Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

When regulation collides with free speech

In a ruling earlier this week that has implications for regulations in other fields (including finance), the US Court of Appeals (second circuit) concluded that “the government cannot prosecute pharmaceutical manufacturers and their representatives under the FDCA for speech promoting the lawful, off-label use of an FDA-approved drug.” The US Food and Drug Administration when approving a drug for certain (on-label) purposes does not prohibit physicians from prescribing the drug for other (off-label) purposes, but prohibits the drug companies from marketing the drug for off-label purposes. The Court ruled that the FDA could ban off-label use if it chose to, but could not permit such use and then require some parties to keep quiet about it:

… prohibiting off-label promotion by a pharmaceutical manufacturer while simultaneously allowing off-label use “paternalistically” interferes with the ability of physicians and patients to receive potentially relevant treatment information; such barriers to information about off-label use could inhibit, to the public’s detriment, informed and intelligent treatment decisions. (Page 44)

Financial regulators are also in the habit of regulating speech in all kinds of situations – the US SEC’s infamous quiet period rule is a good example. The Circuit Court ruling quotes a Supreme Court judgement that “regulating speech must be a last – not first – resort”. This is something that all regulators particularly in the financial sector must bear in mind.


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