Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES NEWS: Drug manufacturer won’t swallow $124M civil penalty, seeks High Court review, (Nov 10, 2015)

By Greg Hammond, J.D.

Ortho-McNeal-Janssen Pharmaceuticals, Inc. (Janssen) is challenging a South Carolina Supreme Court decision, finding that the pharmaceutical company violated the South Carolina Unfair Trade Practices Act (SCUTPA) by intentionally failing to disclose known risks and side effects associated with its antipsychotic drug Risperdal in both its product labeling and physician letters, ultimately imposing a $124 million civil penalty (Ortho-McNeil-Janssen Pharmaceuticals, Inc. v. South Carolina, Dkt. 15-600).

Janssen manufactures the antipsychotic drug Risperdal, used primarily for the treatment of schizophrenia. In April 2007, the State of South Carolina filed suit against Janssen and parent company Johnson & Johnson, alleging that Janssen engaged in unfair methods of competition by willfully failing to disclose known risks and side effects associated with Risperdal on the product labeling and in physician letters in violation of the SCUTPA. A jury rendered a liability verdict against Janssen on both the labeling and physician letter claims, and the trial court imposed civil penalties totaling nearly $330 million for the deceptive conduct. The South Carolina Supreme Court agreed that Janssen violated the SCUTPA, but reduced the civil penalty to $136 million.

In its petition for review, Janssen claims that the South Carolina Supreme Court entered a substituted opinion, ultimately imposing a $124 million civil penalty. However, Janssen argues that the penalty was imposed without any finding of knowing or reckless falsehood and no showing that anyone relied on, or was injured by, the allegedly unfair or deceptive statements. Janssen further argued that the enforcement action impermissibly encroached on the federal government’s regulatory authority under the Federal Food, Drug, and Cosmetic Act. In particular, Janssen asserts that the state-law enforcement action served no compensatory purpose other than punishing Janssen for FDA-regulated conduct, which Janssen claims is a role that belongs exclusively to the federal government.

Lastly, the civil penalty violates the Excessive Fines Clause, Janssen alleges, which prohibits the imposition of penalties that are grossly disproportionate to the gravity of the offense. Janssen claims that the $124 million penalty does not pass constitutional muster under any standard of proportionality without any proof of injury, harm, or financial loss.

The questions presented are: (1) Whether a state violates the First Amendment by penalizing a defendant for the content of its speech without requiring proof that the speech contains a knowing or reckless falsehood; (2) Whether the Federal Food, Drug, and Cosmetic Act preempts a state enforcement action that serves no compensatory purpose and instead simply seeks to penalize a pharmaceutical company for actions that are comprehensively regulated and overseen by the Food and Drug Administration; and (3) Whether the imposition of a $124 million civil penalty, without any showing of actual deception, reliance, or injury, violates the Excessive Fines Clause.

Attorneys: Paul D. Clement (Bancroft PLLC) for Petitioner.

Companies: Ortho-McNeil-Janssen Pharmaceuticals, Inc.

News: StateUnfairTradePractices SouthCarolinaNews