FDAnews Drug Daily Bulletin

COURT VICTORIES EMBOLDEN FDA TO TARGET COMPANY PROFITS

Dec. 8, 2005
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The FDA is planning to more aggressively pursue pharmaceutical companies' profits as a penalty for misbranding or adulteration of medicines — an effort sparked by a string of legal victories upholding the agency's right to seek such damages.

The legal successes, including a recent U.S. appellate court victory, means the FDA will be seeking disgorgement more often, Eric Blumberg, the agency's deputy chief for litigation, told attendees at a recent session of the Food and Drug Law Institute's Enforcement & Litigation Conference. Blumberg added that he is "fully confident" the FDA has the legal authority to pursue disgorgement cases against drugmakers.

Industry officials have argued that disgorgement is not allowed under the Federal Food, Drug and Cosmetic Act (FDCA), but numerous circuit courts have upheld the practice. Disgorgement can result in hundreds of millions of dollars in losses by requiring that all of a company's profits associated with a violation be paid to the government. The approach is "a very expensive remedy" that allows the agency to go beyond the fines that are allowed under the law, Washington Legal Foundation (WLF) Chief Counsel Richard Samp told FDANews.

The FDA has in turn argued that while the FDCA does not explicitly require the practice, it is an equitable remedy allowed by the courts. Generally, the FDA seeks this remedy when there is an "egregious" violation that put patients' safety at stake, Blumberg said. The agency also considers whether the circuit court with jurisdiction has upheld the practice, he added.

Observers, including the WLF, do not believe that opponents of this practice will have the ability to appeal these decisions to the U.S. Supreme Court anytime soon. The Supreme Court will only review a case if there is a split in the circuit courts, but industry observers do not believe that a split will occur in the near future.

The 3rd U.S. Circuit Court of Appeals already upheld the practice in October in the case of U.S. v. Lane Labs. And the 6th Circuit upheld disgorgement in 1999 in the case of U.S. v. Universal Management Systems.

While there is a case pending before the 10th Circuit, the industry is not optimistic that the court rule will in its favor. During November oral arguments in the case, U.S. v. Rx Depot, the defendant's counsel failed to make sufficient legal arguments to support the court overturning the FDA's use of disgorgement, instead relying on broad public policy arguments, Samp said.

If the 10th Circuit upholds disgorgement, there is not another case in the appeals system challenging the issue, meaning a Supreme Court review of disgorgement would be years away, Samp added.

Industry groups are also not likely to look to Congress for a solution, Samp said. Lawmakers have recently been more inclined to expand federal authority, not limit it, making companies hesitant to approach Congress for changes, he added.