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11.01.2019 Marketing Practices and Consumer Protection Litigation: Pharma and Firearms - Who’s Next? By: Charles E. "Chuck" James, Jr. & Rebecca E. Ivey

State governments are getting creative with consumer protection laws in order to take a crack at industries that traditionally have concerned themselves primarily with industry-specific laws.  A Virginia filing by the Attorney General’s Office may be a harbinger of things to come, highlighting a nationwide trend towards expansion of state consumer protection law to reach new industries, from pharmaceutical companies to firearms manufacturers, and beyond.  

On October 31, 2019, the Commonwealth of Virginia filed a complaint alleging that fentanyl manufacturer Cephalon, Inc. and its successor, Teva Pharmaceuticals, USA, Inc., disregarded Federal Drug Administration (FDA) marketing restrictions and sold products to thousands of consumers when they knew the product carried a greater risk than was disclosed.  The Complaint was filed in the Circuit Court for the City of Richmond after the Attorney General gave Defendants written notice he was contemplating such an action and after “neither Defendant showed that no violations had occurred and neither Defendant executed an appropriate Assurance of Voluntary Compliance.”

The Complaint seeks an unspecified amount in restitution, civil penalties and attorneys’ fees from Defendants and is grounded in the Virginia Consumer Protection Act (VCPA), Va. Code §§ 59.1-196 through 59.1-207.  The Complaint requests that the Court grant a judgment for the Commonwealth for “all sums necessary to restore to any consumers the money or property acquired from them by Defendants,” as well as statutory damages of up to $2,500 in civil penalties for each willful violation of the VCPA, and $1,000 in costs and expenses incurred per violation of the VCPA.  The potential number of violations, if any, will be proven at trial and are not enumerated in the complaint.  However, there are clearly millions of dollars at stake for Defendants in this litigation.

Since taking office, Virginia Attorney General Mark Herring has been aggressive in his consumer protection efforts.  He has expanded the staffing within the office of the Attorney General and has been very active in bringing cases against market participants including financial services companies, charities, tax resolution companies and others.

What separates this litigation from other actions is the allegation that Defendants’ marketing of their products was deceptive and misleading under Virginia law.  The Complaint alleges that one of the Defendant’s products “was a marketing success and a public health failure,” claiming “skyrocketing” sales of fentanyl patches from 126,000 units to 805,000 between 1991 and 1996.  The Complaint alleges that one product was ultimately approved by the FDA for limited use by cancer patients, but that Defendants failed to comply with the approved Risk Management Plan and actively marketed their product to non-cancer patients for whom the product was deemed too risky.  More than a dozen pages of the Complaint are redacted and many of the specific claims and allegations are not yet publicly available.  Defendants have not responded, nor have they offered their defense either with a responsive pleading or in the press.  The case, however, is already significant for at least two reasons. 

First, unlike prior pharmaceutical cases alleging off-label marketing, this case is the latest in a series of opioid cases brought under state consumer protection laws.  This matter brought by Attorney General Herring and his office was not brought by the veteran team of civil and criminal prosecutors and investigators from Virginia’s Medicaid Fraud Control Unit (MFCU) and the Office of the Attorney General for the Western District of Virginia.  That team is responsible for several historic settlements, including the 2007 settlement with Perdue Pharma ($634 Million), the 2012 settlement with Abbott Labs ($1.5 Billion) and the recent Reckitt Benckiser Group settlement ($1.4 Billion).  This illustrates the trend that states are increasingly using their consumer protection laws to address the opioid epidemic, and that there are many avenues to enforcement and liability.

Second, using consumer protection statutes instead of traditional False Claims Act cases presents another opportunity for enterprising Attorneys General or other state officials to use their laws to pursue claims against other industries.  The Connecticut Supreme Court recently issued a ruling in Soto v. Bushmaster Firearms International, et al. that greatly expands the reach of Connecticut’s version of the VCPA, the Connecticut Unfair Trade Practices Act (“CUTPA”).  The Court held that a federal law, called the Protection of Lawful Commerce in Arms Act (“PLCAA”), which is intended to protect firearms manufacturers and dealers from being held liable when crimes are committed with their products, did not shield the defendants because PLCAA’s pre-emptive reach did not extend to an action in which the defendants allegedly violated a state statute applicable to the sale or marketing of firearms.  The Connecticut Supreme Court reasoned that the PLCAA did not protect the defendants from liability because the defendants allegedly engaged in advertising and marketing practices that were “unethical, oppressive, immoral and unscrupulous” within the meaning of CUTPA and that these advertising and marketing practices allegedly fostered the illegal offensive use of certain firearms.  The Connecticut Court further reasoned that the plaintiffs need not have a “commercial relationship,” or, in other words, a business relationship with the defendants, for CUTPA to provide a cause of action.  This greatly expands the reach of the statute.

Whether in Virginia or in Connecticut, states are increasingly using their consumer protection laws to seek damages from marketplace participants deemed to have improperly benefited from the marketing and sale of their products in commerce.  Identifying this trend, complying with evolving views on consumer protection laws and mitigating damage for alleged violations should be a priority for the business community.  Increased coordination by states, the Consumer Financial Protection Bureau, Federal Trade Commission  and other agencies could also result in increased litigation and significant exposure.

These cases illustrate the growing use of state law to provide another avenue of attack against highly regulated industries primarily focused on federal compliance.  The fact that the cases use a similar strategy and similar laws to target two industries not normally regulated by state law shows that the strategy is not industry specific.  Opioid and firearms manufacturers are in the crosshairs today, but all regulated industries marketing to consumers, from those targeted here to other industries, such as healthcare, cosmetics, agriculture, transportation and even political campaigns, should be paying attention.  Increasingly, it will be important for these market participants to stay abreast of these developing trends and avoid running afoul of similar state laws, no matter the product or service they offer.

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