Medical Device Lawsuit Watch - March 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:

• EUSA Pharma (US), Inc. v. Innocoll Pharmaceuticals Ltd., et al.
• Fuesting v. Zimmer, Inc.
• Levine et al. v. AtriCure, Inc. et al.
• Peter v. Stryker Orthopaedics, Inc., The Stryker Corp., Stryker Biotech, LLC, Howmedica Osteonics Corp., Stryker Technologies Corp.
• Levesque et al. v. Becton, Dickenson & Company
• Alternative Electrodes, LLC v. Empi, Inc. and Encore Medical, L.P.
• Stryker Corp. v. U.S. Department of Justice, U.S. Department of Health & Human Services Office of the Inspector General
• Hale et al. v. Stryker Orthopaedics et al.
• United States v. Demming
• Blunt v. Medtronic, Inc.
• Synergetics USA Inc. v. Alcon Laboratories, Inc. & Alcon, Inc.

 

EUSA Pharma (US), Inc. v. Innocoll Pharmaceuticals Ltd., et al. No. 08-3740 (E.D. Pa. Jan. 26, 2009)

The U.S. District Court for the Eastern District of Pennsylvania granted injunctive relief to EUSA Pharma, Inc. (“EUSA”), forcing Innocoll Pharmaceuticals Ltd. and Innocoll Technologies Ltd. (collectively, “Innocoll”) to complete a Phase II clinical trial of its B-Implant device before conducting an open label safety study ("OLSS").

Innocoll, developer of the B-Implant, a collagen sponge implanted in a patient post-surgery to deliver anesthetics to the patient, negotiated an agreement with EUSA over the B-Implant’s licensing. Per the parties’ agreement, EUSA would provide the funding Innocoll needed to complete Phases II and III of the clinical trials, as required by the Food and Drug Administration. In exchange, Innocoll granted EUSA an option to purchase the exclusive license to market the B-Implant. The option would expire thirty days after the completion of the Phase II trial and before Phase III began.

During Phase II, Innocoll informed EUSA of its plans to terminate completion of Phase II and move forward with an OLSS. The OLSS, as described by Innocoll, is essentially identical to a Phase III trial. EUSA objected, arguing that its option would expire if the OLSS proceeded. EUSA then filed an action with the district court requesting preliminary injunctive relief prohibiting Innocoll from launching the OLSS.

After examining the agreement terms, the court held that if the OLSS proceeded, EUSA would suffer irreparable harm because its option would expire immediately. Accordingly, the court granted EUSA’s request for a preliminary injunction and prohibited Innocoll from engaging in the OLSS before completion of the Phase II trial.

Fuesting v. Zimmer, Inc. No. 02-2251 (C.D. Ill. Jan. 26, 2009)

On remand from the Seventh Circuit Court of Appeals, and after finding the plaintiff’s expert testimony inadmissible under Rule 702 or the Daubert Test, the U.S. District Court for the Central District of Illinois granted summary judgment for Zimmer, Inc. (“Zimmer”) in a product liability case. 

Fuesting had sued Zimmer for breach of the implied warranty of merchantability, products liability and negligence, arguing Zimmer's sterilization of Fuesting’s knee prosthesis by gamma irradiation in air (“GIA”) rendered it defective. At trial, Fuesting’s expert witness, Dr. Pugh, testified that GIA caused the prosthesis to oxidize and delaminate, resulting in premature failure.

An Illinois jury returned a $650,000 verdict for Fuesting. On appeal by Zimmer, the Seventh Circuit vacated the judgment, claiming Dr. Pugh's testimony did not meet the requirements for admissibility of expert testimony under Federal Rule of Evidence 702 and the standards set forth in Daubert. The appellate court concluded it did not have authority to vacate the judgment and therefore remanded the case and ordered a new trial.

On remand to the district court, Zimmer moved for summary judgment and also argued that Fuesting’s second expert, Dr. Rose, did not meet the Daubert standard. The district court agreed with Zimmer and found Dr. Rose had not bridged the analytical gap between the basic principles which Zimmer did not dispute and Dr. Rose’s complex conclusions. For example, Dr. Rose had not, and could not, show that the prosthesis failed because of the sterilization method used. The court further explained that a clear relationship does not equal causation and that the analytical gap in the case was crucial because Dr. Rose’s testimony did not account for any other possible reason for failure of the prosthesis. The court concluded that for Fuesting to prevail on his strict liability and negligence claims, he was required to show that the prosthesis was in a defective condition when it left the manufacturer's control and also show a causal link between the defect and the injury. Without the proffered expert testimony, Fuesting could not make that showing and, therefore, could not prevail on his claims.

Levine et al. v. AtriCure, Inc. et al. No. 06-14234 (S.D.N.Y. Jan. 29, 2009)

Disagreeing with the theory that the absence of loss causation was apparent on the face of the complaint—an affirmative defense known as “negative causation”— the U.S. District Court for the Southern District of New York reaffirmed its prior holding denying the motion to dismiss by AtriCure, Inc. (“AtriCure”) and other defendants, and permitted a medical device company investor to proceed with a 1933 Securities Act Section 11 (“Section 11”) claim. In denying the motion for reconsideration, the court rejected defendants’ argument that Bell Atlantic v. Twombly imposes a more stringent pleading standard.

In August 2005, AtriCure, a maker of surgical cutting devices, conducted an initial public offering. On December 12, 2005, an article appeared in the Wall Street Journal revealing that the Cleveland Clinic, a “prestigious hospital that used an AtriCure device,” was an investor in AtriCure and that AtricCure had paid several of the clinic’s doctors as consultants. On February 16, 2006, AtriCure announced its 2005 financial results, disclosing a resulting adverse impact on its business. AtriCure’s stock price then dropped from $10.36 to $8.04 per share.

The plaintiff, Howard Levine, had purchased 250 AtriCure shares at $12 on August 9, 2005 and sold them at $11.80 on November 21, 2005—three weeks before publication of the Wall Street Journal article. In a would-be class action lawsuit, Levine alleged that the prospectus and registration statement for the initial public offering were misleading under Section 11 because they omitted disclosure of the conflict of interest involving the Cleveland Clinic.

In their motion, the defendants argued that because Levine sold his shares before publication of the Wall Street Journal article, “he had not plead and could not plead an essential element of his claim . . . , namely ‘loss causation.’” Since Levine sold his AtriCure shares before publication of the allegedly undisclosed facts in the Wall Street Journal, he would be unable to demonstrate a causal connection between the misrepresentations and a decline in the stock price.

The court dismissed the defendants’ arguments, finding no evidence in the complaint “that the ‘first’ disclosure of the alleged material omission was made in the Wall Street Journal article published on December 12, 2005.” In fact, the court pointed to the defendants’ statements that the possible conflict of interest between AtriCure and the Cleveland Clinic was actually disclosed before the initial public offering in August of 2005. Because this fact, if proven, would likely defeat Levine’s claim at summary judgment, the court found that “defendants’ reliance on unproven, highly fact-specific arguments regarding the timing and content of disclosures only underscores the impropriety of resolving these issues on a motion to dismiss.”

In denying the defendants' motion to reconsider, court concluded, standing on its own, the complaint sets out the elements of a Section 11 claim: a material omission in the registration statement; purchase of stock without knowledge of such misrepresentations; and the presuit sale of the shares at a loss. The court considered defendants’ argument that reconsideration was appropriate because the Supreme Court’s decision in Bell Atlantic v. Twombly imposes a more “stringent” pleading standard under Federal Rule of Civil Procedure 8. Finding “defendants’ central argument does not turn on whether the Conley or Twombly pleading standard applies,” the court refused to address whether Twombly creates a more stringent standard. The court also declined to reconsider its ruling that the plaintiff does not lack constitutional standing. It found Levine’s allegations “sufficient at the pleading stage to satisfy the constitutional requirements of a traceable injury in fact as well as loss causation under Section 11 (though pleading loss causation is not plaintiff’s burden under the statute).”

Peter v. Stryker Orthopaedics, Inc., The Stryker Corp., Stryker Biotech, LLC, Howmedica Osteonics Corp., Stryker Technologies Corp. No. 07-13298 (E.D. Mich. Jan. 29, 2009)

Holding that Michigan law provides for a presumption of no liability in cases in which a product was approved by or was produced in compliance with federal regulations, here those of the Food and Drug Administration (“FDA”), the U.S. District Court for the Eastern District of Michigan granted summary judgment dismissing the plaintiff’s products liability and breach of warranty claims in favor of Howmedica Osteonics Corp., the maker of the Howmedica Duracon® Total Knee System (“Total Knee System”).

The plaintiff began experiencing knee pain within a year of undergoing total knee replacement surgery. After doctors removed the plaintiff’s implant, they discovered that the tibial component of the prosthetic had fractured. The plaintiff claimed that his Total Knee System was defective.

In its decision granting summary judgment, the district court relied upon Mich. Compl. Laws § 600.2946(4), which provides: “In a products liability action brought against a manufacturer or seller for harm allegedly caused by a product, there is a rebuttable presumption that the manufacturer or seller is not liable if, at the time the specific unit of the product was sold or delivered to the initial purchaser or user, the aspect of the product that allegedly caused the harm . . . was approved by, or was in compliance with regulations or standards relevant to the event causing the death or injury promulgated by, a federal or state agency responsible for reviewing the safety of the product.”

Howmedica submitted evidence that it had received approval from the FDA for the Total Knee System after submitting a technical report to the agency regarding the effectiveness of the tibial base of the product as compared to other similar products. After approval by the FDA, Howmedica manufactured the product pursuant to “comprehensive procedures, specifications, and protocols designed to meet the requirements of the FDA’s ‘Quality System Regulations.’” Howmedica’s records demonstrated that the product lot that included the prosthetic knee implanted in plaintiff complied with all relevant procedures, specifications and protocols.

Based on this evidence, the district court held that the presumption of no liability applied to both plaintiff’s product liability claims and breach of warranty claims, and, because the plaintiff submitted no evidence to rebut the presumption, the court granted Howmedica’s motion for summary judgment.

Levesque et al. v. Becton, Dickenson & Company No. 08-632 (D.N.J. Feb. 3, 2009)

The U.S. District Court for the District of New Jersey dismissed a breach of contract and other claims brought by Gaston Levesque, a developer of ophthalmic surgery devices and other products, against Becton, Dickenson & Co. (“BD”), because Levesque could not prove any of his claims.

Levesque had alleged breach of contract, unjust enrichment, fraudulent inducement, breach of fiduciary duty, breach of the covenant of good faith and fair dealing, and violation of Connecticut's unfair trade practices act in relation to BD’s purchase of a keratome, an instrument used in ophthalmic surgery, from Levesque.

The court found that the contract required BD to make payments conditioned on Levesque's achievement of certain milestones, and that because Levesque had not achieved two of the milestones, he was not entitled to the payments.

The court rejected Levesque's arguments that he was entitled to recover the payments because he missed milestones due to BD’s alleged failure to maintain adequate sales efforts and its alleged failure to take advantage of a contract with a third party. The court noted that while BD’s failures may have contributed to Levesque's inability to meet the milestones, the agreement did not require BD to take either action or to perform as Levesque suggested. Furthermore, because Levesque was adequately compensated at each stage, he was not entitled to recover under a theory of unjust enrichment. The court also held that Levesque's breach of fiduciary duty claim failed because Levesque did not allege the existence of a fiduciary relationship in which BD was the dominant party.

The court found that under the applicable Connecticut law, a plaintiff must affirmatively allege bad faith. Levesque's complaint, however, did not sufficiently allege a dishonest purpose or otherwise support an inference that BD attempted to mislead or deceive Levesque.

Finally, the court dismissed Levesque's unfair trade practices claim, stating that the parties' contract was a standard type of business agreement in the medical device industry, there was no evidence to suggest such an agreement was contrary to public policy and there was no evidence BD conducted itself in an immoral, unethical, unscrupulous or oppressive manner in relation to the contract.

Alternative Electrodes, LLC v. Empi, Inc. and Encore Medical, L.P. No. 08-CV-1247 (E.D.N.Y. Feb. 4, 2009)

In its order denying the motion of Empi, Inc. and Encore Medical, L.P. (“Empi”) to dismiss claims of Alternative Electrodes, LLC (“AE”), the U.S. District Court for the Eastern District of New York found: 1) AE sufficiently alleged an antitrust injury to establish standing; 2) the Noerr-Pennington doctrine did not bar AE’s claims based on Empi’s patent litigation; 3) AE sufficiently alleged business disparagement as conduct violating the antitrust laws; and 4) AE sufficiently defined the relevant market.

Empi marketed and sold a medical device that required replacement electrodes. AE alleged that Empi dominated the market for these electrodes, while AE distributed far less costly electrodes for this device. AE alleged that Empi filed a “sham” patent infringement suit and issued false statements about its product. Although a settlement required Empi to refrain from making certain statements about the safety of AE’s product, AE alleged that Empi had made such statements.

AE sued Empi, alleging antitrust violations under the Sherman Act, defamation, false advertising, tortious interference with contract, tortious interference with prospective business relationship, civil conspiracy, and breach of contract under state law. Empi moved to dismiss these claims.

While the court granted Empi’s motion to dismiss with respect to AE’s state law claims for business disparagement, conspiracy (to the extent it is alleged as a separate cause of action), and tortious interference with existing and prospective economic advantage, the court permitted AE to file an amended complaint to address the pleading defects identified by the court concerning the business disparagement and tortious interference claims.

The court found that AE had not adequately pled special damages necessary for the business disparagement/injurious falsehood claim. AE also had failed to plead that Empi’s alleged tortious interference was a “but for” cause in preventing the contractual relationship with another party. As to the conspiracy tort claim, the court pointed out that New York law does not recognize civil conspiracy as an independent tort, but that a plaintiff may plead conspiracy to connect the actions of the individual defendants with an actionable underlying tort and establish that those acts flow from a common scheme or plan. Even though the court dismissed the conspiracy claim as a separate cause of action, it permitted the conspiracy allegations to remain for the purposes described above.

Stryker Corp. v. U.S. Department of Justice, U.S. Department of Health & Human Services Office of the Inspector General No. 08-4111 (D.N.J. Feb. 9, 2009)

In a letter opinion finding no subject matter jurisdiction, the U.S. District Court for the District of New Jersey dismissed the Amended Complaint of Stryker Corporation (“Stryker”) seeking judicial relief from an allegedly oppressive and abusive subpoena issued by the U.S. Department of Justice (“DOJ”) and the U.S. Department of Health and Human Services Office of the Inspector General (“OIG”).

On February 22, 2008, the DOJ and OIG issued a subpoena to Stryker in connection with an investigation for possible violations of the federal anti-kickback and false claims statutes. Stryker produced responsive documents but did not comply with the subpoena in full. On August 15, 2008, Stryker filed a complaint seeking judicial relief from the subpoena. The DOJ and OIG filed a motion to dismiss Stryker’s complaint, and Stryker filed a cross-motion seeking leave to file a second amended complaint.

The district court granted the motion to dismiss and dismissed Stryker’s complaint in its entirety, finding that the court did not have subject matter jurisdiction to review the subpoena because the subpoena was an administrative order that was not yet final. The court further noted that “a judicial enforcement action filed by a government agency provides the sole opportunity for a subpoenaed party to raise objections to an administrative subpoena. A district court cannot entertain pre-enforcement motions.” Accordingly, the court also denied Stryker’s cross-motion to amend the complaint, reasoning that regardless of any changes made in the complaint, the court still would not have jurisdiction to adjudicate claims arising out of a pre-enforcement objection to an administrative subpoena.

Hale et al. v. Stryker Orthopaedics et al. No. 08-3367 (D.N.J. Feb. 9, 2009)

The U.S. District Court for the District of New Jersey dismissed a plaintiffs’ class action for failure to plead Racketeering Influenced and Corrupt Organization Act (“RICO”), unjust enrichment and consumer fraud claims, stemming from an investigation into the hip and knee replacement industry by the U.S. Department of Justice (“DOJ”).

The district court dismissed claims that Stryker Orthopaedics, Stryker Corporation and Stryker Sales Corporation (collectively “Stryker”) and Smith & Nephew Corp. (“S&N”) were liable for actions exposed during a DOJ criminal investigation into kickbacks in the hip and knee replacement industry. Three Iowa state residents filed the lawsuit based on their receipt of joint implants that had been manufactured by Stryker or S&N. The plaintiffs alleged that the defendants engaged in a kickback scheme through “phony consulting agreements” with surgeons to buy surgeon loyalty and inflate prices charged for the joint implants. The plaintiffs claimed the scheme increased prices to hospitals and insurers, who passed the cost to the plaintiffs through elevated coinsurance rates. Each of the defendants moved to dismiss the complaint.

The court granted the defendants’ motions on the civil RICO claims based on the plaintiffs’ failure to show that they qualified as direct purchasers of the implants. (Since the Supreme Court’s decision in Illinois Brick, lower courts—including the Third Circuit—have recognized that plaintiffs must have directly purchased from the defendant to have standing.) The court rejected the plaintiffs’ argument that their coinsurance payments to their insurers, who had paid either the hospital or surgeon that actually had purchased the joint implants, qualified their harm as “direct.” The court found that several actors stood between the plaintiffs and defendants, which “does not allow them to stand in the shoes of a direct purchaser” for purposes of “escap[ing] the bar of the ‘direct purchaser’ rule.”

Even if the plaintiffs had standing, the district court held that the plaintiffs’ substantive and conspiracy RICO claims failed to state a claim because they did not detail the date, place and time the alleged fraud occurred or the substance of the fraud, as required by federal pleading rules. The district court also dismissed the plaintiffs’ consumer protection claims and concluded that no private right of action existed. Finally, the court dismissed the plaintiffs’ unjust enrichment claims, finding that the plaintiffs failed to plead a connection between their co-insurance payments and a “benefit” accruing to the defendants. The court granted the motion and dismissed the complaint with prejudice.

United States v. Demming No. 08-CR-10379 (D. Mass. Feb. 10, 2009)

Justin Demming, a company sales representative from a Massachusetts medical device company, identified only as XYZ Corp. in court papers, but which appears to be Stryker Biotech, pleaded guilty in federal court to allegations of promoting unapproved uses for bone repair products.

Three products were at issue in the case: Device A, which was an implant approved to promote bone growth; Device B, which was approved as an alternative to autograft procedures for certain patients; and Device C, which was a “bone filler” for certain gaps or voids in bone structure. While all three of these products were approved by the Food and Drug Administration (“FDA”) for their individual uses, the allegations against Demming were that he promoted the usefulness of combinations of these products.

No combination of the three products had been approved by FDA, and in the agreed statement of facts, the Untied States and Demming established that he was aware of certain adverse incidents in patients who used a combination of Devices B and C. The United States also found that Demming had taken affirmative steps to conceal the product mixing instructions that he had distributed to certain individuals.

The FDA Criminal Investigations division, the Office of the Inspector General and the Federal Bureau of Investigation pursued Demming in this case. Upon sentencing, which is scheduled for June 3, 2009, Demming faces a maximum sentence of three years in prison and a fine of $250,000. Based on his participation with the government, Demming will likely receive a reduced prison sentence and fine.

Blunt v. Medtronic, Inc. No. 2006-AP-1506 (Wis. Feb. 17, 2009)

Finding the plaintiffs’ negligence, strict liability and loss of consortium causes of action preempted by the premarket approval process of the Food and Drug Administration (“FDA”), the Wisconsin Supreme Court affirmed a grant of summary judgment in favor of Medtronic, Inc. (“Medtronic”), the maker of an implantable cardioverter defibrillator called the Marquis 7230.

The FDA approved the Marquis 7230 defibrillator in December of 2002. Subsequent to the approval, however, Medtronic learned of a potential problem with the product’s battery. In 2003, the FDA approved changes to the Marquis 7230 designed to address the battery issue. Medtronic, however, continued to sell the original defibrillator.

In May of 2004, the plaintiff underwent surgery to implant an original Marquis 7230 defibrillator. Medtronic advised the plaintiff’s physicians of the battery issue in February of 2005, and, acting under his doctor’s advice, the plaintiff immediately underwent surgery to remove the device. The plaintiff then sued for negligence, strict liability and loss of consortium based on the second surgery to remove the original Marquis 7230.

The Wisconsin Supreme Court found that the U.S. Supreme Court’s decision in Riegel v. Medtronic, Inc. controlled. In Riegel, the U.S. Supreme Court held that state law claims that would impose requirements on manufacturers that are different from the Medical Device Amendments to the Federal Food, Drug and Cosmetic Act’s premarket approval process are preempted.

The Wisconsin Supreme Court rejected the plaintiff’s argument that Riegel was not controlling because in this case the FDA had provided supplemental premarket approval of the Marquis 7230 after approval of the original product implanted in the plaintiff. The court found that “[n]othing in the Medical Device Amendments advises that a device-specific approval once given is diminished by a supplemental approval for changes in that device without a further act by the FDA.” Furthermore, Medtronic’s obligation to comply with reporting requirements for the original Marquis 7230 continued even after the supplemental approval of the changes to the product, indicating that premarket approval of the original Marquis 7230 was ongoing. The court concluded that “approval of the supplemental device did not affect the approval of the original device,” and therefore “a state tort law claim w[ould] be preempted by the original federal approval.”

Synergetics USA Inc. v. Alcon Laboratories, Inc. & Alcon, Inc. No. 08 Civ. 3669 (S.D.N.Y. Feb. 23, 2009)

Finding that Synergetics USA, Inc. (“Synergetics”) failed to allege coercion or pricing below cost, the U.S. District Court for the Southern District of New York dismissed Synergetics’ tying and predatory pricing claims against Alcon Laboratories, Inc. and Alcon, Inc. (“Alcon”) under Sections 1 and 2 of the Sherman Act and Section 3 of the Clayton Act.

The plaintiff, Synergetics, manufactures and markets products for surgical procedures. The defendant, Alcon, is a competing eye surgery equipment maker. About eighty-five percent of surgeons who perform the relevant eye surgery procedure (vitreoretinal surgery) use Alcon’s Accurus® machine. The Accurus machine contains a disposable cassette that stores bio-material, and Alcon makes the only cassette that can be used with the Accurus machine. Also, both Alcon and Synergetics make a stand-alone light that illuminates the inside of the eye during surgery as well as light tubes used to deliver the light from the source to the eye. Each company’s light tubes can be used only with each company’s respective stand-alone light.

Synergetics alleged that Alcon violated federal antitrust laws by tying sales of its light tubes to sales of its Accurus cassettes. It also alleged that Alcon engaged in predatory pricing by selling kits containing the light tubes at prices below cost. Alcon moved to dismiss the complaint, and the court granted the motion for the following reasons.

The district court found that Synergetics failed to allege actual coercion as required to state a Section 3 tying claim. The court noted that simply alleging Alcon refused to sell two supposedly tied products individually did not amount to “actual coercion of the buyers,” especially because Synergetics recognized that Alcon sold the allegedly tied items separately. The court also found that Synergetics’ failure to plead pricing information sufficient to compare the tied versus untied products did not plausibly suggest that it was prohibitively expensive to buy the cassette and the light pipe separately.

In ruling on Synergetics’ predatory pricing claim, the court held that Synergetics failed to show that Alcon had a dangerous probability of recouping its investment through a below cost pricing scheme,” as required for a predatory pricing claim. Rather, Synergetics omitted the fact that Alcon’s products were available separately and failed to address whether the price fell below Alcon’s costs. Thus, a general allegation by Synergetics that Alcon threatened to drive it out of the market, and that doing so would allow Alcon to recoup its investment in below-cost prices by charging monopoly prices for its products, was merely a “generic” statement of the elements of the predatory pricing claim. The court granted Alcon’s motion to dismiss.

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This material was prepared by Crowell & Moring LLP attorneys Asaf Batelman, Matthew Fornataro, Patricia Freshwater, Amy Lee, Dani Nguyen, Christine Sommer, Bernadette Stafford, Nikki Thompson, and Carlos Uriarte. 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.