10th Circuit Confirms Broad FDA Enforcement Powers in RX Depot Case

Last week, in U.S. v. RX Depot, Inc. (2006 WL 401845), the tenth circuit court of appeals affirmed the government's ability to impose significant fines and penalties upon manufacturers accused of violating the Food Drug and Cosmetic Act ("FDCA"). The fines and penalties charged by the government for a violation of the FDCA is known as "disgorgement" and results in the manufacturer paying to the government the profits resulting from the sale of the products related to the violation of the FDCA. Disgorgement penalties previously assessed against TAP and Parke-Davis (in off-label promotions) and Abbott and Shering Plough (in QSR violations) each reached in the hundreds of millions of dollars. Consequently, unless the Supreme Court overturns the decision or Congress revises the statutory grant at issue in 21 U.S.C. 332 (a), the tenth circuit's decision validates and solidifies the government's ability to impose disgorgement penalties for FDCA violations and subjects the manufacturing industry to significant fines and penalties for related violations.

In RX Depot, the government sought disgorgement of profits made by RX Depot from sales of reimported prescription drugs. RX Depot admitted that it violated the FDCA when it reimported the prescription drugs but challenged the government's use of disgorgement. RX Depot argued that Congress delineated the remedies available under the FDCA and that disgorgement was not included as an express remedy. The precise issue was whether the statutory grant in 21 USC 332(a) of the power "to restrain violations" of the FDCA included the power to order the equitable relief of disgorgement.

Essentially, RX Depot argued that the power "to restrain violations" clearly gives jurisdiction only for prospective injunctive relief and does not include the power to impose retrospective monetary penalties such as disgorgement. It argued that Congress has included retrospective monetary penalties in other areas, such as when it expressly provided for civil monetary penalties in 21 USC 333 (f), but Congress intentionally did not include disgorgement as a remedy for FDCA violations.

The tenth Circuit rejected RX Depot's argument. Using cases involving the World War II era Emergency Price Control Act of 1942 and environmental law, the court found that, absent some express statutory limitation, the power "to restrain violations" included all traditional equitable remedies such as disgorgement, not just the power to issue injunctions. The court reinforced that "equitable powers assume an even broader and more flexible character" in suits brought by the government involving the public interest (quoting from Porter v. Warner Holding Co., 328 U.S. 395, 398 (1946). The court further reasoned that disgorgement actually has the effect of "restraining" future violations.

As a result of the decision, since disgorgement is an equitable remedy, there are no hard and fast rules delineating the factors the court will use to determine the amount to be disgorged.