WLF “Legal Opinion Letter” Decries Proposed DTC Legislation as Unconstitutional

By Hyman, Phelps & McNamara, P.C.
Sep 10, 2007

In a September 7, 2007 “Legal Opinion Letter” published by the Washington Legal Foundation, attorneys Arnold I. Friede and John F. Kamp criticize legislation introduced earlier this year that would disallow a tax deduction for certain Direct-To-Consumer (“DTC”) prescription drug advertisements.

The bill, H.R. 2823, titled the “Fair Balance Prescription Drug Advertisement Act of 2007,” was introduced on June 21, 2007 by Representative Pete Stark (D-CA). If enacted, the bill would amend the Internal Revenue Code to disallow a tax deduction for: (1) expenses for DTC prescription drug advertising that fails to provide adequate information on drug side effects, contraindications or lack of effectiveness, or advertising that does not present such information in a balanced manner (what Friede and Kamp refer to as a “perfect balance” disclosure standard); and (2) expenses for DTC prescription drug advertising of a new drug, a new combination of active substances, or a new delivery system for an existing drug for a 2-year period after the introduction of the drug into interstate commerce. H.R. 2823 would also amend the FDC Act to require FDA to report to the Secretary of the Treasury on misbranding and other violations relating to DTC advertising.

According to Friede and Kamp, the “Fair Balance Prescription Drug Advertisement Act of 2007:”

is starkly unconstitutional under the First Amendment. Several separate and distinct lines of constitutional reasoning support this conclusion . . . . First, the intent of this bill is to ban or suppress advertising through the tax code. The central intent [of H.R. 2823] is not to raise tax revenues; it is censorship, plain and simple. As the Supreme Court taught us long ago in Grosjean vs. Am. Press Co., 297 U.S. 233 (1936), regulating speech under the “guise” of taxation is a particularly “odious method[]” of regulation. . . . Second, the “perfect balance” provisions of the Stark Bill that would eliminate tax deductibility for expenses for DTC advertising under § 502(n) of the [FDC Act] have serious due process problems that compound the underlying First Amendment concerns. . . . [U]nder the “perfect balance” provisions, the FDA could make a unilateral decision that has the effect of banning speech in advertising that is otherwise truthful and not misleading. This would violate the constitutional protections of due process of law. . . . Third, there is an extremely serious question whether a violation of § 502(n) of the [FDC Act] or any new “perfect balance” regulations promulgated by FDA could be characterized as false or inherently misleading and thereby obviate the government’s burden to prove the remaining prongs of the Central Hudson balancing test, [which is the test devised by the Supreme Court in Cent’l Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557, 564 (1980) for sustaining a governmental restriction on commercial speech.]

Rep. Stark, not surprisingly, takes a contrary view regarding the constitutionality of the bill. In comments published in the Congressional Record with the introduction of H.R. 2823, Rep. Stark stated:

There are freedom of speech concerns with directly prohibiting advertising, accurate or not. This legislation therefore takes a different approach, hitting drug companies where it hurts them most, their bottom lines. While companies could continue running misleading ads, they would have to pay significantly more to do so. This will discourage drug companies from engaging in dishonest marketing practices.

Since it was introduced in June, H.R. 2823 has been referred to the House Ways and Means and Energy and Commerce Committees where it has remained dormant. Rep. Stark introduced similar versions of the Fair Balance Prescription Drug Advertisement Act in the 106th (H.R. 4686), 107th (H.R. 2352), and 108th (H.R. 3155) Congresses.