Schering Corp. v. Pfizer Inc.

• Decision Date: 01 August 1998
• Docket Number: Docket No. 99-7285
• Citation: 189 F.3d 218
• Parties: (2nd Cir. 1999) SCHERING CORPORATION, Plaintiff-Appellant, v. PFIZER INC. and UCB PHARMA, INC., Defendants-Appellees
• Court: U.S. Court of Appeals — Second Circuit

Page 218

189 F.3d 218 (2nd Cir. 1999)

SCHERING CORPORATION, Plaintiff-Appellant, v. PFIZER INC. and UCB PHARMA, INC., Defendants-Appellees.

Docket No. 99-7285

August Term, 1998

UNITED STATES COURT OF APPEALS

SECOND CIRCUIT

Argued May 10, 1999

Decided Aug. 17, 1999

As Amended on Rehearing

Sept. 29, 1999.

Appeal from an order of the United States District Court for the Southern District of New York (Lawrence M. McKenna, Judge) denying plaintiff's motion for a preliminary injunction. After excluding five scientifically conducted surveys - which constituted plaintiff's primary evidence in support of its motion - the district court held that there was insufficient evidence to grant the motion.

Vacated and remanded.

[Copyrighted Material Omitted] GREGORY L. DISKANT, Patterson, Belknap, Webb & Tyler LLP, New York, New York (Andrew D. Schau and Todd R. Geremia, on the brief, Michael M. Martin, Robert Trainor and Kenneth Hanley, of counsel), for Plaintiff-Appellant.

JACQUELINE R. DENNING, Arnold & Porter, New York, New York (David H. Futterman, William W. Vodra, Annalisa Pizzrello, Randall Miller and Anthony D. Boccanfuso, on the brief, George W. Evans and Joseph M. Gaynor, of counsel), for Defendants-Appellants-Cross-Appellees.

Before: OAKES, PARKER,^*. and SOTOMAYOR, Circuit Judges.

SOTOMAYOR, Circuit Judge:

This appeal invites us to revisit an increasingly important issue in the law of evidence, and one that has confused many courts. Today we clarify the circumstances under which scientifically conducted surveys may be admitted into evidence over a hearsay objection. The case comes to us on appeal from an order of the United States District Court for the Southern District of New York (McKenna, J.) denying a motion for a preliminary injunction made by plaintiff-appellant Schering Corporation ("Schering") against defendants-appellees Pfizer Inc. ("Pfizer") and UCB Pharma, Inc. ("UCB"). The primary evidence Schering offered in support of its motion were the results of five surveys in which physicians were asked to relate their memories, and sometimes their impressions, of communications that defendants' sales representatives had made in the course of their promotional campaigns. Schering offered these surveys to support the more general proposition that defendants' representatives were engaging in widespread false promotional activity in violation of both the Lanham Trade-Mark Act, 15 U.S.C. § 1051 et seq. (1994) (the "Lanham Act"), and a settlement agreement between the parties. The district court excluded all five surveys on hearsay grounds and then ruled that there was insufficient evidence to support a preliminary injunction.

We hold that two of the surveys in this case, which polled physicians' impressions of the communications at issue, should have been admitted under the present state of mind exception to the hearsay rule, see Fed. R. Evid. 803(3), for the limited purpose of establishing a pattern of implied falsehood. We also find that in determining whether to admit the five surveys to establish literal falsehoods under the residual hearsay rule, see Fed. R. Evid. 807, the district court relied on an erroneous per se rule against memory surveys offered to prove the facts remembered. The court thereby abused its discretion, and we remand to the court to determine the surveys' trustworthiness on the basis of their methodological strengths and their relative susceptibilities to the risks of faulty memory and perception. Finally, we hold that the district court should have admitted one of the surveys, which Pfizer itself commissioned, as well as Pfizer's internal analysis of this survey as party admissions. See Fed. R. Evid. 801(d)(2).

Because the survey evidence was integral to Schering's case, we vacate the district court's denial of a preliminary injunction and remand for reconsideration.

BACKGROUND

Schering is a pharmaceutical corporation that produces Claritin, a leading prescription antihistamine. A factor that strongly contributes to success in the antihistamine market is whether a drug can deliver effective relief from hay fever and other allergy symptoms without causing drowsiness. The first generation of antihistamines, introduced in the 1940s, caused drowsiness in a high percentage of users, and modern over-the-counter antihistamines have this same effect. Claritin, by contrast, is a new, second-generation prescription antihistamine, launched in 1993, which causes no more sedation than placebos in clinical tests. This feature has been important to Claritin's market success.

UCB is a European pharmaceutical company that has developed a competing second-generation prescription antihistamine called "Zyrtec." Because of UCB's limited presence in the United States, UCB licensed Pfizer, a Delaware corporation, to co-promote the product domestically. Regulations promulgated by the United States Food and Drug Administration ("FDA") required Pfizer to perform several controlled clinical tests on Zyrtec before the drug could be registered for domestic use, however, and these tests revealed that Zyrtec causes approximately twice as much sedation as a placebo. The FDA therefore required Pfizer to caution both physicians and consumers, through proper labeling and warning instructions, that Zyrtec has these sedating qualities. The FDA also warned Pfizer that it would be misleading to advertise Zyrtec by focusing on the rate at which customers discontinued using the drug because of somnolence (i.e., 1%) rather than the drug's somnolence level itself (i.e., 11-14%).

In early 1996, Pfizer and UCB began selling Zyrtec in the United States. To promote the product, Pfizer used a method that is common in the pharmaceutical industry: it employed a team of approximately 1200 sales representatives to visit physicians across the nation and emphasize the product's qualities in one-on-one informational meetings called "detailings." In these meetings, Pfizer representatives were to promote Zyrtec, persuade doctors to prescribe it more often and respond to any questions or concerns that doctors might have about the drug. No records were kept of these meetings.

Suspicious that Zyrtec representatives might be misrepresenting the product's somnolence levels in the detailings, Schering hired IMS America, a commercial vendor of market surveys, to conduct a survey of physicians to determine whether any such misrepresentations were being made. The survey results led Schering to believe that they were. In February 1996, Schering thus filed suit against Pfizer for violating Section 43(a)(2) of the Lanham Act, 15 U.S.C. § 1125(a)(2) (1994), by false advertising. See Schering Corp. v. Pfizer, Inc., No. 96 Civ. 1462 (LMM) (S.D.N.Y. Feb. 29, 1996). On April 4, 1996, this dispute ended in a settlement agreement (the "Settlement Agreement"), under which Pfizer and UCB agreed not to permit their sales representatives to state either "expressly or by implication" that Zyrtec was "nonsedating," "essentially nonsedating" or "low sedating." These restrictions applied to all forms of advertising, including "verbal statements made to doctors."

In order to monitor Pfizer's and UCB's compliance with the Settlement Agreement, Schering hired DTW in early 1998 to perform another survey of physicians concerning statements being made in the detailings. This survey polled 78 physicians who had been detailed between March 30 and June 5, 1998, and who were allegedly representative of a panel of over 6000 physicians nationwide who prescribe high volumes of antihistamines.¹ The doctors were asked the following question on the same day as the detailings:

What did the sales representatives tell you about [Zyrtec]? Please be as specific and complete as you can in describing the message or information that was conveyed to you about [Zyrtec].

The survey results suggested that approximately 30% of the Zyrtec agents were representing that the drug was either low sedating or nonsedating.

Schering subsequently commissioned a second survey from DTW, which was customized to be representative of a panel of over 6000 physicians nationwide who prescribe antihistamines in any amount. The survey polled 98 physicians shortly after they were detailed and asked more specifically: "What did the representative say about the product and sedation?" Approximately half of the physicians polled reported a representative describing Zyrtec as low sedating or nonsedating.

Schering subsequently wrote a letter to Pfizer dated June 19, 1998, complaining of pervasive violations of the Settlement Agreement based on the results of these surveys. Pfizer denied the violations but assured Schering that it would remind its sales force to comply with the mandates of the agreement. Schering then continued to monitor Pfizer's compliance by commissioning another survey, this time from the firm Clarke, Matire and Bartolomeo ("CMB"). This survey polled 200 physicians, who were selected randomly from those who prescribe antihistamines in above-minimal quantities nationwide. The interviews took place within a day of the detailings, between July 23 and September 17, 1998, and included the following question: "During (today's/yesterday's) Zyrtec detail, did the rep say anything about Zyrtec tablets and sedation?" The survey indicated that 47% of Zyrtec representatives were calling the product either low sedating or nonsedating.

On October 5, 1998, Schering brought suit in the United States District Court for the Southern District of New York seeking a preliminary injunction against alleged ongoing and pervasive breaches of the Settlement Agreement and Section 43(a)(2) of the Lanham Act. In the course of discovery, Schering learned that soon after receiving Schering's original letter of complaint, Pfizer had commissioned Market Measures Inc. ("MMI") to perform a "FasTape Survey," a common type of market survey that probes the main messages conveyed in an advertising campaign, "to...