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Supreme Court to Review Vermont Prescription Data-Mining Law

February 2011

The Supreme Court has agreed to hear a constitutional challenge to a Vermont statute barring the sale or use of prescriber-identifiable data for the marketing of prescription drugs.  The case may allow the Court to resolve an apparent conflict between the Second Circuit, which held the law unconstitutional, and the First Circuit, which previously upheld similar Maine and New Hampshire laws.

The case, IMS Health Inc. v. Sorrell, concerns a Vermont state law that prohibits pharmaceutical companies from using prescriber (doctor)-identifiable data in marketing activities.  Vermont pharmacies collect data regarding a prescribing doctor's name, address, drug and dosage, and the age and gender of the patient when filling prescriptions.  For some time, pharmacies in Vermont have sold this data to data mining companies, which in turn license the data to pharmaceutical companies.  The pharmaceutical companies use the data on prior prescribing practices in marketing their products to particular doctors.  Backers of the law contend that restricting brand name manufacturers' access to this data may encourage greater use of generic drugs, ultimately reducing medical costs and promoting public health.  Interestingly, the "privacy" interest at issue is that of the doctors, not the patients.

Prior Litigation

Pharmaceutical companies challenged the Vermont statute, asserting that its prohibition on the use of prescriber-identifiable data in marketing is a violation of their right of commercial speech, protected by the First Amendment.  A panel of the Court of Appeals for the Second Circuit agreed in a 2-1 decision.  IMS Health Inc. v. Sorrell, 2010 WL 472183 (2010).  The majority held that the law does not pass muster under the well-established Central Hudson standard for reviewing commercial speech claims.  The court held that Vermont's asserted interest in medical privacy was too speculative on these facts to constitute a substantial state interest.  It further held that the statute did not "directly advance" the state interest in public health and reducing medical costs, but did so only very indirectly.  Finally, the court ruled that the law applied overly broadly.  The dissent viewed the case as not involving commercial speech at all, but rather the dissemination of confidential prescriber-identifiable data and the process by which it is collected and sold.

The decision of the Second Circuit panel conflicts with decisions of the First Circuit in IMS Health Inc. v. Ayotte, 550 F.3d 42 (1st Cir. 2008), which upheld a similar law, and an even more recent decision upholding a similar Maine law, IMS Health Inc. v. Mills, 616 F.3d 7 (1st Cir. 2010).  In these cases, district courts in New Hampshire and Maine had held the laws unconstitutional on commercial speech grounds, but were reversed by the First Circuit.  The First Circuit concluded that the statutes regulated conduct, not speech, but if viewed as regulating speech, the statutes satisfied the Central Hudson test.

How the Supreme Court decides the Sorrell case could have implications for a number of regulatory regimes that affect the transfer and use of data.  It is likely that the Court will hear argument early this year and issue a decision by June.