A federal appeals court has upheld the dismissal of a lawsuit against Merck & Co. Inc. even though the drugmaker had been “treading a fine line” in its disclosures, reported The Legal Intelligencer.

In June 2001, Merck’s share price fell after The Wall Street Journal reported that its subsidiary Medco Health Solutions Inc. had overstated revenues by more than $4.6 billion. Not surprisingly, investors later sued the company for concealing the accounting scandal.

Trouble began to come to the surface when Merck began planning an initial public offering of Medco, a pharmacy benefits manager, and Medco acknowledged that it had overstated revenue related to patient co-payments. Merck had disclosed Medco’s improper accounting policy during the 1990s, the Intelligencer noted, but after changing auditors in preparation for the IPO, Merck changed the language in its SEC filings.

Indeed, in an April 2001 regulatory filing, Merck did disclose the nature of the improper accounting practices, according to a ruling by the Third U.S. Circuit Court of Appeals. The appeals court criticized Merck for not disclosing the actual figures, but the judge reportedly ruled that the investor lawsuit was properly dismissed because the Journal “simply did the math,” and analysts and investors could have done the same.

“In effect, [the plaintiff] is arguing that investors and analysts stood in uncomprehending suspension for over two months until the Journal brought light to the market’s darkness,” U.S. Circuit Judge Thomas L. Ambro reportedly wrote in a 33-page opinion.

Ambro ruled that Merck “should have disclosed [Medco’s] revenue-recognition policy as soon as it was adopted,” reported the Intelligencer, and he stressed that Merck was “treading a fine line” by failing to disclose the details of the accounting problems.

He stated, however, that the plaintiffs’ claim should nonetheless be dismissed because they “failed to establish a material statement or omission by Merck.” Ambro reportedly added, “The facts were disclosed … and it is simply too much for us to say that every analyst following Merck, one of the largest companies in the world, was in the dark,” according to the published account.