Are You Sure Your Company Is "At Home" In All 50 States?

As Jim Beck (of the Drug and Device Law Blog) and Michelle Cheng explain in a recent Washington Legal Foundation Legal Backgrounder, "The Other Shoe Drops on General Jurisdiction: Making the Most of Supreme Court’s Bauman & Goodyear Rulings," corporate defendants might want to think twice before making a general appearance in new cases filed in states other than the states in which they have incorporated or have located their principal place of business.

In short, doing business in all 50 states no longer necessarily subjects a corporation to suit in all 50 states, and International Shoe v. Washington, 326 U.S. 310 (1945) is not the last word on general jurisdiction. Based on the Supreme Court’s 2011 decision in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011), and this term’s Daimler AG v. Bauman, 134 S. Ct. 746 (2014), “general” personal jurisdiction has been limited, and should no longer be assumed to support jurisdiction over a non-resident corporation—even one engaged in substantial, continuous and systematic business. These recent decisions establish that general personal jurisdiction can be asserted against corporations only in three limited circumstances: (1) the corporate defendant’s state of incorporation, (2) its principal place of business, or (3) “in an exceptional case” where the corporation’s in-state activities are “so substantial and of such a nature as to render the corporation at home in that State.”

Specific personal jurisdiction may still exist based on corporate activities related to a particular resident plaintiff, but this newly defined general personal jurisdiction standard bodes well for corporate defendants who would like to limit forum shopping but often are forced to litigate in other states against non-resident plaintiffs, merely because their products or services enter the “stream of commerce” within that state. As a result, when new lawsuits are filed by non-resident plaintiffs in states other than the state of incorporation and the state of the principal place of business, corporate defendants may wish to dust off procedural options many have not used for some time, like FRCP 12(b)(2) motions to dismiss for lack of personal jurisdiction, or state court motions to quash.

For more, click here. You can also read about the implications of the Bauman decision as discussed in Jim’s Drug and Device Law blog post.

The Good, the Bad and the Ugly: Top 10 Best and Worst Prescription Drug and Medical Device Decisions of 2013

As they do every year, authors from the Drug and Device Law blog have published a list of the top 10 best and worst medical device and pharma decisions of the past year. In addition to their standard analysis, this year two of the Reed Smith authors, Eric Alexander and Jim Beck, will be hosting a teleseminar on Wednesday, January 8th at 12 p.m. ET to discuss the decisions in more detail. Information on how to register can be found here.

Supreme Court Decision on Reverse Payments has Significant Implications for Pharmaceutical Manufacturers

Reed Smith’s Global Regulatory Enforcement Law Blog recently featured a detailed analysis of the Supreme Court’s decision in FTC v. Actavis, where the court ruled five-to-three that reverse payments, also called pay-for-delay settlements, can violate antitrust laws and are subject to antitrust review under the rule-of-reason. As reverse payments are commonly used by branded drug manufacturers to settle patent litigation related to generic drug manufacturers’ market entry, this decision will change the approaches courts, drug company litigants, and lawmakers take to the issue of generic entry into a patented brand drug’s market. To learn more about the implications for both branded and generic drug manufacturers, particularly in their approach to resolving patent litigation, read the full alert.

Supreme Court Decides Mutual Pharmaceutical Co. v. Bartlett

As reported on Drug and Device Law Blog, in a five-to-four decision by Justice Alito, the Supreme Court has decided Mutual Pharmaceutical Co. v. Bartlett, No. 12-142, slip op. (U.S. June 24, 2013), a generic drug preemption case out of the First Circuit where that court had permitted the plaintiffs to recover on a “design defect” claim alleging that the drug should not have been sold at all, despite its FDA approval.  The Supreme Court reversed.  To read more about the decision, see Jim Beck’s analysis in his “Bartlett – A Big Win For Preemption” blog post.

New Jersey Appropriations Committee Approves Off-Label Drug Coverage Legislation

This post was written by Jennifer Pike.

On March 7, 2013, the New Jersey Assembly Appropriations Committee approved legislation related to off-label drug coverage. Assembly bill A1830 would require health benefits plans offered to individuals and small employers, the State Health Benefits Program (SHBP) and the School Employees’ Health Benefits Program (SEHBP), to provide coverage for certain off-label uses for drugs that are approved by the U.S. Food and Drug Administration. The health plans would be required to provide coverage for off-label use of a drug if the drug is recognized as being medically appropriate for the specific treatment for which is has been prescribed in one of two established reference compendia (the American Hospital Formulary Service Drug Information or the U.S. Pharmacopeia Drug Information), or if the drug is recommended by a clinical study or review article in a major peer-reviewed professional journal. According to bill sponsor Herb Conaway M.D., "the purpose of [the] bill is to extend the medical benefits that may derive from the use of off-label drugs to individuals who may not be able to access these medications. In particular those individuals who are suffering from a terminal or chronically debilitating illness, because their insurance carriers won’t cover these drugs.” The full text and status of the bill are available here.

"Illegal" Off-Label Promotion

Over at the Drug and Device Law Blog, there are several posts analyzing the meaning of the Second Circuit’s opinion in United States v. Caronia, 703 F.3d 149, 160 (2d Cir. 2012), including this one and this one.  Most Caronia commentary has focused on the court’s First Amendment holding, that the FDCA does not ban truthful off-label speech. But today’s Drug and Device Law Blog post zeroes in on the Second Circuit’s recognition that “[t]he FDCA and its accompanying regulations do not expressly prohibit the ‘promotion’ or ‘marketing’ of drugs for off-label use” (id. (emphasis added)), and what that may mean for regulation and for ancillary issues, like medical device preemption under 21 U.S.C. Section 360k(a).

New Law Spells MSP Relief For Private Sector

This post was written by Catherine A. Hurley and Jouya Rastegar.

There seems to be growing awareness that engaging in a “business, trade, or profession,” can easily subject any person or entity to what is known as the Medicare secondary payer ("MSP") law—a series of provisions in Title XVIII of the Social Security Act, governing the hierarchy of who pays first among applicable insurers. Given its scope and complexity, understanding and complying with the MSP law can be overwhelming. Further, although failure to comply carries obvious risk, conforming to what the law requires may also trigger certain risks of its own.

Amid consensus that the existing situation demands improvement, Congress recently passed the Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act of 2012, commonly referred to as the SMART Act provisions—new legislation signed January 10, 2013 that addresses at least of few of the acute challenges presented under the existing MSP system.  

Although it does not change the basic premise that a promise to pay an injured beneficiary is tantamount to a plan of liability insurance that is primary to Medicare, or generally relieve parties from their reporting obligations under section 111 of the Medicare, Medicaid, and SCHIP Extension Act of 2007 (MMSEA), the Act should give parties that make payments to Medicare beneficiaries at least some opportunity to control the process and the outcome, and alleviate some of the more draconian qualities of the current system.

Among other things, the Act:

  • Requires the agency to make up-to-date conditional payment information available on a website;
  • Requires the agency to provide a process for parties to liability settlements to dispute Medicare’s alleged MSP refund amount;
  • Ensures greater certainty to settling parties, before the settlement, with respect to the total amount Medicare is owed;
  • Requires the agency to establish an appeals process for plans to challenge MSP collections actions;
  • Requires the agency to establish minimum dollar thresholds in certain circumstances, below which refunds to Medicare are not required and payments need not be reported;
  • Requires the agency to establish safe harbors to the MMSEA section 111 reporting obligations for liability insurance and similar types of primary payers;
  • Makes civil money penalties (CMPs) for failure to comply with MMSEA section 111 reporting obligations discretionary rather than mandatory;   
  • Alleviates the existing burden to collect and report beneficiary social security numbers or health insurance claim (HIC) numbers as part of the MMSEA section 111 reporting process; and
  • Establishes a three-year statute of limitations for commencing an action against any type of primary payer to recover conditional payments and/or double damages.

Reed Smith's full analysis of the SMART Act is available here.

A SMART Change for Tort Defendants?

This post was written by Michael Mandell and Eric J. Buhr.

President Obama recently signed the Medicare IVIG Access and Strengthening Medicare and Repaying Taxpayers Act (commonly referred to as the SMART Act) to alleviate some of the confusion surrounding the Medicare Secondary Payer Act (MSP), which allows Medicare to seek reimbursement, and potential penalties, from “responsible” parties. These “responsible” parties include tort defendants, such as drug and medical device manufacturers, who become primary payers once they settle or have a judgment awarded against them in a case involving a Medicare beneficiary. The SMART Act will, among other things, introduce a three-year statute of limitations for which the government may bring an action for reimbursement and create a minimum settlement/judgment threshold below which the government will not seek reimbursement.

One of the most significant aspects of the SMART Act is that it creates a new process for obtaining final Medicare lien demands, which is meant to give some closure to defendants and plaintiffs by providing them with Medicare’s final lien amount prior to settlement. Under current practice, Medicare only issues a final lien demand after there is a settlement, judgment, award or other payment resolving the Medicare beneficiary’s liability claim against a tortfeasor. This leaves parties uncertain over what Medicare’s piece of the settlement will be and in turn hinders the settlement process. Under the SMART Act, Medicare must now create a website where the claimant or applicable plan can obtain Medicare’s “final conditional reimbursement amount” prior to settlement. Armed with this information, parties will be able to make more informed settlement decisions.

Although the Act will remove some of the ambiguity surrounding Medicare’s lien demands, the multistep process for acquiring Medicare’s final lien amount may prove too rigid. To satisfy the requirements for a finalized lien demand, individuals must pay careful attention to the SMART Act’s numerous deadlines.

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Practical Pointers for Protecting Your Insurance Rights in the Wake of Hurricane Sandy

This post was written by Paul E. Breene, Douglas E. Cameron, James M. Davis, John N. Ellison, Ann V. Kramer, Richard P. Lewis, Matthew J. Schlesinger, John D. Shugrue and Gary S. Thompson.

Hurricane Sandy left a swath of major damage and destruction over a large area of the Northeastern United States. Commercial policyholders will have major claims for property damage, loss of business income, and extra expenses. History teaches that the insurers will resist or seek to limit payments. Policyholders are advised to be proactive in claiming their rights under policies. Resolution is achievable, but usually with hard work and patience. Here is a list of some practical pointers that most commercial policyholders should consider:

  • First, Protect and Preserve the Assets. Emergency and temporary repairs should be documented and, if practical, reviewed with the insurer in real time.
  • Attend to Notice and Timing. Make sure all notices have been issued to all insurers that could be called to pay. If the policy requires a Proof of Loss within 30 days, obtain a written extension. Spot any other time-related requirements.
  • Reserve All Rights. Reserve all rights and contentions. Do not allow the insurer to classify or characterize your claim before you have had a full opportunity to review everything. If you let them, the insurers will dictate your claim to you.
  • Form a Team. Form a team of all personnel involved in the claim and hold regular team calls or meetings. Review the policy with counsel; remember that all exclusions and limitations must be construed strictly and narrowly. The insurer will have counsel, adjusters, consultants and accountants. Consider leveling the playing field with your own team. Many policies cover some of these claim-preparation costs.
  • Be Aware of Deductibles and Sublimits Before Agreeing on Causation. Review causation and proceed carefully before taking a position. Coverage, sublimits, and deductibles can be affected by determinations as to whether the damage was caused by a certain covered peril.
  • Look for Other Policies. Some properties are insured under other policies, like a “deductible buy-down” policy or a National Flood Insurance Program policy. Limits under these policies may offset the deductible that otherwise applies.
  • Communicate. Develop relationships at all levels of your team with their respective insurer-side counterparts. Keep communication open and civil.
  • Documentation and Accounting. Keep exact and tedious records of all communications, meetings, and exchanges. Keep submitting documentation. Set up accounting codes or other processes to track all invoices, costs, and expenses of any kind related to the claim, by various categories.
  • Attempt to Involve Insurers Before Repairs. Attempt to obtain insurer approvals before repair and replacement of property. Be aware of insurers’ rights to salvage property. If insurers are silent or non-responsive in the face of repair decisions – as is often the case – document it for the record. They should not be allowed to second-guess the decision after the fact.
  • Replacement Cost New Means Replacement Cost New. Most policies value property on an RCV basis. By definition, what is old is being replaced with something new. This is a natural “upgrade.” Be wary of insurer pronouncements that the damaged property had “preexisting” defects or wear and tear.
  • Do Not Forget Code Upgrades. Most policies cover code upgrades. Be aware of the underlying codes and whether they will increase repair costs. Capture all such costs in your claim.
  • Prepare the Business Interruption and Extra Expense Claim Carefully. Insurers will challenge attempts to recognize net profit for an interruption period. Utilize experts who can draw on market data to prove the “BI” analysis.
  • Review Other Agreements That Can Affect the Claim. There may be agreements that can impact a hotel claim – a loan agreement, a ground or space lease, a property management agreement, a condominium association agreement, etc.
  • Work Toward Resolution. All claims should settle. If yours does not, make sure it is only because the insurer is being unreasonable and that the record makes this obvious – so that if you do end up in litigation, it will be apparent that you gave the insurer every opportunity to adjust the claim based on the facts, and that the insurer chose to be aggressive and unreasonable.
  • Draw on the Business Side. Insurance is expensive. You should expect fair treatment on the claims side. Business contacts, such as between risk managers and brokers, should be explored. If the insurer does not live up to its end of the contract, consider renewal with a different insurer.

Reed Smith’s Insurance Recovery Group has unmatched experience in advising and assisting policyholders in all aspects of first-party property damage and business interruption insurance claims. Our experience is especially unparalleled in hurricane insurance claims.
 

Government Investigations: Don't Forget About D&O Insurance When That Subpoena Arrives

This post was written by Mark S. Hersh and Paul E. Breene.

Government investigations can be both time-consuming and hugely expensive. Earlier this year, the U.S. Department of Justice and the U.S. Department of Health and Human Services announced that its 2011 health care fraud prevention and enforcement efforts resulted in record-breaking recoveries totaling more than $4 billion -- the largest sum ever recovered in a single year. With health care fraud and abuse as a top priority for the current administration, life sciences and health care organizations would benefit from reviewing their insurance policies to ensure they are protected in the event of an investigation.

When an investigation is commenced by a federal or state government entity, a company should have two standard operating procedures: first, hire experienced counsel to respond to the investigation or subpoena; and second, determine whether insurance coverage may be available to pay for what are frequently significant defense costs that may be incurred in connection with the investigation. Securing insurance coverage for subpoenas and informal investigations, both civil and criminal, can be an arduous process, but policyholders who plan ahead and know the pitfalls can give themselves a significant advantage by having coverage to pay for the defense and cost of responding to such an investigation. Failing to secure coverage for an investigation can mean that there will be no coverage if the investigation leads to lawsuits or other legal proceedings.

To learn more about how your life sciences or health care company can secure coverage to protect against costly government investigations, read the full alert.

Understanding of Global Data Privacy Regulations Helps Avoid Conflicts in Cross-Border Discovery Disputes

InsideCounsel recently published, "E-discovery: The need for a transnational approach to cross-border discovery disputes," an article on international discovery issues and the benefit of a respectful approach to document productions outside of the U.S.  Written by Reed Smith Records & E-Discovery Group members David R. Cohen, Regis W. Stafford, Jr. and Caitlin R. Gifford, the piece notes that proposed EU Data Protection Directive regulations have the potential to subject multinational companies to sanctions of up to two percent of annual worldwide revenue for serious breaches, including unlawful data transfers to the U.S.  In addition, although not binding on U.S. courts, the ABA recently issued a resolution and recommendation that states in part that U.S. courts should “consider and respect the data protection and privacy laws of any foreign sovereign..."  This article underscores the importance of a comprehensive global approach to document production in cross-border litigation.

To be invited to future Reed Smith trainings on cross-border e-Discovery issues, please click here.

Law360 Q&A with Jill Lawrie of Blakes

Law360 today has an interesting Q&A with Canadian attorney Jill Lawrie of Blakes (subscription required), who provides good insights and opinions about Canadian class actions and the "waiver of tort" concept in Canada, whereby plaintiffs look to recover disgorgement of revenues instead of tort damages.

Life Sciences Health Industry China Briefing - June 2012 (July 20, 2012)

This post was written by John Tan, Jay J. Yan, Mao Rong, Katherine Yang, and Gordon B. Schatz.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Medical Device, and Life Sciences/ Health Care Industries.

Pharmaceuticals, Medical Devices, Health Care & Life Sciences 

News

  • China's Compulsory License Rule Has Drug Companies On Edge (Law360 2012-06 12) — June 14, 2012

China's new patent regulations allowing the government to force drug companies to grant compulsory licenses for generic versions of their products if it is deemed to be in the "public interest" has the pharmaceutical industry worried about where China will draw the line, attorneys said. The new regulations issued by China's State Intellectual Property Office last month say the government can order compulsory licenses for generic drugs when there is a "national emergency or any extraordinary circumstances, or for public interest purposes." What constitutes the public interest is very much open to interpretation and appears to give the Chinese government broad leeway to order drug companies to allow generic versions of drugs that are still covered by patents.

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Stryker Bests XL in Long-Running Insurance Battle

This post was written by Ann V. Kramer.

Last week, the Sixth Circuit ruled largely in favor of Stryker Corporation in its effort to secure insurance coverage from XL Insurance America. Since 2001, Stryker has been battling XL for reimbursement of its defense and indemnity costs arising from sales of expired Uni-Knees, an artificial knee medical device. Stryker had accidentally permitted sales of the expired products from its warehouse until it discovered the error. Uni-Knees were developed by Howmedica, a Pfizer subsidiary that Stryker bought in 1998.

Although a five-year expiration date applicable to the Uni-Knee among others was put in place in the mid-1990’s and Stryker was aware of it, the Pfizer-designed program to prevent sales of expired implants failed to include the Uni-Knee. Styker did not realize that it was the source of such sales until mid-2000. XL, which sold Stryker a first-layer policy which pays defense costs in addition to the policy’s $15 million limit, contended that it owed no coverage because Stryker knew about problems with expired knees before XL’s coverage began in January 2000.

The Sixth Circuit rejected XL’s argument as had the lower court, saying it went too far:

Under XL’s theory, if an insured knows that there is some future scenario under which a product would become defective via expiration, even if it is completely out of the insured’s hands, then there is no coverage.

* * *

It would also mean that any medical product with an expiration date, such as most pharmaceuticals, would be uninsurable …, since there is always the chance that the expiration date would not be heeded.

Slip op at p.8. In addition, the appeals court sustained Stryker’s right to 12% pre-judgment interest under Michigan law, though not for as long as Stryker had hoped.

Worse for Stryker, the appeals court held that XL was within its rights to settle Pfizer’s later-in-time claims against Stryker (seeking indemnity under the acquisition agreement), thereby reducing the limits available to Stryker for its own claims and XL’s defense obligations as well. Yet, even there, the appeals court pushed back against XL, finding that Pfizer’s defense costs in defending claims from Uni-Knee implant claimants were defense costs to be paid in addition to limits. This part of the ruling is unlikely to be of much use to policyholders since the wording of the policy’s Insured Contract coverage was unique and probably no longer available.

House Approves ACA Device Tax Repeal Bill in Face of Veto Threat

This post was written by Ruth N. Holzman, Angelo Ciavarella and Debra A. McCurdy.

Yesterday the House approved by a vote of 270-146 legislation to repeal the ACA’s controversial 2.3% excise tax on the sale price of certain medical devices, which is scheduled to apply to sales after December 31, 2012. The repeal provision is included in H.R. 436, the Health Care Cost Reduction Act of 2012, which also would: repeal ACA provisions that disqualify expenses for over-the-counter medicine under certain health savings arrangements; allow employees with health flexible savings arrangements funded through salary deductions to “cash out” any remaining balance at year-end (up to $500), and treat such funds as taxable compensation; and require individuals who receive ACA health insurance exchange subsidies to which they are not entitled to repay the full amount of overpayments. The bill now moves to the Senate, where its fate is uncertain, particularly since the Administration has threatened to veto the bill. According to the Administration, the medical device industry will benefit from expanded health insurance coverage under the ACA, and a repeal would “fund tax breaks for industry by raising taxes on middle-class and low-income families.”

Reference Manual on Scientific Evidence Third Edition

This post was written by Gary A. Jeffrey.

The Reference Manual on Scientific Evidence, Third Edition has recently been released by the National Academies Press. This work is a substantial update to the prior version, which was first published in 2000, and is intended as a guide to the federal judiciary in assessing complex scientific, economic and engineering issues. In addition to revisions to existing chapters there are four new sections on Forensic Identification Expertise, Exposure Science, Neuroscience, and Mental Health. Of special interest is the new Reference Guide on Exposure Science, which is meant to compliment the sections on epidemiology and toxicology by describing the methods used in estimating the dose of a potentially toxic material to which persons may have been exposed. The newly drafted section on Neuroscience covers the use of neuroimaging or scans to assess an individuals claims concerning pain, and in the context of a criminal proceeding diminished capacity, sanity and honesty. The Third Edition may be purchased form National Academies Press or a free PDF version downloaded at their website (registration required).
 

California Supreme Court Limits Recoverable Medical Expenses to Amounts Actually Paid by Tort Plaintiff's Insurer

This post was written by Farah Tabibkhoei and Ginger Pigott.

In a highly anticipated decision, the California Supreme Court yesterday decided the issue of whether tortuously injured plaintiffs with private health insurance get to recover the full rate charged by their doctors and hospitals or the discounted, contract rate their insurers actually pay.

The standard, the California Supreme Court held in Howell v. Hamilton Meats & Provisions, is that personally injured plaintiffs may recover, at most, the dollar amount that actually is paid by their insurers for plaintiffs’ medical services, not the larger amount that generally is billed to those not covered by negotiated contracts between insurance companies and medical providers.

Motivating the Court’s decision was the fact that medical expenses are meant to be recovered by successful tort plaintiffs as economic damages, and insured plaintiffs’ damages are limited to the amounts they are personally obligated to pay—in other words, the amount their insurance company negotiated to pay for their care.

In its decision, the Court extended a rule it previously had adopted for tort plaintiffs with public health coverage, reasoning that regardless of whether public or private insurance is involved, the key issue is the amount of the plaintiffs’ personally liability for their medical bills.

This analysis is not without controversy, however, because of the collateral source rule, which ordinarily prohibits the introduction of evidence of insurance. Where the collateral source rule applies, however, as in products liability cases, the amount paid by an insurer for medical services is now admissible at trial to limit the amount of recoverable damages a plaintiff receives. The Court emphasized that its ruling is consistent with the collateral source rule, which is not meant to cover expenses plaintiffs never incurred in the first instance.

The collateral rule still bars evidence of the source of payment (that is, that an insurance company paid the plaintiff’s medical bills), as well as the undiscounted amount of the medical bills if the insurer has paid a discounted sum.

As to policy considerations, the Court rejected the argument that requiring tortfeasors to pay a lesser amount for their wrongdoing is necessarily an under-deterrent, as the Court observed that providers’ undiscounted bills do not always equal the reasonable value of medical services given the complexities inherent in medical billing in the United States.

The Court also concluded that limiting the recoveries of insured plaintiffs would not serve to punish those with the foresight to obtain insurance because insureds still get what they paid for, that is, having their medical bills satisfied by the insurer. That uninsured plaintiffs might reap larger recoveries, the Court noted, is just a fortuity of life.

The amounts at stake for defendants add up. In just Howell itself, an auto accident case, Howell’s undiscounted medical bills were $130,000, but her private health insurance company paid only $60,000. Given the number of personal injury lawsuits in California, the Howell decision certainly comes as a relief for personal injury defendants. 

The Legal Duties of Clinical Trial Sponsors

In an article entitled, "The Legal Duties Of Clinical Trial Sponsors," published by Law360.com on July 11, 2011, Reed Smith attorney Kevin Lohman addresses the risks involved in human clinical trials and the responsibilities between the clinical study investigator and the manufacturer/sponsor.  Although the unique roles and responsibilities of entities involved with clinical trials are clearly defined, plaintiffs oftentimes attempt to assign legal duties to the wrong entity — sometimes suing the clinical trial sponsor as if it were directly providing medical services to the participant — or attempt to create novel legal duties. Case law that has addressed this issue has consistently held that this is not appropriate. When faced with this scenario, it is important to clearly identify the role that the manufacturer/sponsor played in the clinical trial to determine whether they owed any legal duty to the plaintiff.

To read this article, you may download a .PDF or view on Law360.com (subscription required).

Life Sciences Health Industry China Briefing

This post was written by Jay Yan, Mao Rong, Gordon Schatz and Abraham Sorock.

Reed Smith’s Life Sciences Health Industry China Briefing provides a summary of the monthly news and legal developments relating to China's Pharmaceutical, Food & Health Care Industries.
Some important developments during June include:

  • Chinese drug company to build production and training center in U.S.
  • Drug company challenged for environmental contamination in China
  • China's national biomedical plan to be released soon
  • Issuance of administrative measures for device recalls
  • Designation of four professional associations to examine Class III medical technology
  • Extension of Drug GMP certificates
  • Recall of an antibiotic

To read the full briefing by Reed Smith China team members, click here.

Supreme Court Rejects Expansive "Stream of Commerce" Theory of Personal Jurisdiction

This week, the U.S. Supreme Court issued two opinions clarifying the criteria that must be satisfied before a court may constitutionally exercise personal jurisdiction over a defendant—J. McIntyre Machinery, Ltd. v. Nicastro and Goodyear Dunlop Tires Operations, S.A. v. Brown. Both decisions involved product liability suits asserted against non-U.S. manufacturers, but both have relevance as well for domestic corporations defending lawsuits under any liability theory. The decisions were highly anticipated because the cases, J. McIntyre in particular, were expected to resolve a decades-old debate about the contours of the so-called “stream of commerce” theory of personal jurisdiction. The Court delivered.

To read the full alert by Reed Smith Appellate team members Kim M. Watterson and Paige H. Forster, click here.

Supreme Court Holds State Law Failure to Warn Claims Against Generics Preempted

This post was written by Christopher C. Foster.

As many of you no doubt have heard, the United States Supreme Court last week decided that FDA regulations applicable to generic drug manufacturers preempt state law "failure to warn" claims in PLIVA, Inc. v. Mensing, Nos. 09–993, 09–1039, and 09–1501, 564 U.S. ___ (2011). Among other sites, SCOTUSblog, the FDA Law Blog and the PharmaExec blog all have had interesting discussions of the decision.

To recap, Justice Clarence Thomas authored the Supreme Court's majority opinion in PLIVA. The court concluded that federal law preempts state law  "failure to warn" claims asserted against generic drug manufacturers, because those manufacturers are required by federal law to use warnings that are identical to those used by brand name manufacturers. The case, which consolidated actions from Minnesota and Louisiana, involved plaintiffs who developed a condition called tardive diskinesia after taking metoclopramide--a generic of the brand name Reglan--for several years. Slip. op. at 3.

The Court's decision focused on the distinct requirements federal law places on generic drug manufacturers with respect to their labeling. The Court explained that while a brand name drug manufacturer is responsible for the adequacy and accuracy of its label, a generic drug manufacturer is responsible for making sure its warning label matches that of its brand name counterpart. Id. at 6. As the FDA explained in its amicus brief, the duty of generic drug manufacturers with respect to its labeling is one of "sameness." Id. The Court held plaintiffs' claims preempted, concluding it was impossible for the generic manufacturers to comply simultaneously with the federal requirement that their labeling be the same as the brand name drug, and to simultaneously adopt a stronger label to comply with state law. Id. at 10-11.

Further, the Court rejected plaintiffs' argument that generic drug manufacturers should not be permitted to raise preemption as a defense, unless they had discharged their duty to ask the FDA for help in convincing brand name manufacturers to strengthen labeling. Id. at 13. The Court found that such an exception would prove too much, because a scenario can often be imagined where federal law may have allowed a party to also follow state law. Id. at 13-14. Yet the Supremacy Clause does not demand that a court strain to find ways to reconcile federal and state law. Id. at 15. "When the 'ordinary meaning' of federal law blocks a private party from independently accomplishing what state law requires, that party has established preemption." Id. at 17.

The Court recognized the tension this decision created with Wyeth v. Levine, 555 U.S. 555 (2009), which rejected preemption for failure to warn claims against brand name manufacturers just two years ago. It noted that had the plaintiffs taken the brand name drug, Reglan, rather than the generic drug, their lawsuit would not have been preempted under Wyeth. Id. at 19. It nevertheless rejected that as a reason for allowing plaintiffs to pursue their claims, noting that it was not its task to decide whether a statutory scheme adopted by Congress creates bizarre results. Id. at 19.

Much of the discussion about the case so far has focused on this issue of the tension between PLIVA and Wyeth, including what it means for implied preemption and how the lower courts should analyze preemption questions in the future. The decision is all the more interesting because it was authored by Justice Thomas, who garnered a fair amount of attention for stating in his concurring opinion in Wyeth that he was "increasingly skeptical of . . . the Court routinely invalidat[ing] state laws based on perceived conflicts with broad federal policy objectives, legislative history, or generalized notions of congressional purposes that are not embodied within the text of federal law." PLIVA makes clear that Justice Thomas does not require all federal preemption to be express, it is just that he wants implied preemption to also be firmly grounded in text as well.

Looking ahead, it seems likely that the Court's rejection of the argument that the generic manufacturers could have sought FDA assistance in changing the label is likely to create some interesting issues. The Court recognized that, in theory, the generic manufacturers could have acted under federal law to seek a change in its warning labels, but it rejected the argument because, even had the generic manufacturers done so, a label change ultimately depended on subsequent actions of the FDA and the brand name manufacturers. The Court seemed to accept the premise, though, that preemption could be denied to a party that "can act sufficiently independently under federal law to do what state law requires . . ." Slip. op. at 17. Just what "sufficiently independently" means, and the circumstances in which it may arise, remains an open question.

Regardless, this decision gives generic manufacturers a good defense to use in product liability cases going forward.

California Awaits Supreme Court Decision About Whether Personal Injury Plaintiffs Can Recover The Face Amount Of Their Medical Bills, Or Only The Lesser Amount Negotiated By Their Health Insurer

This post was written by Farah Tabibkhoei.

The California Supreme Court soon will render its long-awaited decision in Howell v. Hamilton Meats & Provisions, Inc., No. S179115 (review granted March 10, 2010) and declare whether personal injury plaintiffs can recover the full amount of their medical bills versus the lesser amount actually paid by insurers. The Howell decision has garnered national attention as has the potential to dramatically affect personal injury litigants, the insurance industry, large corporations, and consumers.

Howell arose out an automobile collision between the driver of a Hamilton Meats & Provisions truck and motorist Rebecca Howell. A jury awarded Howell the full $130,000 face amount of her medical bills, but the trial court reduced the award to $60,000, the amount actually paid by Howell’s private health insurance. The Fourth District, Division 1 reversed, holding that pursuant to the collateral source rule, Howell was entitled to recover the full amount of her past medical expenses as billed. See Howell v. Hamilton Meats & Provisions, Inc., 179 Cal. App. 4th 686 (2009).

Prior to Howell, California courts traditionally limited personal injury recoveries to the amount actually paid for medical care – not the amount initially billed. For example, in Hanif v. Housing Authority, 200 Cal. App. 3d 635 (1988), the Third District limited recovery to the amount Medi-Cal paid for medical care, even though the reasonable value of the services plaintiff received turned out to be greater and had simply been written off by the hospital. And three years later, in Nishihama v. City and County of San Francisco, 93 Cal. App. 4th 298 (2001), the First District followed Hanif and limited plaintiff’s damages to the amount the insurer contracted to pay instead of damages based on the medical center’s customary rate.

In Howell, however, the court approved an award based on the full amount of the plaintiff’s medical bills rather than what insurance had paid, and thus created a conflict ripe for resolution by the California Supreme Court. Howell first distinguished Hanif on the basis that the plaintiff in Hanif was a minor who had not assumed any personal liability for his medical expenses, and had Medi-Cal insurance, as opposed to private health insurance. The plaintiff in Howell, by contrast, had incurred “pecuniary detriment” by executing financial responsibility agreements with her healthcare providers pursuant to which she became contractually obligated to pay for the costs of the medical care provided to her (notwithstanding that her medical providers later extinguished a portion of her medical bills by agreeing to accept the insurer’s payment of part of the bills as payment in full). The court also distinguished Nishihama, which did involve private health insurance, on the basis that it was decided based on plaintiff’s statutory lien rights as opposed to the collateral source rule.

Depending on which way the California Supreme Court rules, successful plaintiffs stand to lose out on substantial sums of money depending on how skilled their insurers are when they negotiate reimbursement rates with hospitals or other medical providers, and there are arguments on both sides of the issue.

Denying plaintiffs the monetary benefits of having insurance seemingly violates the public policy behind the collateral source rule, which is that injured plaintiffs should recover their medical care costs on an objective basis, determined by the reasonable value of services – usually, the amount that was billed. Otherwise, where two injured plaintiffs each break a hip and are billed $16,000 for the repair, the plaintiff without insurance would be eligible to recover $16,000 while the insured plaintiff’s recovery would be limited to the lesser amount actually paid by the insurance company, thus punishing those who had the foresight to protect themselves by buying insurance.

On the other hand, injured plaintiffs should be made whole, not given a windfall. To the extent medical providers agree to accept less than the amount billed, awarding injured plaintiffs the full amount of their medical bills gives them a windfall at the expense of defendants. Moreover, for insured plaintiffs who pay nothing out-of-pocket for medical care, limiting their recovery to amounts paid by their insurers arguably will not put them in any worse position financially.

Should the California Supreme Court rule that injured plaintiffs are entitled to recover the full billed amount of medical care costs, the prospect of higher jury awards may trigger the filing of more personal injury lawsuits – something unlikely to benefit California businesses. It also may leave defendants with less leverage in settlement negotiations with personal injury plaintiffs. For now, all eyes are on the Supreme Court pending its decision in Howell.

Latest Post-Levine Case Holds That Conflict Preemption Bars Plaintiff's Failure-To-Warn Claims

This post was written by Michelle L. Cheng.

One of the strongest defenses against product liability claims, including a failure to warn claim, is federal preemption. For cases against prescription drug manufacturers, defense lawyers have specifically asserted conflict preemption to argue that failure to warn claims are preempted by the FDA's regulations governing the content of labels for prescription drugs. Essentially, defense lawyers argue that the labeling's warnings cannot be altered in a manner sought by the plaintiff when the manufacturer is faced with conflicting directives from the FDA regarding that very content.

In ruling on this very issue, Wyeth v. Levine, 555 U.S. 555, 129 S.Ct. 1187 (2009) ("Levine"), the Supreme Court held that a "clear evidence" standard of proof was required to support a manufacturer's claim of conflict preemption defense. The Supreme Court held that unless the manufacturer presents "clear evidence that the FDA would not have approved a change" to the drug's label, which would make compliance with both the federal standard and the state standard espoused by the plaintiff "impossible," conflict preemption could not apply.

Post-Levine cases have grappled with this standard, with defendant manufacturers commonly failing to meet this "clear evidence" standard in asserting the defense of conflict preemption. Except recently. The latest decision from the Western District Court of Oklahoma demonstrates how the "clear evidence" of conflict standard provided (but not defined) in Levine could be met. Dobbs v. Wyeth Pharmaceuticals, No. 5:04-cv-01762 (W.D. Okla. June 13, 2011). In doing so, the District Court distinguished or rejected as unpersuasive five other decisions where courts applied the Levine evidentiary standard in failure to warn claims involving the same class of anti-depressant prescription drugs. Id. at p.21.

Dobbs is a case brought by the widow of a depressed patient who took several days' worth of a prescribed antidepressant called Effexor, before committing suicide. Among her claims, the widow plaintiff contended that Effexor's FDA-approved statements regarding suicidality in patients diagnosed with depression was inadequate in its failure to fully warn of the risk. Id. at p. 2. Wyeth, the manufacturer of Effexor, contested this assertion by pointing to a variety of the factors that the District Court found persuasive: 1) the FDA is statutorily responsible for continually monitoring the safety of approved drugs, and proposed changes to the labeling "must be 'based on 'reasonable evidence of' an association between a hazard and the drug at issue…." [id. at p.10-11]; 2) the FDA had repeatedly considered the "proper scope and content of suicidality warnings for the class of drugs that are used to treat depression [id. at p. 12]; 3) in addition to such consideration, the FDA had "consistently expressed concern that an enhanced suicidality warning [was] not supported by scientific evidence" which could create the adverse consequence of a "potential reduction" in the use of drugs for the treatment of depression [id.]; 4) in 2002, the same year the decedent committed suicide, the FDA concluded that a more extensive suicidiality warning was not supported by scientific evidence (and thus, would not have approved of the warning that the plaintiff argued should have been used) [id. at *16]; and 5) in 2004 and 2006, the FDA concluded that increased suicidal thinking or behavior in pediatric patients and patients under the age of 25 years using these class of drugs was supported by sufficient scientific evidence, but the decedent in this case was 53 years old when he committed suicide [id. at 17]. In sum, the District Court found that the "FDA's ongoing study and analyses" regarding these warnings, and the FDA's lack of any findings regarding scientific evidence to support the addition of suicidality warnings for patients in the decedent's age pool, compelled a finding of conflict preemption. Id. at p. 18-9; see also p. 21.

The District Court's extensive and careful recitation of the facts, along with its review and treatment of the other post-Levine decisions, provides a useful framework in which to advocate and win on the defense of conflict preemption for failure to warn claims.

Recall Does Not Equal Defect: Another Court Gets It Right

This post was written by Michelle L. Cheng.

As every product liability lawyer knows, a client’s voluntary recall of a product will result in lawsuits. Plaintiffs’ lawyers for pharmaceutical product liability cases love using the fact of a recall as an easy stand-in for proving that the product in a specific case was in fact defective at the time of manufacture. So while equating a voluntary recall with the existence of a defect is a seductively persuasive assumption, defense lawyers should strenuously argue against it because it's an argument they can win.

In a very recent decision issued by the Southern District of Mississippi, Cothren v. Baxter Healthcare Corporation, No. 3:10-CV-347, 2011 WL 2174026 (May 31, 2011), the District Court resisted the temptation to make that very assumption. In Cothren, the plaintiff filed a variety of product liability claims against Baxter based on the injuries she allegedly suffered from use of a dialysis machine. She claimed that her injuries were consistent with the injuries itemized and noted in the two Recall Notices that Baxter had issued with respect to such devices. Id. at *1. Baxter moved for summary judgment – the specific focus being whether the plaintiff satisfied the essential element of a “defect.” Id. at *3-*4. While the plaintiff flippantly asserted that “any layman [] can review the two recall notices, the press release and the Plaintiff’s symptoms and based on common sense, find that the Defendant was negligent as a matter of common sense,” the District Court failed to see common sense. Id. at *3. 

Instead, the District Court flatly rejected this assertion and stated: “Expert testimony is required.” Id. “Evidence of a design defect must be supported by expert testimony, and the failure to designate an expert who is prepared to offer such evidence demonstrates the lack of a prima facie case.” Id. Further, the District Court noted that the “recall notices [] do not constitute admissible evidence to establish liabilitySee, e.g., Rutledge v. Harley-Davidson Motor Co., 2009 WL 1635762, *2 (S.D. miss. 2009), aff'd, 364 Fed. Appx. 103 (5th Cir. 2010) Fed. R. Evid. 407 bars the use of Recall Notes to be used as defendants' admission that a design is defective.)” Id.; see also Drury v. Cardiac Pacemakers, Inc., No. 8:02CV933, 2003 WL 23319650 (M.D. Fla. June 3, 2003) (fact of recall alone does not establish causation and expert testimony is required). Based on the plaintiff’s failure to establish that Baxter breached its duties, the District Court granted summary judgment.  Id. 

To read the full case, click here.

 

Recent Developments in Tort Litigation

Law360.com recently published two articles on decisions involving issues with potential to have long-term effects on tort litigation.

In the June 2, 2011 article, "Case Study: Bauman V. DaimlerChrysler Corp.," Mildred Segura and Nabil Bisharat discuss Bauman v. DaimlerChrysler Corp., a case that expands the use of "agency theory" to impose general jurisdiction over foreign corporations that do business in the U.S. solely through their U.S. subsidiaries. The Ninth Circuit's recent decision in Bauman holds that personal jurisdiction existed over DaimlerChrysler Aktiengellschaft (DCAG), a German company, because DCAG maintained the right to control its wholly owned U.S. subsidiary, Mercedes-Benz USA LLC (MBUSA), such that DCAG could be haled into court in California due to MBUSA’s contacts with that state. Bauman increases the likelihood that foreign corporations will be sued in American courts based on the activities of their U.S. subsidiaries. This opinion — if it stands — has the potential to affect any foreign company that does business in the U.S. through subsidiaries regardless of whether those subsidiaries have anything to do with the parent’s alleged actions giving rise to the lawsuit. To read this article, you may download a .PDF or view on Law360.com (subscription required).

In "Reading Between The Lines: Pooshs V. Philip Morris," published in May, Eric Buhr and Kasey Curtis analyze the California Supreme Court's May 5th decision in Pooshs v. Philip Morris USA Inc., the latest California case addressing how statutes of limitations should apply in cases where a plaintiff alleges delayed discovery of only one of multiple claims or injuries. The background issue that appears to be guiding the Supreme Court’s decisions is the little used doctrine of "primary rights." A close reading of the opinions reveals the court’s careful effort to reach an arguably fair result while avoiding issues that could have a larger and devastating effect on tort litigation. To read this article, you may download a .PDF or view on Law360.com (subscription required).

Tort Reform In Texas: Loser Pays Rule Signed Into Law

With a hat tip to the California Civil Justice Blog, earlier this week Texas enacted a "loser pays" system that proponents say will help rid the system of meritless cases. House Bill 274 takes effect September 1, 2011 and directs the Texas Supreme Court to enact rules providing for the early dismissal of "causes of action that have no basis in law or fact on motion and without evidence." For cases that fall within this "no basis in law or fact" category, the trial court may award the prevailing party costs and "reasonable and necessary attorney's fees . . . that the court determines are equitable and just" whenever it grants or denies a motion to dismiss, in whole or in part.

Given the rulemaking yet to occur and the discretion vested in the trial courts in whether to award fees, the exact contours of this law will take some development, and it remains to be seen whether Texas civil litigants will be ordered to pay attorneys fees rarely or with some frequency. Still, an interesting experiment in civil justice reform that will bear watching.

Tort Reform Heats Up with Hearing in the Senate Judiciary

The National Law Journal's article “Torts once again on the front burner in the House” discusses the March 24, 2011 U.S. House Judiciary subcommittee hearing on tort reform. The hearing, entitled, "Can We Sue Our Way to Prosperity?: Litigation's Effect on America's Global Competitiveness," once again opens the debate regarding the US tort system. Topics included a bill that would cap non-economic damages in cases of medical malpractice, and a hearing on the yet-to-be-introduced Lawsuit Abuse Reduction Act, a proposal to implement mandatory sanctions of attorneys who violate civil procedure's Rule 11 against filing frivolous claims.

Civil Justice Reform Ideas For California

The California Civil Justice Blog has a link to John Fund's article in The Wall Street Journal  "California Dreamin' - Of Jobs In Texas" discussing California lawmakers' recent legislative fact-finding trip to Texas, where they met with businesses that had relocated from California -- and throws a few legal-system reform ideas of its own into the mix, modeled on some changes Texas has made in recent years. Among them: Making the grant of class certification appealable - not just the denial of class certification, and a punitive damages cap.

Sunshine in Litigation Act to Senate Judiciary

In February we noted that the perennial "Sunshine in Litigation" bill had been introduced again. The Senate version in S. 623  and the House version is H.R. 592 but there is no real difference.  It now is scheduled for consideration in Senate Judiciary on May 5 at 10:00 a.m.  A link to the webcast should be available then from the relevant Senate Judiciary Committee hearing and meeting page.

"Sunshine in Litigation" Bill Introduced Again

Law360 is reporting that Rep. Jerrold Nadler (D-NY) is seeking to revive the 2009 "Sunshine in Litigation Act," a bill we covered previously.  H.R. 592 would turn around the Supreme Court's Seattle Times Co. v. Rhinehart, 467 U.S. 20, 33 (1984), which concluded that discovery materials are not public components of a civil trial.  As a result, litigation protective orders are permissible to protect the confidential and proprietary information of parties to civil litigation, at least until information produced in discovery is filed with the court or introduced into evidence for determination of a merits issue (such as on a motion for summary judgment or at trial.  These bills are introduced regularly, even though in 1996 the Federal Judicial Center confirmed there was no basis for the primary justification articulated by proponents of such measures, reporting that its "empirical study showed that the orders did not impact public safety or health. . . . The empirical data showed no evidence that protective orders create any significant problem of concealing information about public hazards."

Changes to Rule 26 Make It Easier To Work With Experts

This post was written by Meghan K. Landrum.

Recent changes to the Federal Rules of Civil Procedure (FRCP) Rule 26 make it easier to communicate with expert witnesses and to prepare them for deposition and trial testimony while still protecting attorney work product. While expert discovery has been a part of federal practice since 1993, the period dedicated to the discovery of attorney-expert communications and draft expert reports has become increasingly time consuming during pre-trial preparation. The amendments to Rule 26 address this development and attempt to create an atmosphere that encourages better communication between attorneys and their experts.

To learn more about the changes made to Rule 26 and the immediate impact this has on working with expert witnesses, read our full alert.

Federal Court Holds That Voluntary Refund Programs Can Defeat Class Certification Under Rule 23(b)(3)'s Superiority Requirement

This post was written by James C. Martin and Colin E. Wrabley

Class action defense litigators should be aware of a recent federal district court decision that endorsed and accepted a creative option for defeating class certification—the defendant’s implementation of a voluntary refund and replacement program providing a comparable remedy to what the putative class might recover in court. See In re Aqua Dots Prods. Liab. Litig., 2010 WL 3927611 (N.D. Ill. Oct. 4, 2010). In so doing, the decision in Aqua Dots extends a growing and important trend in class action jurisprudence concerning the scope of Federal Rule of Civil Procedure 23(b)(3)’s requirement that class litigation be “superior to other available methods for fair and efficient adjudication of the controversy.” While the notion of a refund or replacement program as an alternative to class actions has been around for decades, Aqua Dots provides a new impetus to consider this approach.

For more information, read the full alert.

Communications Between Attorney and Testifying Expert Are Discoverable in Pennsylvania

This post was written by George M. Linge and Natalie C. Metropulos.

Addressing an issue of first impression in Pennsylvania, the Pennsylvania Superior Court recently concluded that an attorney's communications with a testifying expert are discoverable. This important decision puts Pennsylvania law squarely at odds with the newly amended Federal Rule 26(b)(4), set to take effect December 1, 2010, which prohibits discovery of drafts of an expert's reports as well as communication between counsel and the expert. Now, as much as ever, it is critical to understand the venue-specific rules on communications with experts.

In Barrick v. Holy Spirit Hospital of the Sisters of Christian Charity, No. 1856 MDA 2009, 2010 PA Super 170 (Pa. Super. Sept. 16, 2010), Carl Barrick claimed to be injured when the chair he was sitting on in a hospital cafeteria collapsed. Barrick was treated by Dr. Thomas Green, whom plaintiff’s counsel also identified as an expert. In discovery, plaintiff’s counsel produced the medical treatment records but, citing the privilege afforded attorney-work product, refused to produce communications between plaintiff’s counsel and Dr. Green. Following an in camera review, the trial court concluded that the communications between counsel and the expert were discoverable.

On appeal, the Pennsylvania Superior Court affirmed, finding that “if an expert witness is being called to advance a party’s case-in-chief, the expert’s opinion and testimony may be impacted by correspondence and communications with the party’s counsel; therefore, the attorney’s work-product must yield to discovery of those communications.”  To learn more about the recognized tension between two basic state rules of discovery in this case: Rule 4003.3, which limits the scope of production of an attorney’s trial preparation materials; and Rule 4003.5, which permits “discovery of the facts known and opinions held by an expert” that are “acquired or developed in anticipation of litigation or for trial," read our full alert.

Upcoming Hearing on Draft Dingell/Waxman Drug Safety Legislation

On September 30, the House Energy and Commerce Committee is holding a hearing on draft drug safety legislation (per energycommerce.house.gov, witness list not yet available). The legislation, which was drafted by Reps. John Dingell, Henry Waxman, Frank Pallone, and Bart Stupak, requires parity between foreign and domestic drug facility inspections, increases the number of pre-approval drug inspections, prohibits the entry of drugs into the United States lacking documentation of safety, requires manufacturers to ensure the safety of their supply chain, and grants FDA authority to mandate recalls of unsafe drugs. For background information on the draft legislation (including the text), see energycommerce.house.gov.

UPDATE:  This hearing has been postponed, and no new date has yet been announced.

FDLI Publishes New Guide to International Prescription Product Recalls

Recent events highlight the importance of having a plan for product recalls. The Food and Drug Law Institute's recent monograph entitled, "International Prescription Product Recalls: A Practical Guide, Volume 1, Number 4," provides comprehensive guidance and practical recommendations on dealing with recalls internationally as well as a checklist and valuable "dos and don'ts" for manufacturers facing product recalls. Written by Reed Smith partners James M. Wood and Areta L. Kupchyk, the publication is available for download by series and individual issue subscribers.

For more information or to order, see www.fdli.org.

China's New Tort Liability Law Takes Effect on July 1, 2010

China's long-awaited Tort Liability Law, passed on December 26, 2009 by the Standing Committee of the National People’s Congress of China, will take effect on July 1, 2010. The law, which serves to provide a stronger basis for the development of tort law and practice in China, offers standard guidance on issues ranging from product liability, environmental pollution, medical malpractice to employee-related liabilities. For example, prior to the enactment of the law, defective product recall obligations were only applied to a limited number of products, including medicine, food, toys and automotive products. The new law, however, expands the recall system to cover all products manufactured or sold in China.

Reed Smith Beijing Counsel Mao Rong and Michael H. Dardzinski and Consultant Joyce Sun recently drafted a brief summary of China's new tort law provisions regarding product liability, medical-related damages and environmental pollution. Read the full summary here.

CPSC Continues Stay of Enforcement of Third-Party Testing Laboratory and Certification Requirements for Some Products

This post was written by Steven P. Murphy.

Responding to efforts by a number of industry groups, on December 28, 2009, the U.S. Consumer Product Safety Commission ("CPSC") posted a Federal Register notice announcing its continuation of the stay of enforcement of the third-party laboratory testing and certification required under section 14 of the Consumer Product Safety Improvement Act of 2008 ("CPSIA"). The stay was continued until February 10, 2011. The continued stay involves a discrete group of products, including children's toys and child care products with banned phthalates, toys subject to ASTM's F-963 standards, baby walkers, electrically operated toys, youth all-terrain vehicles, carpets and rugs, vinyl plastic film, and children's sleepwear. Most importantly, the stay was continued for the third-party testing and certificate of the lead content limit that applies to all children's products.

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FDA's Emerging Internet Policy: Themes and Recommendations From Public Hearing on Promotion of FDA-Regulated Medical Products Using the Internet and Social Media Tools

This post was written by Areta Kupchyk, Kevin Madagan, and Paul Sheives.

Following a decade-long hiatus, the Food and Drug Administration (“FDA”) appears ready to finally address industry Internet communications. FDA’s Center for Drug Evaluation and Research (“CDER”) in collaboration with other divisions within FDA, held a two-day hearing on November 12th and 13th to help the Agency determine how the statutory provisions, regulations, and policies governing advertising and promotional labeling should be applied to product-related information on the Internet and emerging technologies.

Much has changed since 1996, the last time FDA held a public hearing on this topic. The Internet is now widely used as a medium for companies to disseminate information about their products, and the Internet's ability to facilitate communication and collaboration has substantially evolved over the last few years primarily as a result of a second (Web 2.0) and now third (Web 3.0) generation of Internet development and website design. The inherent flexibility and intelligence of Web 2.0 and 3.0 is great for society, but also fraught with risk for an FDA-regulated industry that must carefully control its interactions with consumers and health care practitioners. Indeed, the industry has largely avoided using Web 2.0 out of fear that any social media use may result in FDA enforcement action. 

Given the above, it is not surprising that FDA’s hearing was a welcome relief to many. Even though the hearing technically was only an information gathering exercise for FDA, it was an important opportunity for industry leaders and stakeholders to contribute to FDA’s emerging Internet policy. This Client Alert provides a brief summary of the major themes and recommendations from the presenters at the hearing.

In addition, please see a related commentary on the blog Adlaw by Request (“FDA Seeks To Understand Social Media”). Adlaw by Request is a blog designed to provide regular news on advertising law developments in the United States and elsewhere, with practical commentary and analysis from Reed Smith’s Advertising, Technology and Media (ATM) practice.

Third Circuit Holds That MDL Judges Can't Reverse Pre-Transfer Orders Absent Extraordinary Circumstances

This post written by Eric Buhr.

In a precedential decision issued Thursday, In Re: Pharmacy Benefit Managers Antitrust Litigation (MDL 1782), the U.S. Court of Appeals for the Third Circuit reinstated a district court order compelling arbitration of antitrust claims, an order which another district court judge vacated after the case was transferred to a federal Multi-District Litigation (MDL)s. Based on the law of the case doctrine, the Court of Appeals held that MDL judges may not overturn an order of the transferor court absent a finding of extraordinary circumstances - a conclusion that has broad ramifications for MDL proceedings in general.

The In Re Pharmacy Benefit Managers Antitrust Litigation case began in 2003, when Bellevue Drug Co. and several other pharmacies and associations sued AdvancePCS, a pharmacy benefits manager now known as CaremarkPCS, Inc for antitrust violations. In 2004, AdvancePCS moved to compel arbitration of all of the Plaintiffs' claims based on a contractual arbitration clause, and the district judge, Judge Eduardo Robreno of the U.S. District Court for the Eastern District of Pennsylvania, granted the motion to compel arbitration and stayed the district court action. 

Two years later, though, the case was transferred to an MDL pending in the Eastern District of Pennsylvania before Judge John P. Fullam. There, Judge Fullam lifted the stay and vacated the order for arbitration. Although Judge Fullam admitted the orders compelling arbitration were "clearly appropriate under the Federal Arbitration Act," he felt that an order vacating the arbitration order would help expedite the case. In support of his ruling, he explained his belief that a transferee judge under the multidistrict litigation statute had the power to vacate or modify any order of a transferor court bearing on pretrial matters.

The Court of Appeals clearly disagreed, stating that "there is nothing in the rules adopted by the Joint Panel on Multidistrict Litigation that authorized a transferee judge to vacate or modify the order of a transferor judge."   Although Judge Fullam relied, in part, on portions of the Manual for Complex Litigation suggesting that a transferee judge may vacate or modify orders of the transferor court, the Third Circuit dismissed that argument. The Court explained that "if Judge Fullam's interpretation of the statute were accurate, litigation could begin anew with each MDL transfer…Moreover, we do not believe that Congress intended that a 'Return to Go' card would be dealt to parties involved in MDL transfers." 

Ultimately, the Third Circuit agreed that the transfer of a case to an MDL does not confer more power on a transferee court; its powers are commensurate with those the transferor court has absent the transfer. Therefore, under ordinary application of the law of the case doctrine, an MDL court may only revisit past orders upon a finding of "extraordinary circumstances". Some recognized examples justifying exceptions and revisiting old orders anew include: (1) when new evidence becomes available; (2) when a supervening new law has been announced; (3) when there is a need to clarify or correct an earlier ambiguous ruling; and (4) when the order might lead to an unjust result. Since the MDL judge had not relied on on any such exception to the law of the case doctrine, the Third Circuit reinstated the original order by the transferor court.  

New Developments in Nanotechnology

A recent study suggests that exposure to nanoparticles may have caused the death of two female workers and the illnesses of five others in China. Life science health industry companies that manufacture, integrate, sell or buy products that contain nanomaterials may want to monitor reaction to this report, which may garner attention from media outlets, scientists, regulators and the plaintiffs' bar. For a full discussion of these issues, review the full Client Alert written by Reed Smith attorneys Antony Klapper, Jesse Ash and David Wagner.

Senate Committee Meets To Hear From Witnesses Regarding "The Medical Device Safety Act of 2009"

On Tuesday, August 4, 2009, the Senate Committee on Health, Education, Labor and Pensions met for a hearing called "Protecting Patients from Defective Medical Devices" regarding Senate Bill 540, a companion bill to the House bill, H.R. 1346, the "Medical Device Safety Act of 2009." The House Subcommittee on Health, of the Committee on Energy and Commerce also met earlier this year on this issue, with some of the same speakers. 

S. 150 and H.R. 1346 seek to overturn the Supreme Court's important ruling in Riegel v. Medtronic, Inc., 128 S.Ct. 999 (2008), which held that the PMA approval process for Class III devices imposes federal requirements that preempt state tort claims which would impose additional or different "requirements" regarding the safety and efficacy of the device, pursuant to the express preemption clause found in the Medical Devices Amendment of 1976.

Speaking in support of the bill were William Maisel, Director of the Medical Device Safety Institute, Thomas McGarity, Professor at the University of Texas School of Law, and Michael Mulvihill, a patient who was formerly implanted with a medical device. The arguments they presented echoed those of preemption opponents.

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Next Congressional Hearing About Medical Device Safety Announced

On August 4, 2009 at 2:30 p.m., it will be the Senate's HELP Committee's turn to hold a hearing entitled "Protecting Patients from Defective Medical Devices". No witness list is yet posted.

For our coverage on past hearings on this issue, click here.

Courts Continue To Get Express Preemption Right In Medical Device Cases

Since last year, a number of courts have interpreted and applied the express preemption holdings of Riegel v. Medtronic, Inc., 128 S.Ct. 999 (2008). Miller v. DePuy Spine, Inc., 07-cv-01639, 2009 US Dist LEXIS 49602 (D. Nev. May 1, 2009), is another example and, although it was decided on May 1, has just recently been picked up by LEXIS.

In Miller, the Nevada District Court granted summary judgment for the manufacturer of a PMA approved spinal implant disc called the Charite Artificial Disc. While many courts, including this one, correctly follow Riegel and hold that the state law claims challenging the design, manufacture and labeling claims are expressly preempted, this court also entered judgment for the defendant on warranty and misrepresentation claims that have a received a more mixed reception in some courts.

As to express warranty, Miller concluded that the plaintiff failed to establish the receipt of any express warranties, and that such warranty claims directly challenged the safety and effectiveness established through PMA approval of the device. The Court further held that even when couched as a warranty claim , claims are preempted when they would "impose liability for the defendant's use of labeling approved and required by the FDA." 

The plaintiff also claimed to assert "parallel claims" contending  that the implanted device was "out of conformity with the materials or manufacturing specifications approved by the FDA," but the court dismissed these as well because plaintiff failed to meet his burden in demonstrating that there was a genuine issue of fact. As the Court succinctly noted: "Only a departure from such FDA-approved specifications could conceivably escape preemption, and absence of any evidence of such departure justifies summary judgment." 

Plaintiff's claims that the manufacturer allegedly made misrepresentations or omissions of material information to the FDA in order to "secure or maintain the PMA" were also dismissed. Not only had the plaintiff offered only "argument about this hypothesis" rather than admissible evidence, under 21 U.S.C. Section 337(a), any attempt to enforce the FDCA and its regulations were preempted; and any contention that the manufacturer provided inaccurate or incomplete information to the FDA was impliedly preempted under Buckman v. Plaintiffs' Legal Committee, 531 U.S. 341 (2001). 

In Iqbal v. Ashcroft, the United States Supreme Court Rejects Truthiness As The Pleading Standard Under Rule 8

This post was written by Adam M. Masin.

The American Dialect Society named “truthiness” as the word of the year for 2005 and Merriam-Webster followed suit in 2006. Popularized by political satirist Stephen Colbert’s character “Stephen Colbert,” truthiness is generally defined as “knowledge” based on emotion and gut instinct rather than on information, facts, evidence, or logic. A true proponent of truthiness, for example, would “feel” the definition and would never look it up in a book. Whether on Colbert’s show, in academic and political circles, or in the pages of the New York Times, the concept of truthiness has been on a lot of important minds lately. Add the United States Supreme Court to that list. Although the Court did not explicitly invoke that word in discussing why the Complaint had to be dismissed in Iqbal v. Ashcroft, 2009 WL 1361536 (May 18, 2009), truthiness, it said in essence, is not the pleading standard under Rule 8. Welcome to the world of reality-based pleading.

Finally, our clients might add. As the Drug and Device Law Blog recently noted, defenders of the Iqbal decision have been more reticent that those horrified by it. The authors of that blog have ably raised a number of defenses for Iqbal and its older brother Twombly and took issue with plaintiffs’ claims that Iqbal and Twombly stand as obstacles to filing meritorious cases, arguing that “the hallmark of a meritorious case is that it’s factually supported from the get go.” That is undoubtedly true, and it should be added that all Iqbal and Twombly require is that plaintiffs give the trial judge some reason to belief that their case is meritorious “from the get go.”

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Supreme Court Denies Review of 5.35-to-1 Ratio For Punitive Damages

This post was written by Kevin G. Lohman.

On May 26, 2009, the U.S. Supreme Court denied a petition for writ of certiorari to review a decision from the Supreme Court of Tennessee that upheld an award of punitive damages for over $13 million dollars, which amounted to a 5.35-to-1 ratio of punitive damages to actual damages. See DaimlerChrysler Corp. v. Flax, NO. 08-1010, 2009 WL 357533, (2009). ProductLiability.com deserves recognition for flagging this decision. 

The case arose out of a motor vehicle accident in June 2001, which resulted in the death of an eight-month-old baby. Plaintiffs, the parents of decedent, filed suit alleging wrongful death and negligent infliction of emotional distress (NIED) against the other driver involved in the accident and against DaimlerChrysler Corp., who was the manufacture of plaintiffs’ 1998 Dodge Caravan. The jury assigned fault evenly against the defendant driver (for speeding) and DaimlerChrysler Corp. (for defective design of the car seats), and awarded plaintiffs $5 million dollars in compensatory damages for their wrongful death claim, and $2.5 million damages for their NIED claim. During the second phase of the trial, evidence was presented that DaimlerChrysler Corp. was aware of the defective design of their car seats, they failed to warn customers, they hid evidence of the of the defective design, and they continued to market the Caravan as a vehicle that put safety first. The jury awarded punitive damages against DaimlerChrysler Corp. in the amount of $65.5 million for the wrongful death claim, and $32.5 million for the NIED claim. The trial judge remitted the punitive damages down to $13,367,345.00 for the wrongful death claim and $6,632,655.00 for NIED. 

On appeal, the Tennessee Court of Appeals reversed, holding that there was insufficient evidence to award any damages pertaining to the NIED claim. Further, the court held that there was not clear and convincing evidence that DaimlerChrysler Corp. acted recklessly or intentionally in order to warrant punitive damages, and struck the entire punitive damage award.

On further appeal, the Supreme Court of Tennessee affirmed the court of appeal’s holding pertaining to the NIED. However, they reversed the portion of decision pertaining to punitive damages. Holding that there was in fact sufficient evidence to support a finding of punitive damages, the court reviewed whether the size of the punitive damages award is excessive in violation of the due process standards set out by the United States Supreme Court in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996) and State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003). Specifically, the court relied on the first two guideposts set out in Gore and Campbell (the reprehensibility of the defendant’s conduct; and the ratio between the punitive damage award and the compensatory damages). 

With regard to the first guidepost, the court noted that the evidence in this case “clearly demonstrates that [DaimlerChrysler Corp.’s] conduct was reprehensible.” As to the second guidepost, the court noted that the punitive-to-compensatory ratio was 5.35-to-1 and acknowledged the language of the Supreme Court decisions in Gore (suggesting that a ratio of greater than 4-to-1 approaches the outer limits of constitutionality) and Campbell (suggesting that a ratio of 1-to-1 may be all that is permissible in cases where compensatory damages are “substantial”). However, the court also noted that in Campbell the Supreme Court declined to adopt a fixed mathematical formula to determine the appropriateness of punitive damages and stated that “the precise award in any case, of course, must be based upon the facts and circumstances of defendant’s conduct and the harm to the plaintiff.” The Tennessee court held that “In light of the first two guideposts, we believe that a ratio of 1 to 5.35 would be warranted in this case,” noting that the evidence pertaining to the defendant’s conduct demonstrated their conduct was reprehensible and the harm to the plaintiffs in this case was tragic (the death of an eight-month-old baby). 

Interestingly, the Tennessee court chose not to acknowledge the Supreme Court’s most recent punitive damage decision from Exxon Shipping Co. v. Baker, ___ U.S. ___, ___, 128 S. Ct. 2605 (2008), which was decided one month prior and established a 1-to-1 ratio between punitive and compensatory damages under federal maritime law and contained implications for applying the 1-to-1 ratio to limit punitive damages in state court actions. (The Exxon decision is discussed in this prior post). Despite the fact that Supreme Court of Tennessee did not acknowledge Exxon, the United States Supreme Court denied DaimlerChrysler’s petition for writ of certiorari.

President's Statement On Preemption

The White House Press Office just released a Memorandum for the Heads of Executive Departments and Agencies re Preemption.  Regarding actions by the executive branch intended to preempt state law, it directs:

1. Heads of departments and agencies should not include in regulatory preambles statements that the department or agency intends to preempt State law through the regulation except where preemption provisions are also included in the codified regulation.

2. Heads of departments and agencies should not include preemption provisions in codified regulations except where such provisions would be justified under legal principles governing preemption, including the principles outlined in Executive Order 13132.

3. Heads of departments and agencies should review regulations issued within the past 10 years that contain statements in regulatory preambles or codified provisions intended by the department or agency to preempt State law, in order to decide whether such statements or provisions are justified under applicable legal principles governing preemption. Where the head of a department or agency determines that a regulatory statement of preemption or codified regulatory provision cannot be so justified, the head of that department or agency should initiate appropriate action, which may include amendment of the relevant regulation.

Supreme Court Confirms Twombly's Tighter Pleading Standards Have Broad Application

Yesterday, May 18th, the United States Supreme Court issued Ashcroft, Former Attorney General v. Iqbal, and confirmed the pleading standards it announced in Bell Atlantic Corp. V. Twombly, 550 U. S. 544 (2007), an anti-trust case. Although Ashcroft also dealt with other significant legal issues, it is quite possible that its broadest impact will come from its pronouncements regarding pleading standards in federal court.

As Ashcroft explains:

Two working principles underlie our decision in Twombly. First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. [Twombly, 550 U.S. at 555] (Although for the purposes of a motion to dismiss we must take all of the factual allegations in the complaint as true, we “are not bound to accept as true a legal conclusion couched as a factual allegation” (internal quotation marks omitted)). Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions. Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. Id., at 556. Determining whether a complaint states a plausible claim for relief will, as theCourt of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. 490 F. 3d, at 157–158. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not “show[n]”—“that the pleader is entitled to relief.” Fed. Rule Civ. Proc. 8(a)(2)."

Slip Op. at 14-15.

Formulaic recitations of the elements of a cause of action do not suffice. Slip Op. at 17. Legal conclusions in a complaint -- an allegation that an agreement was "unlawful" is one example; that a drug or device manufacturer "violated FDA regulations" would be another -- are not entitled to an assumption of truth when a defendant moves to dismiss. Slip Op. at 16. In other words, Ashcroft is a nice addition to any federal court defendant's arsenal. 

California Supreme Court Decides Landmark Consumer Fraud Case

This post was written by Keith Yandell and Lisa Baird.

This morning, May 18, 2009, the California Supreme Court issued its ruling in In re Tobacco II Cases, a case that will shape how parties litigate California Unfair Competition Law (“UCL”) claims. At issue was the viability of UCL actions that seek to certify a class despite the fact that not all putative plaintiffs suffered injury as a result of a defendant’s allegedly unfair practice. Since California’s infamous UCL (also known as Bus. & Prof. Code, § 17200 et seq.) is often used to add broad “consumer fraud” claims to product liability lawsuits against the life sciences industry (as well as many other industries), the outcome of In re Tobacco II garnered substantial attention. 

Questions Presented

(1) In order to bring a class action under the UCL, as amended by Proposition 64, must every member of a proposed class action have suffered “injury in fact,” or is it sufficient that only the class representative comply with that requirement?

(2) In a class action based on a manufacturer’s alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer’s representations?

Background of the Case

The gravemen of the plaintiffs’ Complaint was that defendant tobacco manufacturers and researchers engaged in a decades-long conspiracy to conceal the health effects and addictiveness of cigarettes and, in so doing, made numerous false and misleading statements to consumers.

The Court of Appeal unanimously affirmed the trial Court’s holding that every class member must have suffered injury in order to maintain a class action under the UCL.

The California Supreme Court Ruling

The Court answered the above questions as follows:

(1) “[S]tanding requirements are applicable only to the class representatives, and not all absent class members.” In re Tobacco II Cases, slip Op. at p. 2 (Cal. May 18, 2009).

The Court also repeated the “likely to deceive” standard, and concluded “the language of section 17203 with respect to those entitled to restitution — to restore to any person in interest any money or property, real or personal, which may have been acquired” (italics added) by means of the unfair practice — is patently less stringent than the standing requirement for the class representative — “any person who has suffered injury in fact and has lost money or property as a result of the unfair competition.” (§ 17204, italics added.) . 

(2) “[A] class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.” A class representative, however, need not plead or prove that they actually relied on a particular advertisement or statement when the unfair practice is a fraudulent advertising campaign. Id.

As to whether class representatives actually have standing, the court did conclude that Prop. 64 “imposes an actual reliance requirement on plaintiffs prosecuting a private enforcement action under the UCL’s fraud prong. This conclusion, however, is the beginning, not the end, of the analysis of what a plaintiff must plead and prove under the fraud prong of the UCL. . . .While a plaintiff must show that the misrepresentation was an immediate cause of the injury-producing conduct, the plaintiff need not demonstrate it was the only cause. ‘It is not . . . necessary that [the plaintiff’s] reliance upon the truth of the fraudulent misrepresentation be the sole or even the predominant or decisive factor influencing his conduct. . . . It is enough that the representation has played a substantial part, and so had been a substantial factor, in influencing his decision.’ [Citation.] [¶] Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. . . .Nor does a plaintiff need to demonstrate individualized reliance on specific misrepresentations to satisfy the reliance requirement.” Id. at p. 31.  

Additional Materials

The opinion is available at the judicial branch website and copies are available at the Supreme Court Clerk’s Office.

For a summary of the oral argument in this matter, please see "California Supreme Court Hears Landmark Consumer Fraud Case".

The lower Court’s ruling is available here.

Why Michigan's "FDA Defense" Survives The Holding In Wyeth

Washington Legal Foundation's latest Legal Backgrounder, the "Logic of Michigan's 'FDA Defense' Survives Recent Supreme Court Ruling", authored by Thomas J. Foley, explains why the Wyeth v. Levine, 129 S.Ct. 1187 (2009) ruling does not support a rationale to overturn Michigan law that provides a defense against drug product liability suits where the manufacturer obtained FDA approval.

House Subcommittee Holds Hearing To Overturn Riegel: H.R. 1346, the "Medical Device Safety Act of 2009"

On May 12, 2009 the Subcommittee on Health, of the Committee on Energy and Commerce, House of Representatives, held a hearing on H.R. 1346, the "Medical Device Safety Act of 2009".  If passed, it would overturn the Supreme Court decision, Riegel v. Medtronic, Inc., 128 S.Ct. 999 (2008), which held that under the express preemption clause of the Medical Devices Amendment of 1976 (MDA), the federal requirements created by the premarket approval process for Class III devices preempted state law tort claims that added or differed from the federal requirements.  This hearing comes at the heels of public and media scrutiny of this decision, including last year's House Committee on Oversight and Government Reform preemption hearing held May 14, 2008 and the Senate Judiciary Committee's preemption hearing held June 11, 2008.

Before the invited panel of witnesses spoke, numerous members of the subcommittee provided opening remarks, which reflected the division among those who argued that the Supreme Court's analysis in Riegel departed from the legislative intent of the MDA, and those who agreed that the pending legislation would prevent innovation and access to medical devices that are life-saving. Arguments against the bill also noted that moving against preemption would otherwise place safety concerns in the hands of juries across the country, instead of on the FDA's safety and efficacy evaluations. Some focus was also placed on the FDA's effectiveness in policing the manufacturers, with several congress members such as Representative John Dingell, MI and Henry Waxman, CA arguing that the FDA has not been able to identify and take action on defective products, therefore calling into question their effectiveness in ensuring safety, while other congress members such as Representatives Steve Buyer, IN and Michael Burgess, TX argued that if the FDA is underfunded and without resources, the Committee should focus on the FDA, not on tort reform.

Most of the invited witnesses were repeat appearances from last year's hearing. David Vladeck, J.D., Professor of Law, Georgetown University Law Center presented his case in support of the bill, and repeated his concerns about the Riegel court's alleged deviation from congressional intent as reflected in legislative history. He also argued that manufacturers brought the express preemption defense to fore and that it was a more recent phenomena since the mid 1990s, after the Cipollone v. Liggett Group, Inc., 505 U.S. 504, 517, 112 S.Ct. 2608, 2618 (1992) decision.

William H. Maisel, M.D., M.P.H., Director, Medical Device Safety Institute, Department of Medicine, Beth Israel Deaconess Medical Center, Boston also testified, as both a practicing cardiologist and as a consultant and advisory committee member for the FDA. He provided anecdotal background with what he represented as an example of a man who was implanted with a St. Jude pacemaker that allegedly was subjected to a recall and resulted in additional surgical procedures.  In making this example, Dr. Maisel argued that the self-interest of companies are at odds with the congressional goal of ensuring public safety. Gregory Curfman, M.D., Executive Editor, New England Journal of Medicine also echoed similar sentiments, and discounted the arguments made about innovation and safety for consumers being mutually exclusive.

Richard Cooper of the law firm Williams & Connolly LLP provided a big-picture review of what it would mean to have 50 state juries take the place of the FDA and seasoned clinicians when determining what constitutes a "defect" meriting liability. Mr. Cooper also emphasized that innovation would be hampered should preemption be denied to medical device companies, noting how many smaller companies that are focused on under-served areas of practice would be litigated out of their market share.

Bridget Robb of Pennsylvania and Michael Kinsley of Washington both presented anecdotal history with medical devices. Ms. Robb testified about her experience with a cardiac lead that she claimed unnecessarily shocked her and caused grievous subsequent emotional and physical injury, while Mr. Kinsley presented his story of how deep brain stimulation and other implanted medical devices has allowed him to lead a productive life despite a Parkinson's Disease diagnosis. Both presented different takes on the limits of how much risk a patient should face when balanced with the potential benefits offered by their medical devices.

Prior to the hearing, the Energy & Commerce Committee also published a letter asking the FDA to reexamine its decision to approve a medical device called the "collagen scaffold" that is used to reinforce and repair the meniscus, which is a natural cushion in the knee. This letter, as addressed to the FDA Principal Deputy Commissioner, seeks reexamination of the approval decision that the authors argue was made over the objection of FDA scientists.

For more information, please see the previous post "Will The May 12 Hearing On The "Medical Device Safety Act of 2009" Recognize The Costs Of Eliminating Preemption?"

Will The May 12 Hearing On The "Medical Device Safety Act of 2009" Recognize The Costs Of Eliminating Preemption?

The House Committee on Energy and Commerce's Subcommittee on Health will hold a hearing on Tuesday, May 12, 2009, at 2:00 p.m. regarding a bill to overturn medical device preemption (H.R. 1346 /S. 540), called the "The Medical Device Safety Act of 2009.” Although the hearing is not yet listed on the Subcomittee's website, hearing materials should become available here. (If you are interested, video and transcripts also are available from last year's lopsided House Committee on Oversight and Government Reform preemption hearing held May 14, 2008 and the Senate Judiciary Committee's preemption hearing held June 11, 2008.)

Those in the industry will find H.R.1346/ S. 540 ironically named, as patient access to critical new devices and public health would suffer if this bill passes. These ill effects are detailed in a new economics study, “The Economic Impact of Eliminating Federal Preemption for Medical Devices on Patients, Innovation and Jobs” by Ernst Berndt, PhD, and Mark Trusheim of the Massachusetts Institute of Technology’s Sloan School of Management. As the authors state in the executive summary to their article,

"Eliminating preemption protection for medical devices—as some currently advocate—will impact:

1. Patient access and public health
2. Medical technology innovation rates
3. Industry employment
4. Government expenses as a healthcare payer, regulator and judicial funder

The results from eliminating preemption are likely broad and generally negative across this host of categories."

The article is thoughtful and well worth reading.

Posner on Forum Non Conveniens

Over the centuries, many have sought better opportunities in the United States. For the last few years, tort plaintiffs have been among them. Companies in many industries have been the target of lawsuits filed by plaintiffs who live outside the United States, over injuries that also allegedly occurred elsewhere, whether because of perceived advantages in substantive law within the United States, or access to procedural devices in U.S. courts that are not widely available in the rest of the world (such as the class action device).

In a May 1 opinion by Judge Posner filed in two consolidated appeals, Abad v. Bayer Corp. and Pastor v. Bridgestone/Firestone North American Tire, LLC, the Seventh Circuit affirmed dismissal of two cases on grounds of forum non conveniens. In both cases, the plaintiffs are Argentine citizens who live in Argentina and allegedly were injured there, but filed product liability lawsuits against American manufacturers in U.S. district courts. Under the familiar forum non conveniens doctrine, the district courts had weighed various factors and concluded in both cases that Argentina was better-suited to decide plaintiffs' lawsuits -- Abad being a 600-plaintiff class action in which hemophiliacs contended they contracted the AIDS virus from the defendant's clotting factor, and Pastor an auto accident rollover case involving allegedly defective tires.

Continue Reading...

Advertising of medicinal products versus freedom of expression of a journalist - European Court of Justice Decision dated 2 April 2009 (C-421/07) "Frede Damgaard"

The European Court of Justice ("ECJ") recently had the opportunity to opine on limits on the scope of advertising for medical products in the European Union, when a journalist who had reprinted factual information about a pain medication sold in Norway but prohibited in Denmark, was made an example under Danish legal provisions prohibiting advertising for medicinal products that are not lawfully marketed in Denmark. As exmplained by Paule Drouault-Gardrat, Julie Gottenberg and Juliette Peterka in "Advertising of medicinal products versus freedom of expression of a journalist - European Court of Justice Decision dated 2 April 2009 (C-421/07) 'Frede Damgaard' " (available also in French), the ECJ concluded the issue was a matter for the national court in the first instance, relying in part on a line of French cases holding that any publication praising the merits of a medicinal product must be considered as advertising whomever its author, regardless of whether the manufacturer sought or paid for publication.

"Off-Label" Uses Are Not Off-Standard

In a recent law journal article authored about FDA approved labels and off-label uses, authors Mark Herrmann (of the http://druganddevicelaw.blogspot.com) and Pearson Bownas demonstrate the folly of letting the standard of care in medical malpractice cases be defined by whether the doctor used a prescription product "on label" or "off label." The article succinctly explains how off-label use is a prevalent and necessary part of the practice of medicine, and that off label use is not and cannot be legally regulated by the FDA. Off label treatments are undeniably common, whether because manufacturers face prohibitive costs to obtain approval for certain uses when those uses are already accepted in the medical community, or because doctors are ethically obliged to provide the best treatment possible for their patients regardless of the indications for use approved by the FDA . Further, the authors point out that in many instances off-label use may be the standard of care for providing the "safest, most effective, state-of-the-art treatment." Thus, in light of the accepted and prevalent practice of off-label use, the authors point out that allowing FDA approved drug and device labels as "some evidence" of the standard of medical care should be outweighed by the significant risk of prejudice, confusion and time wasting that admission of evidence about the label indications for use would cause. Of relevance to the Life Sciences and Health Industry, the article provides a good overview of the reasons and authorities existing to mitigate the force of a product's label in failure-to-warn off-label use cases.

CDC and NIOSH Review of Carbon Nanotubes Highlights Need for Tracking Regulatory Action Related to Nanotechnology

This post was written by Antony B. Klapper and Jesse J. Ash.

On April, 8, 2009, the National Institute for Occupational Safety and Health ("NIOSH") and the Centers for Disease Control and Prevention ("CDC") submitted a notice for public comment in the Federal Register, requesting information to evaluate potential health risks associated with the use of carbon nanotubes ("CNTs"). 74 Fed. Reg. 15985-15986 (Apr. 8, 2009). NIOSH and CDC request by May 15, 2009, all information related to studies, workplace exposure data and information on control measures where companies manufacture CNTs in products. The agencies plan to use this information to formalize recommendations for the safe handling of products that contain CNTs.

Recent scientific reports have drawn parallels between CNTs and asbestos. CNTs are long, thin particles similar to the needle-like shape of some asbestos fibers. In fact, these reports suggest that CNTs can cause adverse effects on the lung function of mice. These reports, in part, likely form the rationale for NIOSH's and CDC's focus on CNTs. Suggesting a connection between CNTs and the human health questions associated with asbestos is a sure way to gain the public's and the government's attention, even though the reports do not answer the critical question of whether CNT exposure can cause adverse consequences in humans, and are limited in a variety of ways. Regardless, this Notice from NIOSH and CDC demonstrates that the government is now highly concerned about the effects of CNTs on human health, and that it is focused on the future regulation of its use.

Companies that manufacture, integrate or sell nanomaterials, including, in particular, CNTs, need to be mindful of the actions taken as a result of this Notice. Companies should evaluate whether to communicate their views and/or findings to NIOSH and CDC by May 9, either through associations or directly. Whatever information NIOSH collects, and any guidance it may promulgate, could become the floor that companies may need to adhere to or risk future liability.

Next Drug Preemption Case Set For Supreme Court's March 6th Conference

The Supreme Court had held action on a petition in Colacicco v. Apotex, Inc., No. 08-437, an implied preemption decision out of the Third Circuit involving an anti-depressant, pending the outcome of Wyeth. The docket now reflects that the case has been distributed for the Court's March 6, 2009 conference. The most likely outcome is that the Court will issue an order remanding the case to the Third Circuit for reconsideration in light of Wyeth.

Wyeth v. Levine Decided

Today the Supreme Court affirmed Wyeth v. Levine, as reported by Drug and Device Law.

California Supreme Court Hears Landmark Consumer Fraud Case

This post was written by Keith Yandell.

This morning, March 3, 2009, the California Supreme Court heard argument in In re Tobacco II Cases, a case that will shape how parties litigate California Unfair Competition Law (“UCL”) claims. At issue is the viability of UCL actions that seek to certify a class despite the fact that not all putative plaintiffs suffered injury as a result of a defendant’s allegedly unfair practice. Since California’s infamous UCL (also known as Bus. & Prof. Code, § 17200 et seq.) is often used to add broad “consumer fraud” claims to product liability lawsuits against the life sciences industry (as well as many other industries), the outcome of In re Tobacco II is garnering considerable attention.

Question Presented

(1) In order to bring a class action under the UCL, as amended by Proposition 64, must every member of a proposed class action have suffered “injury in fact,” or is it sufficient that only the class representative comply with that requirement?

(2) In a class action based on a manufacturer’s alleged misrepresentation of a product, must every member of the class have actually relied on the manufacturer’s representations?

Background of the Case

The gravemen of the plaintiffs’ Complaint is that defendant tobacco manufacturers and researchers engaged in a decades-long conspiracy to conceal the health effects and addictiveness of cigarettes and, in so doing, made numerous false and misleading statements to consumers.

The Court of Appeal unanimously affirmed the trial Court’s holding that every class member must have suffered injury in order to maintain a class action under the UCL.

Report From This Morning’s Argument

At the argument, Daniel Collins represented Phillip Morris, and Mark Robinson represented the plaintiffs. Justice Moore, of the 4th Appellate District, replaced Justice George who recused himself. Justice Kennard presided as Chief Justice.

Mr. Robinson focused his argument on the Mervyn’s decision1, where the Court held that Proposition 64 did not change the substantive requirements of a UCL cause of action. According to Mr. Robinson, if the tobacco companies’ theory were correct, the UCL would be reduced to “nothing more than a fraud cause of action that does not allow damages.” Justices Baxter and Chin responded with a series of questions focusing the lack of symmetry that would result if absent class members could use the UCL to bring claim they would not have had standing to maintain individually. Mr. Robinson countered that the UCL “has always been broad” and has never included a reliance requirement. Justice Werdegar offered the insightful query, “As a practical matter, what did Proposition 64 change?” Plaintiff’s counsel responded that it changed standing requirements. When pressed, however, he had no answer for how the statute’s new reference to California Code of Civil Procedure Section 382’s class action requirements changed the UCL. 

Mr. Collins ably fielded a number of questions including: from where in the statute he derives his conclusion that all class members must show injury in fact (Justice Kennard); whether a request for injunctive relief as opposed to restitution affected standing (Justice Moore), and whether the term “claimant” refers only to a representative class member (Justice Chin). The theme of Mr. Collins’ responses was that a class member cannot use the class action mechanism to recover under a claim that he or she could not have brought individually. Therefore, Section 17204’s new language mandating compliance with C.C.P. § 382 could only be read to require that all class members must have suffered injury in fact as a result of the allegedly deceptive conduct. This message appeared to resonate with Justice Baxter, who aptly summarized Mr. Collins’ position.

In the end, the Court will balance Mr. Robinson’s argument that Proposition 64 did not change the substance of the UCL against the truism that allowing absent class members to recover for claims they could not have maintained individually would render the UCL’s new reference to C.C.P. 382 a nullity. Regardless of the outcome, as both parties acknowledged, this decision will have a dramatic impact on California class action litigation.

The California Channel, a public affairs cable network, broadcast live coverage of oral argument on many cable stations. It also carried a live streaming Webcast at www.calchannel.com.

We will post the decision as soon as it is released, which should be within the next 90 days.

Additional Materials

The Supreme Court’s website allows users to obtain additional information and sign-up for e-mail notices about this case. 

The lower Court’s ruling is available at courtinfo.ca.gov.



1 Californians for Disability Rights v. Mervyn’s LLC, 39 Cal. 4th 223 (2006).

FDA Globalization Act Of 2009 And Preemption

As Point of Law pointed out on February 3, a move is afoot to "Revers[e] Preemption, One Bill At A Time," starting with industries regulated by the FDA.

Section 2 of the FDA Globalization Act OF 2009, H.R. 759, merits the attention of the life sciences industry. It provides:

This Act and the amendments made by this Act may not be construed as modifying or otherwise affecting any action or the liability of any person (as defined in section 201 of the Federal Food, Drug, and Cosmetic Act) under the law of any State.
 

 

UPDATE:  Drug and Device Law has posted Bert Rein On The Politics Of Preemption on this issue, and it is definitely worth a read.

Midterm Supreme Court Media Briefing Webcast By The Washington Legal Foundation

Although the life sciences industry continues to await the Supreme Court's decision in the Wyeth v. Levine preemption case, the court already is half-way through this term.

The Washington Legal Foundation (WLF) will be holding its annual Midterm Supreme Court Media Briefing event on Wednesday, February 11 at 9:00 a.m. EST:

The program will be moderated by WLF’s Legal Policy Advisory Board Chairman, The Honorable Dick Thornburgh, and feature Akin Gump partner and SCOTUSblog creator and editor Thomas Goldstein, Gibson, Dunn & Crutcher partner and former Deputy Solicitor General Thomas Hungar, and WLF Chief Counsel Richard Samp. In addition to reviewing key Court rulings, previewing upcoming oral arguments, and assessing pending cert petitions, our speakers will discuss the impact a new Solicitor General will have on current cases and petitions, as well as positions taken by the Federal Government in future cases.

Those in D.C. can attend in person at 2009 Massachusetts Avenue, NW, and everyone else can watch the webcast online at www.wlf.org. WLF requests that RSVPs be sent to glammi@wlf.org.

California Supreme Court On The Consumer Legal Remedies Act

UPDATE: After more than two years, on February 3, 2009, the California Supreme Court finally set argument in an important UCL case, In re Tobacco II for Tuesday, March 3, 2009, at 9:00 a.m., in San Francisco. With the Court's 90-day rule, a decision can be expected by June 1, 2009 in the ordinary course.

California product liability lawsuits against life sciences defendants often include claims under California's Unfair Competition Law (or 'UCL"), Cal. Bus. & Prof. Code § 17200 et seq. Sometimes UCL claims are the main theory of liability against life sciences clients, particularly when the plaintiff, or plaintiff class, has not suffered personal injuries from a medical device or drug they have used.

The UCL is controversial. For many years, critics complained that allowed individuals or groups to sue businesses on behalf of the "general public" over allegedly "unfair", fraudulent, or illegal practices, even if they never suffered any type of loss or harm, personal injury or otherwise. The voters passed Proposition 64 in November 2004, however, and imposed limitations to stem what were fairly viewed as abuses of this law. UCL plaintiffs now must show that they suffered an actual injury and lost money or property as a result of the defendant's alleged practice, and lawsuits brought on behalf of the general public now also must meet must traditional class action requirements. 

In response to Proposition 64, some entreprenurial plaintiffs' lawyers turned from the UCL to another statute, California's Consumer Legal Remedies Act ("CLRA"), Cal. Civ. Code §1750 et. seq., seeking another broad and malleable cause of action. (For more background about the UCL and CLRA, see this page or the always informative UCL Practitioner.

But the CLRA remains more limited than the pre-Proposition 64 version of the UCL. Last week, the California Supreme Court issued an important new CLRA decision, Meyer v. Sprint Spectrum L.P., unanimously affirming judgment for Sprint and concluding that a CLRA plaintiff lacks standing "without some allegation that he or she has been damaged by an alleged unlawful practice." Sprint was represented in the California Supreme Court by Reed Smith's own Ray Cardozo and Dennis Maio.

Meyer began in early 2004 with allegations, on behalf of the general public, that Sprint violated the UCL by including mandatory binding arbitration and other provisions in its customer service agreements. After Proposition 64, the original plaintiff (who was not a Sprint customer) was replaced by new named plaintiffs, and CLRA and declaratory relief causes of action were added. Sprint challenged the amended complaint because even the new plaintiffs had not alleged that the contract provisions had been enforced against them, and they also did not allege that they were personally damaged by the provisions. Although plaintiffs argued that the CLRA imposed no damage requirement whatsoever, the court concluded that California's Legislature had "set a low but nonetheless palpabale threshold of damage." It also noted that with statutes like the UCL and CLRA, "any rule that would expand the ability of individuals to bring lawsuits has costs as well as benefits." There is little to say other than that Meyer is a sound and well-reasoned decision that provides important and clear guidance for future CLRA claims.

On a different subject, more traditional personal injury class actions, the Drug and Device Law Blog has a good post regarding a Washington Legal Foundation paper by John Beisner and Jessica Miller, "Litigate the Torts, Not the Mass: A Modest Proposal for Reforming How Mass Torts are Adjudicated," proposing some long-overdue revisions to American Pipe tolling.

Commentary: FDA's New Good Reprint Practice Rule

This post was written by Areta L. Kupchyk, James M. Wood and Kevin M. Madagan.

FDA's Good Reprint Practice (GRP) Guidance went into effect in January 2009. The GRP Guidance establishes criteria that FDA will now use to determine whether the distribution of medical or scientific reprints and reference texts about off-label uses of a drug or device would constitute impermissible promotional activity under the Food, Drug and Cosmetic Act.

Read Reed Smith’s full commentary analyzing the GRP Guidance, which includes a Good Reprint Practice Checklist.

Dept. of Bad Ideas: Criminalization of Product Liability

Hat tip to the TortsProf Blog for posting yesterday on a new article by Frank Vandall, Catholic University Law Review, Vol. 57, No. 1 (2008)

As the article abstract explains, the 2006 proposal by Senator Arlen Specter (R.-PA) to criminalize aspects of product liability law is a bad idea:

Senator Arlen Specter called a hearing in March 2006, on a proposal that urges the criminalization of products liability for the manufacture of intentionally lethal goods. The hearing before the Senate Judiciary Committee provided an opportunity to comment on the numerous issues raised in the far-reaching proposal. Responding to these issues requires revisiting the foundational question of whether the manufacture and sale of a defective product should be addressed by civil litigation or criminal prosecution. Understanding the issues will assist state legislatures and federal agencies in considering such a proposal. To plumb the issues raised by Senator Specter history, economics, and the system of product design and manufacture must be examined. Because Senator Specter argues for a federal act and federal enforcement, his proposal demands consideration of the concepts of preemption, political abuse, and nonenforcement. Fundamental concepts of cause-in-fact and proximate cause must also be considered. After examining these concepts, it should be clear that the criminalization of products liability is neither necessary, nor desirable.

Current Issues Under The Civil False Claims Act: Worthless Services, Off-Label Use, and More

This post was written by Elizabeth Carder-Thompson and Andrew L. Hurst.

A dizzying array of civil and criminal provisions address false or fraudulent representations made to, and false claims filed with, Medicare, Medicaid, and state and federal health care programs. This attached article, first published by the American Health Lawyers Association, briefly identifies relevant criminal and civil provisions relating to these issues, and then focuses more closely on recent uses of the civil False Claims Act (“FCA”) in government investigations of health care providers, suppliers, and manufacturers, including a section on state false claims legislation. Finally, it discusses the issue of distinguishing overpayments from false claims and provide information on the voluntary disclosure program of the Office of the Inspector General (“OIG”) of the Department of Health and Human Services (HHS).

Review Of Final FDA Guidance On Off-Label Use Publications

This post was written by Areta L. Kupchyk, James M. Wood and Kevin Madagan.

On January 13, 2009, eleven months after the Food and Drug Administration (FDA) issued a draft guidance document, and 2 1/2 years after the sunset of the statute intended to permit the dissemination of medical literature about unapproved uses of drugs and medical devices, the FDA issued a final guideline for such dissemination. Often referred to as “the distribution of off-label use journal articles,” FDA’s final guidance is aptly named “Guidance For Industry: Good Reprint Practices for the Distribution of Medical Journal Articles and Medical Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices.”

As with the 2008 draft guidance, the final version begins by succinctly discussing the historical attempts to regulate the distribution of literature about unapproved uses, including noting the need to balance the law’s prohibition on distributing or promoting “unapproved uses of approved drugs and approved or cleared medical devices” with the “important public policy” of providing information that “may even constitute a medically recognized standard of care.” FDA concludes that the touchstone for lawful dissemination of literature about unapproved uses is that the publications “are truthful and non-misleading.”

To meet this standard, the FDA final guidance lists “principles of Good Reprint Practices” that include criteria for determining the type of publication, and the manner in which the publication can be distributed. Although the final guidance closely tracks the draft guidance, it has some important clarifications.

Click here to read the full alert, which highlights these clarifications and provides an overview of the final guidance.

UPDATE: Much obliged to Drug and Device Law for the link and thoughtful discussion, and more also is at the FDA Law Blog.

Santa Delivered A 1:1 Ratio For Punitive Damages

The Third Circuit delivered a Christmas present Dec. 24, issuing an opinion - albeit "not precedential" - that reduced a 3.13:1 ratio for punitive damages down to a 1:1 ratio. Hat tip to law.com for catching the decision.

Jurinko v. Medical Protective Co. involved a bad faith insurance lawsuit arising out of a medical malpractice policy. The physician plaintiff was awarded more than $1.6 million in compensatory damages against his insurer, as well as $6.25 million in punitive damages, for the insurer's "bad faith failure to settle" for the policy limits before trial.

Although the Third Circuit found sufficient evidence to support the punitive judgment, its analysis of the constitutional limits on the amount of the punitive-damage award led it to reduce the judgment. The court employed a 1:1 ratio as its starting "guidepost," and analyzed the punitive-damage award using the factors from State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003).

With regard to the reprehensibility of the insurance company's conduct, the court noted that there was no evidence of physical harm to the insured, no evidence of recidivism, nor any reckless disregard of health or safety. In addition, "the compensatory damages [were] substantial, [the insured] suffered only economic harm, and the harm was easily measured" because it was the amount of the judgment that exceeded the policy limits. The amount of punitive damages also far exceeded the civil penalties and sanctions possible for the insurer's conduct. On the other hand, the Third Circuit recognized that the insurer's conduct was intentional, and the insured was financially vulnerable. 

In finding a 3:13:1 ratio of punitive damages to compensatory to be excessive, the Third Circuit noted that many courts start with a 1:1 guidepost (although the Ninth Circuit is not necessarily one of them). In addition, while the Supreme Court has declined to explicitly set a 1:1 ratio as a constitutional limit, it has employed that ratio in Exxon Shipping Co. v. Baker, ___ U.S. ___, ___, 128 S. Ct. 2605, 2633 (2008), this year's maritime decision (discussed in this prior post). The court concluded that "[i]n light of the substantial compensatory award and the harm being exclusively economic, this guidepost advises a reduced award."

While it is not entirely clear why the decision is marked "not precedential," footnote 1 may suggest an answer. It states: "The Honorable Maryanne Trump Barry participated in the oral argument but discovered facts causing her to recuse from this matter prior to filing of the Opinion. The remaining judges are unanimous in this decision, and this Opinion and Judgment are therefore being filed by a quorum of the panel."

Class II Special Controls Preemption

The FDA last Monday issued a proposed rule to classify "tissue expanders" as Class II (special controls) medical devices. These devices are "intended for temporary (less than 6 months) subdermal implantation to stretch the skin for surgical applications."

What makes this notice interesting is preemption. In Riegel v. Medtronic, 128 S.Ct. 999 (2008), the Supreme Court upheld preemption in part because it concluded that the premarket approval (or PMA) process for Class III medical devices results in "federal requirements" specific to the approved device. In the tissue expander proposed rule, the FDA explains its view that these special controls also amount to federal requirements that should result in preemption. It states:

"In this proposed rulemaking, FDA has tentatively determined that general controls by themselves are insufficient to provide reasonable assurance of the safety and effectiveness of the device, and that there is sufficient information to establish special controls to provide such assurance. FDA therefore proposes to establish special controls to address the issues of safety or effectiveness identified in the special controls draft guidance document. If this proposed rule is made final, these special controls would create 'requirements' for specific medical devices under 21 U.S.C. 360k, even though product sponsors would have some flexibility in how they meet those requirements (Papike v. Tambrands, Inc., 107 F.3d 737, 740-42 (9th Cir. 1997)). In addition, if this rule becomes final, as with any Federal requirement, if a State law requirement makes compliance with both Federal law and State law impossible, or would frustrate Federal objectives, the State requirement would be preempted. (See Geier v. American Honda Co., 529 U.S. 861 (2000); English v. General Electric Co., 496 U.S. 72, 79 (1990); Florida Lime & Avocado Growers, Inc., 373 U.S. 132, 142-43 (1963); Hines v. Davidowitz, 312 U.S. 52, 67 (1941).)"

Although this is the first reference we have seen to Riegel in a proposed rule to establish Class II special rules, the FDA is actually not breaking new ground. In 1997, the Papike upheld preemption in a case involving tampons (a Class II device) and an alleged failure to adequately warn of toxic shock syndrome since the FDA had issued regulations specifying the toxic shock syndrome required for tampon packaging. Other tampon cases have followed Papike, and there have been a few latex glove cases, too. See, e.g., Whitson v. Safeskin Corp., 313 F.Supp.2d 473, 479 (M.D. Pa. 2004); Busch v. Ansell Perry, Inc., 2005 WL 877805 (W.D. Ky. Mar. 8, 2005).

UPDATE: Mark Hermann and Jim Beck at druganddevicelaw.blogspot.com have posted some interesting commentary on this proposed rule, noting - among other things - that even without reference to preemption, "both a 1998 regulation applicable to latex gloves, and a 1997 regulation applicable to contact lens care products, have likewise been accorded preemptive effect due to their specificity. See Morgan v. Abco Dealers, Inc., 2007 WL 4358392 (S.D.N.Y. Dec. 11, 2007) (latex gloves); Tuttle v. Ciba Vision Corp., 2007 WL 677134 (D. Utah Mar. 1, 2007) (contact lens care products)."

Their Top 10 lists of the good and bad drug and device cases from 2008 also are not to be missed.

Gerald Masoudi at ACI

Below are some notes regarding the presentation by the FDA's Gerald Masoudi today at the ACI Drug and Device Conference. Every effort was made to capture his comments accurately, but please excuse any errors created by capturing these comments on a BlackBerry:

PREEMPTION

FDCA gives FDA role of determining safety and efficacy and warnings, considering factors including patient profile and public health considerations.

Labeling is key method by which FDA communicates risks and benefits. FDA decides for populations, not individuals, and requiring safety and efficacy for every individual would lead to the absence of treatments.

Even with proper risk benefit judgment and prescribing, injuries can occur.

Products should neither under- nor over-warn.

State tort lawsuits decrease patient access, limit treatment options and interfere with the agency's judgments.

Preemption does not reach manufacturers' failure to comply with federal requirements (such as contamination with toxic substance) since there would be no interference with the FDA's judgment.

FDA will make mistakes, but allowing juries to make failure-to-warn determinations would not be superior to the current system and the current role of FDA.

In Wyeth v. Levine, the court may issue a narrow decision--we all will have to wait to see. But it is not new for FDA to support preemption. It has been the agency position in litigation, testimony, and preambles to rules. FDA reiterated its support recently in a pregnancy labeling proposed rule and CBE rule from earlier this year. This readoption should answer any question that the agency's Final Rule on drug labeling, which also had preemption in a preamble, was improperly promulgated.

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Pharmaceutical Parallel Trade Ruling in the European Court of Justice and Pharmaceutical Product Liability Rulings in France

Markets outside the United States are increasingly important for life sciences companies, and this post includes articles by Reed Smith lawyers regarding two developments in Europe. 

The first is by Edward Miller, entitled "Sidestepping the Issue", republished with permission from the International Clinical Trials e-book (registration required).  This article discusses a ruling by the European Court of Justice, holding that pharmaceutical companies can refuse to fill "unusual" orders from distributors who seek to profit by buying drugs for countries with low reimbursement prices, and shipping them for sale in countries with high prices - but falling short of the standard advocated by the pharmaceutical company defendant in that case. 

The second article is by Paule Drouault-Gardrat and Julie Gottenberg regarding French Supreme Court rulings earlier this year on causation in product liability cases.  First published in the August edition of Insights, the conference bleue newsletter, the article is reprinted with permission here:

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The Line Is Drawn - Buckman's Application To State Regulatory Compliance Statute Exceptions

The gap that the Supreme Court's non-precedential decision, Warner-Lambert Co., LLC v. Kent, 128 S.Ct. 1168 (2008), left open earlier this year continues to force the lower courts to take sides, as was done in the latest case - Grange v. Mylan Labs., Inc., Case No. 1:07-CV-107 (N.D. Utah Oct. 31, 2008). Specifically, the controversy remains on whether fraud-on-the-FDA claims ruled preempted by the Supreme Court in Buckman Co. v. Plaintiffs' Steering Committee, 531 U.S. 341 (2000) will preempt exceptions that are put forth to overcome a statutory presumption that would otherwise bar recovery. So far, the Sixth Circuit in Garcia v. Wyeth-Ayerst Labs., 385 F.3d 961 (6th Cir. 2004) has held that such claims are preempted; the Second Circuit in Desiano v. Warner-Lambert & Co., 467 F.3d 85, 97 (2d Cir. 2006) has held that they are not. 

In this latest case, the District Court of Utah found the Sixth Circuit's reasoning more persuasive in deeming the exception to a statutory presumption for punitive damages preempted, because the exception was triggered where there was evidence that the manufacturer of a manufacturer's knowing withholding or misrepresentation of information required to submit to the FDA. The court in Grange stated:

"That said, the Sixth Circuit's decision in Garcia is more persuasive here. The chief problems that Buckman sought to counteract are present whenever a plaintiff, as a prerequisite to collecting damages, is required to put on evidence that there was what amounts to fraud on the FDA. When such evidence is considered, state courts are essentially second-guessing the FDA and drug companies, nervous about state litigation, will have an incentive to flood the FDA with information. The court accordingly agrees with Garcia, and holds that Utah Code Ann. § 78B-8-203(2) is, in part, preempted. Specifically, to the extent that Utah Code Ann. § 78B-8-203(2) allows for an exception in cases where a plaintiff puts on his or her own independent evidence of information being withheld from the FDA, this statute is preempted. There is no preemption, however, in a situation where a plaintiff invokes Utah Code Ann. § 78B-8-203(2) to seek punitive damages in cases where the FDA itself has found that there was fraud in the application process."

For more, see Drug and Device Law's post about this case from earlier this morning.

Harvard Law Review Takes Notice of Riegel

In its November 2008 issue, the Harvard Law Review will publish "Preemption of State Common Law Claims," 122 Harv. L. Rev. 405, an article that discusses Riegel v. Medtronic, Inc., 128 S.Ct 999 (2008) and its impact on state law claims. 

Of note, the authors state: "Despite criticisms that it leaves tort victims uncompensated, preemption is necessary to ensure that federal regulatory agencies, like the Food and Drug Administration (FDA), are the only governmental actors able to impose requirements on manufacturers – thereby ensuring a nationally standardized system of safety regulations without myriad local variations."

The authors also tackle an issue Riegel left open: "How to treat preemptive force of FDA regulation if agency approval is obtained by fraud." The authors acknowledge Buckman Co. v. Plaintiffs' Steering Committee, 531 U.S. 341 (2001), noting that if a state fraud claim "interferes with FDA regulatory decisions, preemption is likely to be (correctly) found." The authors opine that such actions should go forward only in situations "that would not impede the FDA's ability to choose its own enforcement strategy." Id. 

HIPAA Preemption

In "Ex Parte Talks Allowed Under Georgia Law For Counsel, Doctors Preempted by HIPAA" (password required), the United States Law Week discusses in detail Moreland v. Austin, Georgia Sup. Ct. No. S08G0498, a November 3, 2008 decision holding that defense attorneys who wish to engage in ex parte communications with plaintiffs' treating physicians must comply with HIPAA privacy rules. Since HIPAA affords more patient privacy than a Georgia law that permitted ex parte contact once a plaintiff put his or her medical condition at issue, the Georgia law was preempted.

Preemption giveth, and preemption taketh away.

Finding The Proper Ratio For Punitive Damages

On Friday, the Ninth Circuit took another run at determining due process limits on punitive damages in Southern Union v. Irvin. The court previously vacated a punitive award in excess of 153 times compensatory damages [see S. Union Co. v. Sw. Gas Corp., 415 F.3d 1001, 1009 (9th Cir. 2005)], but defendant appealed again after Southern Union accepted the trial court's remittitur to $4 million in punitive (just over ten times compensatory damages).

As Judge Noonan described the jury's findings in his dissent, "Irvin, the chairman of the Arizona Corporation Commission, worked determinedly for a period of four months to promote the merger of an Arizona utility company with another utility and to defeat a merger proposed by Southern Union over $100 million more beneficial to the Arizona company" in exchange for a "bribe" that was never paid, because Southern Union filed suit.

Using the Supreme Court's three touchstones from State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416 (2003) - “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases” - the Ninth Circuit concluded that a three-to-one ratio was the constitutional maximum in the case before it.

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The Other Express Preemption: Don't Overlook Over-the-Counter Drugs

In Carter v. Novartis Consumer Health, Inc., --- F. Supp. 2d --- , No. EDCV08-0334 MRP (JCRx) (C.D. Cal. Aug. 5, 2008) and its companion cases, the Central District of California addressed the express preemption clause of Section 379r of the Food, Drug and Cosmetic Act governing OTC drugs. Here, the parents of children younger than age 6 filed a complaint against manufacturers alleging that the OTC cough and cold medicines "d[id] not work" and were dangerous to their children. There were no requests for damages based on injuries, but rather for the economic harm of purchasing these products. Plaintiffs also sought injunctive relief, pursuant to various state consumer fraud statutes, and each case sought to certify a class on behalf of all others similarly situated.

The court granted the defendants' motion to dismiss based on federal preemption for all of the claims (unjust enrichment, false and misleading advertising, fraudulent concealment, unfair and deceptive business practices, and breach of express and implied warranties), noting that OTC cough and cold medicines are regulated by the FDA pursuant to the OTC monograph, generally described within 21 CFR part 341. Such OTC monographs set forth approved indications for use and age-dependent dosage instructions that must comply with all FDA regulations, and are therefore generally recognized as safe and effective. Claims attacking these federal "requirements" therefore preempted the state "requirements" established by the state law claims. Of particular note was the court's understanding that the state requirements were not defined by its label, but "its ultimate outcome: would a finding of liability impose requirements that are different from or in addition to FDA requirements?" p. 13. Because the claims were premised on attacks based upon FDA-approved statements in product labeling and advertising, such claims were preempted.

A Baby Step Toward Reasonable Class Action Fees?

On Monday, the District Court of Massachusetts issued a notable attorney's fee award decision in a class action arising from a data privacy breach, In re TJX Companies Retail Securities Litig. Along with a class settlement, class counsel urged the court to approve a $6.5 million attorney's-fees award, arguing that hundreds of millions of dollars in potential value had been created for the class. However, the payout depended entirely on class members making claims, and only a small fraction of the supposed potential - $6 million - were made. The court quite reasonably rejected class counsel's suggestion that the potential (but unrealized) claims supported the requested fees. That said, the court still approved the fee request pursuant to the lodestar method ($3.3m in lodestar * 1.97 multiplier = $6.5m).

The court finished with a cautionary note, which is where the baby step comes in: "In the future . . . Plaintiff's counsel can expect that this court, when confronted with reversionary common fund or claims-made settlements, will award attorney's fees by reference to the value of benefits actually put in the hands of class members." (emphasis in original). In reality, however, it would have been entirely reasonable for the court to use this standard for attorney's fees now, without waiting for the next time.

UPDATE: Drug and Device Law also has a November 11, 2008 post about this TJX case.

JAMA on Preemption

Tomorrow's JAMA contains an editorial entitled, "Prescription Drugs, Products Liability, and Preemption of Tort Litigation" (subscription) by Catherine D. DeAngelis; Phil B. Fontanarosa (JAMA. 2008;300(16):1939-1941 (doi:10.1001/jama.2008.513)).

Suffice it to say, the premise that tort litigation safeguards patient health is faulty. Ensuring patient access to innovative and needed medical options is essential. See Riegel v. Medtronic, Inc., 128 S. Ct. 999, 1009 (2009) (discussing the express preemption statute for medical devices and stating, "the text of the statute - suggests that the solicitude for those injured by FDA-approved devices, which the dissent finds controlling, was overcome in Congress's estimation by solicitude for those who would suffer without new medical devices if juries were allowed to apply the tort law of 50 States to all innovations.").

Ghosts Of Product Liability Legislation Past

Over at Drug and Device Law Beck and Herrmann muse on the possible impact of a win by Sen. Obama on drug and device law. This blog takes no sides on the election - and this may mean nothing for the future development of the law - but it is interesting to note that in the past, Sen. McCain has supported the criminalization of product liability in certain circumstances, as Victor Schwartz explains in this March 2006 testimony before the Senate Judiciary Committee.
 

Nanotechnology - What the Life Sciences Industry Needs to Know about Managing its Risks

Reed Smith LLP, in conjunction with ChemRisk and the Center for Business Intelligence, is presenting a complimentary webinar, "Nanotechnology - What the Life Sciences Industry Needs to Know about Managing its Risks", October 22 at noon eastern.

The moderator for this event will be Reed Smith partner Antony B. Klapper. Speakers include:

  • Barr Weiner, Associate Director for Policy in the Food and Drug Administration's Office of Combination Products and the OCP representative on the FDA's agency-wide Nanotechnology Task Force
  • Leonard I. Sweet, Senior Health Scientist, ChemRisk, Inc.
  • Amy K. Madl, Senior Managing Health Scientist, ChemRisk, Inc.

The program will last one hour and will provide an overview of nanotechnology and its uses in the life sciences industry; actual and theoretical risks posed to humans by the use of engineered nanomaterials; the ways that life sciences companies can evaluate those potential risks and mitigate them through risk management practices and good product stewardship; and legal risks associated with engineered nanomaterials, and exploring next steps at the FDA and other regulatory bodies.

A link to register for this free program can be found at cbinet.com.

Causation in Court: Working Principles for Toxic Tort Cases

The Washington Legal Foundation has published "Causation in Court: Working Principles for Toxic Tort Cases" by Reed Smith partner Antony Klapper. This interesting paper describes six working
principles that get at aspects of causation that sometimes confuse judges and juries when litigation involves allegations that a substance is toxic and has caused disease.

The principles the article explains in more depth are:

  1. Causation in science is not synonymous with causation in law, but the gap has closed.
  2. Proof of general causation requires, at a minimum, reliable epidemiology and a statistically significant estimated relative risk of more than 2.0.
  3. Proving causation does not end with the general causation inquiry. Proof of specific causation is absolutely essential before any causal conclusions can be drawn.
  4. Risk assessment is the best tool available to answer questions of causation.
  5. Although risk assessment is the best tool available, regulatory rules for implementing risk assessments should not be used, and too often are abused.
  6. Where there are multiple exposure sources for the same toxin, a more principled, objectively reliable methodology should be used to answer questions of causation. Concepts such as “substantial contributing” cause should be jettisoned.

So Long, Eastern District of Texas (Patent and Product Liability) Rocket Docket?

The Recorder (via Law.Com) has an article today discussing the Fifth Circuit's en banc decision In re Volkswagen of America Inc. and its ramifications for patent litigation.

The case involves the often-discussed (some would say notorious) Eastern District of Texas. The Rio Grande Valley and Gulf Coast of Texas are repeat offenders on the American Tort Reform Association's "Judicial Hellholes" list. Both patent and product liability cases historically have made their way because of the plaintiff-friendly nature of this jurisdiction, and judges in the Eastern District often rejected venue challenges under the reasoning that if a product was available in the jurisdiction, that was enough for venue—even if no other connection linked the case to the Eastern District of Texas.

In Volkswagen, however, an en banc panel of the Fifth Circuit issued a writ of mandamus ordering a product liability matter transferred from the Marshall Division of the Eastern District of Texas to the Dallas Division of the Northern District of Texas, where the underlying accident took place.

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Recent Post-Riegel and OTC Drug Preemption Cases

In Parker v. Stryker Corp., 2008 WL 4457864 (D. Colo. Oct. 1, 2008), the District of Colorado addressed Riegel v. Medtronic, Inc., 128 S. Ct. 999 (2008), and the applicability of the express preemption clause of the Medical Device Amendments in a case where the manufacturer sought a discovery stay pending resolution of its motion to dismiss product liability claims regarding its PMA device, a hip implant. Although the motion to dismiss has not yet been resolved, the court exercised its discretion to decline the stay to allow discovery into plaintiffs' claims which supposedly parallel federal requirements. The case is not reported, and its lack of detail means it has limited value (if any) to future courts. So does Parker's failure to address authorities that shape and define what this so-called "parallel requirements" exception really takes. Medtronic, Inc. v. Lohr, 518 U.S. 470, 495 (1996) (state duty must be "identical" to the corresponding existing federal requirements for a plaintiff to survive preemption); see also McMullen v. Medtronic, Inc., 421 F.3d 482, 489 (7th Cir. 2005) (even a permitted act that is turned into a state requirement will not constitute a "parallel" requirement).

Preemption issues reach many products in the life sciences industry, and for preemption geeks, one category of over-the-counter (OTC) drugs is frequently featured in preemption jurisprudence: head lice treatments. Mills v. Warner-Lambert Co., --- F.Supp.2d ----, 2008 WL 4488308 (E.D.Tex. Sept. 30, 2008) is the latest. In Mills, the Eastern District of Texas interpreted and applied the express preemption provision for nonprescription drugs, Section 379r of the Federal Food, Drug and Cosmetic Act. Plaintiffs asserted that the lice treatment medications manufactured and sold by the defendants were ineffective, and asserted claims of breach of implied warranty of merchantability and violation of the Texas Deceptive Trade Practices Act. Defendants argued that Section 379r preempted these claims because they constituted a requirement on the marketing and sale of the products that differed from that provided under the FDCA. The district court agreed, holding that (1) while the medication was not approved through the NDA process but through the "monograph system for over-the-counter drugs," the FDA's oversight and review over the medication constituted a federal requirement within the meaning of Section 379r; (2) the plaintiffs' lawsuit would create a state requirement related to the medications, which followed that same holding in Riegel; (3) this state requirement would be different from, and in addition to, the federal requirement that allowed these manufacturers to sell the lice medication labeled as they were; and (4) the savings clause of Section 379r(e), which saved product liability claims from preemption, would not operate the same as for claims that were based on a contractual ground.

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New Evidence Rule 502: Inadvertent Waiver Of Attorney-Client Or Work Product Material

This post was written by Matthew R. Sheldon and Alexander "Sandy" Y. Thomas.

On September 19, 2008, President Bush signed into law the long-awaited Federal Rule of Evidence Rule 502; “Attorney-Client Privilege and Work Product; Limitations on Waiver” (“Rule 502”). Rule 502 addresses waiver of the attorney-client privilege and work product doctrine in the context of disclosures to a federal agency or during a federal proceeding.

Among other benefits, Rule 502 adds some needed clarity to the question of what constitutes a waiver if privileged or work product material is inadvertently disclosed to an opponent in litigation. It also addresses the scope of a waiver and the impact such a waiver may have in other federal and state court proceedings.

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Exxon Shipping Co. v. Baker: Will the 1:1 Punitive Damages Ratio in Maritime Law Become the Paradigm for a Due Process Evaluation of Punitive Awards?

This article discusses the U.S. Supreme Court’s decision in Exxon Shipping Co. v. Baker, 128 S. Ct. 2605 (2008). In Exxon, the Supreme Court established a 1:1 ratio between punitive and compensatory damages under federal maritime law, and implications for applying the 1:1 ratio to limit punitive damages in state court actions. Originally published in the International Association of Defense Counsel's Drug, Device and Biotech Committee Newsletter for September 2008. Reprinted with permission of IADC.

First Case Of Supreme Court Term: Altria Group v. Good

SCOTOSblog has its usual comprehensive coverage of the first Supreme Court case of this term, Altria Group v. Good, which involves questions of express and implied preemption in the context of tobacco.

As Lyle Denniston explains, "More than four decades ago, the Federal Trade Commission – the federal government’s main regulator of business conduct – told the major companies making and selling cigarettes that it would not challenge factual statements they made about the tar and nicotine content of cigarettes, if the claims were based on tests done using what is called the “Cambridge Filter Method.”

* * *

Three individuals who live in Maine – Stephanie Good, Lori A. Spellman and Allain L. Thibodeau – filed a class-action lawsuit, based on state law . . . . The low yields of the test method, according to the lawsuit, were offset by the actual smoking habits of users: they “compensated” by taking deeper puffs, holding the smoke in their lungs longer, or smoking more cigarettes. The lawsuit did not seek compensatory damages, but rather a return of the money smokers had paid for “light” cigarettes, along with a claim for punitive damages and recovery of their attorneys’ fees.
Philip Morris sought dismissal of the case, contending that state law claims had been displaced by the federal cigarette labeling and advertising law or FTC actions. The company made two claims of “preemption” of such state law claims: it said they were expressly pushed aside by the federal law controlling cigarette marketing, and were impliedly preempted by the FTC’s four-decades-long effort to implement a uniform policy on disclosing the health risks of smoking. A U.S. District Court dismissed the lawsuit on preemption grounds, but the First U.S. Circuit Court of Appeals in Boston reinstated it."

Links to the full analysis and briefs are on the case's SCOTUSwiki page, and links to the argument should be up very soon.

UPDATE: The transcript is now available.

Implied Preemption Denied for Generic Pharmaceutical Manufacturer

The California Court of Appeal reversed a lower court's holding for a generic pharmaceutical manufacturer and distributor, and held that implied preemption principles did not preempt the state law claims challenging the labeling for a generic drug. In McKenney v. Purepac Pharms. Co., --- Cal. Rptr. --- , 2008 WL 4355425 (Cal. App. Sept. 25, 2008), the lower court granted the manufacturer's demurrer without leave to amend, holding that because the defendant was a manufacturer of the generic drug, metroclopramide, it could not deviate from the original FDA approved warnings for the product. The reviewing court rejected this specific holding by stating that the FDA allows generic manufacturers to change its labeling with new safety information given the existence of supporting evidence. (57 Fed. Reg. 17950, 17961). The court also examined the Carlin v. Superior Court, 13 Cal. 4th 1104 (1996) decision that imposed liability for labels that failed to warn of risk that were known or reasonably known by the manufacturer. The court in Carlin noted the company's argument that the FDA evinced no intent to impliedly preempt state law claims, and nothing indicated that this intent had changed now. While the manufacturer showed more recent changes indicative of the FDA's intent, the court stated that this was particular case did not demonstrate the type of conflict preemption upheld in other cases, such as instances where the FDA precluded the manufacturer from including certain warnings for the drugs.

More On the DOJ's Revised Principles of Federal Prosecution of Business Organizations

We previously wrote about how the Department of Justice (DOJ) revised its Principles of Federal Prosecution of Business Organizations, which govern how federal prosecutors investigate, charge, and prosecute corporate crimes, including health care fraud. Reed Smith's Matthew R. Sheldon, Alexander “Sandy” Y. Thomas, and Richard D. Kelley have written more on the subject.

Report Says Litigation Discovery System is 'Broken'

The Institute for the Advancement of the American Legal System (“IAALS”) and the American College of Trial Lawyers Task Force on Discovery conclude in their Interim Report (“Report”) that the civil justice system, while not broken, is in serious need of repair. Significantly, however, they do conclude that the discovery system is, indeed, broken because it costs far too much and has become an end in itself.

The Report is based upon responses from 1,494 Fellows of the American College of Trial Lawyers to a survey developed by the College’s Task Force on Discovery and the IAALS. Of the 3,812 Fellows surveyed, 42 percent responded, a response rate the Report characterizes as “unusually large.” On average, survey respondents have been practicing law for 38 years, with 31 percent representing defendants exclusively, 24 percent representing plaintiffs exclusively, and 44 percent representing both, but primarily defendants.

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Corporate Crime Prosecution Guidance

The Department of Justice (DOJ) has revised its Principles of Federal Prosecution of Business Organizations, which govern how federal prosecutors investigate, charge, and prosecute corporate crimes, including health care fraud. A number of the revisions address the area of cooperation credit, including providing that credit for cooperation will not depend on a corporation’s waiver of attorney-client privilege or work product protection, but rather on the disclosure of relevant facts. The guidelines also instruct prosecutors not to consider a corporation’s advancement of attorneys’ fees to employees when evaluating cooperativeness, and specify that the mere participation in a joint defense agreement will not render a corporation ineligible for cooperation credit. Moreover, prosecutors may not consider whether a corporation has sanctioned or retained culpable employees in evaluating whether to assign cooperation credit to the corporation.

Reed Smith's Health Industry Washington Watch blog has new posts about these guidelines as well as new FDA initiatives; Medicare DMEPOS accreditation requirements; the Medicare Part B drug CAP program; Congressional hearings and markups; OIG and GAO reports; upcoming health care industry events; and other policy developments.

Protection For The Attorney-Client Privilege?

In-house lawyers in many industries--including life sciences and health care--repeatedly confront hard questions about the attorney-client privilege. As Reed Smith lawyers Matthew Sheldon and Sandy Thomas explain in the PrivilEdge Newsletter, a number of recent developments warrant attention. These include "The Attorney-Client Privilege Protection Act of 2007"--pending legislation that would curb demands for waiver of the privilege during corporate investigations and a recent case addressing attorney-client privilege issues such as the "joint client" exception, protection for tax advice and internal audits, and corporate ratification of a lower-level employee's disclosure of privileged information. Their article also discusses proposed Rule of Evidence 502 (S. 2450) regarding inadvertent disclosure of privileged information. As of Monday, that bill is awaiting the President's signature.

Second Time Is A No-Go for Settling Plaintiff After Losing On Preemption

This post was written by Michelle Lyu.

The plaintiff in Hearn v. Advanced Bionics Corporation, No. 06cv114-KS-MTP, 2008 WL 3896431 (S.D. Miss. Aug. 19, 2008) attempted to win a do-over of a straightforward defense preemption win.  

The district court had granted in part and denied in part the defendant's motion for summary judgment based on preemption as a result of the Class III PMA approval of the medical device in question, a cochlear implant that malfunctioned and was replaced with surgery. After the court's ruling, the parties settled and the court entered judgment of dismissal. Id. at p. 2. 

Approximately five months later, plaintiff moved for a relief from judgment, arguing that after the settlement, she discovered that the manufacturer had "knowingly misrepresented the true facts of the status of the FDA approval" to induce a settlement. Id. Having relied on such representations and "discovery fraud," plaintiff did not seek a rescindment of the settlement agreement (in fact, she kept the settlement proceeds!), but sought sanctions and damages under various claims for relief. Id. Essentially, the plaintiff argued that the defendant "knowingly misrepresented" that an FDA investigation was commenced post-approval, "at the conclusion of which the FDA would challenge Advanced Bionics' compliance with the pre-market approval process." Id. at p. 5. 

Based on these allegations, the plaintiff unsuccessfully sought to have the judgment vacated using Rule 11, Rule 60 and the court's inherent powers. On denying these requests, the court made clear that even if the plaintiff were to succeed in establishing misconduct, the court's ruling on the motion for summary would be unchanged. That is, even if the plaintiff's claims were accurate, "the Defendant would still be protected by the preemption defense for items that received and complied with pre-market approval from the FDA." Id. at p. 6. Further, the court's order granting the summary judgment did not detail which state law claims were preempted, but only stated a point of law; thus, had the case continued and the evidence demonstrated either non-compliance with the federal requirements or the manufacturer failed to properly obtain the premarket approval for the device, the preemption argument might have "presumably fail[ed]." Id. at p. 8. However, given the procedural status of the case, the court denied the plaintiff's motion and advised that her recourse--if any--was to file a new action against the manufacturer for fraudulent misrepresentation or to seek other similar relief.

Preemption - It's Not Just For Product Liability Anymore

This post was written by Michelle Lyu.

Earlier this week, in Uhm v. Humana, Inc., --- F.3d --- , 2008 WL 3891592, No. 06-35672 (9th Cir. Aug. 25, 2008), the Ninth Circuit upheld a lower court ruling that the express preemption provision of the Medicare Prescription Drug Improvement and Modernization Act preempted state law claims arising from the plaintiffs' prescription drug benefits provided by a Medicare supplement insurer. 

On behalf of a putative class, plaintiffs asserted claims for breach of contract, violation of state consumer protection statutes, unjust enrichment, and fraud arising from allegations that the class enrolled in a plan for prescription drug coverage but the insurer failed to cover their prescription medication purchases as promised. But the Act specifies that for Medicare prescription drug plans and sponsors, "[t]he standards established under this part shall supercede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA ["Medicare Advantage"] plans which are offered by MA organizations under this part." 42 U.S.C. § 1395w-26(b)(3). 

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Life after Riegel: a Glimpse of the Possible

This post was written by Michelle Lyu.

This case provides an interesting glimpse of what could happen if the plaintiffs are successful in persuading Congress to change the import of Riegel v. Medtronic, Inc.'s, (552 U.S. ___, 128 S.Ct. 999, (Feb. 20, 2008)) holding through legislation. 

In Lundeen v. Canadian Pacific Railway Company, 532 F.3d 682 (8th Cir. July 2, 2008), the Eighth Circuit addresses the retroactive effect of an amendment to the Federal Railroad Safety Act, which removed the Act's preemptive effect over state law claims.  When plaintiffs first brought this case for personal injuries and property damage from a freight train derailment in state court against railroads, the case was first removed and then later dismissed on the basis of preemption under the Federal Railroad Safety Act.  While the cases were pending on appeal, Congress amended FRSA, "clarifying" that the state law causes of action seeking damages for personal injury, death, or property cases were not preempted.  Congress made the amendment retroactive to the day of the derailment at issue, and effectively removed the basis of the court's former holding on preemption.  The Eighth Circuit majority panel held that the amendment was constitutional despite arguments re separation of powers doctrine, due process, equal protection, and the Ex Post Facto Clause, and remanded the case. 

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A PMA Device and a Sales Representative in the Operating Room - The Breadth of Riegel Preemption

A recent Virginia federal court decision demonstrates the powerful effect of the Riegel v. Medtronic precedent in product liability cases where PMA-devices are subject to claims-sounding in negligence or breach of duty related to the design, manufacturing, and labeling of the device. According to this court, however, the preemption defense of Riegel reaches only those allegations based on the safety and efficacy of the device itself, not on the alleged conduct of a company representative in the operating room during use of the device.

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Pharmaceutical and Medical Device Preemption

Reed Smith partners James W. Wood and James C. Martin recently wrote an article regarding pharmaceutical and medical device preemption for the Washington Legal Foundation, discussing such cases as the Third Circuit's Colacicco v. Apotex, Inc. case, as well as activity in the U.S. Supreme Court.

Cross-Complaints and Counterclaims May Trigger A Right To Insurance Recovery

Lawyers representing clients as plaintiffs in litigation often overlook the fact that a cross-complaint or counterclaim may give rise to an obligation by the client’s liability insurer to provide a defense. A recent decision in favor of Hewlett-Packard, awarding it $51 million, serves as a reminder that insurance coverage must be examined when a cross-complaint or counterclaim is filed.

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Post-Market Surveillance: FDA's "Sentinel Initiative" and Related CMS Rulemaking

This post was written by Catherine A. Durkin and Areta L. Kupchyk.

On May 22, 2008, the Food and Drug Administration (“FDA”) announced plans for what it is calling the “Sentinel System”—a new, national electronic health information surveillance system to track the performance and safety of medical products once they are on the market. See FDA, “The Sentinel Initiative: National Strategy for Monitoring Medical Product Safety” (May 2008). In addition to a whitepaper on the Sentinel Initiative, FDA has published a “Questions and Answers” document, a fact sheet, and information for the consumer that are all available at fda.gov

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Medical Monitoring: Oregon Requires 'Present Physical Injury' - Or Does It?

This post was written by Peggy Sanner.

On May 1, 2008, in Lowe v. Philip Morris USA Inc., et al.1, the Oregon Supreme Court rejected a smoker’s bid to mount a medical monitoring class action against five cigarette manufacturers. The court concluded that the plaintiff’s admitted lack of any present physical injury doomed her negligence case.

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The California Supreme Court Adopts the 'Sophisticated User' Doctrine

This post was written by Marilyn A. Moberg and James M. Neudecker.

In April 2008, in Johnson v. American Standard, Inc., 2008 WL 878933 (Cal. Apr. 3, 2008), the California Supreme Court unanimously held that a manufacturer is not liable to a sophisticated user of its product for failing to warn of dangers about which the sophisticated user knew or should have known. In recognizing the so-called “sophisticated user doctrine,” California applied sound and reasoned principles that limit manufacturers’ liability for failure to warn.

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Who Pays the Bill for Asbestos Claims: Recent Developments in Asbestos-Related Disease Liability in the UK

This post was written by Darren Smith, Julia Dodds, and Claire Hamm.

The UK has an estimated 3,000 deaths per year from mesothelioma, the lung cancer caused by inhalation of asbestos fibres. This rate of incidence shows no signs of slackening, a result of the historic exposure of the UK workforce to asbestos, and is not expected to peak until 2018. With the average award of damages for mesothelioma currently around £150,000 ($300,000), defendants and their insurers are already paying out close to $1 billion a year to settle mesothelioma claims alone; and to this must be added the cost of claims for non-fatal asbestos-related diseases.

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Bi-Annual Update Regarding Pharmaceutical Drug and Medical Device Federal Preemption: The Supreme Court Speaks In Riegel v. Medtronic

This post was written by Michael K. Brown, Lisa Baird, and Michelle Lyu.

In This Issue…

  • U.S. Supreme Court Activity in Medical Device and Drug Preemption Cases
  • Express Preemption in the Lower Courts
  • Preemption and Buckman
  • Implied Preemption in the Lower Courts
  • Recent Legislation
  • Miscellaneous Cases

Click here to read more.

California Assemblyman Introduces Legislation to Require Notice of Defective Foreign Products

It seems like a rare day when there is not a notice of a foreign-made defective product being recalled in the United States. In recent months, there have been more than 500 recalls of a variety of products including millions of toys coated with lead paint, thousands of illegal fireworks, contaminated meats, and tainted medicines.

The issue has become so enormous that the U.S. Government has created a website—www.recalls.gov—that provides information about recalls coordinated by a variety of agencies including the Consumer Product Safety Commission, the Food and Drug Administration, U.S. Department of Agriculture, the Environmental Protection Agency, and others.

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Review of Proposed FDA Guidance on Off-Label Use Publications

This post was written by Areta L. Kupchyk, James M. Wood, Joseph W. Metro, and Kevin M. Madagan.

On February 15, 2008, a year-and-a-half after the sunset of the statute (Section 401 of the Food and Drug Administration Modernization Act) intended to permit the dissemination of medical literature about unapproved uses of drugs and medical devices, the Food and Drug Administration (“FDA”) proposed a draft guideline for such dissemination. Often referred to as “the distribution of off-label use journal articles,” FDA has saddled the proposed guidelines with a much heftier title: “Guidance For Industry: Good Reprint Practices for the Distribution of Medical Journal Articles and Medical Scientific Reference Publications on Unapproved New Uses of Approved Drugs and Approved or Cleared Medical Devices.”

The FDA has invited comments—which must be submitted no later than April 14, 2008—on the draft guidance. Only after consideration of any comments will FDA move to finalize the draft guidance.

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