The Ninth Circuit has reopened a door for off-label marketing prosecutions, and it is important to review your compliance and risk management programs in light of this recent decision. Last December, the pharmaceutical and medical device industries exhaled a sigh of relief in response to the influential Second Circuit’s decision in United States v. Caronia, holding that truthful off-label marketing is a form of protected First Amendment speech that cannot form the basis for a criminal prosecution under 21 U.S.C. §333 of the Food, Drug and Cosmetic Act (“FDCA”). The Caroniadecision followed the Supreme Court’s decision in Sorrell v. IMS Health Inc., 131 S. Ct. 2653 (June 23, 2011), which held that a Vermont statute prohibiting pharmaceutical companies from engaging in truthful marketing activities offended the First Amendment. The question after Sorell and Caroniabecame, can the government still prosecute off-label marketing? On March 4, 2013 the Ninth Circuit said yes, albeit in an unpublished opinion.

In United States v. Harkonen, No. 11-10209 D.C. No. 3:08-cr-00164 MHP-1, the Ninth Circuit affirmed the wire fraud conviction of Scott Harkonen, former CEO of Intermune, for issuing a fraudulent press release touting the performance of the Company’s drug Actimune in clinical trials. Harkonen challenged the conviction as an unconstitutional infringement of his First Amendment rights. Harkonen claimed that the press release was misleading but not fraudulent. According to the Court, however, “[a]t trial, nearly everybody actually involved in the [Actimune] clinical trial testified that the Press Release misrepresented [Actimune’s] results.” Opinion at 3. Indeed, “Harkonen himself was “very apologetic” about the Press Releases’ misleading nature,” the Court observed. Id. The court found ample evidence for the jury to conclude that the Press Release was misleading even if “literally true.” Id., quoting United States v. Woods, 335 F.3d 993, 998 (9th Cir. 2003).

Relying on an early 20th century Supreme Court decision, American School of Magnetic Healing v. McAnnulty, 187 U.S. 94 (1902, Harkonen argued that his conviction should be reversed because “genuine debates over whether a given treatment caused a particular effect are outside the scope of the mail and wire fraud statutes.” Id at 6. The Ninth Circuit rejected this argument holding that “McAnnulty does not categorically prohibit fraud prosecutions for statements about the efficacy of a particular drug; indeed, that false and fraudulent misrepresentations made be made with respect to the curative effect of substances is obvious.” Id., quoting Seven Cases v. United States, 239 U.S. 510, 517 (1916).

At first blush, as we old school lawyers like to say, the court’s holding is consistent with established First Amendment law. While the First Amendment does constrain the reach of the criminal laws, it has never been declared a bar to prosecuting harmful, dangerous or fraudulent speech. If so, as the government will no doubt argue, law abiding companies and their executives have no reason to fear. As long as they engage only in truthful marketing, even off-label marketing, they will not subject themselves to prosecution. Unfortunately, the Ninth Circuit’s opinion reveals that, in the real world, the breadth of the term” “to defraud” gives prosecutors wide latitude to investigate and prosecute disfavored speech. “As used in the criminal mail fraud statutes, the term “to defraud” has its common place definition and includes “any sort of “dishonest method or scheme” and any “trick, deceit, chicane or overreaching.” Id. quoting Carpenter v. United States, 484 U.S. 19, 27 (1987) (emphasis added). In fact, according to the Ninth Circuit, “statements are fraudulent if “misleading or deceptive” and need not be “literally false.” Id. at 7, quoting United States v. Woods, 335 F.3d 993, 998 (9th Cir. 2003).

The trouble we foresee is that one man’s lawful promotion is another man’s criminal deception. Who draws the line between constitutional puffery and felonious chicanery? The answer, unfortunately, is prosecutors in the first instance and juries in the second. If the principle articulated by the Ninth Circuit is followed then the First Amendment protections extended by the Supreme Court in Sorrell and followed by the Second Circuit in Caronia will be eviscerated. The Ninth Circuit’s approach will have a chilling effect on speech because any promotional activity will be vulnerable to prosecution for being criminally deceitful, misleading or even tricky. Apart from the risk of conviction, there is the chilling effect of the spectre of criminal investigation that can form an expensive, prolonged and potentially debilitating cloud over an individual’s life and career.

So, what is a company to do? First, don’t panic. The Ninth Circuit’s holding seems to run directly counter to the Supreme Court’s guidance in Sorrel, at least in its potential reach. The fact that the Ninth Circuit issued its decision as an unpublished one means that its holding is limited to the facts of that particular prosecution and signals that the Court is not prepared to apply the holding generally. Second, however, companies need to be thoughtful and deliberate with respect to their marketing activities. Sorrell and Caronia reaffirm the established rule that the First Amendment limits the government’s ability to punish disfavored speech or disfavored speakers. And, with respect to off-label speech, the government is clearly doing both. Strong compliance policies developed and implemented to ensure to the extent possible that promotional activities, especially the activities and statements of the sales force, are truthful, controlled and carefully monitored will not only limit exposure to investigation and prosecution but can also create the record to persuade a prosecutor that prosecution is unwarranted. Where gray areas remain despite a company’s best efforts to implement an effective compliance program advice of counsel can be a key element of risk management. In the event the government initiates an investigation into promotional activities, no doubt biased by a whistleblower, a strong compliance and risk management program can serve as both an effective sword to fight off an investigation as well as an effective shield against prosecution. In those unfortunately inevitable situations in which the government is not so easily dissuaded, it is important to remember the cry of the defense attorney, “It is one thing to proclaim and other thing to prove.” Just because a whistleblower says it, doesn’t make it so. A solid compliance and risk management program also provide a solid foundation for a strong litigation defense.