Medical Device Lawsuit Watch - February 2009

This summary of key lawsuits affecting medical device companies is provided by the Health Care Law Group of Crowell & Moring LLP, in collaboration with the firm’s Torts, Antitrust, Commercial Litigation, and Intellectual Property Groups.

Cases in this issue:

• Huber v. Howmedica Osteonics Corp.
• United States ex rel. Poteet v. Medtronic, Inc., et al.
• United States ex rel. Bane v. Breathe Easy Pulmonary Services, Inc., et al. (Jan. 14, 2009)
• Boston Scientific Scimed, Inc. v. Cordis Corp.
• Somerville v. Stryker Orthopaedics et al.
• United States ex rel. Bane v. Breathe Easy Pulmonary Services, Inc., et al. (Jan. 23, 2009)
• Kinetic Concepts, Inc., et al. v. Blue Sky Medical Group, Inc., et al.

Huber v. Howmedica Osteonics Corp. No. 07-2400 (D.N.J. Dec. 31, 2008)

The U.S. District Court for the District of New Jersey held that the plaintiff's breach of express warranty claim was not preempted by the federal premarket approval process mandated by the Medical Device Amendments ("MDA") and that the plaintiff's allegations were sufficient to state a claim in a case involving an allegedly defective Trident® Ceramic Acetabular System used for total hip replacements. The plaintiff claimed that although the product's label published a .5% defect rate, the actual rate of defective devices was much higher.

The district court held that Third Circuit precedent determined the preemption issue. In Michael v. Shiley, the Third Circuit held that the MDA did not preempt a claim for breach of express warranty based on information found on the product's packaging. The Shiley court reasoned that express warranties did not arise from the independent operation of state law, but rather from the voluntary representations of the parties. Furthermore, the enforcement of an express warranty would not impose different or additional requirements to those imposed by federal law because the "plaintiff sought to enforce the very language which the FDA had approved."

The court found that the Supreme Court's decision in Riegel v. Medtronic, which held that certain common law claims were preempted by the MDA's premarket approval process, was not controlling because it did not address claims for breach of express warranty. Thus, the Third Circuit's Shipley decision was controlling, and this claim was not preempted.

The court further found that the breach of express warranty claim was well-pled. The court rejected the defendant's argument that the plaintiff could not bring a breach of express warranty claim simply because she found herself within the .5% of persons expected to experience a defective product. The court stated that if the defendant's argument was true "[a]ny rate greater than zero could be printed on the label, and under no circumstance would an affected plaintiff have a right of action, because that plaintiff would simply be the lone individual with the misfortune to fall within the affected rate." The plaintiff's claim that the .5% published defect rate "became a basis of the bargain" and that the defendant breached that agreement because the actual defect rate was much higher sufficiently stated a claim.

United States ex rel. Poteet v. Medtronic, Inc., et al. No. 07-5262 (6th Cir. Jan. 14, 2009)

Following a settlement by Medtronic, Inc. ("Medtronic") with the U.S. government for $40 million, the Sixth Circuit affirmed a district court's dismissal of a qui tam action against Medtronic, holding that the action was barred by the public disclosure rule and the first-to-file rule.

Jacqueline Kay Poteet ("Poteet"), a former Senior Manager for Travel Services for Medtronic Sofamor Danek USA, Inc. ("MSD"), filed an action under the Federal Civil False Claims Act ("FCA") against sixteen physicians, nine healthcare providers, MSD, and its parent company, Medtronic, in the U.S. District Court for the Western District of Tennessee. The FCA imposes civil liability on any person who knowingly submits a false or fraudulent claim to the government, and promotes enforcement by allowing private individuals (the relator) to file a qui tam action on behalf of the government.

Poteet's complaint alleged that the named defendants had filed numerous false, fraudulent and ineligible claims for Medicare and Medicaid reimbursement in violation of the FCA. Specifically, Poteet claimed that MSD had paid the defendant physicians large amounts of money and provided them with lavish travel and recreational opportunities in exchange for the physicians' continued patronage of MSD products.

After conducting an investigation into Poteet's claims, the U.S. government entered into a $40 million settlement with MSD for alleged illegal kickbacks paid to physicians between the years 1998 and 2003. The government then filed a motion to dismiss Poteet's complaint, which motion was granted.

Prior to Poteet's qui tam action, two other actions (one for wrongful termination by an MSD employee, and another qui tam action by John Doe) were filed against similar defendants and contained almost identical allegations as those alleged in Poteet's complaint. The district court thus held that the defendants' alleged fraud had already been publicly disclosed by the time Poteet's qui tam action was brought.

On appeal, the Sixth Circuit affirmed and also clarified the technical application of the first-to-file rule, which requires the relator's action to be the first qui tam action filed. The Sixth Circuit held that since the John Doe action was also jurisdictionally barred due to the earlier wrongful termination action, it could not technically preclude the filing of Poteet's complaint under the first-to-file rule.

United States ex rel. Bane v. Breathe Easy Pulmonary Services, Inc., et al. No. 06-33MAP (M.D. Fla. Jan. 14, 2009)

The U.S. District Court for the Middle District of Florida held that in a qui tam action under the federal False Claims Act ("FCA"), previously undisclosed evidence containing names of patients whose claims had been paid by Medicare does not substantially prejudice the medical company defendants.

A relator brought suit against Breathe Easy Pulmonary Services, Inc., Premier Cardio Pulmonary Medical, Inc. (collectively, "Breathe Easy"), Lincare Holdings, Inc., and Lincare, Inc. (collectively, "Lincare") under the FCA. The FCA imposes civil liability on any person who knowingly submits a false or fraudulent claim to the government, and promotes enforcement by allowing private individuals (the relator) to file a qui tam action on behalf of the government. The relator's action alleged that Lincare, a durable medical equipment company, conspired with Breathe Easy and independent diagnostic testing facilities to submit fraudulent claims for payment to Medicare for medically unnecessary and redundant services performed with pulse oximetry testing.

In response to Lincare's motion for summary judgment, the relator submitted two composite exhibits containing names of patients whose claims had been paid by Medicare. Lincare moved to have the names stricken due to the relator's failure to disclose those names to Lincare prior to filing the composite exhibits.

Applying a five-factor test balancing the relator's need for the evidence and any prejudice suffered by Lincare, the district court declined to strike any portion of the composite exhibits. The court held that Lincare did not experience substantial prejudice due to the relator's inadvertent failure to disclose the names, and the need for such evidence outweighed the minimal prejudice suffered by Lincare.

Boston Scientific Scimed, Inc. v. Cordis Corp. No. 2008-1073 (Fed. Cir. Jan. 15, 2009)

The Court of Appeals for the Federal Circuit ("CAFC") found that the claims of Boston Scientific's drug-eluting stent patent were obvious as a matter of law, and held that combining two separate embodiments disclosed adjacent to each other in a prior art patent "does not require a leap of inventiveness."

In 2003, Boston Scientific sued Cordis for infringement of U.S. Patent No. 6,120,536, directed to a drug-eluting, non-thrombogenic stent. The '536 patent covered technology relating to a stent with a metal core surrounded by a drugged layer that is then surrounded by a non-thrombogenic layer. The jury found the claims at issue to be infringed and not obvious. The U.S. District Court for the District of Delaware accepted the jury's verdict and denied Cordis's motions for judgment as a matter of law ("JMOL") and a new trial.

On appeal, the CAFC reversed the denial of JMOL and motion for new trial, and found the claims at issue to be obvious as a matter of law. Cordis had asserted that a patent assigned to Medtronic (the "Wolff patent") rendered the claims invalid. The CAFC noted that while the Wolff patent did not disclose all of the claimed elements in a single embodiment, the Wolff patent disclosed all of the claim elements in two separate embodiments shown side-by-side.

With regard to the obviousness analysis, Boston Scientific argued that KSR Int'l Co. v. Teleflex Inc. was not applicable because Cordis urged no particular combination of references. Also, had it been so obvious, Boston Scientific argued, Medtronic would have made the claimed invention based on the disclosure of their Wolff patent.

Proceeding to apply KSR, the CAFC found that it would have been obvious to combine the two embodiments, because this combination would simply have been a "predictable variation." The CAFC stated that "[C]ombining two embodiments disclosed adjacent to each other in a prior art patent does not require a leap of inventiveness."

On their reversal of the jury verdict, the CAFC stated, "[W]hile a jury may render a decision on a question of obviousness when it is considering any underlying fact questions, obviousness is ultimately a question of law that this court reviews de novo. When we consider that, even in light of a jury's findings of fact, the references demonstrate an invention to have been obvious, we may reverse its obviousness determination. That is the case here."

Somerville v. Stryker Orthopaedics et al. No. C 08-02443 (N.D. Cal. Jan. 16, 2009)

Because the plaintiff failed to state proper causes of action, the District Court for the Northern District of California dismissed all claims against Stryker Orthopaedics ("Stryker") alleging an illegal kickback scheme by paying doctors and hospitals to use its products.

The plaintiff alleged that Stryker's engagement in a scheme to pay doctors and hospitals illegal kickbacks for utilizing Stryker's hip and knee replacement devices caused her to incur "higher out-of-pocket costs, including an increase in co-payments and health care premiums." The plaintiff purported to bring a class action against Stryker based on violations of the Cartwright Act and California's Unfair Trade Practices Act.

The district court provided three primary reasons for dismissal of the plaintiff's claims. First, the plaintiff had failed to plead a claim under the Cartwright Act, which prohibits anti-competitive conduct, because she alleged only that Stryker "conspired with unnamed co-conspirators, surgeons performing orthopedic surgeries." The district court found these general allegations insufficient since the plaintiff failed to show "any specific overt acts done by defendants in pursuance of that design and purpose."

Second, the plaintiff failed to establish a claim under California's Unfair Trade Practices Act since she did not show any "unfair" trade practices. That term, under the Unfair Trade Practices Act, is defined as "conduct that threatens an incipient violation of antitrust law." Therefore, because the plaintiff's antitrust claim under the Cartwright Act failed, her unfair trade claim likewise failed for many of the same reasons, including that the "complaint fail[ed] to allege the time, place, or the co-conspirators actually involved in the alleged conspiracy."

Finally, the court found that the plaintiff had not established that she is a member of the class she purported to represent. The plaintiff had included herself in her own defined class, but neglected to include allegations in the complaint to show that she actually fell within that class.

United States ex rel. Bane v. Breathe Easy Pulmonary Services, Inc., et al. No. 8:06-cv-40 (M.D. Fla. Jan. 23, 2009)

In a False Claims Act ("FCA") case premised upon an alleged conspiracy between an Independent Diagnostic Testing Facility ("IDTF") and a Durable Medical Equipment ("DME") company to submit false claims to the government for reimbursement, the U.S. District Court for the Middle District of Florida granted the summary judgment motion of the DME company while denying that of the IDTF.

A relator brought suit against Breathe Easy Pulmonary Services, Inc., Premier Cardio Pulmonary Medical, Inc. (collectively, "Breathe Easy"), Lincare Holdings, Inc., and Lincare, Inc. (collectively, "Lincare") under the FCA. The FCA imposes civil liability on any person who knowingly submits a false or fraudulent claim to the government, and promotes enforcement by allowing private individuals (the relator) to file a qui tam action on behalf of the government.

The relator alleged that Lincare, the DME company, conspired with Breathe Easy, the IDTF company, to submit fraudulent claims for payment to Medicare for medically unnecessary and redundant services performed with pulse oximetry testing. The relator's allegation was based on the fact that Medicare will not pay providers of oxygen like Lincare for oxygen therapy services unless qualifying scores on oximetry tests have been obtained.

The relator alleged that when a physician contacted Lincare believing that a patient required home oxygen therapy, Lincare would often refer the physician to Breathe Easy. In those circumstances, Lincare would provide the physician with an "Oxygen Assessment Referral Form," which the relator alleged was intentionally designed to authorize Breathe Easy to do a comprehensive pulmonary diagnostic exam even though the physician completing the form believed he was ordering a simple oximetry test.

Despite Breathe Easy's argument it was not submitting false claims because its order forms themselves were not submitted to the government, the court found, "The claim for reimbursement, which Breathe Easy knew was contingent upon receipt of written authorization by the patient's physician, was a false statement directly linked to the Government's decision to pay for the diagnostic tests." The court essentially dismissed the relevance of the order form and denied Breathe Easy's motion for summary judgment.

The court also concluded that the FCA requires more than just a broad "but for" test on the issue of causing a false claim to be submitted to the government. The court held that the relator's argument that Lincare "caused" the making of a false claim to the government by presenting Breathe Easy order forms to physicians, directing them to complete them and then transmitting them back to Breathe Easy failed because this activity was too remote to constitute liability under the FCA. Because there was no evidence that Lincare did anything other than forward the completed order forms back to Breathe Easy, the court granted Lincare's motion for summary judgment.

Kinetic Concepts, Inc., et al. v. Blue Sky Medical Group, Inc., et al. Nos. 07-1340, -1341, -1342 (Fed. Cir. Feb. 2, 2009)

In a patent infringement action by Kinetic Concepts, Inc. et al. ("KCI") against Blue Sky Medical Group, Inc., et al., the Court of Appeals for the Federal Circuit ("CAFC") refused to expand the scope of the claims, relying on the examples described in the specification.

The patents at issue related to treating difficult-to-heal wounds by applying suction, referred to in the patents as "reduced pressure" or "negative pressure." On appeal to the CAFC, the defendants argued that the U.S. District Court for the Western District of Texas erred by vacating its construction of "wound" when the term's meaning was critical to an obviousness inquiry. According to the defendants, this error allowed KCI to improperly avoid the prior art by arguing claim construction to the jury; thus, the jury was improperly forced to choose between competing claim constructions offered by experts. KCI argued that any error resulting from the district court's failure to construe "wound" was harmless because the defendants' proposed construction was incorrect as a matter of law and the jury's verdict demonstrated that it adopted the correct construction.

In refusing to "expand the scope of the claims far beyond anything described in the specification," the majority pointed out, "[a]ll of the examples described in the specification involve skin wounds." The CAFC further concluded that the district court's failure to instruct the jury on the construction of "wound" was harmless. Because the jury's verdict was supported under the proper construction and the majority perceived no danger that the jury may have used an incorrect construction of "wound" that might have prejudiced the defendants, the majority found no need to remand for a new trial.

Accordingly, the CAFC upheld the district court's denial of the defendants' motion for judgment as a matter of law of obviousness and the district court's determination that certain claim terms were not indefinite. The CAFC further denied the defendants' request for a new trial on obviousness, and also affirmed the district court's denial of KCI's motion for judgment as a matter of law of infringement and its request for a new trial on infringement.

© Crowell & Moring LLP - All Rights Reserved
This material was prepared by Crowell & Moring LLP attorneys Asaf Batelman, Matthew Fornataro, Patricia Freshwater, Dani Nguyen, Bernadette Stafford, and Deborah Yellin. 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.