The Newest Twist in the State Regulation of Off-Label Marketing

By Zack Buck

The newest chapter in the legal drama involving Johnson & Johnson, Inc. (“J&J”) and its subsidiary Janssen Pharmaceutical, Inc. (and a subsidiary previously known as Ortho-McNeil-Janssen Pharmaceuticals, Inc.) (“Janssen”) was written late last month. Specifically at issue was whether or not the alleged off-label marketing of its blockbuster antipsychotic Risperdal violated state anti-fraud and consumer protection statutes. In late February, the South Carolina Supreme Court upheld a jury verdict finding for the state under the South Carolina Unfair Trade Practices Act (“SCUTPA”), but reduced the damages award from $327 million to $136 million. In a series of cases at the state level involving the marketing of Risperdal, this is the first time that a jury verdict against J&J/Janssen has been upheld by a state supreme court. Cases in Pennsylvania, Arkansas, West Virginia, and Louisiana have ended with verdicts for the pharmaceutical company.

I’ve been following these cases for years and have undertaken further analysis on the topic here. Of course, news headlines have been dominated by the startling penalty amounts states had sought—and, in some states, had been initially imposed. Most noteworthy, an Arkansas jury imposed a $1.2 billion fine before the Arkansas Supreme Court reversed the finding; in Louisiana, the fine was $330 million before its state supreme court did the same. Indeed, these litigated claims are in addition to settled claims—the largest of which were entered into by J&J with the federal government and various states for $2.2 billion in 2013.

For the states that have taken the pharmaceutical company to court, states have primarily sought to apply either an anti-fraud enforcement mechanism or a consumer protection statute to the allegations—both with very limited success until South Carolina. Indeed, in targeting pharmaceutical companies under these state statutes, of particular import is an analysis of whether or not the pharmaceutical company caused harm to the state. If a pharmaceutical company’s marketing practices were allegedly deceptive, does it follow that states were economically harmed as a result? Indeed, in many states, state attorneys general must demonstrate that the marketing caused the physicians to prescribe the drug for an unapproved use and resulted in harm to the state. This is analytically difficult; specifically to this point, a court in Pennsylvania referred to the causation issue as the “internal causal nexus quandary.” Further, this Pennsylvania court noted that the state was required to prove a sufficient nexus between the marketing allegations and the economic harm experienced by the state, ultimately dismissing the state’s allegations.

And this is where the South Carolina Supreme Court broke with its sibling courts. In the February opinion, the court denied the so-called “‘if we lied, nobody fell for it’ defense,” concluding that under the South Carolina statute as written, no actual deception or injury-in-fact was required to be caused by the marketing. Seemingly highlighting a general difference between consumer protection statutes (that may not require injury-in-fact and causation) and anti-fraud statutes (that typically do require causation and harm), the court reduced the award, but maintained the liability finding.

Going forward, South Carolina’s recent decision may provide a blueprint for other states’ legislatures in how best to target allegedly deceptive off-label marketing. As many states’ budgets tighten, others may consider a South Carolina-like regulatory regime and strategy. And how such a move may impact pharmaceutical companies’ willingness to engage in aggressive settlement negotiations before pushing these cases to state trials—with the boat-rocking recent decisions in Caronia and Sorrell shaking up the federal regulatory regime in the background—remains to be seen.

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