June 28, 2011
On June 23, 2011, in a case that tested potential conflicts between free speech rights and the power of the state to regulate medical privacy and low-cost healthcare, the Supreme Court struck down a Vermont law that restricted the sale, disclosure, and use of pharmacy records that reveal the prescribing practices of individual doctors. In Sorrell v. IMS Health, No. 10-779, in a 6-3 decision authored by Justice Anthony Kennedy, the Court held that even though the state had significant interests at stake, "[s]peech in aid of pharmaceutical marketing. . . is a form of expression protected by the Free Speech Clause of the First Amendment" worthy of the same degree of heightened protection as other core, non-commercial speech. Slip op. 1, et. seq.
Vermont’s Law
Similar to laws passed in Maine and New Hampshire, in 2007, Vermont enacted the Prescription Confidentiality Law, which, in sum, prohibited "[a] health insurer, a self-insured employer, an electronic transmission intermediary, a pharmacy, or other similar entity" from selling, disclosing, or using prescriber-identifying information–records revealing a physician’s prescription practices–for marketing purposes. Vt. Stat. Ann., Tit. 18, § 4631 (Supp. 2010). This prescriber-identifying information is created and provided to pharmacies in accordance with state and federal law. Under the Vermont law, pharmacies could have shared prescriber-identifying information "with anyone for any reason save one: They must not allow the information to be used for marketing." Id. at 17. In fact, the information could even be sold for certain purposes, such as healthcare research, and used for nearly any purpose except marketing. Id.
As the Court explained in its decision, pharmacies receive prescriber identifying information when filling prescriptions, pursuant to state and federal law. Some pharmacies then sell this information to data mining companies for analysis and use by pharmaceutical companies. Prescriber-identifying information is valuable to pharmaceutical companies, because their sales representatives use the information to market their drugs to doctors, a process referred to in the industry as "detailing," in which drug representatives meet with a doctors in an effort to persuade them to prescribe particular pharmaceutical products. The Court noted that drug sales personnel are more effective when they know the prescribing habits of doctors. Because detailing is an expensive process, pharmaceutical companies use it to promote "high-profit," patent-protected brand name (i.e., non-generic) drugs, typically over less expensive alternatives. See id. at 1-2.
Importantly, the Vermont law authorized funds for counter-detailing: "to advise prescribers about commonly used [and less-expensive] brand-name drugs for which the patent has expired or will soon expire." Id. at 4 (internal quotations omitted). Other states, but not Vermont, use prescriber-identifying information to increase the effectiveness of their counter-detailing efforts. Id.
As the Court recounted in its decision, the Vermont state legislature found that prescriber-identifying information allows pharmaceutical companies to increase the effectiveness of their detailing programs "by allowing detailers to target their visits to particular doctors" and by allowing detailers to tailor their message "to individual prescriber styles, preferences, and attitudes." Id. at 5. The legislature concluded that "frequently one-sided" detailing in support of brand-name drugs "conflict[s] with the goals of the state. . . caus[ing] doctors to make decisions [to prescribe more expensive, brand-name drugs] based on incomplete and biased information" thereby "increas[ing] the cost of health care and health insurance." Id.
The Case Below
Sorrell involved two consolidated suits, one brought by data-mining companies IMS Health, Inc., Verispan, LLC, and Source Healthcare Analytics, Inc., and the other by Pharmaceutical Research and Manufacturers of America, an association of brand-name pharmaceutical manufacturers. These parties challenged the Vermont statute on the ground that it violated their First Amendment rights, seeking declaratory and injunctive relief against Vermont’s Attorney General and other state officials.
Following a bench trial, the U.S. District Court for the District of Vermont upheld the law. The district court viewed the law as permissible regulation of commercial speech because it regulated prescriber-identifying information only in the context of marketing. IMS Health Inc. v. Sorrell, 631 F. Supp. 2d 434, 447 (D. Vt. 2009). Applying the "intermediate" standard of review, the district court found that the law was "not more extensive than is necessary" to "directly advance[]" a "substantial government interest." Id. at 448 (citing Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557, 563-66 (1980)).
The Second Circuit reversed and remanded the district court’s decision. Although the Second Circuit agreed with the standard that the district court applied, it disagreed with its application to Vermont’s law. Instead, the Second Circuit found that Vermont’s law failed to meet any aspect of the intermediate scrutiny standard applicable to commercial speech.
Maine and New Hampshire had passed similar laws that had also been challenged, including by some of the plaintiff’s in the Vermont litigation. In contrast to the Second Circuit’s decision, the United States Court of Appeals for the First Circuit upheld the New Hampshire law (and by implication the Maine law), reasoning that the law regulated conduct, not speech, and thus did not implicate the First Amendment. Alternatively, the First Circuit concluded that if the law did involve speech, it was constitutional because it satisfied the intermediate scrutiny standard for commercial speech. IMS Health Inc. v. Ayotte, 550 F.3d 42, 54 (1st Cir. 2008). The First Circuit did not pull punches in its view that the New Hampshire law regulated conduct not speech: "[T]his is a situation in which information itself has become a commodity. [P]laintiffs, who are in the business of harvesting, refining, and selling this commodity, ask us in essence to rule that because their product is information instead of, say, beef jerky, any regulation constitutes a restriction of speech. We think that such an interpretation stretches the fabric of the First Amendment beyond any rational measure." Id. at 53.
"Recognizing [this] division of authority regarding the constitutionality of state statutes," the Supreme Court granted certiorari for the Second Circuit’s decision in Sorrell. Slip op. 6.
The Supreme Court’s Decision
The Supreme Court applied its own analysis to the question, concluding not only that the Vermont law regulated speech, but also that the speech at issue was protected under the same "heightened" degree of scrutiny as so-called "core" political speech. Noting that past Court precedent had held that "information on beer labels is speech" and that a "credit report is speech," the Court suggested that there is a "strong argument" that that the creation and dissemination of prescriber-identifying information was also speech. Id. at 15 (internal quotations omitted).
The Court determined that Vermont’s regulation of prescriber-identifying information demanded heightened scrutiny because "[u]nder Vermont’s law, pharmacies may share prescriber-identifying information with anyone for any reason save one: They must not allow the information to be used for marketing." Id. at 17. In particular, the Court pointed out that "[t]he statute. . . disfavors marketing, that is, speech with a particular content [and] specific speakers, namely pharmaceutical manufacturers." Id. at 8. "Both on its face and in its practical operation," the Court explained, "Vermont’s law imposes a burden based on the content of the speech and the identity of the speaker." Id. at 11. Such "content- and speaker-based rules," the Court found, warranted "heightened judicial scrutiny" whether directed at commercial or non-commercial speech, "whenever the government creates a regulation of speech because of disagreement with the message it conveys." Id. at 8-11 (internal quotations omitted).
The Court, moreover, concluded that whether it evaluated the question under the heightened scrutiny or intermediate scrutiny standard, "the outcome is the same." Id. at 16. Importantly, the Court was not swayed by the state interests that Vermont articulated to justify the statute.
First, the Court rejected Vermont’s "asserted interest in physician confidentiality." Id. at 18-19. The contours of this interest include preserving prescriber confidentiality, limiting "harassing sales behaviors" and "aggressiveness [by] pharmaceutical sales representatives," and protection of the doctor-patient relationship by preventing detailers from influencing treatment decisions. Id. at 19-21. Evaluating these interests, the Court found that the privacy interest was undermined by the fact that the data was widely available for any purpose except marketing, and regulating the message itself is "contrary to basic First Amendment principles." Id. The Court suggested that had the statute been more narrowly tailored to limit disclosure or sale of prescriber-identifying information in only a few narrow and well-justified circumstances, rather than "to an almost limitless audience" for any purpose other than marketing, the law could have advanced its asserted privacy interest and "would present quite a different case than the one presented here." Id. at 18.
Second, the Court considered Vermont’s policy goal of lowering the costs of medical care by preventing detailers from using prescriber-identifying information. Id. at 21-22. Rejecting this policy goal as "incompatible with the First Amendment," the Court stated that Vermont may not "burden[] a form of protected expression that it found too persuasive." Id. at 22, 25. Likewise, "[t]he State may not burden the speech of others in order to tilt public debate in a preferred direction." Id. at 23.
Broader Implications
In dissent, Justice Steven Breyer, with Justices Ginsberg and Kagan joining, argued that heightened scrutiny was "out of place" when the law regulated "expression [that was] inextricably related to a lawful government effort to regulate a commercial enterprise." Slip op. 1-2 (Breyer, J., dissenting). He cited a number of statutes that appear to draw distinctions based on their content and speaker, id. at 9-11, and warned that, "[i]f the Court means to create constitutional barriers to regulatory rules that might affect the content of a commercial message, it has embarked up an unprecedented task. . . that threatens significant judicial interference with widely accepted regulatory activity." Id. at 11.
If Justice Breyer is right, Sorrell provides a powerful tool for litigants to challenge regulations that impact speech.
Gibson, Dunn & Crutcher’s Information Technology and Data Privacy Practice Group has extensive experience in information technology and data privacy matters and regularly represents many leading companies in a variety of privacy contexts, ranging from compliance with relevant privacy regulation to broad-scope representations involving regulatory scrutiny, litigation, and law enforcement interest. Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding these issues.
Please contact the Gibson Dunn lawyer with whom you work, the authors of this alert, Howard S. Hogan (202-887-3640, [email protected]) and Jeremy Joseph (202-955-8218, [email protected]) in Gibson Dunn’s Washington, D.C. office, or any of the following co-chairs of the Information Technology and Data Privacy Practice Group:
Debra Wong Yang – Los Angeles (213-229-7472, [email protected])
M. Sean Royall – Dallas (214-698-3256, [email protected])
Alexander H. Southwell – New York (212-351-3981, [email protected])
S. Ashlie Beringer – Palo Alto (650-849-5219, [email protected])
© 2011 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.