Over the last six months, three high-profile criminal trials of pharmaceutical and medical device executives have each ended in verdicts of not guilty on felony misbranding or kickback charges. Although the Department of Justice's recent emphasis on individual accountability portends more indictments of executives, the results of these recent trials show that felony convictions in these cases will not come easily for the government. Off-label cases present particular challenges for prosecutors given recent case law limiting prosecutors' ability to premise convictions on truthful and non-misleading off label communications. Despite the felony acquittals, these cases also demonstrate that misdemeanor theories of liability—including Park liability, a strict liability offense—remain a vulnerability for individual defendants. We analyze these trends below based on the three trials:
- U.S. v. Vascular Solutions, Inc., et al. In February 2016, a jury in Texas found Vascular Solutions Inc. (VSI) and its founder and CEO, Howard Root, each not guilty of one count of conspiracy and four counts of misbranding under the federal Food, Drug and Cosmetic Act (FDCA) in connection with the alleged off-label promotion of a medical device made by the company.1
- U.S. v. Reichel. In June 2016, the former president of Warner Chilcott plc, W. Carl Reichel, was acquitted on one count of conspiracy to pay kickbacks in connection with speaker programs the company held with healthcare providers.2 The government had charged that Reichel conspired with district managers and others at Warner Chilcott to provide physicians with payments, free dinners and speaker fees for sham programs in exchange for prescriptions of Warner Chilcott drugs.3
- U.S. v. Facteau, et al. Most recently, on July 20, 2016, a jury in Massachusetts found two former executives of medical device company Acclarent Inc.—the former CEO, William Facteau, and Vice President of Sales, Patrick Fabian—not guilty of ten felony counts under the misbranding and adulteration provisions of the FDCA.4 They were, however, convicted on ten misdemeanor counts under the FDCA.5
These cases are particularly noteworthy in light of the
Department of Justice's September 2015 issuance of the
"Yates Memo," formally titled "Individual
Accountability for Corporate Wrongdoing."6 In the
memo, Deputy Attorney General Sally Yates exhorted prosecutors to
"identify culpable individuals at all levels in corporate
cases" and to consider bringing cases against
them.7 Although the Yates Memo telegraphed a new era of
indictments against high-level executives, it also acknowledged the
"substantial challenges" in bringing such cases, noting
that "[i]n large corporations, where responsibility can be
diffuse and decisions are made at various levels, it can be
difficult to determine if someone possessed the knowledge and
criminal intent necessary to establish their guilt beyond a
reasonable doubt."8 The memo added that
"[t]his is particularly true when determining the culpability
of high-level executives, who may be insulated from the day-to-day
activity in which the misconduct occurs."9
That acknowledgement of "substantial challenges" in the Yates memo proved prescient, given the outcomes in the Root, Reichel and Facteau trials, and demonstrates a reluctance by jurors to hold executives criminally liable where decision-making and responsibility is spread among many other corporate employees. In the Reichel trial, for example, one defense theme was the gulf between Reichel himself (the president of the company) and the lower level employees who were directly involved in the conduct at issue. It was therefore telling that the jury's only request during deliberations was for the corporate "organization chart"—which the jurors presumably sought because it would visually depict the separation between Reichel and those "rogue" employees who testified against him.
Those "substantial challenges" may be even greater in off-label marketing cases, given the developments in that area over the last few years. First Amendment arguments—made both affirmatively in cases brought against the government, as well as defensively, in responding to allegations of off-label promotion—have proved convincing to both judges and jurors. These arguments gained traction following the Supreme Court's 2011 decision in Sorrell v. IMS Health, Inc.10 and the Second Circuit's 2012 decision in United States v. Caronia, in which it vacated the conviction of a pharmaceutical company sales representative who had been found guilty of conspiring to introduce a misbranded drug in violation of the FDCA. 11 The Second Circuit held that his conviction, premised solely on his promotion of a drug for off-label use, violated his free speech rights under the First Amendment.12 In evaluating Caronia's conviction under the First Amendment, the Second Circuit stated: "We construe the misbranding provisions of the FDCA as not prohibiting and criminalizing the truthful off-label promotion of FDA-approved prescription drugs." 13 As such, the court concluded 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."14
That momentum continued in May 2015, when Amarin Pharma brought suit against the FDA in federal court in the Southern District of New York, alleging that the FDA's restrictions on promoting drugs for unapproved uses violates the company's First Amendment rights, and arguing that it should be able to promote a product for uses for which it has not been approved so long as that promotion was truthful and non-misleading.15 In August 2015, the judge granted Amarin's request for a preliminary injunction, precluding the FDA from prosecuting Amarin for truthful and non-misleading off-label promotion. 16 Judge Paul A. Engelmayer held that Caronia stands for the proposition that the government "may not bring such an action based on truthful promotional speech alone, consistent with the First Amendment."17
In Root's case, lawyers for Root and VSI raised arguments based on the Caronia and Amarin holdings, with pretrial briefing focusing on how those cases had demonstrated that the First Amendment protects truthful, non-misleading speech about off-label uses. 18 Significantly, the judge later adopted those arguments in his instruction to the jury that:
It is also not a crime for a device company or its representatives to give doctors wholly truthful and non-misleading information about the unapproved use of a device. If you find that VSI's promotional speech to doctors was solely truthful and not misleading, then you must find the Defendants not guilty of the misbranding offense.19
Though it is impossible to know what specifically factored into the jury's not guilty verdict, the jury could well have found that the defendants provided information about the unapproved use of a device, but absolved them of any liability because the speech was "truthful" and "non-misleading," consistent with the above jury instructions.
Likewise, lawyers for Facteau and Fabian raised numerous First Amendment arguments in their pretrial briefing and at trial. For example, at a pretrial hearing in June, the defendants' lawyers told the court that truthful, non-misleading, off-label statements are protected by the First Amendment and do not violate the FDCA. 20 The court agreed. Consistent with the holdings in Caronia and Amarin, the court's charge to the jury explained, in great detail, that the defendants could not be found guilty based on truthful, non-misleading off-label speech made in promoting the device at issue. 21 Specifically, the court instructed the jury that:
It is not illegal in and of itself for a device manufacturer to provide truthful, not misleading information about an off-label use. The FDCA does not prohibit or criminalize truthful, not misleading off-label promotion. You may not convict a Defendant of a crime based solely on truthful, non-misleading statements promoting an FDA-cleared or approved device, even if the use being promoted is not a cleared or approved use.22
The court also cautioned the jury, however, that "[t]ruthful, non-misleading speech . . . can be evidence and therefore used by you to determine whether the government has proved each element of each offense beyond a reasonable doubt, including the element of intent." 23 This instruction was significant because it addressed a question that the Caronia court did not have to resolve, namely whether a misbranding conviction could be premised on truthful off-label speech if that speech is used to evidence intent to misbrand24
Ultimately, Facteau and Fabian were convicted of the misdemeanor misbranding and adulteration charges but acquitted of the felony counts. 25 Specifically, the jury found that although the defendants violated the FDCA, they had not done so with the intent to defraud or mislead necessary to support a felony conviction. 26 That the jury convicted the defendants, despite the jury's specific finding on a verdict sheet that they had no intent to defraud or mislead, is not surprising, given the Park liability charge the jury was given.27 As the judge told the jury, the defendants could be convicted of adulteration or misbranding if the jury found that such adulteration and misbranding occurred and each defendant held a "position of responsibility" within Acclarent and the authority to prevent or to correct the violations, "even if he did not intend the devices to become adulterated or misbranded and did not personally know about the specific circumstances that caused the devices to become adulterated or misbranded."28
A conviction premised on Park liability in the Facteau/Fabian case is a potentially significant development. Several years ago, numerous government officials made statements indicating that they intended to pursue more cases against individuals under a Park theory of liability.29 Apart from a couple of notable exceptions, however, those cases never materialized. The Facteau and Fabian misdemeanor convictions suggest that Park remains a potential backstop for government prosecutors to secure convictions of pharmaceutical or medical device executives—even where that executive had no direct involvement in the conduct at issue and there was no evidence of criminal intent or that the labeling was not truthful. Counsel for Facteau and Fabian have made clear their intention to challenge the verdicts, specifically referencing Park and the Due Process concerns it raises given the jury's specific findings.
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The results of the Root, Reichel and Facteau/Fabian trials demonstrate—as the Yates Memo acknowledged—the difficulties associated with securing a conviction (and in particular a felony conviction that requires proof of the defendant's intent) in cases involving executives at pharmaceutical and medical device companies. This challenge is even greater in off-label cases, given the developments in the law as a result of First Amendment challenges by companies and individuals in off-label cases. The results of these three cases should make health care executives more bullish about eschewing guilty pleas and instead taking their cases to trial, but, given how low the bar is for prosecutors in establishing Park liability, an acquittal on all counts will continue to be an aberration rather than the norm.
Footnotes
1 U.S. v. Vascular Solutions, Inc., et al., No. 5:14-cr-00926, Dkt. #286 (Feb. 26, 2016).
2 U.S. v. Reichel, No. 1:15-cr-10324, Dkt. #246 (D. Mass. Jun. 17, 2016).
3 U.S. v. Reichel, No. 1:15-cr-10324, Dkt. #1 (D. Mass. Oct. 28, 2015).
4 U.S. v. Facteau et al., No. 1:15-cr-10076, Dkt. #432 (D. Mass. Jul. 20, 2016).
5 Id.
6 Memorandum from Sally Quillian Yates, Deputy Attorney General, U.S. DOJ (Sept. 9, 2015).
7 Id.
8 Id.
9 Id.
10 564 U.S. 552 (2011).
11 U.S. v. Caronia, 703 F.3d 149 (2d Cir. 2012).
12 Id.
13 Id. at 160.
14 Id. at 169.
15 Amarin Pharma, Inc., et al. v. U.S. Food & Drug Admin. et al., No. 1:15-cv-03588, Dkt. #1 (S.D.N.Y. May 7, 2015).
16 Amarin Pharma, Inc., et al. v. U.S. Food & Drug Admin., et al., 119 F. Supp. 3d 196 (S.D.N.Y. Aug. 7, 2015).
17 Id. at 224 (emphasis in original).
18 See, e.g., U.S. v. Vascular Solutions, Inc., et al., No. 5:14-cr-00926, Dkt. #79 and #80 (Aug. 3, 2015).
19 U.S. v. Vascular Solutions, Inc., et al., No. 5:14-cr-00926, Dkt. #282 (Feb. 25, 2016).
20 Brian Amaral, "Ex-Execs Say 1st Amendment Protects Off-Label Promotion," Law360 (Jun. 1, 2016).
21 U.S. v. Facteau, et al., No. 1:15-cr-10076, Dkt. #436 (D. Mass. Jul. 15, 2016).
22 Id.
23 Id.
24 Caronia, 703 F.3d at 161 ("Even assuming the government can offer evidence of a defendant's off-label promotion to prove a drug's intended use and, thus, mislabeling for that intended use, that is not what happened in this case.")
25 U.S. v. Facteau, et al., No. 1:15-cr-10076, Dkt. #432 (D. Mass. Jul. 20, 2016).
26 Id. Nor did the jury find that the labeling was false or misleading, or lacked adequate instructions for use, per the special verdict form. Instead, the jury found only that the government had proven that the device lacked required pre-market notification for its intended use.
27 U.S. v. Park, 421 U.S. 658 (1975). Park was a case involving the criminal conviction of the CEO of a national food store chain under the FDCA. The Supreme Court upheld the CEO's conviction, holding that the government establishes a prima facie case under the FDCA by proving "that the defendant had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and that he failed to do so." Id. at 673-74. The Court stated that with respect to the duties imposed on these individuals, the FDCA requires "foresight and vigilance" and "imposes not only a positive duty to seek out and remedy violations when they occur but also, and primarily, a duty to implement measures that will insure that violations will not occur." Id. at 672.
28 U.S. v. Facteau, et al., No. 1:15-cr-10076, Dkt. #436 (D. Mass. Jul. 15, 2016).
29 "A Perfect Storm: Prosecutors' Increasing Focus on Individual Liability In the Drug and Device Sectors and the Responsible Corporate Officer Doctrine," BNA's Pharmaceutical Law & Industry Report (Nov. 19, 2010).
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