It is not every day that one looks to the intersection of securities litigation and antitrust law to find inspiration in defending against a pharmaceutical failure-towarn claim, but the Supreme Court’s 7–1 decision (Justice Kennedy took no part in the decision) this term in Credit Suisse Securities (USA) LLC v. Billing, __ U.S. __, 127 S.Ct. 2383 (June 18, 2007) permits some important parallels with the continuing fight over the FDA’s preemption of state failure-to-warn cases.

The Credit Suisse plaintiffs alleged that the defendant investment banks, acting as underwriters, violated the antitrust laws by essentially agreeing to require certain financial pre-conditions for investors who wished to purchase initial public offerings (“IPOs”) for hundreds of technology companies. The investment banks argued that the securities laws impliedly precluded application of the antitrust laws as to the conduct (where the law is silent, it is up to courts to figure out whether the antitrust laws are precluded), and reversing the Second Circuit, the Supreme Court agreed with the investment banks.

What does this have to do with preemption in prescription drug cases? The essential question the Court asked was whether two groups of laws purporting to regulate the same activity can be applied simultaneously, or whether the application of one necessarily precluded application of the other. That question should sound familiar. In prescription drug cases, drug manufacturers argue that the FDA’s regulation of prescription drug labeling precludes application of state laws seeking to impact the same activity. The question the Court had to ask in Credit Suisse was whether there was a “plain repugnancy” between antitrust laws and securities laws. Id. at 2387. That question is strikingly similar to one aspect of conflict preemption analysis, which asks whether a perceived conflict between federal and state law “make[s] it ‘impossible’ for private parties to comply with both state and federal law.” Geier v. Am. Honda Motor Co., 529 U.S. 861, 873 (2000).

The Credit Suisse Court used four factors to determine whether the securities laws precluded application of the antitrust laws: (1) the existence of regulatory authority under the securities law to supervise the activities in question, (2) evidence that the responsible regulatory entities exercise that authority, (3) a resulting risk that the securities and antitrust laws, if both applicable, would produce conflicting guidance, requirements, duties, privileges, or standards of conduct, and (4) whether the possible conflict affected practices that lie squarely within an area of financial market activity that the securities law seeks to regulate. Substituting the FDA for the SEC, it is easy to see how this analysis supports preemption of claims alleging inadequate FDA-approved warnings. Credit Suisse, 127 S.Ct. at 2392.

First, there is no question that the FDA has the regulatory authority under the Food, Drug and Cosmetic Act (“FDCA”) to supervise the labeling of prescription drugs. The FDA, like the SEC, “possesses considerable power to forbid, permit, encourage, tolerate, limit, and otherwise regulate virtually every aspect of the practices” at issue. Compare id. at 2392-2393 (listing SEC regulations) with 21 U.S.C. § 331 (defining the prohibited acts under the FDCA on the adulteration and misbranding of drugs); 21 U.S.C. § 332 (allowing the FDA to bring proceedings to enjoin prohibited acts); 21 U.S.C. § 333 (a) and (b) (defining criminal penalties, such as fines and imprisonment, for those who engage in prohibited acts, including the sale of misbranded drugs); 21 U.S.C. § 335(b) (civil penalties for obstructing FDA’s processes); 21 U.S.C. § 372(e)(2) (execute search and arrest warrants); 21 U.S.C. § 372(e)(3) (seizure of misbranded drugs).

Second, there is also no question that the FDA does exercise its authority, both in the pre-approval and postapproval process. For example, as the SEC has done with respect to IPOs, the FDA has “defined in detail” what drug manufacturers “may and may not do and say during” the pre-approval process (the parallels between an IPO and the approval of a new drug are not few). Credit Suisse, 127 S.Ct. at 2393. Like the SEC, the FDA has the authority to bring actions against those who violate FDA regulations.

The Court’s focus in Credit Suisse, and the FDA’s focus in its Preamble and series of amicus briefs, is on attempting to answer the third question—whether the regulatory schemes conflicted. The Court held that the SEC’s expertise was required to draw the often fine line between conduct that is prohibited and conduct that is permitted, or even encouraged. Is a commission illegally excessive? The Court asked “who but the SEC itself” could make the distinction with confidence. See id., at 2394–2395. In the pharmaceutical context, is a prescription drug warning appropriate, too weak, or too excessive? Who but the FDA itself is best to judge? Perhaps most significant for the prescription drug labeling context, the Credit Suisse Court expressed concern that “different nonexpert judges and different nonexpert juries” would be unable to reach consistent results “in light of the nuanced nature of the evidentiary evaluations necessary to separate the permissible from the impermissible.” Id. at 2395. The Court was also concerned about the “unusually high risk that different courts will evaluate similar fact circumstances differently.” Id. It should be no surprise that the FDA has recognized in its pronouncements the same problem in failure-to-warn cases—which are far more numerous than antitrust litigations and present far more opportunities for inconsistent results—noting the regulatory chaos that would result if the ultimate sufficiency of prescription drug labeling were left to hundreds of lay juries or 50 state governments. See Requirements on Content and Format of Labeling for Human Prescription Drug and Biological Products, 71 Fed. Reg. 3922 (Jan. 24, 2006) (codified in relevant part as 21 C.F.R. § 201.56–57) at 3935 (noting the problem of “individualized reevaluation” of prescription drug labels by lay judges and juries). In Credit Suisse, the Court summed up the conflict this way: “Now consider these factors together—the fine securities- related lines separating the permissible from the impermissible; the need for securities-related expertise []; the overlapping evidence from which reasonable but contradictory inferences may be drawn; and the risk of inconsistent court results.” Credit Suisse, 127 S.Ct. at 2395. The FDA relies on the same arguments in support of preemption of failure-to-warn cases.

As far as the consequences of these conflicts are concerned, in the securities context, the Court was concerned that underwriters would be discouraged not only from engaging in improper activity, but also from acting in a way the securities laws encourage under the threat of “antitrust mistakes,” which could lead to treble damages. Id. at 2396. Just as the Court recognized that antitrust lawsuits could alter underwriter conduct in “undesirable ways,” so has the FDA recognized that manufacturers might end up diluting good warnings in favor of over-warning in an effort to avoid lawsuits (and punitive damages). Id. If the SEC is the best judge to balance these considerations in its area of expertise, so should the FDA be the best judge to balance identical considerations within its purview.

If there is a caveat to this otherwise favorable comparison, it comes at the end of the Credit Suisse decision, where the Court considered the enforcement need for antitrust actions. The Court noted that private litigants damaged by unlawful practices had the ability to bring suit under the securities laws. That the SEC also disapproved of the conduct at issue did not prevent the Court from finding a conflict with the antitrust laws. Id. The FDCA does not provide a similar avenue to those who use prescription drugs, which arguably makes the enforcement need for state actions more palpable in prescription drug cases. But Credit Suisse also emphasizes the role of the SEC in enforcing the rules and taking into account considerations that might harm certain investors. Id. The FDA certainly plays a similar role in protecting consumers. Justice Breyer’s majority opinion contained no discussion of the level of deference due to the SEC, which unsurprisingly believed that application of the antitrust laws “would threaten to disrupt the full range of the Commission’s ability to exercise its regulatory authority.” Id. But the Court’s 7–1 holding was squarely on the SEC’s side of the argument, and the rationale endorsed by the seven-member majority can be easily transplanted into an FDApreemption analysis, making Credit Suisse a difficult case to ignore as the preemption battle moves forward.