Prescription Drugs: Consumer Fraud in Sales and Marketing

Pharmaceutical companies have found themselves in the cross hairs of both plaintiffs' lawyers and prosecutors. As a consequence of their sales and marketing practices, these companies have been civilly and criminally fined hundreds of millions of dollars. Meanwhile, the plaintiff's bar is persistently poised to file civil actions almost simultaneously with news of a potential question involving the safety of a prescription medication.

Background

The U.S. Food and Drug Admin- istration ('FDA') must approve all new drugs and accompanying labeling, including all warnings. When submitting a new drug application ('NDA'), the company provides the FDA with data as to the product's safety and efficacy for the treatment of specific conditions at certain strengths. Should the FDA approve that product, its approval is limited only to those conditions and dosages that have been subjected to rigorous testing. The FDA also approves the product labeling, including the language of all warnings and precautions. Approval of a product for one particular indication does not mean that it cannot be used for some other purpose. A physician is permitted to prescribe a product for any use, regardless of the approved labeling. Such a use is termed an 'off-label' use. A pharmaceutical company may not, however, market its products for off-label uses. Marketing of a product for an off-label use results in the product being deemed misbranded and may subject the company to civil and criminal penalties. Both prosecutors and plaintiffs' lawyers are paying close attention to those companies that engage in off-label promotion, particularly where direct-to-consumer advertisements expressly or implicitly promote a product for an off-label use.

Although most pharmaceutical personal injury claims are brought under state product liability law, it is not uncommon for a plaintiff also to include a consumer fraud claim. Plaintiffs typically assert that a consumer fraud claim can be supported by the marketing and sales practices of the pharmaceutical company. Off-label promotion of a prescription drug is often at the heart of a consumer fraud claim. To support their claims, plaintiffs have suggested that the marketing strategies of the sales force, the materials given to doctors, and the product inserts misrepresented the risks associated with the drugs. While sales and marketing efforts were formerly aimed at prescribing physicians, now plaintiffs are also relying on direct-to-consumer advertisements on television or in print. Consequently, plaintiffs may now be in a position to contend that they were privy to, and actually relied upon, the company's representations.

Overview of Consumer Fraud Acts

Consumer fraud acts are statutory regimes designed to prohibit unfair trade and business practices. The presence of an unfair, deceptive act or method of competition is the basic cornerstone of the legislation. Additional requirements for a viable claim can include proximate cause, ascertainable loss, and reliance. Despite these common themes, state consumer fraud statutes vary substantially. In North Carolina, for example, a successful consumer fraud claim requires an 'egregious or aggravating circumstance,' as well as evidence that the practice 'proximately' caused injury to the plaintiff. In contrast, New York case law, interpreting the state's consumer fraud statute, illustrates that the plaintiff need not prove that he or she relied on defendant's deceptive practices provided the practice was deceptive and the plaintiff was injured. These differences in the state consumer fraud statutes, seemingly insignificant at first, will greatly affect how successful a plaintiff will be when seeking to have the consumer fraud statute applied.

The New Jersey Consumer Fraud Act ('CFA'), N.J.S.A. 56:8-1 et seq., a relatively typical act, makes it unlawful either to make affirmative false statements or knowingly to omit facts in connection with the sale or advertisement of merchandise or real estate. A plaintiff succeeding on a claim of consumer fraud is entitled to treble damages, attorneys' fees, and costs of suit.

Unlawful Practices

The New Jersey CFA broadly defines an 'unlawful practice' as:

any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby [...] N.J.S.A. 56:8-2.

Given their protective nature, consumer fraud statutes in general are liberally construed to afford consumers the intended protections.

Affirmative Acts and Knowing Omissions

Plaintiffs in pharmaceutical cases often plead both affirmative acts and knowing omissions. They allege that the pharmaceutical manufacturer promoted a product off-label, an affirmative act, and withheld information or data from the FDA during the approval process, a knowing omission. However, each of these scenarios requires a different quantum of proof.

Proof of the defendant's intent is generally not required where the allegation is based upon an affirmative act. The mere fact that the deceptive act occurred is sufficient. However, where the predicate act is an omission, a plaintiff must show that the defendant acted with the intent that others would rely upon the omission.

When predicating a claim of Consumer Fraud on direct-to-consumer advertising, a plaintiff will be required to demonstrate that the advertisement has 'the capacity to mislead the average consumer.' Union Ink Co. Inc. v. AT&T Corp., 352 N.J. Super. 617, 644 (App. Div. 2002). Moreover, in Adamson v. Ortho-McNeil Pharm., Inc., the court stated:

New Jersey courts have held that '[e]ven if an advertisement is literally true, it may be actionable if 'the overall impression [it] create[s] … is misleading and deceptive to an ordinary reader.” Id. (citation omitted). However, actionable statements cannot be 'mere puffery.' [Gennari v. Weichart Realtors, 148 N.J. 582, 607, 691 A.2d 350 (1997).] Indeed, '[n]ot just 'any erroneous statement' will constitute a misrepresentation prohibited by [the CFA]. The misrepresentation has to be one which is material to the transaction and which is a statement of fact, found to be false, made to induce the buyer to make the purchase.' Id. [at 535]. 2006 U.S. Dist. LEXIS 83473, *12-13 (D.N.J. Nov. 16, 2006).

Ultimately, the court found in this case that the alleged misrepresentations and omissions in defendant's advertisements were accurate and not misleading or deceptive, and thus not actionable under the CFA. Id.

Damages: 'Ascertainable Loss'

In CFA cases, the measure of damages is generally economic loss measured as the difference between what the plaintiff received and what the plaintiff would have received in the absence of the predicate affirmations or omissions. Frequently in drug cases, the claimed damages are the cost of the product, or the cost differential between the product and a competing product.

The Marriage Between Consumer Fraud and Off-Label Use

Claims alleging that a drug company violated the Consumer Fraud Act are not new to pharmaceutical litigation. Complaints against pharmaceutical manufacturers in New Jersey routinely include a count asserting violation of the state Consumer Fraud Act. Plaintiffs will generally assert that the defendant pharmaceutical company has engaged in some nonspecific unconscionable commercial practices that proximately caused the plaintiffs' medical injuries and other 'ascertainable loss of money or property.' It is argued that promoting a product for an off-label use is an affirmative deceptive communication supporting a claim under a state consumer fraud act. According to the plaintiffs, a salesperson promoting a drug in a manner inconsistent with the approved labeling is affirmatively misrepresenting a product as safe and effective for the off-label use. Plaintiffs' counsel attempts to support the claim by taking discovery of company sales representatives and seeking documentary evidence, such as call notes, internal memoranda, and other communications to sales representatives. Direct-to-consumer advertising in the form of print or television commercials has also been used in an attempt to prove a CFA claim. Plaintiffs often claim that the direct advertising falsely represents the product as safe and effective or otherwise minimizes the potentially hazardous side effects of a medication.

Illustrative of the consumer fraud claims that have been brought against pharmaceutical companies are the complaints against Merck & Co., Inc. for its drug Vioxx'. Some Vioxx plaintiffs have alleged that the company marketed its products through 'numerous television and print advertisements' that did not 'contain adequate warnings that Vioxx had the cardiovascular, cardiocerebral, and other adverse health effects which have now been revealed.' [Indiana Class Action Complaint for Damages; Kantner v. Merck & Co., Inc., ' 10]. In addition to advertising, plaintiffs suggested that 'charging excessive prices for Vioxx' was also a deceptive and unconscionable act which violated the consumer fraud statute of Indiana.

Defenses to Consumer Fraud Claims in Pharmaceutical Actions

Consumer fraud claims in the context of a pharmaceutical personal injury action are difficult to prove. In New Jersey, one defense is that the Product Liability Act ('PLA') is the exclusive cause of action available for a harm caused by products, including drugs. It has typically been recognized that common law claims, except for harm caused by breach of an express warranty, are subsumed by the PLA. Similarly, defendants generally argue that the CFA should also be subsumed by the PLA, because the use of the CFA would undermine the express provisions and legislative intent of the PLA.

Moreover, consumer fraud claims, if permitted, should be dismissed where the plaintiff cannot demonstrate that he or she suffered an ascertainable loss or where there is no nexus between the alleged act or omission and plaintiff's alleged harm. A plaintiff would need to provide evidence that his/her injury caused a monetary loss. Moreover, a plaintiff must prove that he/she saw the 'misleading' advertisement, relied upon it, and that reliance caused the injury.

Conclusion

Claims of consumer fraud are difficult and rarely succeed in the context of a pharmaceutical product liability action. They are, however, troublesome, because the pleading of such a claim often opens the door to extensive discovery of the company's sales and marketing departments. If the defendant cannot succeed in obtaining a dismissal prior to trial, it may still permit the jury to hear evidence of sales tactics and strategies that often paint the manufacturer in a less-than-favorable light. Companies should be aware of the potential for such claims and plan their sales and marketing strategies accordingly.

Frank Fazio is a principal of Porzio, Bromberg & Newman, P.C., in Morristown, NJ, and is a member of the firm's Pharmaceutical & Medical Device Litigation and Pharmaceutical Marketing & Sales Compliance Departments. Anne E. Wagstaff is an associate in the firm's Morristown, NJ, office and is a member of the firm's Pharmaceutical & Medical Device Litigation Department.

Pharmaceutical companies have found themselves in the cross hairs of both plaintiffs' lawyers and prosecutors. As a consequence of their sales and marketing practices, these companies have been civilly and criminally fined hundreds of millions of dollars. Meanwhile, the plaintiff's bar is persistently poised to file civil actions almost simultaneously with news of a potential question involving the safety of a prescription medication.

Background

The U.S. Food and Drug Admin- istration ('FDA') must approve all new drugs and accompanying labeling, including all warnings. When submitting a new drug application ('NDA'), the company provides the FDA with data as to the product's safety and efficacy for the treatment of specific conditions at certain strengths. Should the FDA approve that product, its approval is limited only to those conditions and dosages that have been subjected to rigorous testing. The FDA also approves the product labeling, including the language of all warnings and precautions. Approval of a product for one particular indication does not mean that it cannot be used for some other purpose. A physician is permitted to prescribe a product for any use, regardless of the approved labeling. Such a use is termed an 'off-label' use. A pharmaceutical company may not, however, market its products for off-label uses. Marketing of a product for an off-label use results in the product being deemed misbranded and may subject the company to civil and criminal penalties. Both prosecutors and plaintiffs' lawyers are paying close attention to those companies that engage in off-label promotion, particularly where direct-to-consumer advertisements expressly or implicitly promote a product for an off-label use.

Although most pharmaceutical personal injury claims are brought under state product liability law, it is not uncommon for a plaintiff also to include a consumer fraud claim. Plaintiffs typically assert that a consumer fraud claim can be supported by the marketing and sales practices of the pharmaceutical company. Off-label promotion of a prescription drug is often at the heart of a consumer fraud claim. To support their claims, plaintiffs have suggested that the marketing strategies of the sales force, the materials given to doctors, and the product inserts misrepresented the risks associated with the drugs. While sales and marketing efforts were formerly aimed at prescribing physicians, now plaintiffs are also relying on direct-to-consumer advertisements on television or in print. Consequently, plaintiffs may now be in a position to contend that they were privy to, and actually relied upon, the company's representations.

Overview of Consumer Fraud Acts

Consumer fraud acts are statutory regimes designed to prohibit unfair trade and business practices. The presence of an unfair, deceptive act or method of competition is the basic cornerstone of the legislation. Additional requirements for a viable claim can include proximate cause, ascertainable loss, and reliance. Despite these common themes, state consumer fraud statutes vary substantially. In North Carolina, for example, a successful consumer fraud claim requires an 'egregious or aggravating circumstance,' as well as evidence that the practice 'proximately' caused injury to the plaintiff. In contrast, New York case law, interpreting the state's consumer fraud statute, illustrates that the plaintiff need not prove that he or she relied on defendant's deceptive practices provided the practice was deceptive and the plaintiff was injured. These differences in the state consumer fraud statutes, seemingly insignificant at first, will greatly affect how successful a plaintiff will be when seeking to have the consumer fraud statute applied.

The New Jersey Consumer Fraud Act ('CFA'), N.J.S.A . 56:8-1 et seq. , a relatively typical act, makes it unlawful either to make affirmative false statements or knowingly to omit facts in connection with the sale or advertisement of merchandise or real estate. A plaintiff succeeding on a claim of consumer fraud is entitled to treble damages, attorneys' fees, and costs of suit.

Unlawful Practices

The New Jersey CFA broadly defines an 'unlawful practice' as:

any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby [...] N.J.S.A. 56:8-2.

Given their protective nature, consumer fraud statutes in general are liberally construed to afford consumers the intended protections.

Affirmative Acts and Knowing Omissions

Plaintiffs in pharmaceutical cases often plead both affirmative acts and knowing omissions. They allege that the pharmaceutical manufacturer promoted a product off-label, an affirmative act, and withheld information or data from the FDA during the approval process, a knowing omission. However, each of these scenarios requires a different quantum of proof.

Proof of the defendant's intent is generally not required where the allegation is based upon an affirmative act. The mere fact that the deceptive act occurred is sufficient. However, where the predicate act is an omission, a plaintiff must show that the defendant acted with the intent that others would rely upon the omission.

When predicating a claim of Consumer Fraud on direct-to-consumer advertising, a plaintiff will be required to demonstrate that the advertisement has 'the capacity to mislead the average consumer.' Union Ink Co. Inc. v. AT&T Corp ., 352 N.J. Super. 617, 644 (App. Div. 2002). Moreover, in Adamson v. Ortho-McNeil Pharm., Inc., the court stated:

New Jersey courts have held that '[e]ven if an advertisement is literally true, it may be actionable if 'the overall impression [it] create[s] … is misleading and deceptive to an ordinary reader.” Id. (citation omitted). However, actionable statements cannot be 'mere puffery.' [ Gennari v. Weichart Realtors , 148 N.J. 582, 607, 691 A.2d 350 (1997).] Indeed, '[n]ot just 'any erroneous statement' will constitute a misrepresentation prohibited by [the CFA]. The misrepresentation has to be one which is material to the transaction and which is a statement of fact, found to be false, made to induce the buyer to make the purchase.' Id. [at 535]. 2006 U.S. Dist. LEXIS 83473, *12-13 (D.N.J. Nov. 16, 2006).

Ultimately, the court found in this case that the alleged misrepresentations and omissions in defendant's advertisements were accurate and not misleading or deceptive, and thus not actionable under the CFA. Id.

Damages: 'Ascertainable Loss'

In CFA cases, the measure of damages is generally economic loss measured as the difference between what the plaintiff received and what the plaintiff would have received in the absence of the predicate affirmations or omissions. Frequently in drug cases, the claimed damages are the cost of the product, or the cost differential between the product and a competing product.

The Marriage Between Consumer Fraud and Off-Label Use

Claims alleging that a drug company violated the Consumer Fraud Act are not new to pharmaceutical litigation. Complaints against pharmaceutical manufacturers in New Jersey routinely include a count asserting violation of the state Consumer Fraud Act. Plaintiffs will generally assert that the defendant pharmaceutical company has engaged in some nonspecific unconscionable commercial practices that proximately caused the plaintiffs' medical injuries and other 'ascertainable loss of money or property.' It is argued that promoting a product for an off-label use is an affirmative deceptive communication supporting a claim under a state consumer fraud act. According to the plaintiffs, a salesperson promoting a drug in a manner inconsistent with the approved labeling is affirmatively misrepresenting a product as safe and effective for the off-label use. Plaintiffs' counsel attempts to support the claim by taking discovery of company sales representatives and seeking documentary evidence, such as call notes, internal memoranda, and other communications to sales representatives. Direct-to-consumer advertising in the form of print or television commercials has also been used in an attempt to prove a CFA claim. Plaintiffs often claim that the direct advertising falsely represents the product as safe and effective or otherwise minimizes the potentially hazardous side effects of a medication.

Illustrative of the consumer fraud claims that have been brought against pharmaceutical companies are the complaints against Merck & Co., Inc. for its drug Vioxx'. Some Vioxx plaintiffs have alleged that the company marketed its products through 'numerous television and print advertisements' that did not 'contain adequate warnings that Vioxx had the cardiovascular, cardiocerebral, and other adverse health effects which have now been revealed.' [Indiana Class Action Complaint for Damages; Kantner v. Merck & Co., Inc., ' 10]. In addition to advertising, plaintiffs suggested that 'charging excessive prices for Vioxx' was also a deceptive and unconscionable act which violated the consumer fraud statute of Indiana.

Defenses to Consumer Fraud Claims in Pharmaceutical Actions

Consumer fraud claims in the context of a pharmaceutical personal injury action are difficult to prove. In New Jersey, one defense is that the Product Liability Act ('PLA') is the exclusive cause of action available for a harm caused by products, including drugs. It has typically been recognized that common law claims, except for harm caused by breach of an express warranty, are subsumed by the PLA. Similarly, defendants generally argue that the CFA should also be subsumed by the PLA, because the use of the CFA would undermine the express provisions and legislative intent of the PLA.

Moreover, consumer fraud claims, if permitted, should be dismissed where the plaintiff cannot demonstrate that he or she suffered an ascertainable loss or where there is no nexus between the alleged act or omission and plaintiff's alleged harm. A plaintiff would need to provide evidence that his/her injury caused a monetary loss. Moreover, a plaintiff must prove that he/she saw the 'misleading' advertisement, relied upon it, and that reliance caused the injury.

Conclusion

Claims of consumer fraud are difficult and rarely succeed in the context of a pharmaceutical product liability action. They are, however, troublesome, because the pleading of such a claim often opens the door to extensive discovery of the company's sales and marketing departments. If the defendant cannot succeed in obtaining a dismissal prior to trial, it may still permit the jury to hear evidence of sales tactics and strategies that often paint the manufacturer in a less-than-favorable light. Companies should be aware of the potential for such claims and plan their sales and marketing strategies accordingly.

Frank Fazio is a principal of Porzio, Bromberg & Newman, P.C., in Morristown, NJ, and is a member of the firm's Pharmaceutical & Medical Device Litigation and Pharmaceutical Marketing & Sales Compliance Departments. Anne E. Wagstaff is an associate in the firm's Morristown, NJ, office and is a member of the firm's Pharmaceutical & Medical Device Litigation Department.