Medical Device Lawsuit Watch - December 2007

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:

• Photomedex Inc. v. RA Med. Sys. Inc.
• Emergency Care Research Institute v. Guidant Corp.
• Congressman Seeks House Oversight of DOJ Use of Deferred Prosecution Agreements, Citing Recent Medical Device Settlements
• McDaniel v. Synthes, Inc.
• Settlement Agreement between the United States and Arizona Heart Hospital, et al.
• U.S. v. Afremov
• Cross Medical Products, Inc. v. Medtronic Sofamor Danek, Inc.; Stryker Corp. v. Acumed LLC
  

Photomedex Inc. v. RA Med. Sys. Inc. No. 04CV24 (S.D. Cal. 10/29/2007)

The district court for the Southern District of California has held that the FDA has exclusive authority to pursue a “fraud-on-the-FDA” claim, dismissing a lawsuit brought by Photomedex, Inc. (“Photomedex”) against RA Medical Systems, Inc. (“RA Medical”).

Photomedex, a medical laser manufacturer, filed suit against RA Medical after RA Medical began marketing the Pharos Excimer Laser (“Pharos laser”) pursuant to a licensing agreement RA had signed with a third company, Surgilight. Photomedex claimed the Pharos laser was vastly different than the FDA-approved laser that RA Medical had licensed, and that the Pharos laser was not FDA approved despite being marketed as such. Photomedex alleged violations of the Lanham Act and the California Business and Profession Code and sought damages for lost profits.

The district court declined to decide the substantive issues, instead holding that Photomedex lacked standing because the FDA has exclusive jurisdiction over whether RA Medical improperly branded the Pharos as “FDA approved.” The court buttressed this argument by noting that the FDA had investigated the issue on more than one occasion, but took no legal action. Finding that Photomedex lacked standing on its “fraud on the FDA claim”, and that Photomedex’s other claims were non-actionable, the court granted RA Medical’s motion for summary judgment.

Emergency Care Research Institute v. Guidant Corp. No. 06-189 E.D. Pa. Emergency Care v. Guidant Complaint Emergency Care v. Guidant Opinion

Emergency Care Research Institute (“ECRI”) and Guidant Corp. (now a part of Boston Scientific) have settled a lawsuit arising from ECRI’s publication of PriceGuide, a searchable database of prices paid for single-use medical products, including cardiac rhythm management devices manufactured by Guidant.

ECRI filed a declaratory action against Guidant in 2006, following the company’s receipt of a 2004 cease-and-desist order from Guidant. According to the complaint, Guidant claimed that information published on the public portion of ECRI’s website was subject to confidentiality agreements between Guidant and its customers, that ECRI could not lawfully possess such information, and demanded ECRI to remove the information from its website. Guidant countersued, alleging tortious interference with its contracts and misappropriation of trade secrets.

The district court for the Eastern District of Pennsylvania denied the parties’ cross motions for summary judgment on September 12, 2007, holding that there were questions of material fact regarding the propriety of ECRI’s conduct in obtaining pricing information from Guidant customers and multiple unresolved factual issues related to the confidentiality agreements.

The terms of the settlement agreement are confidential.

Congressman Seeks House Oversight of DOJ Use of Deferred Prosecution Agreements, Citing Recent Medical Device Settlements

On November 26, 2007, Representative Bill Pascrell (D-NJ) sent a letter to John Conyers, Jr. (D-Mich.), chairman of the House judiciary Committee, asking for formal hearings on the use of deferred prosecution agreements and expressing concern over the recent settlement agreement involving device manufacturers Biomet Orthopedics Inc., DePuy Orthopaedics, Zimmer Inc., and Smith & Newphew (“the Device Settlement”). While commending Christopher Christie, U.S. Attorney for the District of New Jersey, for his work in reigning in public corruption, Rep. Pascrell expressed unease over the settlement requirement that the companies hire a federal monitor, selected by the U.S. Attorney, because of the lack of transparency surrounding this provision of the agreement. According to Rep. Pascrell, the lack of transparency “could allow the federal monitor to act with impunity while the manufacturers remain under the threat of prosecution.”

Rep. Pascrell also stated that “this agreement raises questions about the discretion of the U.S. Attorney’s Office to select federal monitors”, noting that the federal monitor selected in the Device Settlement, Ashcroft Consulting, stood to collect more than $52 million in 18 months for monitoring Zimmer. Former Attorney General John Ashcroft is the chairman of Ashcroft Consulting. Rep. Pascrell expressed concern that “Under the continued threat of prosecution, any party being investigated seemingly has little choice but to agree to the selection of these federal monitors and their exorbitant fees. Therein the selection of these federal monitors by the U.S. Attorney’s Office could give the impression of impropriety and political favoritism.”

McDaniel v. Synthes, Inc No. 2:07-CV-245 (N.D. Ind. 10/29/2007)

A federal district court in Indiana recently remanded to state court a product liability case against Synthes Inc. and related entities for lack of subject matter jurisdiction. The lawsuit was filed by a husband and wife claiming that a Synthes-manufactured orthopedic implant used in the woman’s leg was defective and unreasonably dangerous. Defendants removed the action to federal court, claiming that the court had jurisdiction over the case, notwithstanding a lack of complete diversity among the parties, because the only non-diverse defendant, a sales consultant, had been fraudulently joined.

The district court disagreed. Construing plaintiffs’ allegations “liberally in the light most favorable” to them, it found that the sales consultant defendant could be held liable on at least one of the plaintiffs’ causes of action, such as conversion or failure to warn of a known defect under Indiana’s Product Liability Act. Plaintiffs had alleged that the sales consultant was present during the surgical procedure and that he knowingly and intentionally exercised unauthorized control over the explanted condylar plate by taking the plate with him after surgery. Plaintiffs had further alleged that the sales consultant had actual knowledge of a defect in the plate based on his sales experience. As a result, the court concluded that the defendant had not been improperly joined for the sole purpose of defeating diversity jurisdiction in federal court. Because plaintiffs had joined a non-diverse party against whom they had a “reasonable probability” of recovery, the federal court sent the action back to state court for further proceedings.

Settlement Agreement between the United States and Arizona Heart Hospital, et al. D. Ariz. 11/5/2007

On November 5, 2007, Arizona Heart Hospital (“AHH”) agreed to pay the United States approximately $5.8 million to settle civil allegations that AHH improperly submitted Medicare claims for services concerning experimental graft devices used to treat patients with aortic aneurysms between 1998 and 2002.

The alleged Medicare claims involved endoluminal graft devices that the Food & Drug Administration had not approved and that did not fall within an approved Investigational Device Exemption. In settling the claim, AHH denied any wrong-doing or illegal conduct and the United States released the Defendants from any civil or administrative monetary claims under the False Claims Act that the United States may have had regarding the alleged conduct.

In addition, as part of the settlement agreement, AHH also entered into a Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General.

U.S. v. Afremov No. 06-196 (D. Minn. 10/30/2007)

The district court for the District of Minnesota has refused to dismiss an indictment against Michael Afremov, former vice president of operations at AGA Medical (“AGA”), a medical device manufacturer and distributor. The government’s indictment alleged that Afremov selected Foremost Machining Company (“Foremost”) as AGA’s sole source vendor for certain medical parts in exchange for periodic kickback payments. The alleged kickbacks were paid to Advanced Technologies Corporation (ATC), a company personally owned by Afremov and his wife. Afremov was charged with mail fraud, conspiracy, money laundering and false tax returns.

Afremov based his motion to dismiss on the insufficiency of the mail fraud counts arguing that (1) the indictment failed to set forth a “cognizable scheme to defraud” because the government failed to allege that he intended to harm, or in fact caused tangible harm to AGA Medical; and (2) the mailings set forth in the indictment were not kickback payments at the core of the scheme to defraud, but were instead legal payments for products received by AGA.

As to Afremov’s first argument, the Court held that the allegations in the indictment, which charged that Afremov “knowingly and intentionally” executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses was sufficient even though the government did not allege that AGA suffered actual harm. The Court noted that the government must ultimately show evidence of intent or evidence of actual harm independent of the scheme to defraud, but that this was a jury issue. The Court also rejected Afremov’s argument that the indictment failed to plead his violation of a specific duty to AGA. The Court concluded that the indictment’s failure to identify violations of a precise legal duty was not fatal because if provided Afremov with sufficient notice of an alleged “garden-variety kickback scheme.”

Addressing Afremov’s second argument, the Court cited to Supreme Court precedent and held that although the payments were not the alleged kickback payments, they constituted a necessary “step in the plot” because the kickback payments would not have existed without the concededly legitimate payments. Accordingly, the Court denied the motion to dismiss.

The Court also refused to dismiss the rest of the counts against Afremov.

Cross Medical Products, Inc. v. Medtronic Sofamor Danek, Inc. U.S. No. 07-186, 2007 WL 2322101 (U.S. 11/13/2007) Stryker Corp. v. Acumed LLC U.S. No. 07-304, 2007 WL 2589968 (U.S. 11/13/2007)

On November 13, 2007, the U.S. Supreme Court denied review in Cross Medical Products, Inc. v. Medtronic Sofamor Danek, Inc. and Stryker Corp. v. Acumed LLC.

Cross Medical sought review of the Federal Circuit’s decision that Medtronic’s spinal implant screws did not infringe claims 5 and 7 of U.S. Patent No. 5,474,555 (the “‘555 patent”), directed to a multi-axle pedicle screw used in spinal implants. Cross Medical Products, Inc. v. Medtronic Sofamor Danek, Inc., 480 F.3d 1335 (2007). In particular, Cross Medical argued that the Federal Circuit unduly narrowed the “tangential relation” test for rebutting a presumption of prosecution history estoppel as originally espoused by the Supreme Court in Festo Corp. v. Shoketsu Kinzoku Kabushiki Co., 535 U.S. 722 (2002).

Cross Medical had argued that the amendment made during prosecution of the ‘555 patent was not made in an attempt to overcome the prior art and that the rationale was no more than tangentially related to the features of the screw design at issue in the litigation. The Federal Circuit sided with the district court in ruling that Cross Medical’s amendments during prosecution of ‘555 invoked the doctrine of prosecution history estoppel and that Cross Medical was therefore precluded from arguing that Medtronic’s screws infringed the asserted claims under the doctrine of equivalence. The Federal Circuit reaffirmed the principle that the “tangential relation” criterion for overcoming the Festo presumption of prosecution history estoppel is very narrow, and was inapplicable to the case at hand.

Stryker sought Supreme Court review of the Federal Circuit’s April 12, 2007, affirmation of a jury verdict that Stryker had willfully infringed Acumed’s U.S. Patent No. 5,472,444, directed to an orthopedic nail for the treatment of fractures in the humerus. 483 F.3d 800 (Fed. Cir. 2007). In its petition for certiorari, Stryker asked the Supreme Court to review two issues: (1) the proper methodology for construing claims -- whether to begin construction with the broadest dictionary definition not expressly disavowed by the patent specification or to begin construction with the intrinsic evidence; and (2) the Federal Circuit’s affirmation of the finding of willful infringement in light of the “objectively reckless” standard set forth in In re Seagate Technology, LLC, 497 F3d 1360 (Fed. Cir. 2007).

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This material was prepared by Crowell & Moring LLP attorneys Chandra Westergaard Snyder, Jennifer Burdman, Jessica Hall, Lauren Kim and Heather Good. 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.