Medical Device Lawsuit Watch - January 2006
This summary of key lawsuits affecting medical devices is provided by the Health Care Law Group of Crowell & Moring LLP, in collaboration with the firm’s Torts, Antitrust and Intellectual Property Law Groups.
Cases in this issue:
On November 2, the Federal Trade commission announced a consent agreement imposing conditions on Johnson & Johnson's ("J&J") acquisition of Guidant Corporation ("Guidant"). The FTC complaint in conjunction with the settlement alleges that the acquisition would have violated the antitrust laws by reducing competition in already-concentrated U.S. markets for drug eluting stents, endoscopic vessel harvesting devices and proximal anastomotic assist devices. The consent order will require J&J to (1) license Guidant's intellectual property surrounding its Rapid Exchange delivery system for drug eluting stents; (2) divest its endoscopic vessel harvesting product line; and (3) end its distribution agreement with Novare Surgical System, Inc. for Novare's proximal anastomotic assist device, eNclose. Previously, as part of the European Commission's clearance of the acquisition on August 25, J&J had agreed to divest the Cordis steerable guidewires and the Guidant Endovascular Solutions businesses in Europe.
J&J and Guidant have reportedly reached a revised $21.5 billion acquisition agreement on November 15, and pending Guidant shareholder approval the deal would be expected to close in early 2006. However, on December 5, Boston Scientific Corp. made an unexpected, $25 billion takeover offer for Guidant Corp. Johnson & Johnson has stated that it will not raise its revised bid price, and that it expects Guidant shareholders to vote on its bid at a meeting expected to take place in the first quarter of 2006.
New York Attorney General Eliot Spitzer filed suit against Guidant Corporation on November 2, alleging that the medical device manufacturer has violated New York law by engaging in repeated and persistent fraudulent conduct related to its Ventak Prizm 2 DR Model 1861 defibrillators.
The Prizm 1861 defibrillators are used to restore normal heart functions to patients who suffer from severe abnormal heart rhythms. According to the complaint, in February of 2002 Guidant discovered a design flaw in the defibrillators that caused them to short circuit. The electrical short rendered the device inoperative without providing any warning that it was no longer functioning. The complaint alleges that at least 28 people have experienced defibrillator failure, including one patient that died as a result.
While Guidant did correct the problem later in 2002, the complaint alleges the company continued to sell the defective defibrillators and failed to notify physicians or patients about the problem. Guidant did not make public disclosures about the design flaw until May of 2005, when it learned that the New York Times was about to publish an article exposing the defect, according to the complaint. Guidant did issue a voluntary recall of the Prizm 1861 defibrillators in June of 2005.
New York law authorizes the Attorney General to bring suit for repeated or persistent fraudulent acts in the conduct of business, including any misrepresentation or concealment of material facts. The complaint alleges that Guidant's failure to disclose the design flaw in the Prizm 1861 defibrillators, while continuing to sell and market them, is conduct in violation of the statute. The suit seeks permanent injunctive relief that would require Guidant to: (1) post all material information concerning its Class II and Class III medical devices on its website; (2) pay restitution and damages to all aggrieved consumers and/or third-party payors, including government programs; (3) disgorge all profits Guidant derived from its sale of the Prizm 1861 defibrillators; and (4) pay costs.
Guidant faces various other legal actions related to its defibrillators, including multiple lawsuits from patients and shareholders, and a potential criminal investigation by the Food and Drug Administration.
Oukrop v. Guidant Corp.
Unpublished settlement (11/22/2005)
On November 22, the Guidant Corporation settled, for an undisclosed amount, a lawsuit brought by the family of Joshua Oukrop, 21, who died after his Guidant heart defibrillator failed. This may be Guidant's first settlement of a case related to the company's recall of approximately 109,000 of its implantable cardiodefibrillator devices (ICDs). FDA classified several types Guidant ICDs for class I and II recalls in response to doctors complaining that Guidant had not publicly disclosed that some of its devices could fail without warning. Guidant reported in a recent SEC filing that 45 class action and 50 individual law suits had been filed against the company by patients who once had or still have the defibrillator device in their chest. The Judicial Panel on Multidistrict Litigation approved consolidation of the federal ICD cases against Guidant with Judge Frank Donovan of the District Court of Minnesota presiding over the MDL. More cases are expected.
On November 21, 2005, the U.S. District Court for the District of Oregon determined that Smith & Nephew, Inc. (Smith & Nephew) had a substantial likelihood of prevailing on its patent infringement claims against Arthrotek, Inc. (Arthrotek), and granted Smith & Nephew's motion for a preliminary injunction enjoining Arthrotek from manufacturing and selling its Sure Fire meniscal repair device.
Smith & Nephew and John Hayhurst, M.D. had sued Arthrotek and its parent Biomet Inc., alleging that Arthrotek's Sure Fire product infringed a patent owned by Dr. Hayhurst and exclusively licensed to Smith & Nephew. The patent at issue covered Smith & Nephew's T-Fix and FasT-Fix devices, which are comprised of elongated anchor members and attached sutures which are used to clamp a torn meniscus in the knee during arthroscopic surgery or to reattach a torn meniscus. Smith & Nephew alleged that Biomet's Sure Fire meniscal repair product infringed Smith & Nephew's product claims (i.e., claims covering the device itself) and method claims (i.e., claims covering the surgical procedure performed when the product is used).
The court applied the test for determining if a preliminary injunction should issue, assessing whether Smith & Nephew had demonstrated (1) a reasonable likelihood of success on the merits; (2) irreparable harm absent an injunction; (3) that the balance of hardships tipped in its favor; and (4) that an injunction would have a favorable impact on the public interest. The court determined that Smith & Nephew had established a substantial likelihood of establishing infringement of most of its enumerated product and method claims, and that two of Smith & Nephew's claims would likely withstand Biomet's invalidity challenges on grounds of "obviousness-type double patenting" and inequitable conduct. The court noted that Smith & Nephew's showing of a likelihood of success in its infringement claims gave rise to a presumption of irreparable harm, and that the balance of hardships tipped in Smith & Nephew's favor since its FasT-Fix product was already in production while Biomet's sales of its Sure Fire product had only just begun. The court also noted that the public interest benefited from the protection of a valid patent. Consequently, the court enjoined Biomet from infringing the relevant patent through the manufacture and sale of its Sure Fire product.
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