While the protection of consumers from unfair practices is a traditional state police power function, federal laws and administrative regulations may operate in tandem with – or even preempt – state law under the Supremacy Clause.
Id. at 25-26 n. 11 (citation and quotation marks omitted).The court next explains that federal regulations are as preemptive as congressional statutes. Id. at 25-27. Interestingly, during this discussion the court incorporates the FDA’s interpretation of preemption in the medical device context as occurring when there are “specific counterpart regulations or. . .other specific requirements.” Id. at 26 (quoting 21 C.F.R. § 808.1(d)).Then the court analyzes Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001), the major FDA-related conflict preemption supreme court opinion. The court emphasized Buckman’s reliance upon the FDA’s enforcement powers:
[Buckman] explained that “[t]he conflict stems from the fact that the federal statutory scheme amply empowers the FDA to punish and deter fraud against the Administration, and that this authority is used by the Administration to achieve a somewhat delicate balance of statutory objectives.” In so holding, the Court emphasized the flexibility inherent in the statutory and regulatory framework, and noted that such flexibility was necessary for the FDA to pursue “difficult (and often competing) objectives.”
Zeneca, slip op. at 28 (Buckman citations omitted). The court conceded that, unlike Buckman the FDA’s regulations were not as “critical,” slip op. at 28, but found that allowing consumer fraud action based upon advertising the FDA had permitted would “frustrate” the purposes of the administrative scheme:
[A]llowing these claims to proceed would unnecessarily frustrate the FDCA’s
purpose and FDA regulations, as the extent of agency involvement in regulating
prescription drug advertising is extensive and specific.
Id. at 28-29 (emphasis added). We like that – it deserves a “wow”. It’s as broad a description of preemption as we’ve seen since the FDA’s Final Rule reignited the entire preemption issue. The Third Circuit doesn’t rest its decision solely on general frustration. Rather, it goes on to examine the particular nature of state-law consumer fraud claims and their impact on federally regulated activities:
An even stronger case for preemption occurs when FDA approved labeling is the basis for allegedly fraudulent representations made in prescription drug advertising. The essential affinity between advertising and labeling is clear in the composition of the FDCA and its associated regulations. [numerous regulatory citations omitted] Although labeling is often directed at medical practitioners, the rules that govern labeling form the basis for the advertising regulations. [more regulatory citations omitted] Accordingly, the purpose of protecting prescription drug users in the FDCA would be frustrated if states were allowed to interpose consumer fraud laws that permitted plaintiffs to question the veracity of statements approved by the FDA.
Slip op. at 29-30 (emphasis added). In other words, where the FDA says “yes” to statements in labeling, the states cannot say “no” to the manufacturer’s use of those same statements in its advertising. The court then solidifies its holding by finding the FDA’s advertising requirements to be “specific” and that under the FDCA only the government has authority to pursue supposed regulatory violations. Application of “general” state consumer protection statutes would be “irreconcilable” with the federal scheme:
Implied conflict preemption of state consumer fraud laws is required in this setting because both the FDCA and FDA regulations provide specific requirements for prescription drug advertising. Congress specifically determined that all proceedings for the enforcement, or to restrain violations, of the FDCA] shall be by and in the name of the United States. The high level of specificity in federal law and regulations with respect to prescription drug advertising is irreconcilable with general state laws that purport to govern all types of advertising. Accordingly, the plaintiffs’ state consumer fraud claims are preempted.
Slip op. at 30 (citation and quotation marks omitted) (emphasis added). This is another very broad “wow” ruling, one potentially applicable to state-law claims other than those based upon consumer fraud statutes. Then the court cleans up a few odds and ends. The preemption ruling was equally applicable to state-law claims for “unjust enrichment.” Id. at 31 n.12. It was improper to dismiss the action based upon the FDA’s primary jurisdiction without giving plaintiffs the opportunity to brief that issue. Id. Given the preempted nature of plaintiffs’ claims, any amendment would be futile. Id. at 32-33.In closing, the court ended summed up its preemption ruling:
By specifically excluding advertisements covered by 21 U.S.C. § 352(n) and the regulations promulgated thereunder from the scope of 15 U.S.C. §52 [the FTCA], Congress signaled its intent to give the FDA exclusive authority to regulate prescription drug advertising. The FDA has established specific regulations regarding such advertising. To allow generalized state consumer fraud laws to dictate the parameters of false and misleading advertising in the prescription drug context would pose an undue obstacle to both Congress’s and the FDA’s objectives in protecting the nation’s prescription drug users. Accordingly, the state consumer fraud laws are preempted by the extensive federal legislative and regulatory framework.
Slip op. at 34.We like this – a lot. It is very broad and if followed elsewhere has the potential to kill off most, if not all, state-law consumer fraud claims involving prescription drug advertising. This result warrants big time congratulations to Mark Haddad and the rest of the Sidley & Austin folks who represented Zeneca. In closing, we would be remiss in not pointing out that there is a dissent. Slip op. at 34-51. The dissent: (1) relies upon the presumption against preemption (id. at 36); (2) discounts the specificity of the FDA regulatory scheme (id. at 37-38); (3) compares the ruling to field preemption (id. at 38); (4) does not find as much “affinity” between labeling and advertising as the majority (id. at 39-40); (5) disputes any specific FDA “approval” of the advertisements at issue (id. at 41-42); (6) declines to analogize the exemption from the FTCA to state consumer fraud claims (id. at 44); (7) reads Buckman more narrowly; and (8) would not find that state-law parameters for false advertising necessarily conflict with the FDA’s authority to make the same determinations about advertisements for regulated products – finding them “parallel” instead. Id. at 46-49. To us, the primary significance of a dissent is that it increases the chance that the plaintiffs might seek en banc reconsideration. Given the Third Circuit’s previous preemption ruling in Horn v. Thoratec Corp., 376 F.3d 163 (3d Cir. 2004), and the favorable preemption rulings in the Eastern District of Pennsylvania, we’d have to say that there’s probably no court before which we’d rather be litigating a FDA-related preemption case at the moment.