Supreme Court Update: Sorrell v. IMS Health Inc. (10-799), Pliva, Inc. v. Mensing (09-993) and Talk America, Inc. v. Michigan Bell Telephone Co. (10-313)

June 24, 2011 Supreme Court Update

Greetings, Court fans!

We're back with Sorrell v. IMS Health Inc. (No. 10-799), a win for brand name drug makers on their First Amendment right to access pharmacies' prescription records for marketing purposes; Pliva, Inc. v. Mensing (09-993), a win for generic drug makers on preemption of state failure-to-warn suits, and Talk America, Inc. v. Michigan Bell Telephone Co. (10-313), a win for both federal agencies and upstart telephone service providers -- deferring to the FCC's interpretation of its own ambiguous regulation in an amicus brief, and requiring incumbent local telephone companies to lease certain facilities to competitors at cost-based rates.

In its latest commercial speech decision, Sorrell v. IMS Health, Inc. (No. 10-799), the Court struck down a Vermont statute that prohibited the sale and use, for marketing purposes, of pharmacy records of doctors' written prescriptions. The statute was intended to counteract the practice of "detailing," by which pharmaceutical companies, with the help of "data miners," target the marketing of their brand name drugs to individual doctors based on their prescription data. Detailing, according to the legislative history of the statute, helps drug manufacturers to market their brand-name products and makes it harder to encourage the use of generic drugs.

Justice Kennedy, writing for a 6-3 majority, concluded that the Vermont statute amounted to content-based and speaker-based discrimination – because it permits the sale and use of prescription data by researchers, educators, and others for many purposes, but bars certain speakers (particularly pharmacies and pharmaceutical companies) from selling or using that data to market drugs. Because it involved content discrimination, the Court applied heightened scrutiny to determine if the statute violated the First Amendment. The Court rejected the State's arguments that heightened scrutiny should not apply, including its claim (and the First Circuit's rationale for upholding similar statutes in Maine and New Hampshire) that the statute regulates conduct, not speech. Justice Kennedy noted that even "dry information" like prescription data is protected speech, and that even if it were "a mere commodity," the State could not impose content- and speaker-based burdens on its use.

Under the Central Hudson intermediate scrutiny test, the State was required to show that the statute directly advances a substantial governmental interest and that it is drawn to achieve that interest. Justice Kennedy concluded that the statute was not drawn to achieve the State's interests in protecting medical privacy and reducing health care costs in a permissible way. As to medical privacy, the statute could have broadly protected the confidentiality of doctors' prescription data, but instead made that data "available to an almost limitless audience" except for a "narrow class of disfavored speakers." While lowering health care costs through the use of generic drugs may be a permissible goal, it is impermissible to advance that goal by restricting the speech of certain speakers. Vermont's concern in passing the statute was that "detailers who use prescriber-identifying information are effective in promoting brand-name drugs." The effectiveness of disfavored speech is not a constitutionally permissible basis for the State to stifle that speech, particularly while leaving "unburdened those speakers whose messages are in accord with [the State's] own views."

In dissent, Justice Breyer, joined by Ginsburg and Kagan, sounded the alarm that the majority opinion threatened to return the Court to the Lochner era of "substituting judicial for democratic decision making where ordinary economic regulation is at issue." The dissenters would not apply heightened First Amendment scrutiny to ordinary commercial regulation, like the Vermont statute, that has only a limited effect on speech. He noted that regulatory schemes often impose tailored restrictions on how information can be used, such as limitations on the use of consumer credit data or the FDA's regulatory requirements designed to ensure a balance of information about marketed drugs. He emphasized that the Court has never applied heightened scrutiny on the use of information gathered solely because of a regulatory mandate. Even under the test applied by the majority, Justice Breyer would uphold the statute, finding that it does advance the State's legitimate interests and imposes little harm to the commercial speech at issue. By ignoring the regulatory context of the speech here, Justice Breyer warned, "the Court opens a Pandora's Box of First Amendment challenges to many ordinary regulatory practices that may only incidentally affect a commercial message."

The majority opinion, however, may not be quite as sweeping as Justice Breyer's warnings suggest. Justice Kennedy did acknowledge that commercial speech can be subject to greater regulation than noncommercial speech and recognized that data-mining raises "serious and unresolved issues with respect to personal privacy." Had the Vermont statute been written differently – had it, for example, more broadly precluded the use of "mined" prescription data, rather than overtly restricting certain parties' use of that data for governmentally disfavored purposes – it might well have been upheld.

Turning now to generic drugs – they may be cheaper, but they can also cost you a lawsuit. At least that is the result of the consolidated appeal of three cases on certiorari from the Fifth and Eighth Circuits, Pliva, Inc. v. Mensing (09-993), Actavis Elizabeth, LLC v. Mensing (09-1039), and Actavis, Inc. v. Demahy (09-1501). In these cases, the Court held that federal regulations applicable to generic drug manufacturers directly conflict with, and thus preempt, failure-to-warn claims under state tort law.

In 2001 and 2002, Gladys Mensing and Julie Demahy were prescribed Reglan, the brand name version of metoclopramide, a drug designed to assist digestion. The FDA first approved Reglan in 1980. Since that time, it has been shown that long-term use of the drug can cause tardive dyskinesia, a severe neurological disorder. As a result, several modified warnings followed addressing the risks associated with long-term use of the drug. Although Mensing and Demahy were prescribed Reglan, their pharmacists provided them with generic versions of the drug. After taking the drug for several years, both developed tardive dyskinesia. In separate lawsuits, they sued the generic drug manufacturers alleging failure-to-warn theories under Minnesota and Louisiana law. The manufacturers defended the lawsuits by arguing, among other things, that federal law preempted the claims. The Fifth and Eighth Circuits rejected the manufacturers' preemption defense, and the Supreme Court reversed. In so doing, the Court split along familiar 5-4 lines.

Justice Thomas wrote for the majority (except for one part that Justice Kennedy did not join). There was no dispute in the case that state law would have required the manufacturers to use warnings stronger than those used under the federal regulations. The FDA took the position, however, and all nine justices agreed, that the applicable federal regulations do not permit generic drug manufacturers unilaterally to issue stronger warnings through the "changes-being-effected" process or through so-called "Dear Doctor" letters. The majority focused on this fact in concluding that the plaintiffs' claims were preempted under the doctrine of "impossibility" -- i.e., when "it is impossible for a private party to comply with both state and federal law." Justice Thomas distinguished this case from Wyeth v. Levine (2009), in which the Court had previously held that federal law does not preempt failure-to-warn claims against brand-name drug manufacturers, by pointing out that federal regulations allow brand-name manufactures unilaterally to issue stronger warnings. Nonetheless, he also acknowledged that, from the plaintiffs' perspective, this distinction "makes little sense." After all, had they taken Reglan, rather than the generic version of the drug, "Wyeth would control and their lawsuits would not be pre-empted." Despite acknowledging "the unfortunate hand that federal drug regulation has dealt Mensing, Demahy, and others similarly situated," Justice Thomas maintained that it is not the Court's role to second-guess Congress and that "different federal statutes and regulations may, as here, lead to different pre-emption results."

As you might suspect, Justice Sotomayor's dissent readily agreed that the outcome "makes little sense." While accepting the fact that, unlike name-brand drug manufacturers, generic drug manufacturers may not unilaterally issue stronger warnings, she focused on the additional fact that the federal regulations do not prevent generic manufacturers from seeking approval of such warnings from the FDA. That the generic drug manufacturers in this case did not even try to obtain approval from the FDA of stronger warnings that would have complied with state law prevented them from meeting their burden of demonstrating "impossibility," which she reiterated is a "demanding defense." She explained that, to rely upon impossibility preemption, a generic drug manufacturer should be required to demonstrate that it is, in fact, impossible to comply with both state and federal law. Here, however, the manufacturers showed "the mere possibility of impossibility."

In Talk America, Inc. v. Michigan Bell Telephone Co. (10-313), the Court decided a narrow issue of telecommunications law, but also reaffirmed a broader principle of administrative law – namely judicial deference to a federal agency's interpretation of its own regulations. Turning first to the narrow issue, the story begins with the Telecommunications Act of 1996, which sought to open up local telephone service to competition by requiring the former monopoly provider (known as the incumbent local exchange carrier or ILEC) to lease parts of its network to competing companies (the competitive local exchange carrier or CLEC) to jumpstart competition without the CLEC having to build an entire local telephone network from scratch. The Act also imposes on the ILEC the duty to make available to a CLEC the facilities necessary for the two competing networks to "interconnect" so that a CLEC customer can talk on the telephone with an ILEC customer down the street. What was tricky in this case was that the Federal Communications Commission (FCC) had decided that certain transmission wires and cables in an ILEC's network (called "entrance facilities") did not have to be leased for the CLEC's use in assembling its own local telephone network, because access to those facilities was not really necessary for that purpose. But that left open the burning question of whether an ILEC must still lease the entrance facilities to a CLEC for the separate and distinct purpose of interconnection between the two networks. This is important, of course, because of money: if the ILEC's interconnection duty encompasses the entrance facilities, it must lease them at cost-based rates; if outside that duty, the ILEC can charge higher market rates to a CLEC eying access to the same facilities. When Talk America demanded a cost-based lease of AT&T Michigan's entrance facilities for interconnection, the latter balked, and the Sixth Circuit sided with the incumbent AT&T even though two other Circuits had ruled the other way.

The Supreme Court unanimously reversed in an opinion by Justice Thomas (with Justice Kagan recused). In a somewhat technical discussion that really does not bear repeating, the Court examined the generalized language of an FCC regulation implementing the interconnection duty and held that requiring an ILEC to lease entrance facilities at cost-based rates is consistent with the regulatory language and analogous FCC precedent even though the regulation (like the statue) does not squarely address entrance facilities. The deciding factor for the Court was the views expressed by the FCC in an amicus brief, with the FCC harmonizing what Talk America was demanding with the ambiguous language of the regulation. The Court rejected AT&T's argument that the FCC was creating a new regulation through an amicus brief, even though the specific application of the regulation was being addressed for the very first time by the FCC in the amicus brief. The Court found the FCC's proffered interpretation to be reasonable. The Court also accepted the Solicitor General's representation that the amicus brief, filed in the name of the United States, reflected the FCC's considered interpretation of its own regulation, allowing the Court to treat the amicus brief as coming from the FCC itself. Reaffirming Auer v. Robbins (1997), the Court deferred to the agency's views, even if expressed in a legal brief, "unless the interpretation is plainly erroneous or inconsistent with the regulations or there is any other reason to suspect that the interpretation does not reflect the agency's fair and considered judgment on the matter in question."

Justice Scalia wrote separately to say he agreed with the outcome of the case even without resort to the amicus brief, just because the FCC's reading of its regulation is the better one. He then reflected on how he has uncritically gone along with deferring to agency views of their own regulations when filed in a legal brief, but now wondered why. He opined that Chevron deference to agency interpretation of a statute makes sense, but perhaps an agency promulgating its own imprecise regulation should not be able to expand that regulation by its power to interpret and bypass the rulemaking process. But, because no party had asked the Court to reconsider Auer, he would leave that to another day.

With that, we'll take our leave for the day, with promises to be back next week as the Court wraps up the Term.

Kim and Jenny

From the Appellate and Complex Legal Issues Practice Group at Wiggin and Dana. For more information, contact Kim Rinehart or any other member of the Practice Group at 203-498-4400