Good News For Medical Device Makers

Oxford Analytica
http://www.forbes.com

Costly litigation has served as a substitute for strong federal regulation in the United States. In the health care industry, which is largely based on a system of private insurance, this may have helped drive up prices.

This could be about to change. Recent U.S. Supreme Court rulings on medical devices, and a potentially landmark pharmaceutical case scheduled for decision this autumn, have found that certain federal statutes and agency regulations “preempt” product liability suits.

This could lead to a major improvement in the legal climate for medical-device manufacturers, drug companies and insurers.

The Supreme Court is expected to hand down a ruling this autumn in Wyeth v. Levine that may preempt product liability suits when a drug has been approved by the Food And Drug Administration–even if it is subsequently determined that the drug caused injury.

The ruling would cap a series of recent pharmaceutical industry victories, often on preemption grounds. On May 28, separate state appellate courts handed down two significant decisions in Vioxx litigation, which largely dismissed significant jury verdicts for the plaintiffs. Merck (nyse: MRK – news – people ) withdrew its Vioxx painkiller from the market in September 2004, following release of a study that linked the drug to increased heart attack risk.

The pharmaceutical industry, which has been burdened recently by lawsuits and weak product pipelines, would experience a major boost from a pro-preemption ruling. Moreover, the precedent could potentially be expanded to many other industries in which preemption doctrines apply.

Yet the ruling would have a negative impact on the legal industry. Plaintiffs’ lawyers will find it even more difficult to bring significant claims, while corporate law firms may see a significant drop-off in their revenues, of which pharmaceutical claims make up a significant share.

However, trial lawyers are fighting back. Disclosures suggest that the American Association for Justice (formerly known as the American Trial Lawyers Association) is exerting significant influence on concerns moving through the Democratic party-controlled Senate Judiciary Committee. These bills include medical malpractice legislation, initiatives to reform the Consumer Product Safety Commission, and separate measures to ban mandatory arbitration in various types of contracts (which helps restrict lawsuits).

If the Supreme Court makes a pro-preemption ruling in the Wyeth case, trial lawyers will likely seek to get the decision overturned via legislation. However, this strategy is unlikely to be successful–absent much more significant than expected Democratic party gains in Congress in the November election–as the pharmaceutical industry can be expected to mount a massive lobbying effort in favor of the likely Wyeth standard.

That would likely lead to a major reduction in corporate litigation risk. The hard-hit pharmaceutical industry will experience the most immediate benefit, but it could spread to other sectors where the preemption principle applies.

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