Court Updates and Other Enforcement Activities 2002

Court Updates and Other Enforcement Activities

Thompson, et al. v. Western States Medical Center Pharmacy, (U.S. Supreme Court). On February 26, 2002, the United States Supreme Court heard oral arguments in this case involving the Ninth Circuit's decision that provisions of the Federal Food, Drug, and Cosmetic Act (FDCA) concerning drug compounding violate the First Amendment. Deputy Solicitor General Edwin Kneedler presented argument for the government. The statutory provisions at issue, which were enacted in 1997 as part of the Food and Drug Administration Modernization Act, exempt compounded drugs from the Act's new drug approval, adequate directions for use, and good manufacturing practice requirements if specified conditions are met. The conditions that the Ninth Circuit found to be unconstitutional provide that, in order to qualify for the exemption, the compounded drug may not be based on a solicited prescription, and the pharmacy, pharmacist, or physician may not advertise or promote the compounding of a particular drug, class of drug, or drug type. The Ninth Circuit concluded that the conditions at issue may not be severed from the remainder of the statutory section and held it invalid in its entirety. Pending a decision by the Supreme Court on the First Amendment question, the statutory provision at issue remained in effect outside the Ninth Circuit.

Thompson, et al. v. Western States Medical Center Pharmacy, 535 U.S. 357, 122 S. Ct. 1497, 152 L. Ed 2nd 563 (2002). (U.S. Supreme Court). On April 29, 2002, the United States Supreme Court affirmed a decision of the U.S. Court of Appeals for the Ninth Circuit that invalidated a provision of the Federal Food, Drug, and Cosmetic Act (FDCA). That provision exempted compounded drugs from certain of the FDCA's requirements if specified conditions were met. The provision was enacted in 1997 as part of the Food and Drug Administration Modernization Act. The statute provided that, in order to qualify for the exemption, the compounded drug could not be based on a solicited prescription, and the pharmacy, pharmacist, or physician could not advertise or promote the compounding of a particular drug, class of drug, or drug type.

The Supreme Court held that these provisions violate the First Amendment. The Court applied the test for the constitutionality of commercial speech. The Court agreed that the government has substantial interests both in preserving the FDCA's new drug approval process and in permitting the practice of compounding. The Court also recognized the need for a distinction between compounded drugs produced on a small scale and drugs produced and sold on a large scale. The Court concluded that, even if it is assumed that drugs cannot be sold on a large scale without advertising, the provisions failed the fourth prong of the commercial speech test in that they are "more extensive than necessary." The Court pointed to several non speech related means of distinguishing between permissible compounding and large scale manufacturing, and stated that there was no explanation of how the provisions restrictions on advertising achieve those interests.

United States v. Philip Morris Incorporated (D.D.C.). The Department of Justice brought this suit against the major cigarette manufacturers alleging that the manufacturers engaged in a conspiracy to defraud the American public and seeking disgorgement of profits and injunctive relief, including a public education campaign. The parties have been engaged in extensive document discovery, which has included a substantial amount of FDA's tobacco and nicotine related documents. Defendants have thus far filed two motions to compel documents listed on the government's privilege log, both of which included FDA documents. On January 10 and 14, 2002, the Special Master issued a Report and Recommendation on each motion, respectively. He recommended that each motion be granted in part and denied in part by sustaining certain privilege claims, overruling others, and ordering production of certain documents after additional redactions.

In the Matter of the Search of 16475 Miller Road (S.D. Ohio). On December 26, 2001, Judge James L. Graham denied a motion for return of property filed by "Ovimmune" following a search warrant that OCI executed in July 2001. The search warrant was premised on allegations that Ovimmune was producing and distributing unapproved drugs in interstate commerce, specifically, eggs containing hyperimmune egg yolks, as treatment for various diseases and infections in humans. Ovimmune sought return of its property contending, among other things, that the egg product in question was a food or dietary supplement rather than a drug. The Court, in denying the motion, held that the evidence failed to establish that the affidavit contained material omissions or falsehoods, and that a determination of whether the eggs were foods or drugs was not ripe for review.

United States v. Gonzalez Alvarez , 277 F.3d 73, (1st Cir. 2002) On January 17, 2002, the U.S. Court of Appeals for the First Circuit reversed the sentencing findings made in one of many milk adulteration cases that were brought in Puerto Rico. The defendant pleaded guilty to conspiracy and causing the delivery of adulterated food into interstate commerce with the intent to defraud and mislead. The government appealed the sentence imposed by the district court on two grounds: that the loss calculated for purposes of the sentencing guidelines was incorrect, for two reasons, and that the defendant violated a position of public trust, thus warranting a sentence enhancement.

In agreeing with the government and reversing the sentencing decision, the Court held that when a product is not being sold lawfully, it has a value of zero for purposes of calculating loss under the sentencing guidelines, and that the defendant was not entitled to credit for the price that the milk was sold to consumers. The court also held that because the adulterated milk was added to milk silos, defendants should be held accountable for that loss, and not merely the value of the milk in the tanker trucks. The court further held that a sentence enhancement for abuse of public trust should have been applied since the defendant was licensed by a governmental agency designed to protect the quality of the milk supply, giving the defendant a duty to ensure his milk was safe for public consumption.

United States v. Haryash Gugnani, 178 F. Supp. 2d 538 (D. Md. 2002) On January 8, 2002, Judge Alexander Williams denied a petition filed by defendants pursuant to the Hyde Amendment seeking reimbursement of attorneys' fees and expenses after they successfully defended criminal charges that were brought in an FDA case. The court, in denying the petition, held that the underlying prosecution was not frivolous, vexatious, or brought in bad faith.

The prosecution stemmed from allegations that defendants knowingly submitted false statements to FDA and knowingly caused adulterated and misbranded products to be introduced into interstate commerce.

St. Louis University v. United States,182 F. Supp. 2d 494 (D. Md.2002) On January 25, 2002, United States District Judge J. Frederick Motz entered partial summary judgment against the United States and entered summary judgment for American Cyanamid Co. (Cyanamid) in these actions. St. Louis University (SLU) sued the United States for contribution to its tort liability judgment after a St. Louis jury awarded $16 million to a child, Danny Callahan, who had become paralyzed shortly after receiving the oral polio vaccine but almost immediately after receiving improper treatment at a hospital associated with SLU for a bacterial infection. SLU instituted a similar contribution action in Missouri against Cyanamid, the manufacturer of the vaccine, which action was dismissed. In April 1999, Judge Motz entered summary judgment in favor of the United States against SLU. Cyanamid filed a declaratory action against SLU, and the Court also entered summary judgment in favor of Cyanamid. SLU appealed both rulings and the Fourth Circuit reversed and remanded for further proceedings.

On remand, SLU filed a motion for partial summary judgment against the United States alleging that the government was negligent in releasing polio vaccine that violated the applicable regulations and that its negligence was at least one of the proximate causes of Callahan's paralysis. Cyanamid filed a motion for summary judgment in its declaratory judgment action.

Using the same reasoning he used in a prior multidistrict litigation case involving the oral polio vaccine, Judge Motz held that the United States had a duty to protect the public from vaccine that was derived from seeds that did not comply with the regulations, even when the specific lots of vaccine derived from those seeds met the regulatory standards. Judge Motz held that the United States breached its duty by approving noncompliant seeds in violation of its regulations. He further concluded that the government's wrongful approval of the seed was the proximate cause of Callahan's injuries, because if the government had not approved the seed, Callahan never would have been administered a dose of oral polio vaccine and therefore, would not have contracted polio. The extent of the United States' liability, in light of SLU's malpractice, can be determined only after development of a full factual record.

With respect to Cyanamid, however, Judge Motz held that the manufacturer could not be liable for contribution because SLU could not prove that the oral polio vaccine was defective and that such defect resulted in Callahan's injuries. Judge Motz stated that the duty owed by Cyanamid was to produce a vaccine that was safe; Cyanamid did not bear the same responsibility for the regulatory process as the government. Because SLU could not prove that a defect in the vaccine resulted in Callahan's injuries, Judge Motz granted summary judgment for Cyanamid.

United States v. Travia, 180 F. Supp. 2d 115 (D. D.C. 2001). On November 30, 2001, Chief Judge Thomas F. Hogan reversed a Magistrate Judge's ruling, which dismissed criminal charges brought against individuals who sold balloons filled with nitrous oxide in the parking lot at a rock concert. The Magistrate Judge had dismissed the charges of unlawful distribution of misbranded drugs after deciding, among other things, that the Federal Food, Drug, and Cosmetic Act (FDCA) did not apply to the individual defendants because the FDCA only regulated medical practitioners, manufacturers, and other commercial entities that distribute drugs.

The court held that private individuals may be criminally prosecuted under the FDCA. He stated that the plain language of the FDCA extends its coverage to "any person" who violates the Act, and noted that "person" is defined to include an "individual."

The court also rejected defendants' arguments that labeling provides the exclusive evidence of a seller's intent for the use of a product and, in the absence of labeling, the nitrous oxide could not meet the Act's definition of a "drug." The court held that the nitrous oxide sold by defendants met the definition of a "drug" in the FDCA, because the circumstances surrounding its sale B in the parking lot at a rock concert B demonstrated the seller's intent that the product was to be used to affect the structure or any function of the body.

Finally, the court rejected defendants' arguments that the FDCA was unconstitutionally vague, because it failed to give defendants sufficient notice that their behavior was proscribed, and because it impermissibly delegated to FDA Congress' authority to decide what behavior is illegal. The court held that the FDCA provided sufficient notice that defendants' behavior was prohibited, and he found that the nondelegation doctrine was not violated because Congress provided clear proscriptions in the Act that can be consistently followed by FDA when enforcing the Act.

Mylan Pharmaceuticals, Inc. v. Thompson, 268 F.3d 1323 (Fed. Cir. 2001). On December 14, 2001, Judge Stamp of the United States District Court for the Northern District of West Virginia dismissed the above case without prejudice at the request of all parties. Mylan had initiated this case with a motion for a preliminary injunction and TRO, challenging FDA's approval of a competitor's ANDA for generic 30 milligram extended release nifedipine. On April 18, 2001, Judge Stamp denied Mylan's motion, and Mylan appealed. After briefing but before oral argument, Mylan moved to dismiss the appeal, and later requested that the parties stipulate to the dismissal of the case.

aaiPharma Inc. v. Thompson, 296 F.3d 227 (4th Cir. 2002). On July 10, 2002, the Fourth Circuit upheld the district court's denial of a motion for a Temporary Restraining Order (TRO) originally brought by aaiPharma in an effort to enjoin FDA from approving generic forms of Prozac. aaiPharma challenged FDA's interpretation of the FDCA that permits FDA to rely exclusively on the pioneer drug company's representations about whether certain patents cover its product without making any independent inquiry or independent determination, even if a party challenges those representations. In this case, aaiPharma, a third party claiming to hold a patent that covered Prozac and all generic forms of the drug, asked Eli Lilly, the company that held the patent on Prozac, to submit aaiPharma's patent to FDA to be listed in the Orange Book as covering Prozac.

Lilly declined. aaiPharma then notified FDA of its claim. FDA wrote to Lilly to confirm its position and when Lilly did so, refused aaiPharma's request to make an independent judgment. On the eve of the expiration of Lilly's exclusivity rights to Prozac, aaiPharma sought to enjoin FDA from approving generic versions of the drug. The district court denied aaiPharma's motion and subsequently dismissed its claim on the merits. The district court had found that the statute unambiguously provided FDA with a strictly ministerial role in listing patents in the Orange Book, and the agency could not disregard Lilly's representations about the scope of the patent.

On appeal, the Fourth Circuit affirmed the decision. Although it declined to find the statute unambiguous, it held that FDA's regulation interpreting the statute as giving it a solely ministerial role in Orange Book listings is not arbitrary and capricious. The court found that FDA's explanation that it did not have the resources and expertise to make independent patent determinations satisfied the requirement of reasoned agency decision making. The court reached that holding despite the result that left aaiPharma with no relief for its grievance. The court held that only Congress could address that situation.

Brubaker Amusement Co. v. United States, 304 F.3d 1349 (Fed. Cir. 2002). On June 15, 2002, the Federal Circuit affirmed summary judgment for the United States in a consolidated appeal regarding FDA's tobacco vending machine regulation. More than 500 vending machine owners and operators filed claims in the Court of Federal Claims seeking compensation for "takings" of their cigarette vending machine businesses caused by FDA's tobacco regulations and SAMHSA's block grant program. The SAMHSA claim had already been dismissed, and the Federal Circuit affirmed. The Supreme Court denied plaintiffs' petition for certiorari on February 20, 2001. On the FDA claim, the Court of Federal Claims decided that five judges should each hear one case to serve as lead cases. On August 3, 2000, the government moved to dismiss the FDA count in the five lead cases on three alternate grounds. Each trial court judge dismissed the claim or granted summary judgment for the government.

The Federal Circuit discussed only one ground of the government's motion and held that, because the vending machine regulation was never in effect or enforced, it did not effectuate a taking. It explained that a takings challenge to a statute or regulation may be facial or "as applied." In these cases, plaintiffs did not assert a facial challenge; had they done so, it would be moot after FDA v. Brown & Williamson, 120 S. Ct. 1291 (2000), in which the Supreme Court held that FDA's tobacco rulemaking was not authorized by Congress. With respect to an "as applied" challenge, the regulation would had to have been effective to be a taking. Here, the district court in Brown & Williamson stayed the vending machine regulation before its effective date, and plaintiffs failed to show any evidence that FDA enforced that regulation.

The court further held that it was not error to deny discovery where plaintiffs failed to file an affidavit or any evidence in support of its enforcement claim.

United States v. Boston Scientific Corp., (D. Mass. 2002). On February 19, 2002, Magistrate Judge Cohen issued an Order denying Defendant Boston Scientific Corporation's ("BSC's") motion to compel production of both FDA and Patent and Trademark Office ("PTO") documents in an action brought by the Federal Trade Commission ("FTC").

The FTC brought this action against BSC, a manufacturer of intravascular ultrasound ("IVUS") devices, after BSC violated a 1995 consent decree with the FTC. After the case had been bifurcated and the court had determined liability, Defendant requested that the government produce documents referring or relating to any filings with the FDA by any manufacturer of an IVUS device or component thereof, including premarket notifications ("510(k)s") and premarket approval applications ("PMAs"). When the government objected on grounds of relevance, burden, privilege, and confidentiality, BSC moved to compel production. The government's opposition to the motion to compel included a declaration from CDRH describing the contents of PMAs and 510(k)s, the trade secret and confidential commercial nature of those documents, and the type of information relating to PMAs and 510(k)s that is available on FDA's website.

In denying Defendant's motion to compel, the court determined that the documents requested by BSC were not relevant to the penalty phase of the proceedings. To the extent that the information sought was "marginally relevant," the court held that BSC failed to establish a case for shifting the burden to the government to expend its resources to conduct a search of public documents. In addition, the court determined that neither the FTC nor the Attorney General had any authority to demand that FDA and PTO search for the requested documents, "much less turn over to BSC documents maintained as confidential by those agencies."

United States v. Harry Snyder and Renee Peugeot, 291 F.3d 1291 (11th Cir. 2002). On May 21, 2002, the United States Court of Appeals for the 11th Circuit affirmed the convictions of Harry Snyder and Renee Peugeot stemming from their falsification of data in connection with a clinical trial designed to study the effectiveness of a drug. Snyder and Peugeot, husband and wife, were convicted of conspiracy, mail fraud, and making false statements to FDA. At sentencing, the trial court refused the government's request to base the sentence on the $34.5 million loss sustained by the investors as a result of the defendants' release of fraudulent data indicating that the drug was effective. The court, instead, based the sentence on the perceived gain to the defendants of approximately $250,000. In reversing the trial court's sentence and remanding the case for re sentencing, the 11th Circuit held that the trial court had improperly used gain as a proxy for loss, while it should have used loss as the measure of the fraud.

Association of American Physicians and Surgeons, Inc., et al., v. United States Food and Drug Administration, et al., 226 F. Supp. 2d 204 (D.D.C. No. 00 02898). On October 25, the United States District Judge Henry H. Kennedy, Jr., denied the government's motion to dismiss in a lawsuit challenging FDA's authority to promulgate "Regulations Requiring Manufacturers To Assess the Safety and Effectiveness of New Drugs and Biological Products in Pediatric Patients," 63 Fed. Reg. 66,632 (1998) ("the pediatric rule").

The pediatric rule requires that manufacturers submitting certain applications to FDA to, in some circumstances, evaluate the safety and effectiveness of their products in children. The rule contains provisions under which manufacturers may obtain from FDA a full waiver or a deferral of this requirement.

Plaintiffs are the American Association of Physicians and Surgeons, the Consumer Enterprise Institute, and Consumer Alert. The government moved to dismiss on the grounds that plaintiffs lack standing and that the case is not ripe for adjudication. Plaintiffs claimed representational standing as associations to sue on behalf of their members. The court found that the members of the plaintiff organizations had suffered "injury in fact" as a result of the pediatric rule, because the rule will delay the approval of drugs by requiring pediatric testing of drug products. The court stated that the unavailability of safe, effective drugs that may treat or cure particular ailments can inflict as much harm on patients as the consumption of potentially unsafe drugs.

The court found that the purposes of the three plaintiff organizations are germane to the goals of the litigation, and further found that plaintiffs' members fall within the "zone of interests" to be protected by the FDCA. Finally, the court rejected the government's arguments that the challenge is not yet ripe for judicial review.

United States v. Alejandro Holch, (S.D. Fla. 2002). On February 8, 2002, Alejandro Holch and Sports Telemarketing, Inc., a company of which Holch is president, were each sentenced to one year of probation and given a $5,000 fine for their role in introducing misbranded prescription drugs into interstate commerce. Holch and Sports Telemarketing had pleaded guilty to one count of introducing misbranded drugs into interstate commerce in violation of 21 U.S.C. '' 331(a) and 333(a)(1). As part of the plea agreement, Holch has also agreed to testify on behalf of the government in a related case in which a urologist, a pharmacist, and two telemarketers have been indicted on similar charges.

R.J. Reynolds Tobacco Co. v. FTC (D.D.C. 2002) R.J. Reynolds Tobacco Co. (RJR) brought this action against the Federal Trade Commission (FTC) under the Freedom of Information Act (FOIA) seeking the production of certain documents relating to an expert evaluation of an RJR cigarette campaign. FTC had claimed the documents were privileged. On December 5, 2001, RJR issued a subpoena to FDA seeking related documents that FTC had provided to FDA in connection with FDA's tobacco rulemaking. FDA moved to quash the subpoena on several grounds, including that some of the documents were privileged and had already been requested (and either produced or treated as privileged) in United States v. Philip Morris, the pending case between the Department of Justice and the cigarette manufacturers. On April 2, 2002, Judge Gladys Kessler, the same judge who is presiding over the DOJ case, granted FDA's motion to quash.

United States v. Hanafy, 302 F.3d 485 (5th Cir. 2002). On August 15, 2002, the United States Court of Appeals for the Fifth Circuit affirmed the trial court's dismissal of all charges in this criminal case. The defendants, Ibrahim Elsayed Hanafy, Mohamed M. Mokbel, Samer Samad Quassas, and Adel Hisham Saadat, had obtained cans of infant formula by various means, repackaged the cans into shipping trays that bore the trademark of the formula's manufacturer and resold it to wholesale distributors. The defendants mixed cans with different batch codes and expiration dates in the same shipping tray and did not indicate that the cans had been repackaged.

The jury found the defendants guilty of a total of 99 counts, including one count of conspiracy, 9 counts of trafficking in counterfeit goods, 6 counts of introducing misbranded food into interstate commerce, one count of interstate transportation of stolen property, 32 counts of money laundering, and 50 counts of engaging in monetary transactions with criminally derived property. Responding to a motion filed by the dependants, the trial court overturned the jury's verdict as to all counts.

The Court of Appeals affirmed. With respect to the misbranding charge, the Court of Appeals held that the printed matter on the shipping trays was not "labeling" within the meaning of the FDC Act, because the printed matter did not provide "substantial information" about or "explain" the articles. With respect to the counterfeit charge, the court held that affixing a trademark to shipping trays that contain the genuine product associated with the mark does not violate the law.