Liability in EU Market Promises to Grow

Device makers doing business in the U.S. don’t always care for the current state of tort law, but at least they know what to expect. The legal environment in other markets is undergoing some changes that promise to up the ante where financial liability is concerned.

The European Parliament recently voted on the overhaul of device regulations for the European Union, bringing to a close an effort of several years’ duration. As has been previously described at this blog, the notified bodies have their own recent issues with liability in the EU nations, but one of the less conspicuous features of the new Medical Device Regulations is that device makers will have to ensure they can make compensation to all patients who have been harmed by defective medical devices.

The version of the new regulatory framework adopted by the EP includes a requirement that device makers develop “a robust financial mechanism” that will compensate patients who “receive defective products.” There are several factors that go into the calculation of that “robust” mechanism, including the class of the device and the associated risk, but the legislation also points to the size of the manufacturer as a factor. The legislation further stipulates that device makers put themselves in a position to “rapidly and effectively” compensate patients, even when the company has gone out of business.

It requires no reading of tea leaves to realize this provision was sparked at least in part by the silicone gel breast implant scandal, which gained momentum in 2009 when implant rupture rates began to spike. The manufacturer, Poly Implant Prothèse, went bankrupt the following year. The metal-on-metal hip implant problem might also have figured into this provision.

The summary for this legislation is not specific about the nature of this financial mechanism, so it would appear that liability policies will serve in the stead of cash reserves. Whether a manufacturer opts to self-insure or cover this requirement by other means, one thing companies cannot do is leave themselves open to a raft of lawsuits without some sort of plan in place to deal with any claims.

Company beats shareholder suit despite CIA

Minnesota-based Cardiovascular Systems, Inc., persuaded a federal judge to toss out a class-action shareholder lawsuit based on alleged illegal sales tactics, but the suit may be refiled. District Court judge Donovan Frank dismissed the suit (Shoemaker v. Cardiovascular Systems) due to the absence of information specific enough to support the allegations, but Frank left the door open to a reopening of the suit. Cardiovascular had already settled a qui tam lawsuit with the federal government in the amount of $8 million, but the company is also working under a five-year corporate integrity agreement with the Office of Inspector General at the Department of Health and Human Services, which went into effect in June 2016.

PTO to revisit controversial AIA program

Holders of patents who have grown fatigued with the inter partes review process at the U.S. Patent and Trademark Office may be relieved to know the PTO is undertaking a retrospective review of this and other procedures handled by the agency’s Patent Trial and Appeals Board (PTAB). The inter partes review, one of several functions added to the PTO’s to-do list via the America Invents Act (AIA) of 2012, has been widely blasted as doing little to slow down the stream of cases landing at the Court of Appeals for the Federal Circuit, but also for allowing parties with no direct interest in a patent to damage or destroy the patent.

Hedge fund billionaire Kyle Bass has not been uniformly successful with the inter partes process, losing a challenge to the patent for Shire’s Lialda (mesalimine) late in 2016, but Bass has managed to invalidate a number of important patents via the process. PTO director Michelle Lee has instructed PTO staffers to review issues such as multiple petitions, motions to amend, and claims construction. The PTO announcement did not identify a date by which the review would be complete, however.

Multi-district Litigation; (Lack of) Evidence and Pending Legislation

Multi-district litigation (MDL) has its advantages even for defendants, but some see abuses, including a recent case involving an orthopedic device maker’s metal-on-metal hip implants. There is legislation in circulating on Capitol Hill that might address some of the problems associated with these mass actions, but the Trump administration and the House GOP have their hands full, raising the prospect that any corrective legislation might languish.

No evidence? No problem
Device maker Biomet faces an MDL case that took a new twist recently when a judge in Indiana dismissed the defendant’s motion to dismiss the claims of six plaintiffs in the product liability suit. A pretrial order filed in 2013 had required that plaintiffs find some means of preserving the device components in order to be eligible for the action, and several of the plaintiffs indicated that health care practitioners either refused or failed to send the devices along before the MDL commenced. One of the plaintiffs managed to recover the device and kept it in a plastic bag in a closet, but made no mention of this until she was deposed.

Judge Robert Miller of the District Court for the District of Northern Indiana decreed that the five plaintiffs who never recovered their devices could not be excluded from the MDL because those explants took place prior to the start of the MDL. Biomet’s attorneys argued spoliation as a cause for dismissal of these plaintiffs, but Miller expressed the view that these litigants could not be excluded because there was no demonstration of bad faith on their parts. As for the sixth plaintiff, her failure to handle the device appropriately seemed to have no effect on her eligibility for the MDL due to an absence of any indication that her failure to disclose her possession of the article was anything more than an oversight.

Courts are said to have considerable leeway in determining when spoliation sanctions should be applied, but defendants may be concerned that Miller’s determination could dilute the value of spoliation. There is also the lingering question of the circumstances in which a device maker is liable for devices that are made unavailable for examination because they are disposed of prior to the start of an MDL procedure.

Spoliation not mentioned, but …
The Fairness in Class Litigation Action Act of 2017, sponsored by Rep. Bob Goodlatte (R-Virginia) has made its way into the House and Senate Judiciary Committees. The bill states that among its purposes is to “diminish abuses in class action and mass tort litigation that are undermining the integrity” of the legal system.

While the bill does not seem to directly address spoliation, section 5 of the bill specifically calls out MDLs. This portion of the legislation would require that plaintiff’s counsel offer evidence in support of the claim of injury as well as “the alleged cause of that injury.” The filing of such information must take place within 45 days of the transfer of the legal action or be “directly filed in the proceedings.” Should that information not show up in the judge’s hands within the following 30 days, that plaintiff is excluded, and the bill states further that these deadlines “shall not be extended.” The text says little about what would constitute evidence in support of a claim of injury, however.

Another interesting feature of Goodlatte’s bill is that it limits attorney fees to 20 percent of the monies recovered, and any disputes about this provision would be handled by the judge who handled the pretrial proceedings. Whether this feature will tamp down some of the legal adventurism said to characterize MDLs is up for grabs, but corporate attorneys can’t help but cheer this feature (and others) of this legislation.

And despite the distractions posed by health care and tax reform, the presence of a GOP majority on both sides of Capitol Hill offers the most favorable conditions for tort reform of any kind than have been seen at any time in the past decade, particularly since a Republican holds the Oval Office for the first time in eight years.

Judge Says Device Makers Must Warn Hospitals

Device makers know all too well about the need to notify providers of the hazards associated with their devices, but a new case in the Pacific Northwest would expand that liability to hospitals, seemingly destroying the learned intermediary doctrine in the process.

Intuitive Surgical, maker of the groundbreaking da Vinci surgical robot, was on the losing end of a lawsuit in the Washington State Supreme Court recently, which declared that the device maker is liable for notifying hospitals about the risks attached to the device’s use. The case, Taylor v. Intuitive Surgical, Inc., involved the da Vinci’s use in prostate surgery, and the decision from a state circuit court hearing said the surgeon acknowledged that the patient, the late Fred Taylor, was overweight and thus not a good candidate for the procedure using the da Vinci.

Trial, appeals courts exonerate Intuitive

The treating physician, Scott Bildsten, was performing his first non-proctored procedure with the da Vinci and informed Taylor that he (Bildsten) lacked the experience needed to conduct the procedure on obese patients. The patient was in the operating room for 15 hours while Bildsten switched from the da Vinci to open prostatectomy, following which the patient was in intensive care for 20 days. Taylor died four years later in 2012.

The jury trial determined there was no liability for Intuitive despite that the plaintiff’s attorney recommended that the jury be instructed that the device maker had a duty to warn Harrison Medical Center, a decision with which the appeals court agreed. The state high court decreed, however, that the physician “is often not the product purchaser,” and thus state law mandates that device makers inform hospitals “about their dangerous medical devices,” a passage penned by Justice Susan Owen.

Owen determined that the trial court had erred in its failure to instruct the jury that the device maker was legally required to inform the hospital of the hazards associated with the da Vinci, and remanded the case to the trial court. Owen acknowledged, however, that Harrison Medical Center was in the practice of providing credentials on the da Vinci after only two proctored procedures while other establishments in the state required three or more proctored procedures prior to credentialing.

 

Nonetheless, Owen said the learned intermediary doctrine was not applicable because the Washington Product Liability Act (WPLA) “imposes a separate and distinct duty” on the device maker to inform the hospital of any risks. She cited language from the dissenting opinion in the appeals court case, said to state that while a physician is the gatekeeper between the manufacturer and the unwarned patient, the physician is not the gatekeeper between the patient and “the unwarned hospital” (italics hers).

Owen asserted further that a hospital’s duty to ensure a device is safe is separate from that of a physician despite that a preceding case had determined that a pharmacist does not have a duty separate that from a prescribing physician, a reference to the 1989 decision in McKee v. American Home Products., another case specific to the Evergreen State.

Lone dissenter in en banc decision

Owen’s decision was backed by five other justices who took part in the en banc hearing, but Justice Barbara Madsen dissented, stating that Intuitive was indeed liable for informing a hospital as to the hazards entailed in the da Vinci’s use. Madsen asserted, however, that the wife of the deceased “cannot invoke a duty owed to Harrison to recover damages.” She noted that several steps stood between the widow and the device maker, starting with the sale of the da Vinci to the hospital, Harrison’s credentialing of Bildsten, and Bildsten’s use of the device on the patient. Madsen stated further that the widow of the deceased had already obtained a settlement from Harrison, which would eliminate any further claims arising from Harrison’s credentialing of Bildsten.

Among those providing briefs to the court was the D.C.-based Medical Device Manufacturers Association, which might mean nothing more than that the association sees this as a critical issue in the state of Washington. The reader may find it interesting that this same court recently found that the WPLA also truncated federal preemption of state law, although this was in the context of aviation law (see Estate of Becker v. Avco Corp.).

One cannot rule out the possibility that other states might amend their statutes to reflect the elements of the WPLA that proved pivotal in the case against Intuitive – and in any event, some would argue there is no shortage of jurisprudential adventurousness – but the message here is at least that the state of Washington presents much more legally hazardous terrain than is perhaps widely appreciated.

Not-So-Good Manufacturing: GMPs and Alleged False Claims

The use of violations of good manufacturing practices as a pretext for False Claims Act prosecutions is not unprecedented, but it is not commonplace, either. Baxter Healthcare has agreed to pay a total of roughly $18.2 million dollars in connection with just such a legal pretext, but the precedent is much more important than the dollar value of this case.

The settlement agreement between Baxter and two government entities, the Department of Justice and the Department of Veterans Affairs, stipulates that Baxter will pay $2.16 million to settle the whistleblower suit, which alleged that the company violated current good manufacturing practices in the production of products such as Ringer’s lactate solution between January 2011 and December 2012. The agreement noted that the relator received roughly $430,000 for his troubles, a sum that may or may not make up for any future employment difficulties.

Baxter also had to hand over $16 million as part of a deferred prosecution agreement, but the Jan. 12 notice by the Department of Justice acknowledged that there were no adverse events reported in association with the purported mold found in a processing facility for the products in question.

To be sure, this is not the first instance in which a company had to face a legal action related to GMPs and relator claims. A previous episode of this sort arrived at the U.S. Court of Appeals for the Fourth Circuit, which ruled in February 2014 that allegations of failure to comply with the regulations did not suffice to support a claim of violation of the False Claims Act. Omnicare may have dodged a bullet in this instance, but there were no allegations that the company attempted to deceive the FDA, an allegation that fed the $500 million settlement between India’s Ranbaxy and the FDA in 2013.

Clearly Baxter has no intent to pursue the case further, and the company enjoys a market cap of nearly $27 billion, so the loss of $18 million might come across as a rounding error in the company’s financials. It is not clear whether this leveraging of GMPs to feed allegations under the False Claims Act is an aberration or the leading edge of a new trend. One consideration is the volume of warning letters the FDA issues in connection with drug and device manufacturing as a source of fodder for these qui tam suits, which the DoJ rarely turns down.

Another thing to consider is that the world of drug sterility and environmental monitoring may have changed after the 2008 episode involving tainted heparin from China. More recently, the pharmaceutical industry has a public relations problem stemming from recent pricing debacles, and the medical device industry has been dinged over the power morcellation and permanent-birth-control device sagas. Those in the life science industries have to recognize that they have little leeway in the court of public opinion, a fact which all too easily translates into no leeway at all in the court of law.

Inspection imbroglio spurs legislation

There is never a shortage of new bills floating around on Capitol Hill, but Sens. Johnny Isakson (R-Ga.) and Michael Bennett (D-Colo.) have introduced legislation that would force the FDA to finally live up to its purported risk-based approach to device inspections, a bill that seems destined to appear in the legislation for the next device user fee agreement.

Recall that the current user fee agreement, MDUFA III, expires at the end of September, hence the need for a new five-year handshake. The fourth iteration calls for just shy of $1 billion over the five-year term, quite a bit more than the $595 million agreed upon in MDUFA III.

The bill by Isakson and Bennett addresses grievances of some standing regarding FDA inspections of device manufacturing sites located in the U.S. Industry has for some time complained that the agency is far more likely to give sites located outside the U.S. a heads-up when an FDA filed investigator is on the way, but device makers have also claimed that FDAers are sometimes late for domestic inspections, and in some instances, don’t show up at all. Other issues include poor communication from the agency regarding the acceptability of corrections made by companies in response to inspectional findings, which if valid would help explain why the FDA’s warning letter close-out program has been an abject failure.

The overarching goal of the bill, however, is to force the agency to focus more on sites that have a sketchy compliance history and less on sites that have a clean quality systems record. Whether the drafting of this bill is a signal that Congress is confident that the user fee agreement can go forward despite the Trump administration’s moratorium on federal hiring is not clear.

Medtronic beats express warranty claim

Attorneys at Medtronic seem to have all the experience where PMA preemption cases are concerned, but Wildman v. Medtronic worked out well for the company, which has not always been the case. The plaintiff in this case, Ray Wildman, had a Medtronic neurstimulator implanted to deal with pain, and the unit’s battery quit after less than two years despite that the company’s website had claimed that those devices had an expected life of nine years.

The suit relied on the warranty implicit in the company’s website for the RestoreUltra neurostimulation unit, which states in part, “the result of extensive design and testing involved in manufacturing rechargeable neurostimulators give Medtronic the confidence that our device is reliable for 9 years.”

That statement is still on Medtronic’s website, so one imagines that the FDA is aware of the statement, and hence has no issue with it. From there, one has to assume that the statement is backed by some evidence, otherwise the agency would have forced Medtronic to pull the statement by now.

In the end, Judge David Ezra of the U.S. District Court for the Western District of Texas dismissed the case with prejudice, in part because Wildman’s suit would impose requirements that are “different from, or in addition to” the FDA-imposed requirements that were part of the PMA for this device. Chalk up one for PMA preemption.

FDA’s Interesting Off-Label Memo

 

The FDA recently posted a memorandum spelling out the agency’s views regarding off-label promotions, a document chock full of interesting observations. This discussion is now taking place in a somewhat different political backdrop, however, particularly in light of the dismissal of a high-ranking and well-known member of the Department of Justice. The picture in aggregate is highly fluid – which may or may not portend change – but which nonetheless is almost certainly unsettling to those at the FDA who prefer the status quo where off-label promotion is concerned.

When a solution is not a solution

The January 2017 FDA off-label memo offers the expected rationale for the agency’s current views on commercial speech, including that the requirement to conduct studies of a drug or device for a specific indication does a lot to provide assurance that the therapeutic in question will do more good than harm.

The memo takes a turn for the peculiar, however, when the FDA takes credit for things such as patent protection, which most would say redounds to the credit of the statute and the Patent and Trademark Office. Subsequently, the memo offers alternatives to the current state of affairs, such as a ban on off-label use of drugs and devices, and the application of a higher level of taxation on off-label use.

The problem with these and a couple of others of the FDA’s alternative commercial speech universes is that they are entirely outside the agency’s jurisdiction. For instance, it is quite well known that off-label use is within a physician’s discretion, and doctors are not regulated by the FDA. Not yet, anyway. As for tax policy, there’s no need to explain why this is outside the agency’s statutory authority.

There are several items of interest where context is concerned, not the least of which is that Robert Califf has resigned from the FDA commissioner’s chair, leaving the Trump administration with a very interesting job to fill. A number of names have been floated for that opening, including that of Scott Gottlieb, whose curriculum vitae includes a stint as one of the FDA’s deputy commissioners. Gottlieb has voiced reservations about the agency’s standards regarding off-label speech, but other candidates of record, including venture capitalist Balaji Srinivasan, are unknowns where the off-label discussion is concerned.

All in all, attorneys at the FDA have to assume the commercial speech question is likely to weigh against the agency in the months and years ahead, even if nothing in the way of legislation surfaces.

More than one new face at DoJ

One interesting bit of context here is the dismissal of Sally Quillian Yates, she of the famed Yates memo, which some believe comes up only a little short of the extortive tenor of the Thompson memo. President Trump gave Yates the axe for announcing that DoJ would not mount a legal defense of the administration’s executive order on immigration from six nations said to harbor terrorists. Whatever one believes about that executive order – and it should be noted that recent developments do not necessarily portend a revisitation of the memo that bears Yates’ name – her dismissal sends an unmistakable signal that employees of the federal government can press their luck only so far.

Clearly it’s too early to anticipate what will become of the off-label discussion, but this issue has occupied a tremendous amount of time and effort at the FDA, and these developments can’t help but embolden adversaries of the agency’s current stance on the commercial speech/First Amendment question. Change may or may not be in the offing, but it needn’t start with the executive branch of the federal government. It may come in the courts, and whomever the Trump administration appoints to the job of solicitor general may have some very interesting things to say, indeed, if the matter ever reaches the Supreme Court.

Personal Jurisdiction Pivotal Issue Again for Drug and Device Companies

Jordan Lipp, Esq. | Partner, Davis Graham & Stubbs LLP

While personal jurisdiction issues (i.e., where a company can get sued) may seem esoteric and dull, there are few issues that have larger ramifications for drug and device companies than personal jurisdiction.  Defending a lawsuit against a drug and device company in Philadelphia, Pennsylvania is completely different than defending a lawsuit against a drug and device company in Cheyenne, Wyoming.  Yesterday, the United States Supreme Court granted certiorari in a personal jurisdiction case coming from the California Supreme Court in a mass lawsuit against Bristol-Myers Squibb.  The United States Supreme Court review has the potential to clear up the murkiness around these issues, and it potentially could have a dramatic effect on reducing the locations where a drug or device company can get sued in any particular case.

As discussed more in an earlier blog post, the 4-3 decision by the California Supreme Court that will now be reviewed, addressed the issue of personal jurisdiction in a case where 678 individuals, consisting of 86 California residents and 592 nonresidents, all alleged adverse consequences from the use of Bristol-Myers Squibb’s drug Plavix.  See Bristol-Myers Squibb Co. v. The Superior Court of San Francisco County, 377 P.3d 874 (Cal. 2016). Bristol-Myers Squibb is incorporated in Delaware, headquartered in New York City, with substantial operations in New Jersey.  The lawsuits were filed in San Francisco Superior Court.  On the issue of general jurisdiction (i.e., whether a defendant can be sued in the forum regardless of whether the case is related to the forum), the California Supreme Court stated that “although the company’s ongoing activities in California are substantial, they fall far short of establishing that it is at home in this state.”  This follows current law from the United States Supreme Court.

However, on the issue of specific jurisdiction (i.e., whether the case-linked conduct occurred in the forum), the California Supreme Court found that Bristol-Myers Squibb’s national marketing, promotion, and distribution of Plavix in California, coupled with its research and development facilities in California, created specific jurisdiction, even with respect to the out-of-state plaintiffs.  Although the majority opinion stated its decision did “not render California an all-purpose forum for filing suit against [the defendant] for any matter,” the dissent warned that the “the majority [decision] expands specific jurisdiction to the point that, for a large category of defendants, it becomes indistinguishable from general jurisdiction.”

The last two times the United States Supreme Court has waded into issues of specific jurisdiction in similar contexts – J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873 (2011) and Asahi Metal Indus. Co., Ltd. v. Superior Court of California, Solano Cty., 480 U.S. 102 (1987) – there was no majority decision, leaving many specific jurisdiction issues cloudy and open to debate.  Depending upon the United States Supreme Court’s ruling in the Bristol-Myers Squibb case, we may finally see clarity on issues of specific jurisdiction, which will help answer where a drug or device company can, or cannot, be sued.  This case will be closely watched, and depending upon the outcome, it could become one of the most important cases in recent memory for litigation involving drug and device companies.