Are the Feds Enlisting FedEx to Police the Illegal Pharma Market?

The government may be coming up with a new cost-effective measure to help balance the federal budget – enlisting private companies to do their policing. A 2011 settlement between the Justice Department and Google for $500 million is one recent example. Under the settlement, Google acknowledged responsibility for improperly aiding rogue pharmacies by allowing the pharmacies to post ads through the search engine’s AdWords program. Google not only agreed to forfeit this sizable sum (one of the largest in history by a U.S. company), it also agreed to new compliance and reporting measures. And that is after the company, on its own initiative, took steps to block foreign-based pharmacies from advertising in the United States.

Currently in the works are similar investigations by the Drug Enforcement Agency of FedEx and UPS. The shipping companies have been targets of a criminal probe dating more than four years into whether they aided and abetted illegal drug sales from online pharmacies. As the investigations are still ongoing, it is unclear what the extent or type of evidence against them may be. What is clear is that at least one of the targets is asserting its innocence and plans to defend itself vigorously. While UPS has announced that it is in settlement talks that would involve upgrading its compliance program, FedEx has come out with gloves on, pronouncing that “settlement is not an option when there is no illegal activity.”

UPS’ (and Google’s) course of action is understandable: Companies commonly do a cost-benefit analysis between settling and defending and determine that settlement is a better business decision. But it is good to see FedEx taking the higher, though riskier, road. A brief review of relevant law supports FedEx’s stance. For instance, common carriers are specifically excluded from liability under the Prescription Drug Marketing Act (PDMA): the implementing regulations provide that “distributing” under the Act does not include “[d]elivering or offering to deliver a drug by a common carrier in the usual course of business as a common carrier.” Interestingly enough, the FDA “on its own initiative” had revised its final rule to exclude common carriers.

The FDA’s earlier determination to exclude common carriers made sense, as it would be prohibitively expensive and potentially crippling to put shipping companies on the hook for packages that pass through their system. But the tides are changing, and federal agencies seem less concerned with the broad and adverse economic impact upon private companies and are more focused on how they may use those companies to do their bidding. As FedEx spokesman Patrick Fitzgerald noted, the government wants to “deputize” FedEx delivery to help “catch criminals.”

This type of effort by the feds can be quite effective, as can be seen from the Google settlement and impending UPS settlement. A federal enforcement agency launches an investigation that may be both extensive and costly to a company. The company does its cost-benefit analysis and determines it more efficient to simply pay a fine and institute a government-directed compliance program than to defend itself. The government thereby has a direct and simplified road to instituting new policies, company-by-company, through its settlement agreements. And all this can be accomplished without having to trouble itself with notice and rulemaking procedures. This process plays out frequently, which is what makes FedEx’s stance so refreshing.

‘Off-Label’ FDA Cases Can Run Afoul of First Amendment, Appeals Court Holds

A recent decision by the U.S. Court of Appeals for the Second Circuit may significantly curtail enforcement efforts relating to the so-called “off-label” use of drugs approved by the Food and Drug Administration for specific uses and/or populations. Finding that the government’s prosecution of promotional statements supporting off-label use of an FDA-approved drug would violate the First Amendment, the court ruled that the Federal Drug and Cosmetic Act (FDCA) must be construed narrowly to avoid unconstitutionally prohibiting such statements.

As we have explained in previous blog posts, when the FDA approves use of a drug, it does so for a specific illness or condition and/or for certain populations. It is not illegal for physicians to prescribe approved drugs for off-label use, and such uses sometimes constitute commonly recommended courses of treatment. Law enforcement efforts (both criminal and civil) have focused on the marketing and promotion of drugs for off-label use by pharmaceutical manufacturers and their representatives.

Civil and criminal enforcement against promotion of off-label use has been extensive in recent years and has resulted in some massive fines for pharmaceutical manufacturers. But in United States v. Caronia, decided December 3, 2012, the government’s enforcement efforts ran smack into the First Amendment’s protection of speech, including commercial speech.

The government prosecuted Alfred Caronia, the representative of a pharmaceutical manufacturer, for conspiracy to introduce a misbranded drug into interstate commerce, a misdemeanor violation of the FDCA, 21 U.S.C. sections 331(a) and 333(a)(1). Under this section of the FDCA, a drug is “misbranded” if, among other things, its labeling fails to bear “adequate directions for use,” 21 U.S.C. section 352(f), and FDA regulations define this term as “directions under which the lay[person] can use a drug safely and for the purposes for which it is intended.” 21 C.F.R. section 201.5.

FDA regulations permit the use of promotional statements as evidence of the intended use for this purpose and, because off-label use is (by definition) neither approved by the FDA nor addressed on the label authorized for the drug by the FDA, the FDA has concluded that “[a]n approved drug that is marketed for an unapproved use . . . is misbranded because the labeling of such drug does not include ‘adequate directions for use.’ ” The prosecution of Caronia was based on his statements to a government cooperator in which he promoted the use of a drug for off-label use by a segment of the population for which the FDA had not approved the drug.

After rejecting the government’s claim on appeal that it had used Caronia’s statements merely as evidence of intent, the appeals court found that the government’s interpretation of the FDCA as criminalizing Caronia’s statements would violate the First Amendment’s protection of free speech. The court began with the expression of principle in the Supreme Court’s decision in Sorrell v. IMS Health, Inc., 131 S.Ct. 2653 (2011) that “[s]peech in aid of pharmaceutical marketing . . . is a form of expression protected by the Free Speech Clause of the First Amendment.”

The court found that the restriction on speech that would result if the FDCA were read as prohibiting Caronia’s statements was content-based because it disfavored the point of view he expressed (supporting off-label use) and was speaker-based because other actors (such as physicians and academics) were free to make similar statements without fear of prosecution. Accordingly, the court found that the restriction on the speech was subject to heightened scrutiny.

The court then found that it was unnecessary to determine what level of heightened scrutiny would apply because the government’s proposed restriction did not satisfy even the least exacting level of heightened review. First, the court found that the restriction on off-label promotional speech did not directly and effectively advance the government’s justifiable interest in drug safety. The court noted that the FDA’s approval process contemplates that there will be off-label use of approved drugs and even includes a safe harbor for manufacturers to make statements about such uses. The court concluded that a prohibition of truthful statements about off-label use paternalistically interfered with the ability of doctors and patients to make well-informed choices about treatment and did not reduce the risk that patients would be exposed to unsafe or ineffective drugs. Second, the court found that a prohibition on such statements – and criminalization of that conduct – was not a narrowly drawn restriction on speech, and noted a number of other approaches that could more narrowly limit such speech in the interest of promoting the FDA’s goals.

The court unequivocally rejected the ability of the government to pursue criminal prosecution of this conduct, writing;

Accordingly, even if speech can be used as evidence of a drug’s intended use, we decline to adopt the government’s construction of the FDCA’s misbranding provisions to prohibit manufacturer promotion alone as it would unconstitutionally restrict free speech. We construe the misbranding provisions of the FDCA as not prohibiting and criminalizing the truthful off-label promotion of FDA-approved prescription drugs. Our conclusion is limited to FDA-approved drugs for which off-label use is not prohibited, and we do not hold, of course, that the FDA cannot regulate the marketing of prescription drugs. We conclude simply that the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.

The court’s decision clearly leaves the FDA with significant power to regulate and punish pharmaceutical companies in connection with its oversight over the approval and marketing of prescription drugs – for example, in cases in which manufacturers make false statements about off-label use of their products. But, assuming that other courts reach similar conclusions, the ability of the federal government to act against off-label promotion may be significantly diminished.

In ‘Bitter Pill,’ FDA Seizes Domain Names of Firms Selling Illegal Pharmaceuticals

In an aggressive step against businesses selling drugs online, the U.S. Food and Drug Administration, in conjunction with the U.S. Department of Homeland Security, took legal action earlier this month against more than 4,100 websites this week that led to criminal charges, seizures of illegal products, and hundreds of domain name seizures.

This year Operation Pangea V, a campaign of law enforcement agencies across the globe to counter the global international prescription trade, resulted in the shutdown of over 18,000 unauthorized pharmacy websites and the confiscation of around $10.5 million worth of pharmaceuticals in 100 countries worldwide. Operation Bitter Pill, a federal law enforcement initiative that is part of Operation Pangea V, seized 686 domain names this week as part of the operation, bringing the total number of domain names seized by the domestic operation to 1,525.

The drugs being offered on the websites included such medications as antibiotics, anti-cancer medications, weight loss and food supplements, and erectile dysfunction pills, authorities said.

The FDA had sent warning letters to the managers of 4,100 websites in late September, warning them that products for sale on their sites were in violation of U.S. law. A copy of the letter that the FDA sent to one site can be viewed here.

The agency also sent notices to registries, Internet service providers, and domain name registrars notifying them as well.

Visitors to the websites that have been the subject of domain name seizures will now see an image informing them that the site has knowingly trafficked counterfeit goods, which is a federal crime. Customers were not targeted as part of the investigation. A government spokesman said they were considered to be unwitting victims who were simply purchasing drugs that they thought would be helpful for their conditions.

We don’t endorse counterfeit drugs or trademark violations. But we are concerned that broad domain name seizures, such as those in Operation Bitter Pill, could potentially shut down legitimate businesses and leave them without an online presence for a long period of time until they are able to obtain legal relief. Companies that operate solely with an online presence could see dramatic and potentially crippling effects on their business.  We have previously discussed this issue here, for example.

As digital rights groups have repeatedly noted, seizures such as these can run roughshod over the constitutional rights of website operators, including their First Amendment rights, and need to be undertaken by the government, if at all, with an understanding that a seizure of a domain name is not the same thing as the seizure of a truckload full of illegal drugs.

Previously, domain name seizures had been used in investigations by other federal agencies such as the Immigration and Customs Enforcement, the Commodity Futures Trading Commission, the U.S. Department of Justice, and the Federal Trade Commission. The practice appears to be expanding.

Only if the courts provide an adequate check on the powers of the federal government can it be assured that individuals are afforded their due process rights in cases such as this one.