Drug and Device Blog
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Dechert LLP
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Why Agency Fraud Is Like Fraud On The FDA
Friday, February 17, 2012
In our rather terse (due to firm involvement) post on Monday concerning Merck & Co. v. Ratliff, ___ S.W.3d ___,
2012 WL 413522 (Ky. App. Feb. 10, 2012) – beating both BNA and 360 by two days, BTW – we mentioned the
“interesting” aspects of that case. Having noodled it a bit more, we’ve concluded that one of these deserves a
little more attention.
We noted that, in Ratliff, the court recognized similarities between “fraud on the market” and agency fraud
theories such as fraud on the FDA. Id. at *7. We agree, and we’d like to explain a bit why this is so.
“Fraud on the market” as our posts on that subject have discussed, is a legal doctrine, so far (thankfully) unique to
securities litigation, that waters down the traditionally rather stringent standards for proving fraud by creating a
“presumption” of reliance in certain limited circumstances. See Basic, Inc. v. Levinson, 485 U.S. 224 (1988) (4
justice majority of 7-justice court). “Fraud on the market” isn’t a state-law claim. Neither the Supreme Court nor
any state high court has extended the “fraud on the market” presumption to any state-law action, even in the
securities realm. That proposition was what our 50-state fraud on the market post was intended to (and we think,
did) establish.
In Basic, Inc., the Supreme Court bought a questionable proposition – that securities markets are uniquely
“efficient” and “developed.” In other words, because there are so many participants in national stock markets, and
those participants have such a voracious appetite for information, then anything about a particular stock is
essentially instantaneously reflected in that stock’s price. Because of that (rather questionable) conclusion, any
plaintiff in a securities fraud suit is “presumed” to rely on any material disinformation.
Even assuming that’s true in the securities arena – a proposition we don’t really accept – it’s certainly not true
where prescription medical products are concerned. Prescription products, being available only by prescription,
necessarily require medical approval before their use. Doctors’ knowledge and attitudes span a vast spectrum.
We see that all the time in making causation motions under the learned intermediary rule. We can beat causation
in a prescription medical product case by: (1) showing that the highly educated and motivated prescriber knew all
about the risk from independent continuing review of relevant literature, or conversely, (2) that the prescriber
isolated him or herself from the influence of our client by not reading warnings at all and not paying attention to
pharmaceutical detailing.
Thus, there’s absolutely no basis for a Basic, Inc. presumption of reliance on any different information that might
have been disseminated by a pharmaceutical or medical device manufacturer. Any given prescriber might
already know it – or might never rely on that source – or even both at the same time.
“[T]here is no prescription drug “market,” at least as that term is understood in the
securities context. . . . [T]he only “market” for a prescription drug is the potential group
of patients who will be prescribed it by their physician, and if the side effects of the drug
make it overly risky to ingest, the doctor will either not prescribe it or the patients will
decide not to take it. . . . [T]he decision to take a particular drug is a medical one, not
one based on an comparative analysis of risk versus price.
Heindel v. Pfizer, Inc., 381 F. Supp.2d 364, 380 (D.N.J. 2004). For these reasons, differing degrees of physician
