Cal. retains over $300 million in civil penalties against J&J on appeal

People v. Johnson & Johnson, 2022 WL 1075421, D077945 (Cal. Ct. App. Apr. 11, 2022)

Long opinion, as you might expect for a big verdict.

Defendants (Ethicon) appealed their loss at a bench trial, which resulted in nearly $344 million in civil penalties against Ethicon for willfully circulating misleading medical device instructions and marketing communications that misstated, minimized, and/or omitted the health risks of Ethicon’s surgically-implantable transvaginal pelvic mesh products. The trial court found Ethicon committed 153,351 violations of the Unfair Competition Law (UCL) and 121,844 violations of the False Advertising Law (FAL) and imposed a $1,250 civil penalty for each violation. The court of appeals kicked out nearly $42 million in penalties because there was no evidence of what Ethicon’s employees and agents actually said in oral marketing communications, which is a good incentive not to leave a record I guess, but affirmed the rest.

Ethicon sold pelvic mesh products intended to treat two conditions that can affect women—stress urinary incontinence (SUI) and pelvic organ prolapse (POP), for which there are alternative treatments. In 2008, FDA issued a public health notification alerting health care providers about complications from pelvic mesh implants used to treat SUI and POP, most frequently “erosion through vaginal epithelium, infection, pain, urinary problems, and recurrence of prolapse and/or incontinence,” as well as “bowel, bladder, and blood vessel perforation during insertion.” It advised that complications were “rare,” but could have “serious consequences.” A 2011 update found that “surgical mesh for transvaginal repair of POP [was] an area of continuing serious concern,” and that serious complications in that context were not rare, including “mesh erosion through the vagina (also called exposure, extrusion or protrusion), pain, infection, bleeding, pain during sexual intercourse (dyspareunia), organ perforation, and urinary problems.” “[M]any of the complications required intervention, some of them required repair surgeries, and some of them were incapable of being resolved.”

During the relevant period, Ethicon disseminated: (1) Instructions for Use (IFUs) (information packets accompanying medical devices); (2) marketing communications directed to California doctors; and (3) marketing communications directed to California patients. Alleged falsehoods/misleading omissions: (1) they falsely stated the pelvic mesh products were approved by the FDA when in fact they were cleared by the FDA under section 510(k); (2) they omitted known risks and complications associated with the products; (3) they misrepresented the relative risks associated with the products compared to non-mesh surgical treatment options; (4) they misrepresented the severity and frequency of the risks that were disclosed, including the irreversibility of the effects; and (5) they overstated the benefits and effectiveness of the products. In short, there was lots of evidence of this, and the result was a lot of suffering. (If they did this in writing, what are the chances they didn’t do it orally in “informal” contacts with doctors?)

The court found all of the IFUs were deceptive for specific reasons and because they misleadingly stated the polypropylene mesh composing the products was not subject to degradation or weakening by the action of tissue enzymes, when mesh can degrade, resulting in cracking or fragmentation on the mesh surface. So too with its marketing communications to doctors and patients.  The court also found Ethicon’s sales representatives were trained to convey deceptive and misleading information to healthcare professionals. Ethicon actively concealed risks from the public, declining to update risk information in response to internal suggestions. It instructed its sales representatives to avoid initiating conversations with doctors about the public health notification and paid consultants to author an article refuting the FDA’s update.

The court also found deception: doctors read and rely on IFUs and marketing materials when counseling and treating patients; they weren’t generally familiar with the risks specific to pelvic mesh products, and their recent development meant many doctors did not learn about them during medical school or their residency programs. Ethicon’s efforts to undercut the FDA’s public health notification and update also nullified whatever information doctors may otherwise have acquired regarding the risks associated with pelvic mesh products.

The trial court reasoned that the violation count should include all “quantifiable instances of [Ethicon’s] circulation or dissemination of deceptive messages”–i.e., it counted each IFU or marketing communication as a separate violation, at $1,250 per violation—half the amount the Attorney General requested. A big award was warranted because Ethicon’s misconduct was “grave” and “egregious,” as Ethicon withheld crucial information about products that were permanently implanted into patients, caused some patients “debilitating, chronic pain,” and “destroy[ed] patients’ sexual, urinary and defecatory functions – consequences that go to the very core of personal identity, dignity, and quality of daily life.” The court also pointed out that there were likely “far more violations” that were excluded from the already-large violation count; Ethicon’s misconduct was persistent and spanned 17 years; Ethicon knowingly misrepresented and concealed the information at issue; and $344 million civil penalty award was less than one percent of defendant-parent company Johnson & Johnson’s $70.4 billion net worth. [Though I can only presume that once Ethicon finishes the Texas Two-Step its obligations will substantially outstrip its assets, since J&J knows how to make that work.]

The court did decline to award injunctive relief because (1) Ethicon amended the IFUs for its SUI products in 2015 and, in the process, remedied many misleading statements contained therein; (2) it was already in the process of amending its product labeling to comply with a 42-state consent order entered as part of a separate legal proceeding; (3) the current information in the public domain was sufficient to inform health care providers of the risks; and (4) an injunction requiring Ethicon to update its labeling without FDA approval could subject Ethicon to liability under federal law.

Ethicon argued that the trial court erred by failing to consider whether the IFUs and doctor-focused marketing communications were misleading from the perspective of doctors—the target audience—as opposed to members of the public. The court of appeals disagreed; “even the most cursory review” of the facts found by the trial court showed that it applied the correct target audience standard. Along with its discussion of the general level of medical education on pelvic mesh, the court pointed to several defense witnesses, including surgical specialists and urogynecologists, who were unaware of complications unique to pelvic mesh products apart from vaginal erosion and exposure—even though these complications were “well-known to the company from launch.” It also cited extensive evidence that doctors rely on IFUs and manufacturer marketing in making treatment decisions. Nor was there any conflict with the injunctive relief ruling: there were many rational reasons to find that Ethicon’s marketing was likely to deceive doctors during the statutory liability period that ended in 2018, but that there was sufficient current information in the public domain to warrant the denial of injunctive relief in June 2020.

Ethicon argued that the court failed to apply the correct standard for omissions, but didn’t develop what it thought that standard should have been. Regardless, the trial court did right: A fraudulent or deceptive omission is actionable if it is “contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.”

Courts typically find omissions actionable: “(1) when the defendant is in a fiduciary relationship with the plaintiff; (2) when the defendant had exclusive knowledge of material facts not known to the plaintiff; (3) when the defendant actively conceals a material fact from the plaintiff; and (4) when the defendant makes partial representations but also suppresses some material facts.” The court made extensive findings on (3) and found that Ethicon took “active, willful measures for nearly twenty years to suppress information and conceal serious risk and complication information from physicians and patients,” including “marketing efforts focused on downplaying and rebutting the FDA’s notices” regarding pelvic mesh products, including paying consultants to author an article to refute the notices. It also made a number of findings on (4), such as that “[d]efendants’ marketing to both patients and doctors consistently and repeatedly touted mesh’s benefits while misrepresenting, downplaying, and concealing its potential for serious, long-term complications.”

Ethicon argued that the trial court ignored materiality, but materiality doesn’t play the same role in an action by the People. Materiality can be relevant to a named plaintiff’s standing in a private class action case, because the class representative must prove they actually relied on the deceptive advertising to have standing under the UCL, and  “ ‘a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material.” Materiality can also be relevant to whether class treatment is justified in a private FAL/UCL restitution action.

But materiality is not, as far as precedent discloses, part of the burden in a government enforcement action filed by the Attorney General or another public prosecutor to obtain civil penalties on behalf of the People. However, even assuming that materiality is an implicit requirement, the trial court clearly found materiality. The trial court found Ethicon misrepresented and concealed “serious risk and complication information,” including “medically significant” information that affected medical decision-making. It found that Ethicon’s misconduct “had real consequences for real people.” It found that, as a result of Ethicon’s deception, doctors were unable to “factor [the risks] into their patient counseling and treatment decisions,” or to “provide the information necessary to inform and counsel their patients,” depriving doctors of the ability to properly counsel patients and depriving patients of the ability to make informed choices.

In addition, substantial evidence supported the findings of likely deception as to written materials, including professional education and training for doctors as well as field marketing PR kits and similar materials. However, “there was insufficient evidence concerning the content of thousands of oral marketing communications that were penalized by the trial court,” so the finding that those were likely to deceive was reversed—this covered sales representative detailing; Ethicon-sponsored meals between sales representatives and doctors; and health fairs. The record didn’t establish the content of any of them, and “[t]he People’s forensic accountant—who developed the methodologies underpinning the trial court’s violations calculation—conceded he did not know whether any particular sales representative detailing activity was mesh-related; whether mesh was discussed during Ethicon’s meals with health care providers; or what Ethicon’s employees and agents even said during health fairs.”

The trial court relied on evidence that the sales reps “were trained and coached to deliver the same consistent messages that pervade[d] the company’s print materials and IFUs ....”  And there was evidence that Ethicon trained its sales representatives to convey uniform marketing messages. But that uniformity did not itself “give rise to a reasonable inference that every single one of Ethicon’s thousands of oral communications with doctors included false or misleading statements. The mere fact a sales representative may have been trained in a particular way—even in a manner that promoted the disclosure of misleading information—reveals little, if anything, about the content of any particular conversation that may have occurred many months or years later.” This strikes me as deeply silly and inconsistent with what we accept about causation in most contexts—especially, as here, where the deception went to the heart of the product, overclaiming its benefits and downplaying its risks. Is it more likely than not that any given interaction with an Ethicon rep did the same, given Ethicon’s deceptive training and emphasis on uniformity? I would say yes. But there was no evidence of a specific “script” to be recited, so I guess it’s all good.

So the People only got $302,037,500.

Nonetheless, substantial evidence also supported the finding of patient deception, for similar reasons. E.g., a patient brochure assured “[t]here should be very little discomfort after the procedure.” At the end, the answer to “What are the risks?” was: “All medical procedures present risks. As with all procedures of its type, there’s a risk of injury to the bladder and surrounding organs. For a complete description of risks, see the attached product information.” But the attached information was far from complete, omitting “virtually all of the most severe risks associated with the TVT device—including mesh exposure through the vagina, mesh erosion, tissue contracture leading to chronic pain, debilitating and life-changing chronic pain, chronic groin pain, chronic dyspareunia, and pain to partner.”

Ethicon’s argument that doctors had a legal duty to disclose all serious risks and to obtain informed consent, so its materials couldn’t be likely to deceive patients, failed. “Because doctors themselves were likely to be deceived by Ethicon’s IFUs and marketing communications, the trial court reasonably found Ethicon’s marketing communications were likely to deceive patients notwithstanding the legal duties doctors owe to their patients.”

There was also no safe harbor defense. Under the UCL, “[if]f the Legislature has permitted certain conduct or considered a situation and concluded no action should lie, courts may not override that determination. When specific legislation provides a ‘safe harbor,’ plaintiffs may not use the general unfair competition law to assault that harbor.” Assuming without deciding that (1) executive action can also create a safe harbor and (2) the safe harbor applies to the FAL, Ethicon still lost, because the FDA didn’t create a safe harbor for these communications. The medical devices here were Class II, for which general controls such as labeling requirements “are insufficient to provide reasonable assurance of ... safety and effectiveness” and thus get “‘special controls’ such as “performance standards, postmarket surveillance, ... recommendations, and other appropriate actions as the [FDA] deems necessary’ to ensure safety and effectiveness.” During the 501(k) clearance process for two devices, the FDA informed Ethicon it was unable to determine whether the devices were substantially equivalent to an existing legally marketed predicate device due to certain “deficiencies” in Ethicon’s submissions to the FDA, and their draft IFUs did “not adequately address issues of usability and potential adverse events.” Ethicon then rewrote the IFUs to add most of what FDA wanted. Ethicon thus argued that “the FDA effectively wrote and approved the IFUs” for those devices.

But the FDA’s “limited review” as part of the section 510(k) clearance process did not create a safe harbor. “To forestall an action under the unfair competition law, another provision [or executive action, per our stated assumptions] must actually ‘bar’ the action or clearly permit the conduct.” But “the 510(k) process is focused on equivalence, not safety.” Former FDA Commissioner Dr. Kessler testified the FDA’s “clearance [of Ethicon’s] pelvic mesh devices [was] not a finding that the labeling [was] complete, accurate and not misleading.”  So too with the other devices. “At most, the FDA failed to declare Ethicon’s conduct unlawful.” That’s not the same as blessing it.

Ethicon argued that its free speech rights were violated, but false and misleading commercial speech isn’t entitled to First Amendment protection. Ethicon argued that some of its statements the court found deceptive “were supported by credible scientific evidence and subject to legitimate scientific debate; therefore, the speech was merely potentially misleading—not actually or inherently misleading.”  But the court found literal falsity, including “false statements about mesh’s properties” and treating incomplete product information as a complete description of risks. This is unprotected speech. (Finding that doctors and patients were actually misled also counts as finding that the speech is more than just potentially misleading—the trial court found that the risks of misleading speech materialized. To the extent that Ethicon might be arguing that each marketing communication could only be penalized if it specifically could be linked to a patient’s harm, that just demonstrates why First Amendment Lochnerism is not a good idea for commercial deception. And it’s inconsistent with Zauderer and its progeny. The Court never suggested that you could only regulate an ad if that particular copy of the ad had deceived someone; the Court was talking about the message, not the medium.)

And even if the First Amendment covered this commercial speech, Ethicon didn’t try to explain why Central Hudson would preclude its regulation and thus waived any argument about that.

Calculation of the civil penalty award: The UCL and FAL both say:

The court shall impose a civil penalty for each violation of this chapter. In assessing the amount of the civil penalty, the court shall consider any one or more of the relevant circumstances presented by any of the parties to the case, including, but not limited to, the following: the nature and seriousness of the misconduct, the number of violations, the persistence of the misconduct, the length of time over which the misconduct occurred, the willfulness of the defendant’s misconduct, and the defendant’s assets, liabilities, and net worth.

But they don’t specify what constitutes a “violation,” which is decided on a case-by-case basis. In counting each deceptive IFU and marketing communication as a separate violation of the UCL and FAL, the court reasoned that each one was “designed to drive future sales of the product, and thus relate[d] to [Ethicon’s] opportunity for gain.” The court also noted its calculation was likely an undercount of the deceptive communications Ethicon circulated during the liability period.

Ethicon would much have preferred a per-day violation count, or, better, a figure tied to the rate of reoperation for women who received pelvic mesh implants. But it was not an abuse of discretion to do what the trial court did. In previous cases, the court of appeal held that counting every copy of a newspaper with a violative ad as a “violation” was not appropriate. In that case, “a reasonable interpretation of the statute in the context of a newspaper advertisement would be that a single publication constitutes a minimum of one violation with as many additional violations as there are persons who read the advertisement or who responded to the advertisement by purchasing the advertised product or service or by making inquiries concerning such product or service. Violations so calculated would be reasonably related to the gain or the opportunity for gain achieved by the dissemination of the untruthful or deceptive advertisement.” But in appropriate circumstances, such as when ads are targeted to consumers who the advertiser deems likely to respond, total circulation can be a reasonable method to determine the number of statutory violations. It is important that the People’s burden of proof should not “ ‘be so onerous as to undermine the effectiveness of the civil monetary penalty as an enforcement tool.’ ”

Here, “Ethicon’s deceptive IFUs and marketing communications were substantively targeted to well-defined groups of people. The IFUs were specifically directed to doctors who were considering whether to implant Ethicon’s device or were preparing to do so—often, though not always, to urogynecologists and surgical specialists. And Ethicon’s marketing communications were explicitly written to appeal to those same doctors, or to prospective patients who were suffering from SUI or POP.” Ethicon’s targeting even extended to targeted online ads based on patient searches. Thus, it was reasonable to find that “each IFU and marketing communication represented a gain or opportunity to gain for Ethicon.”

Ethicon complained that the People’s forensic accountant wrongly extrapolated from one salesperson’s history and failed to account for brochures that were ordered but not distributed, but Ethicon itself admitted it had no “way to determine how many such items were actually distributed,” and it had not been able to determine the “exact number of copies of printed materials that had been sent to California.” There was no factual finding that Ethicon’s printed materials went undistributed.

Ethicon argued that $1,250 per violation was inappropriate becuase each IFU and marketing communication “was different–in what was said, in what context, to whom, etc.–and each had a different capacity for harm.” Though they may have differed in particulars, they all (except for the oral communications, the court says) “shared the same defining features: each contained misstatements, half-truths, and/or omissions regarding the risks of Ethicon’s pelvic mesh products, and each was likely to deceive California doctors and/or patients.” Ethicon argued that $1,250 was too large because Ethicon’s communications—not its pelvic mesh products—were the focus of the lawsuit, and Ethicon’s communications themselves did not harm patients. That was “mere semantics,” since the communications misrepresented the safety and risks associated with Ethicon’s products, which in many cases caused “medical, physical, and emotional turmoil that lasted years or for the rest of patients’ lives.” Ethicon’s appeal to its internal vetting practices “tends to support the trial court’s finding that Ethicon’s deceptive misstatements and omissions were knowing and intentional, not the product of mere negligence,” rather than weighing against a big award.

Nor did the award violate due process just because it was big. Ethicon was not without notice of the UCL and FAL’s requirements. Even if these civil penalties are the largest UCL/FAL penalties reported to date, that didn’t deprive Ethicon of notice that big lies risked big penalties. “Certainly, none of the other appellate decisions upholding civil penalty awards under the UCL and FAL ‘suggest that the amounts awarded [in those cases] were somehow in the outer limit of penalties that may properly be imposed.’” The penalties here are big because Ethicon made “thousands of deceptive statements for years on end.” And the UCL/FAL expressly define the maximum per violation at $2500, which provides clear notice, as did the AG’s investigation long before the statutory liability period ended; they entered into a tolling agreement effective October 17, 2012. “At that time, Ethicon could have altered its communications and practices to avoid this outcome or, at least, to minimize the amount of the potential civil penalty award. It did not do so.”

For similar reasons, the penalties did not violate the 8th Amendment/state law prohibitions against excessive fines. Although a federal law limits the civil penalties available for violations of federal statutes and regulations governing medical devices to $1 million, the UCL and FAL authorize more (and the AG requested twice as much).