Can A State Impose Civil Penalties On A Drug Or Device Company For Using A Federally-Approved Label?

by Pepper Hamilton LLP

© 2013 Bloomberg Finance L.P. All rights reserved. Originally published by Bloomberg Pharmaceutical Law & Industry Report® in Vol. 11, No. 40 (October 11, 2013). Reprinted with permission. Bloomberg Pharmaceutical Law & Industry Report® is a registered trademark and service mark of Bloomberg Finance L.P.


States have increasingly brought actions under Medicaid fraud or consumer protection statutes seeking civil penalties and restitution from the makers of prescription drugs. Many top-selling drugs have been subject to such suits by individual States: Avandia, Depakote, Plavix, Risperdal, Seroquel, Vioxx, and Zyprexa. In a typical action, a State alleges every use of the FDA-approved label was a violation of state law, because the label was misleading or deceptive.

Where the basis for the State’s claim is that the label did not disclose an alleged safety risk or overstated efficacy, these State actions amount to an attack on the FDA-approved labeling. The imposition of a penalty for every use of the federally-approved label has the same impact as the State ordering the manufacturer to take off the FDA-approved label when the containers of the tablets arrive in the State and to affix a different label, thereby displacing the FDA as the decision-maker on the labeling of prescription drugs. The notion that a State could bring such an enforcement action raises the specter of a prescription drug having to have 50 different labels– one for every State.

The Food, Drug, and Cosmetic Act (FDCA) and its regulations address whether a drug label is “false or misleading” and Congress gave the FDA exclusive authority to enforce the FDCA. A State should not be able to usurp this authority. Moreover, under the doctrine of implied or conflict preemption, any attempt by a State to penalize a prescription drug manufacturer for use of a federally-approved label would conflict with the FDA’s role as the arbiter of drug labels.1 The Supreme Court’s decision in Wyeth v Levine addressed state-law claims only for compensating an injured plaintiff, and the decision has no application to a State’s attempt to fine a company and to award restitution for every use of a federally-approved label. This article examines the legal principles that apply when a State seeks to penalize use of a federally-approved label.

Federal Regulatory Regime

The FDCA empowers the FDA to regulate the safety and efficacy of pharmaceuticals through an extensive drug approval process. But Congress also intended the FDCA to protect consumers’ financial interests.2 Before a drug can be put on the market, a manufacturer must first submit a New Drug Application (NDA) for the FDA’s review and approval.3 The NDA must include a draft label for the medication;4 full reports of investigations showing whether the drug is safe and effective;5 and “a discussion of why the benefits exceed the risks [of the medication] under the conditions stated in the labeling.”6 The FDA may refuse to approve an NDA if the drug label “is false or misleading.”7 To determine whether a label is “misleading,” the FDA considers representations made or suggested on the label and whether the label fails to reveal facts that are (a) material in light of such representations, or (b) material with respect to potential consequences of using the drug under the conditions set forth in the labeling.8 The FDA may also deny approval if it determines that the NDA “contains an untrue statement of a material fact.”9

Thus, FDA approval means the agency has “determine[d] that drug meets the statutory standards for safety and effectiveness … and labeling.”10 Following approval, the manufacturer may distribute the medication only with the FDA-approved label.11

The FDA can withdraw approval of a drug if new information reveals that the label “is false or misleading in any particular.”12 Any unapproved changes to the label may render the product “misbranded” under federal law, subjecting the manufacturer to substantial fines and other penalties.13

The FDA Has an Exclusive Enforcement Role

The first problem for a State’s claim that it can impose penalties for use of an allegedly misleading or deceptive drug label is that it is the FDA that has authority to determine whether a prescription drug label is “false or misleading.”14 Congress granted the FDA sole authority to penalize violations of the drug approval process, including labeling violations, under the FDCA.15 The FDA may also investigate suspected fraud or misrepresentations by the manufacturer.16

In the related field of drug advertising, the Federal Trade Commission (FTC), which regulates the truth or falsity of advertising pursuant to the FTC Act, has been sensitive to the possibility that FTC regulation of prescription drug advertising would conflict with the FDA’s authority in this realm. In 1958, the FDA and FTC signed an inter-agency Memorandum of Understanding that states “with the exception of prescription drugs, the Federal Trade Commission has primary responsibility with respect to the regulation of the truth or falsity of all advertising (other than labeling) of foods, devices, and cosmetics.”17 Further, “[t]he Food and Drug Administration has primary responsibility for preventing misbranding of foods, drugs, devices, and cosmetics…” and specifically “has primary responsibility with respect to the regulation of the truth or falsity of prescription drug advertising.”18

A State May Not Penalize Use of a Federally-Approved Label

Since Congress vested in the FDA exclusive power to enforce the labeling requirements, a State should not be allowed to reject that choice and take on enforcement itself. In a case that has many parallels with the situation in which pharmaceutical companies have found themselves in Attorney General enforcement actions, the Supreme Court addressed a State’s attempt to take on enforcement of federal immigration law in Arizona v. United States, 132 S. Ct. 2492 (2012). The Supreme Court held that Arizona’s legislation, which made it a criminal offense not to have an alien registration card, violated the Supremacy Clause under the doctrine of field preemption: “permitting the State to impose its own penalties for the federal offenses here would conflict with the careful framework Congress adopted.”19 With respect to other provisions of the Arizona law, the Court recognized that Arizona and the federal government had the same objective — deterring unlawful employment of illegal aliens — but held that Arizona could not adopt a method of enforcement that conflicted with federal law, applying the doctrine of implied preemption. Therefore, Arizona could not penalize an illegal alien’s efforts to find employment, because federal law chose not to make this a criminal offense.20 The Court also held that Arizona could not authorize its officials to detain illegal aliens, because the process for removing aliens had been entrusted to the federal government.21

So too in the case of prescription drug labels: a State should not be permitted to impose a civil penalty on the seller of prescription medicine for using a federally-approved label, even if the State finds the label false and misleading.

A State Cannot Impose a Label Different from the Federal Label

Allowing each State to impose different labeling requirements, enforced by the imposition of penalties or a sweeping restitution order, would impair the achievement of the Congressional purpose of ensuring nationwide uniformity for regulation of prescription drug labeling. Such a scheme could diminish consumer protection and lead to the creation of up to fifty different, potentially inconsistent labels — one for each State — thereby imposing an impossible burden on drug manufacturers to ensure that their labels comply with the FDCA and the laws of each State in which their drugs are sold.

One hundred years ago, the Supreme Court held that the State of Wisconsin could not penalize a person for selling a product (maple syrup) with a federally-approved label that violated state law.22 A predecessor statute to the FDCA included federal labeling requirements for the product and, as the Court noted, “[w]hether the labels complied with the Federal law was not for the State to determine. This was a matter provided for by the act of Congress and to be determined as therein indicated by proper proceedings in the Federal courts.”23 The Court found that the Wisconsin law requiring a different label was unconstitutional to the extent it criminalized the use of the federally-approved label.24 To permit such regulation would be “to permit a State to discredit and burden legitimate Federal regulations of interstate commerce” and “to impair the effect of a Federal law which has been enacted under the Constitutional power of Congress over the subject.”25

Just as the doctrine of federal preemption barred Wisconsin from penalizing the use of an FDA-approved label in McDermott, and therefore forcing the manufacturer not to sell in Wisconsin, the doctrine should bar a State from forcing a manufacturer not to sell the drug in the State. The Supreme Court in Mutual Pharm. Co. v. Bartlett, 133 S. Ct. 2466, 2470 ( 2013), re-affirmed this principle and found that “adopting the Court of Appeals’ stop-selling rationale,” in which the First Circuit had held that a generic drug manufacturer could comply with state and federal law only by no longer selling the drug in New Hampshire, “would render impossibility pre-emption a dead letter and work a revolution in this Court’s pre-emption case law.”

The Supreme Court’s Decision in Wyeth v Levine Is Not to The Contrary

Actions by a state to enforce consumer protection laws or false claims acts differ from personal injury claims brought by individuals not just because economic loss is the sole injury, but also because the statutes often have somewhat lower standards of proof. In personal injury actions, the doctrine of implied preemption has only a limited role.26 Wyeth held that an individual plaintiff is not barred from seeking damages for personal injury under state tort law merely because the label was approved by the FDA, because such state tort suits do not obstruct the purposes and objectives of federal drug labeling regulations.27

The Wyeth decision does not preclude the use of implied preemption in an action in which a State seeks to impose penalties or to obtain an order for restitution for all sales of the medicine in the State. First, in finding no preemption of state tort claims, the WyethCourt relied on the fact that Congress had a “certain awareness of the prevalence of state tort litigation” over prescription drug labels when it decided not to preempt them under the FDCA.28 In contrast, the type of action recently brought by State Attorneys General was unheard of when Congress established the FDA in 1906 and gave it exclusive enforcement powers starting with the passage of the FDCA in 1938.29

Second, Wyeth did not address whether preemption applies in enforcement actions brought by a state seeking penalties or an injunction based on use of an FDA-approved label. The WyethCourt recognized that “some state-law claims might well frustrate the achievement of congressional objectives” in the federal regulation of drug labeling.30 The state law personal injury claims brought by private citizens that Wyeth allowed to proceed have a natural limiting principle — plaintiffs must show that they suffered injuries as a result of the shortcoming in the label. By contrast, a State’s theory of civil penalties for allegedly misleading labels would give any state the liberty to punish a manufacturer each time the drug is sold in the State simply for using the FDA-approved label, regardless of whether there are any injuries to any citizen or State agency or program. The United States Supreme Court has recognized that an enforcement action seeking civil penalties differs from an action for damages.31

One case rejected federal preemption of a state consumer protection enforcement action, State ex rel. McGraw v. Johnson & Johnson, 226 W. Va. 677 (W. Va. 2010) . But the case did not involve claims that the drug label itself was false or misleading. The court in McGraw imposed penalties under the West Virginia consumer protection law for a marketing piece and a “Dear Doctor” letter that were arguably inconsistent with the FDA-approved label.32

Some States Have 'Safe Harbor' Provisions

The federal doctrine of implied preemption is applicable in all States, but a few States have embedded into their consumer protections statutes an express provision that protects a seller that complies with federal or state law from a claim that its labeling or advertising was false or misleading.33 In addition, the California Supreme Court has indicated that the Unfair Competition Law, Cal. Bus. & Prof. Code §17200, et seq., should not apply to conduct that is permitted under another law.34


1 Federal law has express preemption provisions applicable to over-the-counter drugs and medical devices, 21 U.S.C. §379r(a) and 21 U.S.C. §360k(a). These express preemption provisions and the doctrine of implied preemption should result in the same treatment of both over-the-counter drugs and medical devices, and of prescription drugs, in the context of state enforcement actions that call into question the use of federally-approved labeling.

2 See United States v. Lane Labs-USA, Inc., 427 F.3d 219, 277-28 (3d Cir. 2005) (FDA could seek restitution for consumers for violations of the FDCA) .

3 21 U.S.C. §355(a)-(b).

4 21 U.S.C. §355(b)(1)(F).

5 Id. §355(b)(1)(A)

6 21 C.F.R. §314.50(d)(5)(viii).

7 See 21 C.F.R. §314.125(b)(2), (3), (4), (6).

8 21 U.S.C. §321(n).

9 21 C.F.R. §314.125(b)(7).

10 21 C.F.R. §314.105(c).

11 21 C.F.R. §314.105(b) (“[A]pproval will be conditioned upon the applicant incorporating the specified labeling changes exactly as directed, and upon the applicant submitting to FDA a copy of the final printed labeling prior to marketing.”).

12 21 U.S.C. §355(e).

13 21 U.S.C. §§352, 355(a).

14 One State has acknowledged its own limited role in this area when the former Undersecretary of the Louisiana Department of Health and Hospitals, Charles Castille, testified “that the State of Louisiana does not make determinations independent of the FDA about a drug’s safety and efficacy.” See Caldwell ex rel. Louisiana v. Merck & Co., Inc. (In re Vioxx Products Liability Litigation), MDL Docket No. 1657 (E.D. La. June 29, 2010) (relying on Castille’s testimony in finding for Merck in action brought by the Louisiana Attorney General).

15 21 U.S.C. §337 (“all such proceedings for the enforcement, or to restrain violations, of this chapter shall be by and in the name of the United States.”).

16 Id. at §372.

17 Memorandum of Understanding Between The FTC and The FDA, 225-71-8003, May 14, 1971.

18 Id.

19 132 S. Ct. at 2503 (citing Buckman v. Plaintiffs Legal Committee, 531 U.S. 341, 347-48).

20 132 S. Ct. at 2504.

21 132 S. Ct. at 2506-07.

22 McDermott v. Wisconsin, 228 U.S. 115 (1913).

23 Id. at 132.

24 Id. at 133-34.

25 Id., see also DePriest v. AstraZeneca Pharms., L.P., 351 S.W.3d 168, 177 (Ark. 2009) (common law claims were not valid because the label “reflects a determination by the FDA that the information is not ‘false or misleading.’”).

26 See Wyeth v. Levine, 555 U.S. 555 (2009).

27 Id. at 575; see id. at 581 (“In short, Wyeth has not persuaded us that failure-to-warn claims like Levine’s obstruct the federal regulation of drug labeling”).

28 Id. at 575.

29 At the federal level, consumer protection law has historically been understood not to apply to drug labeling. See 21 U.S.C. §352 (“Drug Amendments” passed in 1962 expressly eliminating the Federal Trade Commission’s jurisdiction over claims of prescription drug safety and efficacy); Shaeffer, J., False and Misleading? 58 FOOD DRUG L.J. 629, 631 (2003) (same).

30 Wyeth, 555 U.S. at 581.

31 See Gabelli et al. v. Securities and Exchange Commission, 133 S. Ct. 1216, 1218 (2013) (rejecting application of the “discovery rule” approach to extending the statute of limitations for SEC enforcement actions seeking civil penalties).

32 See id. at 686 n.6.

33 See Ariz. Rev. Stat. Ann. §44-1523, Ark. Code Ann. §4-88-101, Del. Code Ann. Tit. 6, §2513(b)(2), Fl. Stat. Ann. §501.212, and 815 Ill. Comp. Stat. §505/10b(1).

34 Cel-Tech Communications v. Los Angles Cellular Tel. Co., 20 Cal. 4th 163, 183 (1999).

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