Today we’re updating our readers on new developments this month relating to three of our prior posts.
First, back in March we reported on an “Advocate’s General’s opinion” in a case before the European Court of Justice (“ECJ”). See the original post for details, but the plaintiff was asserting the radical claim that EU principles of “non-discrimination” meant that, once any member state adopted a rule that expanded liability, all other member states had to follow that rule so that no plaintiff was “discriminated against” on the basis of residency in the EU. Fortunately, as we discussed in March, the Advocate General rejected that theory – and we were informed that the ECJ itself almost always respected the Advocate General’s views.
The ECJ has now decided the case. See RB v TUV Rheinland LGA Products GmbH, ECLI:EU:C:2020:453, slip op. (E.C.J. June 11, 2020). As we had hoped, the plaintiff lost, however, the ECJ avoided passing judgment on the wildly expansive theory that the Advocate General had rejected.
Instead, the court held that the plaintiff lost on a preliminary issue. The case involved a product liability insurance policy, issued in France to a French medical device manufacturer (now bankrupt), and according to the ECJ that set of facts did not implicate EU law (as opposed to member state law) at all. The anti-discrimination “provision is intended to apply independently only to situations governed by EU law in respect of which the Treaties lay down no specific rules on non-discrimination.” Slip op. at ¶31. That was not the case here:
[I]t is clear that there is not, in EU secondary law, any provision which imposes an obligation on the manufacturer of medical devices to take out civil liability insurance designed to cover risks linked to those devices or which regulates, in one way or another, such insurance.
Id. ¶37. That’s because the EU’s product liability directive “does not impose any obligation on the manufacturer of such products to take out civil liability insurance against any harm,” nor does it “seek exhaustively to harmonise the sphere of liability for defective products beyond the matters regulated by that directive.” Id. ¶¶41-42. The other directive the plaintiff asserted, concerning “services in the [EU] internal market,” “does not apply to financial services such as insurance.” Id. ¶42.
Further harming the plaintiff’s case were her particular facts – her product use occurred solely in the nation in which she resided.
[I]t is clear that the applicant in the main proceedings, a German citizen who seeks the payment of insurance compensation for harm caused by the insertion of breast implants in Germany, the Member State in which she resides, has not made use of her freedom of movement. Consequently, there is no specific connecting factor linking the situation at issue in the main proceedings and the freedom of movement of Union citizens.
Id. ¶49. Nor did the dispute have any effect on the “free movement of goods.” Id. ¶¶52-55.
Thus, the plaintiff lost on the first issue. Id. ¶59-60. With no basis to apply the EU’s overarching anti-discrimination principle to what the ECJ found to be a local dispute, “there is no need to examine the other questions.” Id. ¶61. Thus, the court did not reach the Advocate General’ favorable interpretation of anti-discrimination that we described in our prior post.
Second, last July we expressed satisfaction – but not surprise – that the Administration’s attempt to regulate drug advertising through the Centers for Medicare & Medicaid Services (“CMS”) failed in court. See Merck & Co. v. United States Dept. of HHS, 385 F. Supp.3d 81 (D.D.C. 2019).
Again, to our satisfaction (but not surprise), that ruling has now been affirmed. Merck & Co. v. United States Dept. of HHS, ___ F.3d ___, 2020 WL 3244013 (D.C. Cir. June 16, 2020). The District of Columbia Circuit was not about to allow two routine housekeeping provisions, 42 U.S.C. §§1302(a), 1395hh(a)(1), to create authority for CMS to do something it had never done before in its decades of existence – regulate the content of prescription drug advertising. Even with the benefit of “deference” under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the “blunderbuss operation” of CMS’ ham-handed administrative power grab failed in a unanimous decision. 2020 WL 3244013, at *4.
Even if drug pricing could be considered an “efficiency” under general administrative regulations, “[t]o qualify as administering the Medicare or Medicaid statutes, a program of such intrusive regulation must do more than identify a hoped-for trickle-down effect on the regulated programs.” Id. “[F]or a regulation to be “necessary” to the programs’ “administration,” the Secretary must demonstrate an actual and discernible nexus between the rule and the conduct or management of Medicare and Medicaid programs.” Id. (regulatory citations omitted).
The court of appeals agreed that CMS’s mandatory pricing information simply wasn’t very accurate:
[CMS] was unaware of any State that had adopted the wholesale acquisition cost as the applicable price, and [conceded] that it was “unlikely” any had. Moreover, . . . [CMS] does not contest that the vast majority of Medicaid beneficiaries pay at most a nominal copayment for prescription drugs. And, again, [CMS] made no finding that Medicaid consumers were generally aware of any relationship between what they pay and the wholesale acquisition cost.
Merck, 2020 WL 3244013, at *6. Thus, the mandatory disclosures were, at best, useless. CMS “fails to show that any substantial number of Medicare or Medicaid consumers would pay the” price to be disclosed. Id.
And other aspects of the CMS rule could well be worse than useless:
[CMS] candidly acknowledged that the disclosure could just as well backfire. Consumers, intimidated and confused by high list prices, may be deterred from contacting their physicians about drugs or medical conditions, and may be discouraged from using beneficial medications.
The CMS mandatory disclosure was also fatally overbroad. While spun as an attempt to administer Medicare and Medicaid, it was in fact “directed at the general public.” Id. at *7. That “further increase[d] the distance between the Disclosure Rule and any actual administration of those programs,” and “open[ed] another fissure between the required disclosure and the programs’ administration.” Id.
Finally, the appellate court agreed with our longstanding view that this administrative overreach suffered from a “Brown & Williamson problem.” Specifically, “courts should not lightly presume congressional intent to implicitly delegate decisions of major economic or political significance to agencies.” Merck, 2020 WL 3244013, at *7 (citing FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000), multiple times).
[CMS’s] construction of the statute would seem to give it unbridled power to promulgate any regulation with respect to drug manufacturers that would have the arguable effect of driving down drug prices − or even healthcare costs generally − based on nothing more than their potential salutary financial benefits for the Medicare or Medicaid program. This suggests a staggering delegation of power, far removed from ordinary administration.
Merck, 2020 WL 3244013, at *7. If irony were not already dead with this Administration, we could comment at greater length about the purported “party of limited government,” but we won’t.
Instead, we’ll move on to Merck’s discussion of another of our favorite topics – First Amendment protection of truthful pharmaceutical promotion. In addition to all the above, Merck recognized that this government-enforced mandatory disclosure −
at least implicates a substantial constitutional question concerning the government’s authority to regulate the public speech of companies just because some percentage of the audience is involved in a governmental program from which the businesses indirectly derive financial benefit.
Id. (citation omitted). The “implications of the authority claimed” were Orwellian – threatening “broad [governmental] power to decide” the circumstances under which “any particular drug may be used for any particular purpose.” Id. (citation and quotation marks omitted).
Thus CMS’s disclosure rule received the DC Circuit’s (figurative) penalty flag, with a holding that:
[N]o reasonable reading of the Department’s general administrative authority allows the Secretary to command the disclosure to the public at large of pricing information that bears at best a tenuous, confusing, and potentially harmful relationship to the Medicare and Medicaid programs. Although the Secretary’s regulatory authority is broad, it does not allow him to move the goalposts to wherever he kicks the ball.
Id. at *8. We hope this is the last we have to write about the government’s benighted attempt to appear to be “doing something” about pharmaceutical prices.
Third, we authored a screed last July entitled simply “Wrong Court,” in which we excoriated the Third Circuit for taking it on itself to predict, in the absence of any supporting state court authority, that state law would consider an Internet website that acted as the online equivalent of a shopping center to be a “seller” for product liability purposes. See Oberdorf v. Amazon.com Inc., 930 F.3d 136 (3d Cir. 2019) (purporting to apply Pennsylvania law). Just as the Merck case exemplified bureaucratic empire-building, we thought that Oberdorf was a poster child for improper federal court usurpation of the creation of state law:
[F]rom day one, the DDL Blog has been foursquare in our opposition to federal courts adopting expansive state-law theories of liability in diversity jurisdiction cases. The Third Circuit violated fundamental Erie principles in its rush to liability in Oberdorf, and that needs correcting.
Thankfully, the en banc Third Circuit stepped in, which automatically vacated the offending 2-1 panel decision. Oberdorf v. Amazon.com Inc., 936 F.3d 182 (3d Cir. 2019). Bexis then helped write an amicus brief that (among other things), made the Erie point. See Brief of the Chamber of Commerce of the United States of America and the Pennsylvania Chamber of Business and Industry as Amici Curiae Supporting Appellee Seeking Affirmance, Oberdorf v. Amazon.com Inc., 2019 WL 5541081 (filed Oct. 24, 2019).
We’re now pleased to report that the en banc Third Circuit implicitly agreed with us that the panel had overstepped its Erie bounds. Instead of deciding the “seller” question itself – thus aggravating the Erie error − it chose to certify the legal question to the Pennsylvania Supreme Court:
This is an issue of first impression and substantial public importance, yet we cannot discern if and how § 402A applies to [defendant]. We are, as a result, unable to predict how the Pennsylvania Supreme Court would rule in this dispute.
Oberdorf v. Amazon.com Inc., ___ F. Appx. ___, 2020 WL 3023064, at *4 (3d Cir. June 2, 2020).
Further the bloggers sayeth not – at least at this point.