Research Trends and Conclusions: Product Liability Defence 2008
Tom Barnes -
Tom Barnes takes a closer look at the issues facing product liability defence lawyers.
Zheng Xiaoyu led China's State Food and Drug Administration from 1998 until 2005. Two years later he was found guilty of taking bribes and executed. The death sentence was merited, in the words of the Beijing Municipal No. 1 Intermediate People's Court, as reported by China Daily, on account of the "huge bribes involved and the great damage inflicted on the country and the public by Zheng's dereliction of duty". The government had acted decisively in response to the damage caused by the approval of faulty pharmaceutical products; Zheng's acts "greatly undermined [...] the efficiency of China's drug monitoring and supervision, endangered public life and health and had a very negative social impact," the court said. The importance of product regulation had been brought sharply into focus.
While this instance was extreme, product liability law is certainly an area of high importance for companies, governments and their lawyers. The fallout from defective products, in terms of expense, damage to reputation and loss of market position internationally, can be difficult to measure. China has been at the centre of this issue of late, and the government is taking steps to improve the safety of its products to safeguard its export industry. The recent melamine scandal led retailers across Asia to recall products made with Chinese milk. Its effect was felt as far afield as the UK, where supermarket giant Tesco took a brand of Chinese sweets off its shelves. In September 2008, the European Commission imposed a ban on EU imports of Chinese baby food that contains any traces of milk, and random testing will be done on products containing more than 15 per cent milk powder already on sale in the EU.
PHARMA
This upheaval and its consequent fallout, both legal and political, is being replicated in other industries across the globe. The pharmaceutical industry in the US has been the major battleground for product liability disputes for decades, and continues to be hugely active. The legal fraternity are currently holding their breath in advance of the Supreme Court's verdict in Wyeth v Levine, with oral arguments heard in early November 2008.
"The Levine ruling could have a significant impact on the landscape of pharmaceutical litigation", according to Harvey Kaplan of Shook Hardy & Bacon LLP. Kaplan investigates this area in more depth in his introductory article following this.
The court's ruling may have dramatic ramifications on the ‘pre-emption' defence and whether the warning on pharmaceuticals approved by the US Food & Drug Administration overrides liabilities under state law. If the court decides that it does or issues a broad ruling, it would remove one of the central tenets of many US cases and Kaplan predicts that "you will see a flurry of motions to judgment from pharma companies."
However, it is quite possible that even if Wyeth v Levine returns a positive verdict for pharmaceutical companies and their representatives, legislative changes may soon reverse that effect. In the words of Richard North of Nelson Mullins Riley & Scarborough LLP in Atlanta, speaking before the presidential poll in November: "speculation is that if a Democratic government gets in, some of these pre-emption laws will be reversed, especially if the Senate is also Democratic". While the Republicans traditionally favour pro-business tort reform, with the Democrats, broadly speaking, supporting consumers, opinion is divided as to how much Barack Obama's administration will do in this area.
Signs for the future may be found in the events surrounding the recent US Supreme Court case Riegel v Medtronic. After a decision that was generally held to be favourable to the medical technology company, the government response was swift. As Kaplan notes in his article; "the Democratic-led Congress introduced legislation that would essentially reverse that decision." Randal Craft of Holland & Knight in New York notes "the recent Democratic victory makes it more likely that this and other plaintiff-favourable legislation will be enacted." With the learned intermediary doctrine also under judicial scrutiny, these are ‘interesting times' for product liability defence work in the pharmaceutical sector.
UNITED STATES
The US leads the world in product liability defence law, in terms of volume of cases, and its prominence informs the make-up of this book; of the 313 experts we identify, over 200 are based in the US. This is in large part due to the highly developed, creative and extensive plaintiffs' bar; "rampaging", as Randal Craft evocatively puts it. This keeps the levels of litigation across a wide range of industries as high as ever, and the innovation of pharma companies means a constant supply of new areas for plaintiffs to target. Product recalls effectively guarantee litigation as they are tantamount to an admission of defect, which calls for the development of ever-more sophisticated defensive strategies.
The aviation industry is also fertile ground for such claims. While there has not been a major air crash in US territory since the American Airlines Flight 587 accident in November 2001, a single incident can create a multitude of cases that can take years to conclude; Condon & Forsyth LLP is well recognised in this field, and the highly rated Desmond Barry has only recently finished working on the suits arising from that crash. Barry is based in New York, and highlighted the efforts of plaintiff lawyers to secure the United States as a venue for air crash litigation, on account of its notoriously high jury verdicts and history of greater payouts "even if a crash takes place overseas and the plaintiffs and most defendants are foreign".
This ‘forum shopping' is a common tactic in disputes across a range of industries, with tobacco inevitably at the forefront. Recent successes for the defence, particularly in persuading courts to avoid class-action certification, have resulted in a relative slowdown, leading to "fewer, better cases targeted in sympathetic jurisdictions" in the words of SHB's Walt Cofer. These jurisdictions, (or ‘judicial hellholes' as they are sometimes referred to by tort reformers), are states with laws and judges known to be sympathetic to plaintiffs and with track records of large punitive damages - "that's where the big money is", as Cofer notes. California and Oregon were both mentioned in this respect, as was Florida. Recent developments in tobacco cases such as Ligget Group v Engle have prompted huge amounts of activity in the state, to such an extent that there are reports of lawyers from national firms based elsewhere in the country taking the state's Bar exam to satisfy client demand.
AROUND THE WORLD
While no other jurisdiction in the world approaches the US for group litigations claiming product defects, several markets are stirring. Class-action work is a "growing field in Canada", according to Gordon McKee of Blake Cassels & Graydon LLP in Toronto, the most highly nominated lawyer in our Canadian research. The plaintiff bar is becoming ever more sophisticated, and is taking advantage of the local class-action certification rule, which set a lower threshold for certification than applies in the US. On the other hand ,"Canada remains a kinder and gentler place where damages are concerned" with caps on damages for pain and suffering, and fewer and lower punitive damage awards. Because many cases have been settled it is difficult to draw concrete conclusions about the comparability of ultimate awards, but the general size of these settlements appears to be lower than in the US.
The UK is currently held back by the difficulty for consumers to get ‘access to justice', with no way to fund what is an inevitably long and expensive litigation process with group litigation in its nascency. Instead, companies currently call on their outside counsel for regulatory matters, as well as product recalls and related damage to their reputation. As a result, some local firms' practices in this area have shrunk. Lovells is one of the leading European players in this field, and Rod Freeman in particular stood out. In an introductory article in this book, he identifies the pressures, political and legal, that he predicts will, over time, lead to fundamental changes both in the UK and in the European Community and to a vast expansion in this type of work.
The spectre of an EU class action law was repeatedly raised in our research. Freeman believes that reform is likely at both national and EU levels eventually, and notes changes to European competition law that touch on related areas. A push for standardisation of the laws for EU countries is also having an impact, and member countries such as Italy are beginning to force the issue by making alterations to their own laws. Pawel Pietkiewicz of CMS Cameron McKenna in Poland reported a fast-developing plaintiffs' bar both domestically and elsewhere in Eastern Europe. The recent lift of the ban on success fee arrangements in the rules of professional conduct in Poland mean that lawyers there can agree the percentage of any award they receive with the client beforehand, a change that is likely to enhance plaintiff activity in this area. He also notes that class actions were recently introduced in Bulgaria, and were brought against tobacco companies with predictable swiftness.
Looking to the future, Pietkiewicz sees the introduction of a class action law, at least at a national level, as inevitable. A broad-based EU-wide measure allowing claims in multiple countries would be highly controversial and is not imminent in Freeman's view, although he does foresee some limited intervention at an EU level, at least in the medium-term. However, the strong feeling we received from all over the world in the course of our research was that this is an area with a lot of potential for growth, in some cases exponential growth. South and Central America have seen new legislation to promote consumer rights and a consequent expansion in related litigation. While it remains unlikely that any jurisdiction will grow to match the US in its elevated levels of activity and payouts, worldwide trends point in the direction the US has taken.