Thursday, January 22, 2009

Closing The Arguments On Conte

As we reported yesterday, the California Supreme Court denied the petitions for review in Wyeth v. Conte. We’ve posted extensively on why we think Conte is a particularly dangerous expansion of tort liability because it simply ignores what product liability has been about for 50 years – that responsibility for product-related injuries follows profit obtained from the manufacture and sale of products.

Sadly, it looks like the court that more or less invented strict product liability is no longer all that much interested in its creation. Shades of Doctor Frankenstein. So now we’ve got to deal with this grotesque chimera of product liability and misrepresentation set loose to lumber across the California landscape.

Just about the only bright side (from our defense-minded perspective) of the whole Conte mess is that apparently a decision by one panel (“division”) of the California Court of Appeal has next to no stare decisis effect on other divisions of the Court of Appeal, even within the same appellate district. That means there's no such thing as "one and done" in California. There will be other chances to convince other panels of the Court of Appeal that our view of Conte – and of the scope of products liability generally – ought to prevail.

So with that in mind, we offer our closing arguments on Conte, for the good of the order. Consider what follows as free legal torches and pitchforks for going after the Conte monster, should you be so lucky as to get a chance to convince another California Court of Appeal, create a conflict, and thus lay the groundwork for another attempt to convince the California Supreme Court that the jurisprudential underpinnings to products liability really do matter.

We're also lazy. A lot of what follows is taken in more or less edited form from the amicus brief that Bexis filed with the California Supreme Court in Conte – a copy of which we’re making available, here.

One major problem with Conte is that the court placed form over substance. It let a plaintiff take a product liability cause of action – an inadequate warning claim governed by product liability principles such as the learned intermediary rule – and by calling it a “misrepresentation,” thereby avoid fundamental limitations inherent in the why product liability was created in the first place. It’s something that the California Supreme Court didn’t allow in Merrill v. Navegar, Inc., 26 Cal.4th 465, 478 (2001), when it held that negligent-entrustment-based claims against gun manufacturers were “product liability” actions subject to limits placed on such claims, no matter how the plaintiffs tried to “recast” their claim as something else.

Calling an inadequate warning claim based upon product labeling a “misrepresentation,” and allowing liability against the purported author of the misrepresentation even though the defendant didn’t profit from selling the product is a dramatic expansion of liability that is:

1. Rejected by the overwhelming majority of courts nationwide, as well as by the Third Restatement of Torts;

2. Contrary to bedrock product liability principles going all the way back to seminal decision in Greenman v. Yuba Power Products, 59 Cal.2d 57 (1963), that created product liability – specifically that liability stems from a manufacturer’s profit in making and selling products to the public;

3. Unnecessary to prevent injustice to plaintiffs, because traditional tort principles provide ample basis for assessing liability against generic drug manufacturers on the basis of their use of drug labeling created by others;

4. Adopted with no consideration of its implications on either the law or society; and

5. An unpredictable and open-ended penalty upon research and innovation in the development of new products, especially prescription drugs.

What happened in Conte is that the Plaintiff – like some 60% of all current users of prescription drugs – took a generic drug in accordance with her physician’s prescription. Then things happened. The drug allegedly caused a serious and debilitating adverse reaction. As do almost all plaintiffs in prescription drug product liability litigation, she claimed that the drug’s label failed to warn adequately of this risk. So she brought a routine product liability action for inadequate warnings against the drug’s generic manufacturers.

But because it was a generic drug, the plaintiff made a claim that users of pioneer drugs can’t bring. She also sued a non-manufacturer – Wyeth, which made pioneer version of the drug that plaintiff never took at all. Incorporating all of the standard product liability allegations about the allegedly inadequate label, she changed the name of the claim to “misrepresentation.” Wyeth did not make any drug plaintiff took. So Wyeth got sued even though it didn’t make any product that injured the plaintiff. Not only that, but the product at issue was a competing generic drug that, because it was cheaper, had driven Wyeth’s product off the market so effectively that Wyeth no longer even made its pioneer product.

What plaintiff alleged was liability for somebody else's product sold after the defendant's own sales had ceased.

More stuff happened. The prescribing physician was deposed. He testified that he neither read nor relied upon any warnings that might have come with the generic drug. Conte v. Wyeth, Inc., 168 Cal. App.4th 89, 111-12 (2008) (“[n]o evidence suggests that [the prescriber] relied on” generic warnings). That testimony killed the plaintiff’s standard product liability case, because under California (and almost all other states') law, a plaintiff cannot establish causation in an inadequate warning case where the prescribing physician did not rely upon the allegedly defective warning. E.g., Ramirez v. Plough, Inc., 6 Cal.4th 539, 555-56 (1993); (summary judgment required where drug warnings were never read); Motus v. Pfizer Inc., 358 F.3d 659, 661 (9th Cir. 2004) (same; physician considered warning inappropriate) (applying California law).

Under these facts, if Conte were an ordinary prescription drug product liability case, plaintiff would have been out of court and out of luck, just like Motus. But because federal law requires that generic manufacturers use verbatim the labeling initially prepared by the inventor of the drug – here, Wyeth – plaintiff got a second bite at the apple against Wyeth, even though she indisputably never used Wyeth’s drug, and Wyeth no longer even manufactured it. Conte, 168 Cal. App.4th at 95 & n.1.

The prescriber testified that he also didn’t read Wyeth and its pioneer labeling when prescribing for the plaintiff. Rather, he relied solely on clinical experience and did not consult any drug labeling. However, he had to learn about the drug somewhere. So he testified that years earlier, when he was still “in residency training,” he “probably” read Wyeth’s label for its pioneer product, and that at unspecified times he “generally” consulted the Physician’s Desk Reference (“PDR”), which for anybody who doesn’t know, compiles FDA-approved drug labeling. Conte, 168 Cal. App.4th at 98 n.4, 99. Thus, the plaintiff asserted that there were “misrepresentations” in this whatever labeling the prescriber had read at some whatever time in the relatively distant past.

That was enough for at least one division of the Court of Appeal. The court held that a “misrepresentation” based entirely on product labeling-based wasn’t bound by the limits of product liability law. Thus the plaintiff could proceed against the non-manufacturer pioneer company, even though the plaintiff’s claims against the actual manufacturers were properly dismissed on warning causation grounds. Conte, 168 Cal. App.4th at 114.

Actual manufacturer off the hook. Former manufacturer of competing product that plaintiff never took on the hook. Curiouser and curiouser.

Well, Conte is an end run around the heart of modern product liability, which was created – not just for California but for the nation – in Greenman v. Yuba Power Products, some fifty years ago. Greenman recognized a core principle of social responsibility that justified what was then a new form of liability:

The purpose of this [product] liability is to insure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market.
59 Cal.2d at 63. In other words, because manufacturers profit from the sale of their products., it is appropriate for them to answer for injuries caused by defects in those products.

Time after time, ever since Greenman, liability for injuries caused by allegedly defective products has been justified by reference to this “paramount policy.” Price v. Shell Oil Co., 2 Cal.3d 245, 251 (1970). Specifically as to inadequate warning claims the court in Anderson v. Owens-Corning Fiberglas Corp., 53 Cal.3d 987 (1991), held, “[i]t is only reasonable therefore that as between the injured user and the one who places the product on the market the latter should bear the loss.” Id. at 998 (citation and quotation marks omitted).

“[T]he risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business.” Ray v. Alad Corp., 19 Cal.3d 22, 31 (1977).

“Regardless of the identity of a particular defendant or of his position in the commercial chain, the basis for his liability remains that he has marketed or distributed a defective product.” Daly v. General Motors Corp., 20 Cal.3d 725, 739 (1978).

“[T]he fundamental reasons underlying the imposition of [product] liability are to deter manufac­turers from marketing products that are unsafe, and to spread the cost of injury from the plaintiff to the consuming public.” Brown v. Superior Court, 44 Cal.3d 1049, 1062 (1988).

Accord Carlin v. Su­perior Court, 13 Cal.4th 1104, 1110 (1996) (quoting and following Greenman); Cronin v. J.B.E. Olson Corp., 8 Cal.3d 121, 133 (1972) (same); Luque v. McLean, 8 Cal.3d 136, 145 (1972) (same); Price, 2 Cal.3d at 251 (same); see also Vandermark v. Ford Motor Co., 61 Cal.2d 256, 262-63 (1964) (retailers subject to product liability because “[t]hey are an integral part of the overall pro­ducing and marketing enterprise that should bear the cost of injuries”). Similarly, in Cadlo v. Owens-Illinois, Inc., 125 Cal. App.4th 513, 519-20 (2004), another division of the First District rejected a misrepresentation theory that sought to hold a non-manufacturing predecessor corporation liable in an asbestos case. If Cadlo goes by the wayside, we can also look for a new wave of asbestos liability.

So what is product liability? Under Merrill, a “product liability” case includes every legal theory that implicates the social policies that caused the doctrine’s creation by seeking product-related damages from product manufacturers. “Product liability” is no more – and no less – than “the liability of those who supply goods or products for the use of others. . .for losses of various kinds resulting from so-called defects in those products.” 26 Cal.4th at 478 (quoting Prosser & Keeton on Law of Torts §95, at 677 (5th ed. 1984). “Reformulating” product claims so that they sounded in “negligence” did not make them any less a form of “product liability”:

[T]his is a products liability action based on negligence, which asserts that the [product] was defective in design. . . . [I]mplicit in both the negligence and strict liability theories of products liability is that the defendant manufacturer was engaged in the business of distributing goods to the public . . . . [Plaintiffs’ claim] is therefore simply a reformulated claim that the [product], as designed, fails the risk/benefit test [for defective design].

Id. at 481 (citations and quotation marks omitted).

The result in Merrill was consistent with Peterson v. Superior Court, 10 Cal.4th 1185 (1995), where the court found no analogy between product liability and rental real estate since a landlord was “not a part of the manufacturing or marketing enterprise of the allegedly defective product that caused the injury in question.” Id. at 1188. Existence of “a continuous course of business [is] a condition to application of” product liability. Id. at 1207. Otherwise the “primary justification for shifting accident costs” is inapplicable. Id.

Still earlier, in Daly the court was “disinclined to resolve the important issue before us by the simple expedient of matching linguistic labels which have evolved either for convenience or by custom.” 20 Cal.3d at 736. Because rigid application of labels only “reward[ed] adroit pleading and selection of theories,” id. at 738, the court instead “examine[d] the foundational reasons” for product liability and applied comparative fault to all such actions. Id. at 736. Thus, for decades, a defendant's manufacture or sale of the injury-causing product has delineated product liability, no matter what the name of the cause of action.

The misapplication of the tort of “misrepresentation” in Conte should be viewed in this same light. While it was an issue of first impression in California, many courts across the country have addressed this precise question, and they overwhelmingly reject liability of pioneer drug manufacturers for injuries caused by generic competitors. These courts have generally followed Foster v. American Home Products Corp., 29 F.3d 165 (4th Cir. 1994), which found “no authority for [plaintiff’s] assertion that one manufacturer can be held liable for injuries stemming from an­other manufacturer’s product,” and “no basis in the federal drug approval scheme for treating drug manufacturers differently from other manufacturers in products liability actions.” Id. at 171 (affirming summary judgment against misrepresentation claim). See also Swicegood v. Pliva, Inc., 543 F. Supp.2d 1351, 1354-59 (N.D. Ga. 2008); Demahy v. Wyeth Inc., 2008 WL 4758615, at *13 (E.D. La. Oct. 28, 2008); Mensing v. Wyeth, Inc., 2008 WL 472426, at *5 (D. Minn. Oct. 27, 2008); Morris v. Wyeth, Inc., 2008 WL 2677048, at *4 (W.D. Ky. Jun. 30, 2008); Smith v. Wyeth, Inc., 2008 WL 2677051, at *4 (W.D. Ky. Jun. 30, 2008); Wilson v. Wyeth, Inc., 2008 WL 2677049, at *4 (W.D. Ky. Jun. 30, 2008); Pustejovsky v. Wyeth, Inc., 2008 WL 1314902, at *2 (N.D. Tex. Apr. 3, 2008); Barnhill v. Teva Pharmaceuticals USA, Inc., 2007 WL 5787186, at *2-3 (S.D. Ala. Apr. 24, 2007); Colacicco v. Apotex, Inc., 432 F.Supp.2d 514, 540-41 (E.D. Pa. 2006), aff’d & rev’d in part on other grounds, 521 F.3d 253 (3d Cir. 2008); LeBlanc v. Wyeth, Inc., 2006 WL 2883030, at *6 (W.D. La. Oct. 5, 2006); Goldych v. Eli Lilly & Co., 2006 WL 2038436, at *3-6 (N.D.N.Y. Jul. 19, 2006); Laisure-Radke v. Par Pharmaceutical, Inc., 2006 WL 901657, at *4 (W.D. Wash. Mar. 29, 2006); Tarver v. Wyeth, 2006 WL 1517546, at *2-3 (W.D. La. Jun. 7, 2005); Tarver v. Wyeth, 2005 WL 4052382, at *2 (W.D. La. Jun. 7, 2005); Doe v. Ortho-Clinical Diagnostics, Inc., 335 F. Supp.2d 614, 626 (M.D.N.C. 2004); Murphy v. Aventis Pasteur, Inc., 270 F. Supp.2d 1368, 1377 (N.D. Ga. 2003); Block v. Wyeth, Inc., 2003 WL 203067, at *2 (N.D. Tex. Jan. 28, 2003); DaCosta v. Novartis AG, 2002 WL 31957424, at *9 (D. Or. Mar. 1, 2002); Stanley v. Wyeth, Inc., 991 So.2d 31, 34 (La. App. 2008); Flynn v. American Home Products Corp., 627 N.W.2d 342, 350 (Minn. App. 2001); Westerlund v. Wyeth, Inc., No. MID L02174-05, slip op. at 3 (N.J. Super. Oct. 20, 2008); Kelly v. Wyeth, 2007 WL 3407466, at *2 (Mass. Super. Oct. 23, 2007); Kelly v. Wyeth, 2007 WL 1302589, at *5 (Mass. Super. Apr. 12, 2007); Green v. Wyeth Pharmaceuticals, Inc., 2007 WL 5760596, at *1 (Ala. Cir. May 15, 2007); Sharp v. Leichus, 2006 WL 515532, at *4 (Fla. Cir. Feb. 17, 2006), aff’d per curiam, 952 So.2d 555 (Fla. App. 2007); Kelly v. Wyeth, 2005 WL 4056740, at *2 (Mass. Super. May 6, 2005); Reynolds v. Anton, 2004 WL 5000272, slip op. at 8 (Ga. Super. Oct. 28, 2004); Sheeks v. American Home Products Corp., 2004 WL 4056060, at *2 (Colo. Dist. Oct. 15, 2004); Sloan v. Wyeth, 2004 Extra Lexis 202, at *11-12 (N.J. Super L.D. Oct. 13, 2004); Beutella v. A.H. Robins Co., 2001 WL 35669202, at *2 (Utah Dist. Dec. 10, 2001).

The black letter of the Third Restatement of Torts likewise considers product-related misrepresentation to be a subset of product liability. For product-related physical harm, the Restatement recognizes the liability of “[o]ne engaged in the business of selling or otherwise distributing products” for a misrepresentation made “in connection with the sale of a product.” Restate­ment (Third) of Torts, Products Liability) §9 (1998); accord id. at comment a (§9 “appl[ies] to commercial product sellers”). Nothing in Restatement §9 suggests that there could be actionable product-related misrepresentations on the part of a non-manufacturer or seller.

The sort of “foundational” analysis conducted in Daly and Merrill is precisely what Conte lacks. The claim rested upon routine allegations that drug labeling understated or omitted risks. See, e.g., Carlin, 13 Cal.4th at 1109-10; Brown, 44 Cal.3d at 1055; Stevens v. Parke, Davis & Co., 9 Cal.3d 51, 58 (1973) (all product liability actions involving similar claims). Calling them “misrepresentations” does not make them, in substance, any less product liability allegations.

Nor does a generic drug manufacturer’s use of a pioneer drug’s labeling – mandated by federal law – warrant a departure from the policy-based tenet that “[i]n the context of products liability actions, the plaintiff must prove that the defective products supplied by the defendant were a substantial factor in bringing about his or her injury.” Rutherford v. Owens-Illinois, Inc., 16 Cal.4th 953, 968 (1997). Identifying the actual manufacturer is not difficult in modern generic drug litigation. Cf. Sindell v. Abbott Laboratories, 26 Cal.3d 588, 611 (1980) (addressing different situation prior to passage of Hatch-Waxman Amendments). Now, the FDA’s regulations require generic manufacturers to identify their products; ensuring that such manufacturers will always be identifiable through their labeling. 21 C.F.R. §314.94(a)(8)(iv).

Uniquely for any product, the Hatch-Waxman Amendments, Pub. L. No 98-417, 98 Stat. 1585, to the FDCA give generic manufacturers the legal ability (after expiration of pioneer drug patents) – indeed, the obligation – to use for themselves certain aspects of the pioneer drug manufacturer’s intellectual property: (1) the clinical testing that established the drug’s safety and efficacy; and (2) the pioneer manufacturer’s labeling. See 21 U.S.C. §355(c)(3)(E)(iii-iv) (generic may rely upon prior studies); §355(j)(2)(A)(1)(v) (generic required to use “same” label). If the generic manufacturer believes that the labeling needs to be changed, it must apply to the FDA to change both its own and the original labeling. 21 C.F.R. §201.80(e). All companies choosing to enter the generic drug market are governed by these statutory requirements.

Generic manufacturers’ exercise of this statutory right does not create any legal issues uniquely warranting imposition of liability for generic products upon pioneer companies. Under Hatch-Waxman, generic drug manufacturers are simply another type of successor corporation, and a successor’s later use of acquired assets does not imposes liability upon a prior owner. To the contrary, once a generic manufacturer has succeeded by operation of law to the pioneer manufacturer’s prior research and labeling, the generic drug manufacturer is in the same position with respect to those assets as any other corporate successor to other corporate assets. Cf. Ray, 19 Cal.3d at 33-34 (imposing “product line” liability on a successor corporation that had “the opportunity. . .of passing on to purchasers of new. . .products the costs of meeting [injury] risks”). Thus, should there be “misrepresentations” in the labeling that Hatch-Waxman allows a generic manufacturer to use, under Ray that liability falls upon the generic successor to the pioneer labeling that is actually profiting from its use of that labeling.

Further, to the extent that Hatch-Waxman gives generic manufacturers the right to use pioneer labeling as their own, under traditional tort law they may also be liable for “passing off” that labeling under Restatement (Third) of Torts, Products Liability §14 (1998). See Cravens, Dargan & Co. v. Pacific Indemnity Co., 29 Cal. App.3d 594, 599 (1972) (“[o]ne who puts out as his own product a chattel manufactured by another is subject to the same liability as though he were its manufacturer”) (quoting Restatement (Second) of Torts §400(1965)).

Thus, there is thus no common-law impediment to retaining, in the generic drug context, the fundamental proposition from Greenman that liability follows profit. Generic manufacturers may be liable under traditional theories for purported defects in pioneer labeling to which they have succeeded under the terms of the Hatch-Waxman Act.

As existing common law readily accommodates claims involving generic drug labeling, there is no reason that a plaintiff claiming injury from a generic drug should be better off – with an extra cause of action against a non-manufacturing pharmaceutical company – than an identical plaintiff who took a pioneer drug. Cf. Ramirez, 6 Cal.4th at 555-56; Motus, 358 F.3d at 661. Plaintiffs who cannot prove that a generic drug manufacturer’s inadequate warning caused their injuries should lose, as would any other plaintiff in any other product liability case.

In applying the law of “negligent misrepresentation” to a non-manufacturer, Conte purported to apply the venerable test for duty first formulated in Rowland v. Christian, 69 Cal.2d 108 (1968). See 168 Cal. App.4th at 105-07. But Conte distorted one Rowland factor, “foreseeability of harm,” almost beyond recognition, and refused even to consider other factors, most notably the “consequences to the community of imposing a duty to exercise care with resulting liability for breach.” 69 Cal.2d at 113. See 168 Cal. App.4th at 106.

Legal “duties” are “merely conclusory expressions that, in cases of a particular type, liability should be imposed for damage done.” Christensen v. Superior Court, 54 Cal.3d 868, 885 (1991) (citation and quotation marks omitted). Thus, “‘duty’ is not sacrosanct in itself, but [is] only an expression of the sum total of those considerations of policy which lead the law to say that the particular plaintiff is entitled to protection.” Merrill, 26 Cal.4th at 477.

The vague and open-ended interpretation of foreseeability in Conte provides no viable yardstick for liability. It held, in effect, that because pharmacists were legally permitted to substitute bioequivalent generic products for more expensive pioneer drugs it was “foreseeable” that a physician would rely upon labeling for the pioneer product even if prescribing a generic product that, by mandate of the Food and Drug Administration (“FDA”), came with its own package insert. 168 Cal. App.4th at 105. That application of pure foreseeability trumped both time and space. The purportedly foreseeable reliance here occurred, if at all, “during [the prescribing doctor’s] residency training” – whenever and wherever that might have been – or in some unspecified “general” way. Id. at 99 & n.6. Conte’s unbridled version of foreseeability flatly ignores the labeling that actually accompanied the drug that is actually prescribed.

Such a strained view of foreseeability is especially inappropriate in the case of pioneer drugs, given the extraordinarily burdensome nature of the proposed duty and its social cost. As explained in Castaneda v. Olsher, 41 Cal.4th 1205, 1219 (2007), in evaluating the social consequences of increased tort liability, an “extraordinarily burdensome” duty combined with “its likely social cost” demands a showing of “greater foreseeability,” not the open-ended approach to foreseeability employed in Conte.

Imposition of liability based upon nothing more than pure “foreseeability” has been barred at least since Thing v. La Chusa, 48 Cal.3d 644 (1989), because, as the court put it, “there are clear judicial days on which a court can foresee forever.” Id. at 668. Thing thus rejected the proposition that “foresight alone provides a socially and judicially acceptable limit on recovery of damages.” Id.

Rather than 20/20 hindsight, legal foreseeability is a “sliding-scale balancing formula.” Delgado v. Trax Bar & Grill, 36 Cal.4th 224, 237 (2005). The “mere presence” of foreseeability does not confer liability. Rather, “social policy must at some point intervene to delimit liability even for foreseeable injury.” Parsons v. Crown Disposal Co., 15 Cal.4th 456, 476 (1997) (citation and quotation marks omitted). Foreseeability is thus balanced against “policy considerations – i.e., the social utility of defendant’s conduct, and the consequences to the com­munity of imposing a duty.” Id.

Conte should not be followed because the Court of Appeal simply refused altogether to consider the “consequences to the community” of its decision, finding the record inadequate. 168 Cal. App.4th at 106-07. But if the record lacked any basis to evaluate a change in the law, the law should not have been changed. It was improper to divorce foreseeability analysis from the other Rowland factors – and in particular to eschew analysis of the social consequences of expanded liability. See Delgado, 36 Cal.4th at 243 (“expressly reaffirm[ing]” that “imposition of a high burden requires heightened foreseeability”).

“Duty, being a question of law, is particularly amenable to resolution by summary judgment.” Parsons, 15 Cal.4th at 465. California courts regularly evaluate the social consequences of expansive tort theories without demanding what amounts to an independent exercise in quasi-legislative fact finding. E.g., Castaneda, 41 Cal.4th at 1217; John B. v. Superior Court, 38 Cal.4th 1177, 1192-93 (2006); Delgado, 36 Cal.4th at. 243-44; Merrill, 26 Cal.4th at 483-84; Sharon P. v. Arman, Ltd., 21 Cal.4th 1181, 1194-96 (1999); Parsons, 15 Cal.4th at 474-75. The Court of Appeal erred in imposing "foresee forever" liability without considering relevant social policies – policies that would in fact have precluded imposition of any such liability.

In particular, “acceptance” of product liability and the “terms of its applicability have been determined to a large extent by the fundamental policies which underlie it.” Anderson, 53 Cal.3d at 995. Dramatic expansion of liability for product defects, in and of itself, implicates basic issues of social policy and the divide between judicial and legislative functions. Another division of the First Appellate District recognized this fact in In re Firearm Cases, 126 Cal.App.4th 959 (2005), when it held:

The potential impact [would be] staggering. . . . Imposing novel tort theories on economic activity significantly affects the risks of engaging in that activity, and. . .is a form of regulation administered through the courts rather than the state’s regulatory agencies. . . . Courts should therefore be chary of adopting broad new theories of liability, lest they undermine the democratic process through which the people normally decide whether, and to what degree, activities should be fostered or discouraged.

Id. at 990-91 (citations and quotation marks omitted). But Conte simply ignored any and all jurisprudential concerns.

The California Supreme Court has repeatedly recognized the overriding policy considerations that attach to prescription drugs, given their unique life-saving attributes and their dependence upon extensive scientific research and continual innovation. In Brown, the court discussed these public policy issues at some length:

"[P]ublic policy favors the development and marketing of beneficial new drugs even though some risks, perhaps serious ones, might accompany their introduction, because drugs can save lives and reduce pain and suffering." 44 Cal.3d at 1063.

It is contrary to “the public interest,” to deter prescription drug manufacturers from undertaking research into the development of new drugs “because of the fear of large adverse monetary judgments.” Id. at 1058.

Even when not deterred altogether from developing innovative products, prescription drug manufacturers could be forced by the “cost of insurance and defending against lawsuits” to reduce drug availability and increase drug prices. Id. at 1063.
In Moore v. Regents of the University of California, 51 Cal.3d 120 (1990), the Supreme Court reiterated that tort theories should not be expanded in ways that might adversely affect research, development, and availability of new prescription drugs. Moore rejected liability that would “threaten[] to destroy the economic incentive to conduct important medical research.” Id. at 146. Conte did not even pay lip service to Moore’s warning that courts “should be hesitant to impose [new tort duties] when to do so would involve complex policy decisions, especially when such decisions are more appropriately the subject of legislative deliberation and resolution.” Id. at 135-36 (following Brown).

Further, the intensive regulatory regime to which prescription drugs are subject is “signi­ficant” to any assessment of liability:

In this context, it is significant that the FDA pre­cludes drug manufacturers from warning about every conceivable adverse reaction; they may warn only if there exists significant medical evidence of a possible health hazard. They are also specifically precluded from warning of adverse reactions when differences of opinion exist within the medical community with regard to potential adverse reactions.

Carlin, 13 Cal.4th at 1114 (regulatory citations omitted).

The symbiotic relationship between pioneer and generic drugs supports the “conclu[sion] that research and development will inevitably decrease as a result of imposing. . .liability.” Id. at 1117 (characterizing the public policy conclusions in Brown). Under Hatch-Waxman, a manufacturer of a pioneer drug has only the seventeen-year life of its patent to recoup its re­search expenses for that drug, and to make a profit, before low-priced generic competition – unburdened by significant research or development costs of its own – effectively drives the pioneer drug off the market. Cf. Moore, 51 Cal.3d at 168 (discussing patent issues in context of for prescription medical products). Out of this finite revenue stream, the pioneer manufacturer must also factor in the inevitable expense of product liability.

But after Conte, a pioneer manufacturer’s exposure to product liability may not decrease as its market share evaporates under generic competition. Rather, that exposure stays the same – or even increases – given the decision’s reliance upon "foresee forever" foreseeability. But unconstrained foreseeability, in the case of pioneer drugs, has an inevitable effect of penalizing precisely the research and innovation that Brown sought to foster. 44 Cal.3d at 1058. Companies inventing new drugs incur more liability, while non-innovative generic manufac­turers have less responsibility for their own products.

A patented pioneer drug is, by definition, innovative. These are the products that by virtue of their novelty have a higher profile. They will garner the lion’s share of publicity, medical journal articles, scientific prizes, and professional attention. They are what physicians of tomorrow will learn about in their training. Generic drugs, by contrast, save money but do not otherwise advance public health. Thus, unless product liability is anchored to product manufacture, reliance claims of the sort Conte permits inevitably will gravitate to these high-profile products – those which break new ground and offer new cures. And liability under Conte is entirely open-ended. As Conte itself demonstrates, a purported “misrepresentation” can be actionable years or even decades after the statement was made.

This sort of liability cannot be anything but a profound disincentive to innovation and research – repugnant to everything the Supreme Court sought to preserve in Brown. Pioneer manufacturers that have long since ceased making or selling a product end up saddled with liability that can only be recouped by raising the prices of other, unrelated pioneer products. Such disincentive is the necessary byproduct of divorcing product liability from product manufacturing. Conte thus had to ignore the social consequences aspect of the Rowland test in order to impose “misrepresentation” liability upon pioneer drug manufacturers. Once that factor is considered, such novel liability theory could never be seriously entertained.

And there is more. Anytime that product liability diverges from product manufacturing, significant free rider problems are created. Like everything else, extra safety precautions cost money. The sole rationale for generic drugs is their lower price. Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 676 (1990) (purpose of Hatch-Waxman was “to enable new [generic] drugs to be marketed more cheaply and quickly”). They have no other competitive advantage, so any means of reducing their costs (and hence their price) will be tempting. Any shift in liability that transfers product liability expenses to pioneer manufacturers correspondingly reduces the incentive for generic manufacturers to behave responsibly towards the safety of their own products.

To take one example, pioneer manufacturers learning of promising new uses for their products have incentives to conduct clinical trials. 21 U.S.C. §355(c)(3) (new use lengthens patent exclusivity). With no such incentive, generic manufacturers would profit more from immediate, illegal off-label marketing. But should those trials uncover a serious safety problem, with liability divorced from manufacture, the pioneer company conducting the studies could end up saddled with liability for irresponsible off-label use – particularly if in the interim the generic manufacturer happened to become judgment-proof.

A “misrepresentation” under Conte need not be anything more than a claim that study results were not disclosed quickly enough. But demands for ever earlier disclosure of preliminary research directly attack the process by which medical innovation occurs. Thus, Conte’s expanded liability is antagonistic to both research and product safety – penalizing responsible non-manufacturers that have no control over misconduct by their competitors.

Moreover, the implications of expanded misrepresentation liability extend far beyond prescription drugs. Any product can be “misrepresented.” Competing product manufacturers will now risk liability whenever their warnings discuss shared product hazards. For example, one family may own different makes of cars. A plaintiff can claim reliance on one company’s inadequate tire inflation or infant car seat installation warning, even if an accident occurred during use of a different car. Under Conte, if one car company goes bankrupt, its surviving competitors become subject to suits over warnings about products they did not make.

And the expansive misrepresentation theory recognized in Conte is not even limited to competing manufacturers. Anybody could be the source of an alleged, product-related misrepresentation. To take some obvious examples, Consumer Reports Magazine or Under­writers Testing Laboratories could well be forced out of business (at least in California). Independent evaluation of the safety risks of products becomes a very risky business indeed if every evaluation could be an actionable misrepresentation about an entire product line.

That “misrepresentation” liability for product-related injuries would not be limited to those involved in bringing products to market is evident from Conte’s extensive reliance upon precedent having nothing to do with anyone’s manufacture, sale, or distribution of products. See 168 Cal. App.4th at 104-05 (discussing Garcia v. Superior Court, 50 Cal.3d 728 (1990), involving the duty of a parole officer to a crime victim, and Randi W. v. Muroc Joint Unified School District, 14 Cal.4th 1066, 1077 (1997), involving alleged misrepresentations in an employee letter of recommendation). Because Conte refused to address the social consequences of expanding liability for product defects to non-manufacturers, it is not persuasive precedent and its rejection of the majority rule that manufacturers are only liable for injuries caused by their own products should not be followed.

The novel “misrepresentation” cause of action permitted by Conte is fundamentally at odds with prior California precedent, runs roughshod over the policies that underlie the creation of product liability, and strips away fundamental limitations upon what is, at bottom, an action against a product manufacturer over warnings about a product-related risk. The sort of expansive liability asserted here should be the province of the legislature rather than the courts:

Courts should be hesitant to impose new tort duties when to do so would involve complex policy decisions, especially when such decisions are more appropriately the subject of legislative deliberation and resolution.

Mirkin v. Wasserman, 5 Cal.4th 1082, 1104-05 (1993) (citations and quotation marks omitted).

With the considerable caveat that these arguments were not successful in getting the California Supreme Court to review Conte, we offer them to counsel defending pioneer drug companies faced with proliferating “misrepresentation” claims in the wake of Conte. Remember, you get what you pay for.


Anonymous said...

It's difficult to get the Cal. Sup. Ct. to grant review unless there is a split among the District Courts of Appeal. You'll get a second shot at correcting this case law in the future.

Anonymous said...

Isn't the problem that the FDA has given consumers (and physicians) the express right to rely on a pioneer's warnings in deciding to use a generic product? In other instances, one would hope a jury or judge would not find that it was "reasonable" for a consumer to rely on warnings or statements by the manufacturer of a different product.