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United States v. Caputo

February 27, 2008


Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 03 CR 126-Ruben Castillo, Judge.

The opinion of the court was delivered by: Easterbrook, Chief Judge


Before EASTERBROOK, Chief Judge, and KANNE and EVANS, Circuit Judges.

An autoclave sterilizes medical instruments quickly and cheaply. But some instruments can't stand the high temperatures and pressures of an autoclave, so there is a demand for sterilizers that use lower temperatures and non-aqueous sterilants. One system in widespread use relies on ethylene oxide gas as the sterilant. That gas is toxic and hard to handle, however, and Ross Caputo saw a business opportunity in these drawbacks. He designed a low-temperature system using a plasma of peracetic acid as the sterilant and in 1990 asked the Food and Drug Administration to approve this device, which his company AbTox Inc. called the Plazlyte.

Since 1976 it has been unlawful to sell a new medical device without the FDA's approval. The Medical Device Amendments to the Food, Drug, and Cosmetic Act have a grandfather clause covering devices that had been lawfully sold on or before May 28, 1976, or are "substantially equivalent" to them. 21 U.S.C. §360c(f)(1)(A)(ii). AbTox asked the FDA to approve sales of a Plazlyte as "substantially equivalent" to units that employ ethylene oxide as the sterilant. We refer to "a" Plazlyte rather than "the" Plazlyte because AbTox made at least two models. The first had an interior volume of one cubic foot and used 10% peracetic acid made by mixing water with a solution of 30% peracetic acid. The water and the 30% solution were in separate bottles. This device used a two-cycle procedure, applying gas plasma twice to sterilize the instruments. The second model had an interior volume of approximately five cubic feet, used 5% peracetic acid from a single bottle (no dilution with water from a second bottle), and ran just one cycle, at a different pressure from the first model. We call the first model the small Plazlyte and the second model the large Plazlyte.

AbTox submitted the small Plazlyte for approval in 1990. It also submitted only those tests that favored the device's effectiveness; others, less helpful to AbTox, were concealed (or so a jury could conclude; we recount the evidence in the light most favorable to the verdict). The agency's staff doubted whether the Plazlyte was equivalent to ethylene oxide systems and insisted on limiting the uses to which it could be put. When the FDA signed off on the small Plazlyte in 1994, it approved the device only for use with solid stainless-steel instruments. If AbTox wanted to sell the Plazlyte to sterilize instruments containing interior space that the gas plasma might not fully penetrate (such as those with hinges or lumens) or instruments made from materials that might react chemically with peracetic acid (C2H4O3), an organic peroxide, it had to file an application for approval as a new device rather than one equivalent to a grandfathered device. Any medical instrument containing plastic, solder (usually made of lead, tin, or silver), or brass (an alloy of copper and zinc) was outside the scope of the FDA's approval.

A new and expensive machine (Plazlytes sold for about $100,000) for sterilizing solid instruments made of stainless steel had no prospect in the market. Autoclaves are cheaper and don't require the handling of acids. Caputo understood that AbTox would never be able to sell a single unit of the small Plazlyte for the limited use approved by the FDA. Caputo (and his assistant Robert Riley) did not try. Instead they immediately began promoting the large Plazlyte as a replacement for ethylene-oxide devices, and thus as suitable for general-purpose sterilization. It had begun selling the large Plazlyte outside the United States in 1993; thus, long before receiving the FDA's approval to sell the small Plazlyte, it knew that the small device would never be marketed and that the large Plazlyte would be promoted for use with many kinds of instruments-though it did not tell the FDA these things when negotiating the details of the limited use that would be allowed to the small Plazlyte.

Problems ensued when some hospitals used the Plazlyte to sterilize brass instruments employed for procedures in the eye. The Plazlyte left a blue-green residue on some of these instruments-and, although the instruments were sterile, the residue (copper and zinc acetate) was harmful to patients' eyes. Some patients experienced corneal decompensation, a severe condition that entails loss of vision.

In May 1995 the FDA found out what AbTox was telling customers and reminded it about the limitations on the scope of approval. This notice informed AbTox that the Plazlyte as promoted was "misbranded". AbTox then sought the FDA's approval to sell the large Plazlyte to sterilize a wider class of instruments; when the FDA rejected AbTox's request for expedited decision and told AbTox that it "may not market this device until you have received a letter from the FDA allowing you to do so", AbTox went on promoting the large Plazlyte as before. On September 27, 1996, the FDA sent AbTox another instruction to stop selling the large Plazlyte; AbTox failed to comply (though it did not tell the FDA so). The agency never authorized AbTox to sell the large Plazlyte for any use.

The Centers for Disease Control opened an investigation to discover what was causing the eye injuries. Meanwhile, in January 1998, the FDA inspected AbTox's facilities and discovered that it was still selling the large Plazlyte. The inspectors told AbTox to desist; it didn't. In April 1998 the FDA issued a warning to all hospitals, telling them that the large Plazlyte was not an approved device and at all events must not be used with any instruments containing solder, copper, or zinc, or for any ophthalmic instruments. The FDA directed AbTox to recall the devices; U.S. marshals seized its inventory; this criminal prosecution eventually followed.

The prosecutor threw the book at Caputo and Riley. The indictment charged them with conspiring to defraud the United States, 18 U.S.C. §371, mail fraud, 18 U.S.C. §1341, wire fraud, 18 U.S.C. §1343, lying to federal agents, 18 U.S.C. §1001, and the delivery of misbranded devices, 21 U.S.C. §§ 331(a) and 333(a)(1). A jury convicted them of these charges after an eight-week trial. Caputo has been sentenced to 120 months' imprisonment and Riley to 72 months. Both were ordered to make restitution of $17.2 million, the list price of all Plazlyte units ever sold.

Defendants' lead argument is that the Food, Drug, and Cosmetic Act violates the first amendment by restricting promotional materials to those uses that the FDA has approved. The argument starts from the premise that federal law allows customers of any approved medical device or drug to put it to any use that the customer sees fit. These "off-label uses" being lawful, the argument goes, it must also be lawful to tell customers about them.

Until the last 30 years, such an argument would have been laughed out of court. Valentine v. Chrestensen, 316 U.S. 52 (1942), had held that "commercial speech"-that is, speech promoting a product for sale-is not part of the "freedom of speech" as that term was understood in 1789. But the Court overruled Valentine in Virginia Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (1976), holding that the government cannot regulate by ensuring ignorance among consumers. If it is lawful to sell a product then, the Court held, it must be lawful to inform consumers that the product is available to buy. Consumers themselves must decide what to do; the Constitution forecloses an enforced ignorance based on a paternalistic view that informed consumers will make mistakes. See also, e.g., Greater New Orleans Broadcasting Ass'n, Inc. v. United States, 527 U.S. 173 (1999); Rubin v. Coors Brewing Co., 514 U.S. 476 (1995); Bolger v. Youngs Drug Products Corp., 463 U.S. 60 (1983); R.H. Coase, Advertising and Free Speech, 6 J. Legal Studies 1 (1977).

For a time judges thought the Supreme Court's new understanding inapplicable to drugs (and, by implication, medical devices): Federal law allows vendors to tell customers about all lawfully available drugs and devices, after all, and thus avoids the precise problem presented by Virginia Citizens Consumer Council. But federal law does prohibit manufacturers from alerting consumers to lawful off-label uses, and Thompson v. Western States Medical Center, 535 U.S. 357 (2002), held that this limit is unconstitutional in at least some applications. A federal law allowed pharmacists to compound some drugs that had been approved for stand-alone sales, creating substances that had not been subjected to the normal testing. The legislation granting pharmacists this compounding privilege attached conditions to the way they could promote the compounded drugs. The Court held these limits unconstitutional: if the compounded drug could be sold, the Court held, then it could be freely promoted for every lawful use. Western States Medical Center establishes that drugs are not a special case for first-amendment analysis. (The Court once held that gambling is a special case, see Posadas de Puerto Rico Associates v. Tourism Co. of Puerto Rico, 478 U.S. 328 (1986), but the status of that rule is doubtful. See 44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 508--14 (1996) (plurality opinion).) The Court suggested in Western ...

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