Once again we find ourselves in the position of creating new defenses to a novel, plaintiff-side cause of action. This time, we’ve been doing a lot of thinking about innovator liability – the theory that would hold branded manufacturers liable for injuries allegedly caused by the ingestion of (preemption-immune) generic drugs on some kind of attenuated inadequate warning theory – since even before the California Supreme Court’s T.H. v. Novartis, Inc., 407 P.3d 18 (Cal. 2017), decision late last year. If your company or your clients are concerned about being a target of such theories, here are some ideas we’ve come up with that might help.
In T.H., the “major, and ultimately most important, consideration under California law is the foreseeability of physical harm.” 407 P.3d at 29 (citations and quotation marks omitted). What did T.H. have to say about “foreseeability” in deciding to create a new negligence duty on non-manufacturing branded manufacturers? The manner in which T.H. construed “foreseeability” was much different than in the normal negligence case:
[A branded drug manufacturer] could reasonably have foreseen that deficiencies in its [product’s] label could mislead physicians about the safety of [the drug’s] generic bioequivalent, which was legally required to bear an identical label.
A brand-name pharmaceutical manufacturer has a duty under federal law to draft, update, and maintain the warning label so that it provides adequate warning of the drug’s potentially dangerous effects. . . . [T]his category of manufacturers may use the “changes being effected” . . . regulation to “add or strengthen a contraindication, warning, precaution, or adverse reaction” immediately upon filing a supplemental application, without waiting for FDA approval.
The duty for a manufacturer of generic drugs, on the other hand, is to ensure that its warning label is identical to the label of the brand-name drug. . . .
What a brand-name manufacturer thus knows to a legal certainty is that any deficiencies in the label for its drug will be perpetuated in the label for its generic bioequivalent.
Id. (numerous regulatory citations omitted) (emphasis added).
T.H. thus grounded its duty (to be distinguished from breach) analysis, not on the likelihood that the defendant would have violated some common-law obligation, which is the usual way foreseeability is analyzed – but on the likelihood that the defendant would be compliant with its federal obligations under the FDCA. Indeed, T.H. suggests that, but for this federal overlay, it would not have recognized a new duty at all. Id. at 31 n.2 (were there “parity between NDA [branded] holders and ANDA [generic] holders with respect to submission of . . . safety-related labeling changes based on newly acquired information,” that could “justify reweighing of the [duty] factors and some reconsideration of the brand-name manufacturer’s duty in this category of cases”).
There is a second element to T.H.’s foreseeability analysis, and that also involves compliance (as opposed to violation) with legal obligations:
A brand-name manufacturer will also be aware that although the warnings communicated in its drug label are designed for physicians . . . it is often the pharmacist who actually decides whether the patient receives the brand-name drug or its generic bioequivalent. Moreover, many insurance companies require the substitution of a generic drug for the brand-name drug as a matter of course. . . . Accordingly, it is entirely foreseeable that the warnings included (or not included) on the brand-name drug label would influence the dispensing of the generic drug, either because the generic is substituted by the pharmacist or the insurance company after the physician has prescribed the brand-name drug, or because the warning label on the generic drug is legally required to be identical to the label on the brand-name drug.
Id. at 29-30.
The same unusual reliance on compliance with – rather than violation of – federal and other legal requirements governing the marketing of prescription drugs occurred in Rafferty v. Merck & Co., 92 N.E.3d 1205 (Mass. 2018):
[I]n the vast majority of such cases, the duty to warn would be limited to the manufacturer of the product − even if the plaintiff were to bring a general negligence claim − because the risk of harm arising from an inadequate warning would be foreseeable to a manufacturer only with respect to users of its own product, not the users of another product. . . . Moreover, apart from any duty arising from the risk of foreseeable injury, only in rare cases could a plaintiff contend that his or her injury was caused by the inadequate warning given for another product.
But this case presents an exception to the usual pattern. Because the Hatch–Waxman amendments to the act require that the warning label of a generic drug be identical to the warning label of its brand-name counterpart . . . duty to warn claims involving generic drugs are potentially viable as general negligence claims, although not as products liability claims. With generic drugs, it is not merely foreseeable but certain that the warning label provided by the brand-name manufacturer will be identical to the warning label provided by the generic manufacturer, and moreover that it will be relied on, not only by users of its own product, but also by users of the generic product.
92 N.E.3d at 1214-15 (once again omitting a passel of regulatory citations) (emphasis original). And again the branded defendant’s compliance with the FDCA was the basis for this unique extension of duty to a non-manufacturer:
Federal labeling requirements for generic drugs present precisely the kind of “special circumstance” where a consumer would rely on the warnings created by someone other than the manufacturer of the product causing the injury. . . . Where a brand-name drug manufacturer provides an inadequate warning for its own product, it knows or should know that it puts at risk not only the users of its own product, but also the users of the generic product. Consequently, this is the rare (perhaps the only) type of case involving a manufactured product where the requirements of general negligence may be satisfied even where the requirements of products liability are not.
Id. at 1215 (emphasis added).
Plainly, innovator liability amounts to the imposition of a singular and burdensome form of non-manufacturing negligence liability predicated on the branded defendant’s compliance with its obligations under the FDCA – specifically the Hatch-Waxman requirement that it allow generic manufacturers to copy its labeling word-for-word.
Basing liability expressly on a branded manufacturer’s compliance with federal law should give rise to impossibility preemption. This observation goes back to the oldest FDCA preemption case on the books, McDermott v. Wisconsin, 228 U.S. 115 (1913), where a state’s attempt to prohibit a product because its label complied with the FDCA, rather than with state law, was held preempted. Even in 1913, it was “well settled that the state may not, under the guise of exercising its police power or otherwise, . . . enact legislation in conflict with the statutes of Congress passed for the regulation of the subject, and if it does, to the extent that the state law interferes with or frustrates the operation of the acts of Congress, its provisions must yield to the superior Federal power given to Congress by the Constitution.” Id. at 131-32 (citations omitted) (emphasis added).
The modern way of expressing the proposition recognized in McDermott is that “state and federal law conflict where it is ‘impossible for a private party to comply with both state and federal requirements.’” PLIVA, Inc. v. Mensing, 564 U.S. 604, 618 (2011) (quoting Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995)). “Even in the absence of an express pre-emption provision, the Court has found state law to be impliedly pre-empted where it is ‘impossible for a private party to comply with both state and federal requirements.’” Mutual Pharmaceutical Co. v. Bartlett, 570 U.S. 472 (2013) (quoting English v. General Electric Co., 496 U.S. 72, 79 (1990)).
That’s, frankly, pretty blatant here, since (as just demonstrated) compliance with federal law is the sine qua non of extending a warning-related duty to the non-manufacturing, branded-drug defendant in both T.H. and Rafferty. Since innovator liability is explicitly based on the fact of the branded manufacturer’s compliance with what Hatch-Waxman requires, it cannot avoid being preempted, because the entire theory flows from the premise that meeting FDCA requirements about allowing generic use of its labels equals foreseeability, indeed “certainty.”
There are undoubtedly numerous other precedents expressing the same concept, but even the most anti-preemption courts recognize that tort law cannot penalize compliance with federal law. Take the Seventh Circuit in Bausch v. Stryker Corp., 630 F.3d 546 (7th Cir. 2010), one of the most virulently anti-preemption decisions we can think of. Bausch was adamant that preemption (express, in that case) precludes “claims that the [product] at issue ‘violated state tort law notwithstanding compliance with the relevant federal requirements.” Id. at 552 (quoting Riegel v. Medtronic, Inc., 552 U.S. 312, 330 (2008)) (emphasis original in Bausch). Innovator liability, which equates “foreseeability” with the branded defendant’s “compliance with the relevant federal requirements,” is worse than even the claims Bausch recognized would be preempted, because state-law innovator liability exists because of, not merely “notwithstanding,” a defendant’s FDCA compliance.
Lack of Personal Jurisdiction
Next, we invite you to consider personal jurisdiction in innovator liability cases in light of Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017) (“BMS”). In a prescription drug product liability case, BMS held that there was no specific jurisdiction over a plaintiff’s claim just because the same defendant allegedly sold the same drug to other, in-state residents, causing similar injuries:
The mere fact that other plaintiffs were prescribed, obtained, and ingested [the drug] in California − and allegedly sustained the same injuries as did the nonresidents − does not allow the State to assert specific jurisdiction over the nonresidents’ claims. As we have explained, “a defendant’s relationship with a . . . third party, standing alone, is an insufficient basis for jurisdiction.”
BMS, 137 S. Ct. at 1781 (quoting Walden v. Fiore, 134 S.Ct. 1115, 1123 (2014)). Rather, “case-linked” personal jurisdiction requires case-linked conduct by the defendant within the jurisdiction. “Nor is it sufficient − or even relevant − that [the defendant] conducted [activities] in California on matters unrelated to [its product]. What is needed − and what is missing here − is a connection between the forum and the specific claims at issue.” Id. It was dispositive in BMS that “all the conduct giving rise to the [plaintiffs’] claims occurred elsewhere.” Id.
Now, consider the conduct alleged to give rise to innovator liability. It is not the sale of any product, let alone sale of the product that allegedly injured the plaintiff in the jurisdiction where the plaintiff brings suit. Rather:
Plaintiffs further allege that [the branded defendant] knew or should have known that [the drug] was of questionable efficacy . . ., that [the drug] carried serious risks of side effects for [persons such as plaintiff], and that federal law required [defendant] to report this information to the FDA and to update the warning label − something [it] could have done unilaterally. Instead, [the branded defendant] falsely represented that [the drug] was safe and effective and would not cause serious side effects in newborns, and it intended for pregnant mothers and their physicians to rely on these representations.
T.H., 407 P.3d at 26. See Rafferty, 92 N.E.3d at 1212 (similar allegations that the branded defendant “not changed its label” to include a relevant risk that it was warning about overseas).
Under BMS, where does the “case-linked” conduct of branded defendant take place in an innovator liability case? That conduct does not include sale of a product. The defendant did not sell the allegedly injurious product, but only a different bioequivalent product with the same risks. Sale of a different product to different people, even if those other people are in-state residents, can’t support specific, “case linked” personal jurisdiction. That’s what BMS was all about, only BMS involved the same product, not a bioequivalent generic. Further, since a branded defendant did not sell the injurious product, there’s not even an arguable basis for “stream of commerce” jurisdiction in innovator liability cases.
Rather, the alleged failure to warn, the alleged knowledge of undisclosed risks, and the alleged failure to bring this information to the attention of the FDA (or to consumers) occurred, if at all, at the principal place of business of the defendant. Unless the branded defendant in an innovator liability case has the misfortune of being “at home” in the state permitting that theory, there is no basis for “case linked” personal jurisdiction under BMS, because no case-linked conduct occurred that also constituted the necessary “purposeful availment” of the jurisdiction where the plaintiff was allegedly injured by ingesting a generic drug resided. Further, Daimler AG v. Bauman, 571 U.S. 117 (2014), teaches that there can be no general personal jurisdiction under the same facts, unless the branded defendant was either incorporated or had its principal place of business in the state where suit is brought.
No case-linked jurisdiction due to lack of case-related in-state conduct, combined with the defendant not being “at home” for general jurisdiction purposes, means that there can’t be personal jurisdiction over a branded defendant sued for no reason other than the plaintiff being injured in a state recognizing innovator liability. Branded defendants should raise personal jurisdiction as a defense – remember, personal jurisdiction is waivable.
This jurisdictional insight is the reason we invited the guest post a few weeks ago by Blank Rome’s Terry Henry. He was the first person (other than Bexis) whom we saw articulate this argument – and he got around to writing about it before we did.
The second act of the personal jurisdiction defense to innovator liability occurs when the plaintiff is forced to bring suit in the state where the defendant is “at home.” That sets up choice of law as another hoop for plaintiff to jump through. Historically, almost all states have limited product liability (even under fraud-based theories) to the manufacturer of the product that allegedly produced the plaintiff’s harm. Fewer, but still quite a few, states have product liability statutes that expressly impose this requirement (sometimes referred to as “product identification”). Think back to how plaintiffs, during the brief period that West Virginia rejected the learned intermediary rule, attempted (with some success) to claim that West Virginia “public policy” overrode any other choice of law principles and precluded reliance on the differing law of a plaintiff’s home state? We described that situation here. Well, that same “public policy” exception to choice of law analysis, see Restatement (Second) of Conflict of Laws §187(2)(b) (1971) (discussing this aspect of the law), can be utilized by branded defendants to argue that allowing innovator liability would offend the law of the defendant’s “home” state, thus rendering the theory entirely unavailable. If there’s a statutory basis for this home state public policy, then so much the better, but even states without such statutes (Pennsylvania is one of those) probably have long-established precedent saying something like this:
The underlying purpose of [strict liability] is to ensure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves. . . . [T]he burden of injuries caused by defects in such products should fall upon those who make and market the products and the consuming public is entitled to the maximum of protection.
Miller v. Preitz, 221 A.2d 320, 334-35 (Pa. 1966). That’s a pretty solid iteration of state “public policy” that product liability is intended to be borne by manufacturers of injurious products.
So consider raising personal jurisdiction as an issue against plaintiffs making innovator liability claims. There’s more than one way to skin a cat.
Setting up a Prophylactic Preemption Defense
The potential scope of innovator liability is so massive that it may require branded companies to reconsider how they carry out certain aspects of their business. We’re sure most such companies review their warnings in strict compliance with FDA requirements and guidance concerning analysis of signals from medical literature and adverse events, with full recognition that, first, overwarning is a bad thing and, second, voluntarily reported adverse events, by themselves aren’t proof of causation.
If innovator liability catches on, then potential defendants might want to consider changing those time-honored practices at two critical moments: (1) when entry of generic products into the market is imminent, and (2) when a decision is made to sell the new drug application of a drug having generic counterparts. When #1 happens, the commercial considerations that reinforce strict compliance with FDA warning standards weaken, because a significant loss of market share is inevitable. When #2 happens, the potential defendant is about to lose any control over drug labeling, since only NDA holders can file NDA supplements. Number 2 would, of course, be in addition to any indemnification or similar provisions in the contract selling the NDA.
In those situations, companies that fear being targeted by innovator liability might want to pull every possible “signal” or statistical anomaly they can find in their data and submit these purported “risks” to the FDA for its independent evaluation − even if, objectively, the company does not believe that the data otherwise justify a “changes being effected” labeling change of the sort mentioned in T.H. or Rafferty. Let the FDA be the one to say “no.” If the FDA doesn’t like this, let the agency take regulatory steps to prohibit innovator liability.
The FDA saying “no” – that the scientific data at the time the supplement was submitted was insufficient to justify a warning change – sets up a “clear evidence” preemption defense. In Cerveny v. Aventis, Inc., 855 F.3d 1091 (10th Cir. 2017), which we discussed here, the court held:
We conclude that the rejection of a [submission to the FDA] may constitute clear evidence that the FDA would have rejected a manufacturer-initiated change to a drug label. Our case provides a perfect example. . . . Under the standard that would have applied to a change proposed by [the manufacturer], the FDA concluded that warnings were unjustified for risks [at issue in this case]. That conclusion controls here, and the FDA’s denial constitutes clear evidence that the FDA would not have approved the [plaintiffs’] desired warning.
Id. at 1105. Indeed, the big preemption fight in Cerveny wasn’t even about whether an FDA rejection was preemptive “clear evidence,” but rather focused on whether an FDA citizen’s petition filed by a non-NDA holder should be given the same effect as an FDA rejection of a manufacturer’s NDA supplement. The scientific standards for both are the same, and Cerveny said that’s enough for preemption. Id.
Some states disagree, and only give preemptive effect to FDA rejection of manufacturer-filed submissions. Notably, Massachusetts is in this category. See Reckis v. Johnson & Johnson, 28 N.E.3d 445, 459-60 (Mass. 2015) (holding that FDA decision rejecting additional warning language proposed by defendant would preempt claims, but not FDA rejection of a third-party citizen’s petition). California trial court decisions provide a solid basis for a Cerveny-like preemption argument. See In re Incretin-Based Therapies Products Liability Litigation, 142 F. Supp.3d 1108, 1122-23 (S.D. Cal. 2015), rev’d on other grounds, ___ F. Appx. ___, 2017 WL 6030735 (9th Cir. Dec. 6, 2017) (as to Buckman preemption); Risperdal & Invega Product Liability Cases, 2017 WL 4100102, at *10-11 (Cal. Super. March 16, 2017), reconsideration denied, 2017 WL 4479317 (Cal. Super. July 24, 2017); In re Byetta Cases, 2015 WL 7184655, at *13-14 (Cal. Super. Nov. 13, 2015). Since the strategy we’re recommending that branded manufacturers consider involves manufacturer-submitted supplements, the distinction drawn in Reckis would be irrelevant.
Thus, if a branded company is staring down the barrel of extensive innovator liability for injuries caused by products it did not make, and thus received no profit from manufacturing, it may be time to reconsider, at certain critical periods, whether to err on side of extreme caution concerning possible emergent risks, and let the FDA decide. If the FDA says no warning is justified at those times, then the company can assert a “clear evidence” preemption defense against future plaintiffs (innovator liability or otherwise) claiming the opposite.