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The Second Circuit yesterday rendered its much-anticipated decision in United States v. Caronia, the most important Food Drug and Cosmetics Act enforcement case pending in the country. Not only did  the court’s 2-1 holding determine that the First Amendment bars the criminal prosecution of pharmaceutical manufacturers or their sales representatives for truthful, non-misleading speech promoting the lawful, off-label use of an FDA-approved drug affect criminal FDA enforcement cases, it also has great potential impact on False Claims Act cases.

Stuart Gerson, an Epstein Becker & Geen partner in Washington, D.C., who has defended a number of significant  False Claims Act cases (and qui tam cases), opined  this morning that "the Caronia decision is revolutionary, dealing the government a very hard blow in its effort to quash all off-label promotion, and incidentally to try to limit off-label use, irrespective of the fact that such use is a lawful matter to be decided by doctors and patients. And that is the point, since such use is lawful, making truthful statements about such use would infringe allowable speech."

According to Gerson, the Second Circuit "read the FDCA in a hyperliteral way, holding that the misbranding provisions of the Food Drug and Cosmetics Act do not prohibit such truthful promotion of an off-label prescription drug that otherwise is approved, and thus avoided having to make what it also held would have been the constitutional determination that blocking such speech would have violated the First Amendment."  Caronia adopts a view that pharmaceutical companies and trade associations have attempted to advance for years. Gerson believes that the issue  might well reach the Supreme Court.

In any event, Caronia will stand as an important precedent, not only in criminal cases like this one, but in civil fraud cases as well where the government and qui tam relators have argued that off-label promotion is tantamount to false certification and hence a violation of the federal False Claims Act.

Given the importance of the case, it is likely that rehearing en banc will be sought and, perhaps, a petition filed by the government with the Supreme Court. However, it also may be the government’s strategy to follow a policy of non-acquiescence and litigate the point in other circuits, hoping to create a split. In any event, this is a case that pharmaceutical and medical device companies need to watch closely.
 

In GSI Commerce Solutions, Inc. v. BabyCenter LLC, No. 09-2790, the Second Circuit affirmed the ruling of SDNY Judge Jed S. Rakoff, who disqualified the Blank Rome law firm from representing a company adverse to a subsidiary of Johnson & Johnson, which was a client of Blank Rome.

The Second Circuit’s ruling is noteworthy because it addressed for the first time whether a law firm infringed on its duty of loyalty by taking on a representation adverse to an existing client’s corporate affiliate. In disqualifying Blank Rome, Judge Rakoff found that the overlap between BabyCenter LLC and Johnson & Johnson in effect made them a single company for various purposes. Judge Rakoff observed that BabyCenter LLC did not have a separate in-house legal department, but instead relied exclusively upon the in-house lawyers at Johnson & Johnson for legal advice.  Drawing upon extensive discussion by other courts as well as the ABA, the Second Circuit held that a law firm cannot take on a matter adverse to an affiliate if it diminishes the parent client’s level of confidence in its lawyers.

The Court first examined the ABA's Model Rules of Professional Conduct, which provide that a “lawyer who represents a corporation or other organization does not, by virtue of that representation, necessarily represent any constituent or affiliated organization, such as parent or subsidiary.” ABA Model Rule of Prof’l Conduct 1.7 cmt. 34 (2006). This statement embodies what is often termed the “entity theory” of representation. However, the exception to this rule is that an attorney may not accept representation adverse to a client affiliate if “circumstances are such that the affiliate should also be considered a client of the lawyer.”

For its own part, Blank Rome argued that no conflict existed because: (1) the dispute between GSI and BabyCenter involved matters unrelated to Blank Rome’s Johnson & Johnson matters; and (2) Johnson & Johnson had waived any conflict by signing Blank Rome’s engagement letter. Both of these arguments proved unpersuasive to the unanimous appeals court. In particular, the Second Circuit observed that Blank Rome’s engagement letter contained provisions that might constitute a waiver by Johnson & Johnson of some, but not all, corporate affiliate conflicts. However, these conflict waivers were specifically limited to patent litigation and, even more specifically, to matters brought by generic drug manufacturers. Therefore, the Second Circuit held, Blank Rome failed to “contract around” the corporate affiliate conflict at issue. 

In a footnote, Judge Ralph K. Winter, Jr., writing for the Court, stated that the Circuit was not addressing issues that would arise if a blanket waiver had been executed and left open how it might rule in those circumstances.