Medical Device Lawsuit Watch - April 2009

This summary of key lawsuits affecting medical device companies is provided by the Health Care Law Group of Crowell & Moring LLP, in collaboration with the firm's Torts, Antitrust, Commercial Litigation, and Intellectual Property Groups.

Cases in this issue:

• Guidant Sales Corp. v. Baer
• Dorsey v. Allergan, Inc. and Allergan Sales, LLC
• ICU Medical, Inc. v. Alaris Medical Sys., Inc.
• Rizzo v. Doylestown Hosp., et al.
• United States ex rel. Roop v. Hypoguard USA, Inc., et al.
• McCullough v. Zimmer, Inc., et al.
• United States ex rel. Poteet v. Lenke, M.D., et al.
• Bracco Diagnostics, Inc. v. Amersham Health, Inc., et al.
• United States v. Endotec, Inc.

 

Guidant Sales Corp. v. Baer No. 09-CV-0358 (D. Minn. Feb. 26, 2009)

The U.S. District Court for the District of Minnesota granted Guidant Sales Corporation's ("Guidant's") motion for a temporary restraining order ("TRO") enjoining a former sales representative from selling or supporting the sale of competing products to any Guidant account for one year following employment with Guidant.

Christopher Baer ("Baer") began working for Guidant in 2002 as a sales representative selling cardiac rhythm management ("CRM") devices in the Philadelphia area. In connection with a promotion in 2006 to regional sales manager, Baer was asked to sign a noncompete agreement. Baer resigned his job at Guidant on December 19, 2008 to become an independent distributor of CRM products for Biotronik, Inc. ("Biotronik"), Guidant's competitor. Guidant then sued Baer for breach of contract alleging that Baer violated the noncompete agreement and sought a restraining order to enforce the terms of the contract.

Noting that Minnesota law disfavors noncompete agreements and such agreements will be upheld only if they are reasonable and supported by independent consideration, the court looked at four factors in reaching its decision to enjoin Baer: (1) Guidant's likelihood of success on the merits; (2) the threat of irreparable harm to Guidant; (3) the balance between the harm and the injury that the TRO would inflict on other litigants; and (4) the public interest.

The court looked most in depth at the "likelihood of success" factor and found that, despite his assertions otherwise, Baer received independent consideration for signing the noncompete agreement—his promotion to regional sales manager. The court rejected Baer's argument that no independent consideration existed because he lost income as a result of his promotion, and instead found that Baer was eligible to receive more as a manager than he was eligible to receive as a sales representative. The court also disagreed that Baer was not violating the noncompete agreement. In his position with Biotronik, Baer would be contacting many of the same physicians he had preexisting sales relationships with while employed by Guidant. The court concluded that Guidant was likely to succeed in proving that certain doctors with whom Baer had contact in 2008, were Guidant accounts within the meaning of the noncompete agreement.

The court also found that Guidant had met its burden of proof for the remaining factors. Guidant would likely suffer "irreparable harm" because its highly sophisticated customer base demanded that CRM salespeople be both skilled at sales, and have substantial technical and clinical knowledge, including knowledge of a physician's individual practices. To develop and foster these long-term relationships with its customers required that Guidant devote substantial time, effort and money to train its salespeople. The "balance of harms" factor also favored Guidant because Baer's contract with Biotronik guaranteed him compensation of $600,000 during his first year with the company. The "public interest" also favored the enforcement of valid noncompete clauses.

Dorsey v. Allergan, Inc. and Allergan Sales, LLC No. 3:08-0731 (M.D. Tenn. Mar. 11, 2009)

The U.S. District Court for the Middle District of Tennessee granted summary judgment for defendants Allergan, Inc. and Allergan Sales, LLC (together "Allergan") in a product liability action alleging that silicone breast implants were unreasonably dangerous, holding that approval of the implants by the Food and Drug Administration ("FDA") preempts the plaintiff's strict liability tort claim regardless of the fact that the FDA approval post-dated implantation of the device into the plaintiff.

Plaintiff Susan Dorsey participated in an adjunct clinical study conducted pursuant to an FDA agreement by McGhan Medical Corporation, predecessor to the defendant Allergan, Inc. In November 2005, Dorsey received McGhan® Style 20 silicone breast implants. In September 2006, the implants were surgically removed after examination revealed both implants had contracted. The Style 20 implants received premarket approval from the FDA on November 17, 2006. Dorsey later sued Allergan on a theory of strict liability, alleging that the implants were defective and/or unreasonably dangerous.

Allergan moved for summary judgment on the ground that Dorsey's strict liability claim was preempted by the Medical Device Amendments ("MDA") to the Food, Drug and Cosmetic Act. Allergan relied on the Supreme Court's holding in Riegel v. Medtronic, Inc. that the MDA preempts state law claims imposing requirements different from or in addition to federal laws regarding medical device safety and effectiveness. Dorsey argued that Riegel was distinguishable because, in that case, the device at issue had received FDA approval before its implantation.

While acknowledging that Riegel is distinguishable with respect to the timing of the premarket approval, the court found this to be "a distinction without a difference" and held that "the subsequent approval by the FDA is a bar to [Dorsey's] strict liability claim because the FDA has determined that the implants at issue are reasonably safe for consumers and there is no suggestion that the implants she received were somehow different than those ultimately approved by the FDA."

The court also held that adjunct studies are not per se outside the scope of the MDA and that the MDA's preemption provision applies regardless of whether a device is made publicly available through premarket approval, a finding of substantial equivalence, or an investigational device exemption.

ICU Medical, Inc. v. Alaris Medical Sys., Inc. No. 2008-1077 (Fed. Cir. Mar. 13, 2009)

The Court of Appeals for the Federal Circuit ("CAFC") affirmed orders by the U.S. District Court for the Central District of California in favor of defendant Alaris Medical Systems, Inc. ("Alaris"). The CAFC accepted Alaris's proposed construction of the term "spike" thus upholding the award of partial summary judgment of noninfringement. The CAFC also upheld the district court's grant of summary judgment of invalidity under 35 U.S.C. § 112, ¶ 1 with respect to so-called "spikeless" and "tube" claims and affirmed its award of attorney fees and Rule 11 sanctions.

ICU Medical, Inc. ("ICU") sued Alaris for infringement of four U.S. patents related to valves used in medical intravenous setups. In June 2004, ICU asserted only U.S. Patent No. 6,682,509 ("the '509 patent") and its "spikeless claims." ICU then filed an ex parte application for a temporary restraining order ("TRO"), which the district court denied. The district court explained that Alaris presented substantial questions of invalidity for the asserted spikeless claims of the '509 patent. ICU then amended its complaint to assert claims from three other patents: U.S. Patent Nos. 5,685,866; 5,873,862; and 6,572,592.

The district court concluded that Alaris was the prevailing party because Alaris established noninfringement of ICU's spike claims (based on construction of the term "spike") and invalidity of ICU's spikeless claims (under 35 U.S.C. § 112, ¶ 1). The district court determined that the case was exceptional because ICU's TRO/PI (preliminary injunction) request and the amended complaint's assertion of the spike claims were objectively baseless and brought in bad faith. The CAFC affirmed the district court's award of attorney fees.

The CAFC found that the district court appropriately exercised its discretion in awarding attorney fees only for that portion of the litigation relating to: 1) the TRO/PI; 2) ICU's assertion of the "spike" claims; and 3) ICU's construction of the term "spike." The district court had determined that ICU's "frivolous construction and assertion of the ‘spike' claims in the amended complaint, concurrently justified sanctions under Rule 11." According to the district court, "[i]n contrast to its objectively baseless and bad faith litigation of the TRO/PI and ‘spike' claims, ICU's later unsuccessful litigation of the ‘spikeless' claims involved tactics best characterized as overzealous or overly creative, as opposed to vexatious and frivolous."

Rizzo v. Doylestown Hosp., et al. No. 09-cv-00012-JF (E.D. Pa. Mar. 16, 2009)

The U.S. District Court for the Eastern District of Pennsylvania held that a doctor and hospital that knew or should have known that a medical device implanted in a patient had been recalled were proper defendants in the patient's product liability action.

Plaintiff Louis Rizzo, Jr. ("Rizzo") underwent surgery for implantation of the Composix® Kugel® Hernia Patch manufactured by Davol Inc. ("Davol"). Davol instituted a limited voluntary recall of certain of these patches in late 2005, early 2006, and early 2007. Rizzo alleged that his surgery took place during the recall period and sued his doctor, the hospital, and Duval, alleging product liability claims against Duval and negligence claims against the doctor and the hospital.

Duval removed the action to federal court on the basis of diversity jurisdiction, arguing that the non-diverse doctor and hospital were fraudulently joined because the patch at issue was not covered by the recall, therefore providing the doctor and the hospital a complete defense to Rizzo's negligence claim.

The district court, however, rejected Duval's assertion that because the other two defendants had a valid defense for Rizzo's negligence claim, their citizenship should be ignored because they were fraudulently joined. The district court concluded that "[t]o state that argument is to refute it" and remanded the action to state court.

United States ex rel. Roop v. Hypoguard USA, Inc., et al. No. 07-3781 (8th Cir. Mar. 17, 2009)

The Eighth Circuit Court of Appeals held that a relator who brought allegations under the federal False Claims Act ("FCA") against Hypoguard USA, Inc. ("Hypoguard") failed to plead fraud with sufficient particularity. The Court concluded that the relator's complaint and amended complaint did not satisfy federal pleading standards because it contained no specific instances of fraud in cases where Hypoguard sought reimbursement from the government.

The relator—who brought his claims pursuant to provisions of the FCA that permit a private individual to sue on behalf of the government—claimed that Hypoguard's blood glucose monitors were defective. The relator alleged that this product defect caused the medical device distributors that sold Hypoguard's product to submit false Medicare reimbursement claims (since Medicare otherwise would not have paid for a defective product).

The district court found that the relator's complaint failed to meet the standard for asserting fraud under the federal rules and denied the relator's request for leave to amend. The district court concluded that all of the claims "failed to meet the particularity requirements." The district court also denied the relator's later motion to amend the judgment to permit him to proceed with an amended complaint.

The Eighth Circuit affirmed both the district court's initial dismissal and its decision to deny the relator's request to amend or alter the court's judgment. First, the Court agreed with the district court that it would have been futile to permit the relator leave to amend his complaint since the relator did not state any particular circumstances constituting fraud. Even in the case of an alleged systemic fraud, the Court found that the relator is obligated to present at least "some representative examples" of the fraud at issue. The Court also concluded that it was not an abuse of discretion to deny the relator's request to amend the judgment in order to file an amended complaint. The relator's proffered amended complaint did not clear up the particularity issues with regard to fraud and the district court was "not obligated to ferret out well-hidden changes in a post-judgment amended pleading" after its judgment.

McCullough v. Zimmer, Inc., et al. No. 08cv1123 (W.D. Pa. Mar. 18, 2009)

Finding that competing orthopedic device sales company representatives insufficiently pleaded antitrust standing and presented insufficient evidence of RICO violations, the U.S. District Court for the Western District of Pennsylvania dismissed claims against orthopedic device manufacturer Zimmer, Inc. ("Zimmer").

Plaintiffs Richard and Holly McCullough (the "plaintiffs" or "McCulloughs") accused Zimmer and other orthopedic device manufacturers of providing kickbacks to orthopedic surgeons and racketeering activities that forced plaintiffs out of business because they worked as commissioned salespeople for a competing medical supply manufacturer. Judge Arthur Schwab granted Zimmer's motion to dismiss, finding that the plaintiffs were "merely commissioned sales representatives rather than competitors or consumers" of the defendants and that their allegations lacked sufficient evidence for racketeering charges.

The McCulloughs' lawsuit followed a 2007 Department of Justice criminal case that accused Zimmer (among others) of illegal kickbacks and other favors to physicians, hospitals and health systems in return for agreeing to exclusive use of defendants' devices. The McCulloughs sold and serviced orthopedic products, including implants and other surgical instruments and medical supplies. In the mid-1990s, the McCulloughs found that several of their customers stopped purchasing their products, instead purchasing all their orthopedic products from the defendants, who collectively controlled about 95 percent of the market in orthopedic medical devices. The McCulloughs alleged that Zimmer (as well as other defendants) violated the Sherman Act and RICO by imposing exclusive buying agreements on the McCulloughs' customer base, driving the McCulloughs out of the market.

Defendants moved to dismiss the complaint, arguing that the McCulloughs lacked antitrust standing and could not show they had suffered an antitrust injury. The court agreed, finding that the plaintiffs were neither competitors nor consumers of the defendants and holding that brokers (in this case, commissioned salespeople) were not competitors. The court stated that the plaintiffs were "simply the intermediary through which [competing] companies" sold their products and thus could not allege antitrust injury. Because the defendants did not have the "sole aim of keeping Plaintiffs out of the relevant market," it found that the McCulloughs' losses were merely incidental to the defendants' alleged anticompetitive activities. Moreover, the court found that the plaintiffs' indirect injuries, compounded with the direct victims' injuries, had the potential to result in duplicative recovery against the defendants – which is not a goal of antitrust law.

In addition to dismissing plaintiffs' antitrust claims, the court held that the complaint inadequately pleaded a cause of action under RICO or state law and dismissed those claims as well.

United States ex rel. Poteet v. Lenke, M.D., et al. No. 07-10237-RGS (D. Mass. Mar. 20, 2009)

The U.S. District Court for the District of Massachusetts dismissed a complaint brought under the federal False Claims Act ("FCA") because the lawsuit's allegations and subject matter had already been publicly disclosed.

Jacqueline Kay Poteet ("Poteet"), a former Senior Manager for Travel Services for Medtronic Sofamor Danek USA, Inc. ("MSD"), filed an action under the FCA against 120 spine doctors and eighteen medical device distributors, alleging involvement in an illegal kick-back scheme. The FCA imposes civil liability on any person who knowingly submits a false or fraudulent claim to the government, and promotes enforcement by allowing private individuals (the "relator") to file a qui tam action on behalf of the government.

The doctor defendants moved to dismiss the action based on the FCA's public disclosure and first-to-file rules. The distributor defendants also moved to dismiss for failure to meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(h) ("Rule 9(h)").

The court granted the doctor defendants' motion to dismiss because of the public disclosure rule and held that Poteet lacked standing to file the suit. Under the FCA, the allegations in the relator's complaint must not have been publicly disclosed prior to the complaint's filing. The court found that the subject matter of Poteet's complaint had already been discussed in an article published by the New York Times and was the subject of a $40 million settlement published on the Department of Justice's website. Thus, although the doctor defendants' motion to dismiss based on the first-to-file rule was denied, Poteet's failure to satisfy the public disclosure rule was sufficient to grant a dismissal of the lawsuit.

The court also granted the distributor defendants' motion to dismiss. The court held that Poteet's complaint failed to meet Rule 9(h)'s heightened pleading requirements because it did not allege any specific facts or details, such as whether the gift recipients ever even filed a false claim with the government. The court also denied Poteet's motion to file a second amended complaint.

Bracco Diagnostics, Inc. v. Amersham Health, Inc., et al. No. 03-6025 (D.N.J. Mar. 25, 2009)

Following a thirty-nine-day bench trial, the U.S. District Court for the District of New Jersey found that GE Healthcare ("GEH") and certain of its predecessor companies engaged in a false and misleading advertising campaign claiming that its x-ray contrast product was superior to products sold by Bracco Diagnostics, Inc. ("Bracco").

Bracco's suit alleged that GEH falsely advertised the superiority of its x-ray contrast medium, Visipaque™, over Bracco's product, Isovue®. The case centered on a study published in 2003 by the New England Journal of Medicine comparing two GEH contrast mediums, Visipaque (an isotonic contrast medium) and Omnipaque™ (a low osmolar contrast medium, or "LOCM"). The study found that, compared to the LOCM Omnipaque, Visipaque caused fewer heart and kidney problems. Even though the study involved only these two GEH products, GEH's sales presentations, websites and brochures extended the study's conclusions regarding GEH's LOCM product, Omnipaque, to Bracco's LOCM product, Isovue.

The district court concluded that GEH did promote false messages sufficient in number to constitute actionable commercial advertisements or promotions in violation of the Lanham Act. The court ordered GEH to pay Bracco $8,326,500 for past corrective advertising and $3,050,000 in advertising funds Bracco planned to spend on future corrective ads. The court also ordered that GEH be permanently enjoined from making false claims about the comparative safety of Visipaque and that GEH take corrective action within sixty days. Specifically, GEH was ordered to issue a press release regarding the court's decision that would also be posted on GEH's website, issue corrective advertisements, retrain its sales and marketing staffs, and, when citing studies in its advertisements, plainly identify the studies to which the findings relate and refer to comparator drugs by either their brand or scientific names.

Although the court found that GEH violated the Lanham Act, it also found that Bracco failed to establish a causal nexus between GEH's false advertisements and Bracco's alleged lost profit damages. The court considered that the greater number of GEH's advertisements were factually true and based on reliable scientific studies. The court also found that GEH had not acted willfully because it relied on scientific studies that had not been disproved and had a protocol in place for approving advertisements that attempted to ensure against falsity. For these reasons, the court denied Bracco's request that GEH disgorge $1 billion in profits from sales of Visipaque.

United States v. Endotec, Inc. No. 08-13693 (11th Cir. Mar. 30, 2009)

The Court of Appeals for the Eleventh Circuit reversed the decision of the District Court for the Middle District of Florida, finding that the district court improperly applied the custom device and investigational device exemptions of the Food, Drug and Cosmetic Act ("FDCA") and the Medical Device Amendments ("MDA") to the FDCA.

The United States alleged that under the FDCA, Endotec, Inc.'s ("Endotec's") ankle device was adulterated and misbranded. Endotec contended that its ankle device was neither adulterated nor misbranded in violation of the FDCA because it falls under both the custom device exemption to the MDA's requirements for medical devices and the investigational device exemption to the FDCA's requirements.

Following a three-day bench trial last year, the district court refused to grant a permanent injunction prohibiting Endotec from manufacturing and distributing the ankle device. The district court concluded that in light of the United States' failure to demonstrate that the ankle device is "potentially dangerous," the device fit the MDA's five-prong definition of a custom device, such that the custom device exemption applied. As to the investigational device exemption, the district court similarly found that Endotec had substantially complied with the exemption, and that the United States failed both to allege and prove that the device was "unsafe or dangerous."

On appeal, the Eleventh Circuit held that the district court erred in its analyses of the custom device and investigational device exemptions. First, the Eleventh Circuit noted that because it purported to benefit from a statutory exception, Endotec bore the burden of establishing that the ankle device satisfied the requirements of the exemptions. Second, the Eleventh Circuit found that the district court erred in requiring the United States to show that the ankle device is dangerous or unsafe, as the imposition of such a requirement improperly shifts the burden to the United States to establish that the device falls under the custom device and investigational device exemptions.

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This material was prepared by Crowell & Moring LLP attorneys Asaf Batelman, Matthew Fornataro, Rogelyn McLean, April Nelson Ross, Dani Nguyen, Christine Sommer, Bernadette Stafford, Deborah Yellin, and Angelu Yu. It is made available on the Crowell & Moring website for information purposes only, and should not be relied upon to resolve specific legal questions. If you have questions or want additional information, please call your regular Crowell & Moring contact or you may contact the editor of Medical Device Lawsuit Watch.