Smelling a Rat: Feds Threaten Drug CEOs With "Park Doctrine," But What Is It?

Last Updated Oct 14, 2010 1:34 PM EDT

The FDA's deputy litigation chief threatened to prosecute drug company CEOs as individuals for illegally promoting pharmaceuticals for unapproved or "off-label" uses, becoming the third senior federal official to suggest that it was a matter of time before a Big Pharma CEO stars in their own episode of Law & Order. FDA's Eric Blumberg said:
"It's clear we're not getting the job done with large, monetary settlements," Blumberg said. "Unless the government shows more resolve to criminally charge individuals at all levels in the company, we cannot expect to make progress in deterring off-label promotion."
Fourteen companies have paid big fines recently for the illegal promotion of drugs on the taxpayers' dime. Federal officials have developed a habit of threatening to charge individuals -- because corporate fines and settlements have essentially been priced in to the Big Pharma revenue model -- but not actually doing so. This time around, Blumberg added a new ingredient to the mix: Using the "Park Doctrine" against CEOs.

But what is the Park Doctrine? If the FDA makes good on its word, then CEOs running shoddy operations ought to quake in fear: The Park Doctrine allows prosecutors to hold CEOs responsible for the crimes of their underlings, even if they had no specific knowledge of their actions, on the general principle that CEOs have a responsibility to ensure that their organizations follow the law.

It stems from a 1975 case, U.S. v. Park, in which Acme Markets pled guilty to shipping rat-contaminated food across state lines after the FDA had warned the company not to do so. The president of the company, John Park, did not plead guilty, arguing that he had relied on his subordinate to correct the problems. The executive admitted he was "responsible for in the entire operation of the company" but denied that he should be held responsible for what occurred in his Baltimore and Philadelphia warehouses. He was charged with violating the Federal Food, Drug and Cosmetic Act. The U.S. Supreme Court held:

... to find guilt [a jury] must find respondent "had a responsible relation to the situation," and "by virtue of his position . . . had . . . authority and responsibility" to deal with the situation.
... the Act imposes the highest standard of care and permits conviction of responsible corporate officials who, in light of this standard of care, have the power to prevent or correct violations of its provisions.
On its face, the Park Doctrine contains some scary potential liabilities for drug CEOs. A misdemeanor conviction could ban a CEO from doing business with Medicare or Medicaid -- and thus end their career in the drug business. Some companies, such as Pfizer (PFE), have employee headcounts of up to 130,000 people. It simply isn't possible for the CEO to make sure they're all obeying the law. Worse, in Park the court imposed liability even though Park had been told by his counsel that the head of the Baltimore facility was taking steps to remedy the rat situation.

Juries get to consider both sides, of course, and could still have found that Park was innocent. But the implication of Park is that CEOs must do more than send the occasional memo saying "fix this." Rather, they must take responsibility and ensure the company is obeying federal law. It's not just about nailing the CEO; it's about nailing the executive whose job it was not to screw up. As Chief Justice Warren Burger wrote:

... the main issue for determination was not respondent's position in the corporate hierarchy, but rather his accountability.
Related: Image by Flickr user asplosh, CC.