IMS Health Inc. v. Sorrell

(U.S. Court of Appeals for the Second Circuit)

• Supporting Businesses' First Amendment Rights to Buy and Sell Information for Commercial Purposes

This Vermont case is one of three cases brought in federal courts in New England challenging state laws that restrict the transfer and use for commercial purposes of information regarding individual physicians’ medication prescribing practices, so-called “prescriber-identifiable information.”  This data is sold by pharmacies to data-mining companies like plaintiff IMS Health, which organize and compile the data and sell it to pharmaceutical companies for use in “detailing,” or marketing their drugs to doctors.  Laws restricting pharmacies from selling this data and pharmaceutical companies from using it for commercial purposes have been enacted in New Hampshire, Maine, and Vermont.  While these cases most immediately affect the rights of pharmacies and pharmaceutical companies, they raise more generally questions regarding the level of protection to be afforded the sale or other voluntary transfer of information (e.g., marketing lists) by and between businesses.  NELF filed an amicus brief, on behalf of itself and co-amicus National Association of Chain Drug Stores (“NACDS”), in support of IMS Health at the trial level in the Vermont federal district court case against Vermont’s Attorney General.  NELF’s brief focused on the first transfer of information at issue -- namely, the sale of the prescriber-identifiable data by pharmacies to data-mining companies.  NELF’s brief argued for a narrow application of the concept of “commercial speech,” a designation that entitles speech to a lesser level of protection from government regulation than that accorded non-commercial speech.  Specifically, NELF and NACDS argued that the Vermont Prescription Restraint Law, 18 V.S.A. § 4631(d), with its prohibition on pharmacies’ sales of prescriber-identifiable data for commercial purposes without prescribers’ consent, constitutes a restriction on noncommercial speech that must be subjected to, and cannot survive, strict scrutiny under the First Amendment to the United States Constitution.  NELF’s brief argued, based on Supreme Court and Second Circuit opinions, that “commercial speech” is speech that primarily proposes a commercial transaction (i.e., advertising or marketing) and does not properly encompass other sales or transfers of information just because they occur between businesses.  NELF and NACDS further argued that, in our “information age,” sales and other voluntary transfers of data by and between businesses are fundamental to the free enterprise system and often serve, as in this instance, societal interests as well as the interests of individual businesses.  Since market forces provide the incentives and resources for dissemination of most information in our society, restricting the transfer and use of data for commercial purposes can be expected to have consequences far beyond that intended focus to the detriment of the public interest.  In his 2009 decision, U.S. District Judge Murtha agreed with NELF that the Vermont statute restricts speech, as opposed to just conduct, but concluded that the regulated speech qualifies as “commercial speech” and that the Vermont statute survives the intermediate level of scrutiny applicable to that category of speech under the First Amendment.  The court appeared to consider “commercial speech” as encompassing any information that is put to a commercial use, a definition that appears in conflict with both Supreme Court and Second Circuit precedent.  IMS appealed to the Second Circuit and NELF filed an amicus brief in support of IMS in the appeal.  In a decision issued on November 23, 2010, while agreeing with the lower court that the speech at issue is commercial speech, the Second Circuit nevertheless reversed, consistent with NELF’s position that the Vermont statute violates the First Amendment, although for different reasons.  The Second Circuit viewed the restriction as unconstitutional because it unduly restricts commercial speech under the Supreme Court’s Central Hudson balancing test.  The Supreme Court has granted the Attorney General of Vermont’s petition for certiorari, and NELF intends to file an amicus brief on the merits in support of IMS Health in the Supreme Court making arguments similar to those in its Second Circuit brief, arguing that the speech in question is not commercial under the Supreme Court’s prevailing test because it does not propose a transaction and therefore should be accorded full protection under the First Amendment.