Pharmaceutical giants Genentech Inc. and OSI Pharmaceuticals LLC have coughed up $67 million to finally settle allegations against them under the US False Claims Act of 1863 (FCA). The United States Department of Justice (DOJ) stated in a public release that “Genentech and OSI Pharmaceuticals made misleading representations to physicians and other health care providers about the effectiveness of Tarceva to treat certain patients with non-small cell lung cancer, when there was little evidence to show that Tarceva was effective to treat those patients unless they also had never smoked or had a mutation in their epidermal growth factor receptor, which is a protein involved in the growth and spread of cancer cells.” These allegations were raised by former Genentech employee Brian Shields in a lawsuit against Genentech and OSI before a San Francisco Court.
The False Claims Act, enacted by President A. Lincoln, is a unique regulatory mechanism. It is the government’s primary litigation tool for recovering losses resulting from fraud against the government. The FCA finds its unique characteristic in its qui tam actions. That is to say that the FCA makes room for private individuals (whistleblowers), who are termed relators, to pursue action and assist the government in prosecuting violators in exchange for a share of (around 15-20%) their liability or settlement amount. Accordingly, Brian Shields has earned himself a neat $10 million for bringing down his ex employer. Given that the government raked in a total of around $39 billion between 1987 and 2013 and that 70% of all federal FCA actions in 2012 were initiated by whistleblowers, it is safe to say that this reward-based anti-fraud mechanism is working wonders for US governance.
Justifying Qui Tam
Qui tam mechanisms have evidently performed well in achieving justice. Having incorporated qui tam in the FCA, US lawmakers ensured that the government (prosecution) will have access to the deepest secrets of those prosecuted through the minds of relators. But is it really necessary to keep a share for relators? For example, Brian Shields’ $10 million could have been put to better use if applied to public interest government initiatives. Joel D. Hesch answers in the affirmative. In his brilliant paper, not only has Hesch applauded the FCA’s qui tam system, but has also argued for an increase in the quantum of relators’ share. He argues that fraud has become an increasingly menacing parasite to the government. He states that up to 10% of all government spending, which was around $3.5 trillion in 2011, is being lost to fighting fraud. He argues that this is good enough reason to keep aside a share for incentivizing whistleblowers to pursue action against FCA defaulters.
Current Scenario in India
Unfortunately, there are no laws in India providing no qui tam actions. That’s a real shame, considering India could use such an effective weapon to attack and curb corruption. Furthermore, investigation based actions such as violations of competition law and environmental law would benefit immensely from qui tam enforcement as it provides access to priceless insider information. However, the mere availability of qui tam enforcement is not enough to go the distance. In a piece carried by Livemint, the author Nicholas Robinson rightly points out that even willing whistleblowers may be unable to afford prolonged litigation against MNCs unless lawyers are allowed to ask contingency fees.
India isn’t entirely ignorant of anti-fraud legislation though. Almost a decade ago, the 2nd Administrative Reforms Commission highlighted this issue in its fourth report titled ‘Ethics in Governance’. The Report contemplated a law modeled on the US FCA; especially in featuring a reward-based enforcement system. Furthermore, the Report recommends that ‘if the false claim is established in a court of law, then the person/ agency responsible shall be liable for penalty equal to five times the loss sustained by the exchequer or society. The loss sustained could be monetary or non-monetary as in the form of pollution or other social costs. In case of non-monetary loss, the court would have the authority to compute the loss in monetary terms and that the person who brought the suit shall be suitably compensated out of the damages recovered’. In fact, the then Law Minister Veerapa Moily showed some initiative in 2011 to bring on legislation akin to the US FCA. However, the Indian FCA has never seen the light of day.
Nevertheless, there are several laws in India which deal with the civil and criminal liabilities of supplying false information to government officials. In the context of patents and pharmaceutical drugs, Section 146 of the Patents Act, 1970 requires patentees and their licensees to furnish true and accurate information in a statement in Form-27 in relation to the working of the patented product. Failure to comply will attract a penalty of up to Rs. 10,00,000/- (Rupees Ten Lakh) and imprisonment up to six months as provided under Section 122 of the Patents Act. Furthermore, a patent is liable to be rejected under Section 64(1)(j) if the patent was obtained on a false suggestion or representation.
False Information and Section 3(d)
Information supplied to the Indian Patent Office by pharmaceutical patent applicants on the efficacy of their inventions can have a major impact on public health. There can most certainly be instances where such applicants supply false, inaccurate or exaggerated reports on the efficacy of their drug and on whether the invention has efficacy truly more enhanced than its predecessor. Needless to say, an overburdened IPO is likely to overlook such misinformation. If granted, the patent would stand valid right up to the time where it is challenged under Section 3(d) and would cost the exchequer a considerable amount of time, effort and money to eventually invalidated and revoked under Section 64(j) of the Patents Act. For instance, Ajanta Pharma Ltd. successfully argued before the IPAB for revocation of Allergan’s Combigan inter alia on the ground that the latter made false representations to the Patent Office. Similarly many other entities would come forward and challenge patents, for reasons other than competition, if they were promised a stake in the defaulter’s liability. Therefore, a robust anti-fraud legislation, like the US FCA, and huge monetary penalties would be strong deterrents against efforts to patent inventions clearly devoid of enhancement in efficacy under Section 3(d).