The Food and Drug Administration (FDA) has released aggressive guidelines for prosecutions under the Food, Drug, and Cosmetic Act1 (FDCA) that put corporate officers at risk of criminal liability merely because of their position within a violating company. The guidelines reinvigorate the long dormant Park doctrine, which allows corporate officers to be held criminally responsible for corporate violations of the FDCA and convicted of a misdemeanor even if — unlike virtually all other criminal laws — they had no knowledge of the illegal conduct.2
For years Park prosecutions were rare, but regulators see the Park doctrine as a potentially powerful enforcement tool that "can have a strong deterrent effect on the defendants and other regulated entities."3 The release of Park prosecution guidelines by the FDA follows a series of statements by FDA officials that enforcement efforts — and Park prosecutions in particular — are set to increase, and executives in industries subject to the jurisdiction of FDA cannot afford to ignore this trend. Park exposes corporate officers to criminal liability for FDCA violations based solely upon their position of responsibility within the company, and penalties can be harsh — including large fines, debarment (prohibiting executives from providing services to a regulated company), individual and corporate exclusion from participation in federal health care programs, as well probation and jail time. And exposure is broad: any employee in the chain of command with authority to correct or prevent a violation could potentially be prosecuted.4
These announcements and the FDA’s guidelines for prosecution underscore the importance of implementing and maintaining a robust corporate compliance program designed to deter and detect violations of the FDCA. A compliance program structured to show regulators that the company and its employees do everything they can to prevent violations is the single best risk management tool companies and executives have at their disposal to avoid FDCA liability, and can have a significant impact on the government’s enforcement choices, including its exercise of prosecutorial discretion.
The Park Doctrine
The Park doctrine originated in Dotterweich v. United States,5 a 1943 case in which the US Supreme Court held that individuals could be prosecuted under the FDCA and affirmed the conviction of a drug company’s president for misdemeanor misbranding,6 even though there was no evidence that he participated in the misbranding or knew that it was occurring.7 In doing so, the Court explained that the statute "dispenses with the conventional requirement of criminal conduct — awareness of some wrongdoing," to help ensure the safety of food and drugs marketed to the public: "In the interest of the larger good [the FDCA] puts the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to a public danger."8
After years of varying interpretations by lower courts, the Supreme Court affirmed and clarified Dotterweich in the 1975 case of United States v. Park.9 John Park was the president of a national retail food chain convicted of violating the FDCA based on unsanitary conditions in one of the company’s warehouses. Mr. Park appealed his conviction, arguing it should be overturned because the jury did not find that he engaged in any of the underlying conduct. The Supreme Court rejected his argument, explaining that a corporate officer or manager can be found guilty of a misdemeanor FDCA violation "by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of…."10 According to the Court, the FDCA imposes upon corporate executives, "not only a positive duty to seek out and remedy violations when they occur, but also, and primarily, a duty to implement measures that will insure that violation will not occur."11 The failure to prevent an FDCA violation, the Court held, is a strict liability offense — that is, an act that is criminal whether or not the defendant was aware of the underlying conduct. And, in tying the defendant’s liability to his "responsibility and authority" to prevent or correct the violation, the Court left open the possibility that lower-level employees could be held liable as well — an approach which lower courts have since embraced.12
Recognizing the potential breadth of its holding, the Park Court was careful to add that defendants cannot be held liable for FDCA violations that they were "powerless" to prevent or correct.13 This statement has subsequently been interpreted by courts to create an affirmative defense for officers who can show they exercised "extraordinary care" to prevent a violation.14 Under this standard, a corporate officer may be able to escape liability by employing the "highest standard of foresight and vigilance." This is a difficult standard to meet, and the few defendants that have litigated this question have not been successful.15 While the dearth of cases testing the bounds of the extraordinary care standard makes it unclear exactly what executives must do to avoid liability under the Park doctrine, implementing and maintaining a rigorous compliance program is an essential first step.
A misdemeanor conviction under the FDCA can result in fines of US$100,000 per count for an individual and a year of jail time.16 And — pursuant to amendments adopted in 2008 — the Sentencing Guidelines recommend upward departures in cases where the offense created a "substantial risk of bodily injury or death."17 Further, a guilty plea or misdemeanor conviction permits the Department of Health and Human Services’ Office of the Inspector General (OIG) to exercise its discretion to impose a three-year exclusion of an individual from participation in federal health care programs.18 Similarly, such a conviction is grounds for permissive debarment by the FDA for up to five years.19 Corporate executives could also face exclusion when the companies they oversee plead guilty to or are convicted of misdemeanor violations of the FDCA, even if the executives are not prosecuted themselves.
Recent FDCA enforcement activities illustrate the gravity of the consequences corporations and their executives can face. Prosecutors in Philadelphia are currently seeking prison terms for four Synthes executives who pled guilty to one misdemeanor count each for their role in off-label promotion of a bone cement.20 Along the same lines, in March 2011, Forest Laboratories pled guilty to a misdemeanor in connection with its marketing of Celexa and Lexipro, and was ordered to pay US$313 million dollars. A few weeks later, on April 8, 2011, Forest’s CEO received a letter from the Department of Health and Human Services indicating its intent to exclude him participating from federal health care programs, despite no allegations that he engaged in or knew of any wrongdoing. OIG ultimately decided not to seek exclusion,21 but the agency’s actions made clear that corporate officers who do not face criminal charges and who were not aware of corporate violations may still face exclusion. Forest Labs continues to deal with fallout from the misdemeanor conviction and subsequent exclusion proceedings.22
The Park doctrine was used with relative frequency in the 1970s and early 1980s, but fell out of favor in the face of limited resources and shifting enforcement priorities. But the enforcement landscape is changing: Park is increasingly seen by regulators as a powerful tool for deterring and punishing FDCA violations. In this connection, FDA officials have indicated that additional deterrence is necessary because companies increasingly view multi-million dollar settlements and fines as costs of doing business, and as a result, fines have not spurred broader changes in corporate policies and practices.23
FDA officials have been signaling stepped-up enforcement efforts against responsible corporate officers for over a year. For example, in a letter to the Senate Finance Committee in March 2010, Margaret Hamburg, Commissioner of Food and Drugs, stated that a committee of senior FDA officials recommended increasing the use of Park prosecutions.24 On May 27, 2010, Deborah Autor, director of the FDA’s Center for Drug Evaluation and Research, Office of Compliance, testified in a Congressional hearing that the agency is working to increase enforcement on the criminal side. And Eric Blumberg, the FDA’s Deputy Chief Counsel for Litigation, stated in speeches on April 22 and October 13, 2010 that corporate executives would face criminal prosecution for violations of the FDCA.25 In a Statement on August 5, 2011 OIG announced "[w]e remain committed to investigating and, when appropriate, sanctioning executives and managers of health care entities…[t]his includes individuals who directly commit fraud as well as the executives in a position of responsibility at the time of the fraud."26
On January 26, 2011, the FDA published new guidelines in the FDA Regulatory Procedures Manual (RPM) entitled, "Special Procedures and Considerations for Park Doctrine Prosecutions."27 These guidelines expressly confirm that participation in, and knowledge of, misconduct are not prerequisites for a Park prosecution (though they may be relevant to an exercise of discretion),28 and list seven standard yet non-exhaustive criteria for FDA personnel to consider when deciding whether to recommend prosecution:
- Whether the violation involves actual or potential harm to the public;
- Whether the violation is obvious;
- Whether the violation reflects a pattern of illegal behavior and/or failure to heed prior warnings;
- Whether the violation is widespread;
- Whether the violation is serious;
- The quality of the legal and factual support for the proposed prosecution; and
- Whether the proposed prosecution is a prudent use of agency resources.29
The agency will also consider the individual’s position in the company and relationship to the violation, and whether the official had the authority to correct or prevent the violation. Though the guidance is non-binding and states that the factors listed are not exclusive, it provides a starting point for discussions with the agency in the event of an investigation, and gives executives an additional tool to evaluate the likelihood of prosecution and prepare defenses.
One additional development of interest to companies navigating the current FDCA enforcement environment is the Supreme Court’s recent decision in Sorrell v. IMS Health Inc.30 In Sorrell, the Supreme Court struck down a Vermont law preventing pharmacies from sharing information about doctors’ prescribing practices with pharmaceutical marketers as a violation of the First Amendment. Sorrell provides pharmaceutical and medical device manufacturers with powerful constitutional arguments against the comparatively narrow interpretation of the First Amendment currently held by the Department of Justice and the FDA. Sorrell’s influence will unfold in a variety of arenas — regulatory, litigation, legislative — but prohibitions on "off-label" promotions are likely to be challenged by entities seeking to legitimately provide physicians with truthful and non-misleading information about medically accepted uses for pharmaceuticals and devices approved by the FDA. Whether the Sorrell decision causes enforcement officials to pause before instituting Park-based criminal prosecutions remains to be seen.
Risk Reduction Strategies
Given the serious potential consequences of criminal liability under Park and prevailing uncertainty as to how and when it will be used, it is essential that companies implement comprehensive compliance programs designed to show they took "extraordinary care" to prevent FDCA violations — to protect themselves and their executives.31 Compliance programs not only reduce the likelihood of violations in the first instance but position executives and companies to mitigate potential consequences and present a strong defense in an enforcement action.
Several sources provide guidance as to the kinds of compliance measures that evidence "extraordinary care" in the eyes of the FDA, including the Sentencing Guidelines, OIG Final Compliance Program Guidance, and recent guidance on how OIG it will exercise its exclusion authority.32 In particular, the FDA has indicated that recent corporate integrity agreements with OIG, which impose compliance obligations undertaken in settlements, serve as “roadmaps” for shielding executives from strict liability under Park.33 As relevant here, common provisions include: (1) Hire a compliance officer/appoint a compliance committee; (2) Develop written standards and policies; (3) Implement a comprehensive employee training program; (4) Retain an independent review organization to review regulated activities; (5) Establish a confidential disclosure program and (6) Restrict employment of debarred individuals.34 OIG’s final Compliance Program Guidance for Pharmaceutical Manufacturers recommends similar measures, including: implementing written policies and procedures, designating a compliance officer and compliance committee, conducting effective training and education, developing effective lines of communication, conducting internal monitoring and auditing, enforcing standards through well-publicized disciplinary guidelines and responding promptly to detected problems and undertaking corrective actions.35 The US Sentencing Guidelines incorporate similar measures in describing an "effective corporate compliance and ethics program," likewise emphasizing written standards, active oversight, employee training, and promoting an overall culture of compliance.36
Further, as the Guidelines suggest, companies should regularly review and audit existing compliance programs in consultation with outside counsel to ensure they represent current best practices in compliance, incorporate relevant legal developments, and respond appropriately in a test environment.37 Likewise, case law, recent indictments of pharmaceutical companies and executives, and OIG guidance all underscore the importance of responding to misconduct — both in thoroughly investigating complaints and implementing corrective actions designed to prevent problems from recurring. When appropriate, timely reporting of misconduct also can factor into favorable treatment from the government.38 Finally, companies should maintain thorough written documentation of compliance measures in the event they need to show they exercised "extraordinary care."
Though compliance programs can seem burdensome to implement and maintain, their cost pales in comparison to the potential consequences of FDCA violations. Even when a company manages to avoid criminal liability or exclusion, the costs of a FDCA violation remain high — including fines, burdensome remedial measures, ongoing oversight, and potential criminal liability and exclusion for individual company executives.39 A compliance program structured to deter violations and detect them early is always a company’s best option — particularly in the current enforcement environment.
Misdemeanor FDCA violations are an increasingly important enforcement tool, and the FDA has warned that criminal prosecutions and exclusion of individual executives are forthcoming. To mitigate the risks of both corporate and individual liability, companies and their officers should take "extraordinary care" to prevent FDCA violations by implementing a thorough, well-documented corporate compliance program. Companies and executives that can demonstrate a commitment to compliance, regular monitoring, and proactive and effective responses to misconduct significantly reduce their risk of criminal liability and position themselves favorably to defend against potential enforcement actions.