United States: Legal Black Holes Proliferate After Stephen Hawking's Death – Massachusetts Allows Somewhat Limited Innovator Liability

Last Updated: March 19 2018
Article by James Beck

Stephen Hawking may have been the smartest guy in the world, even though he believed that "People who boast about their I.Q. are losers." Hawking is best known for his work on black holes. As used in physics, a black hole describes a point-sized mass (called a "singularity") so dense that its escape velocity exceeds the speed of light. That effectively cuts it off from the rest of the universe, so that nothing emanates from it – hence the "black hole" terminology. Hawking's study (more than "study," really since he thought most of these things up) applied the black hole concept to the entire universe, thus providing a theoretical underpinning for "Big Bang" cosmology. Beyond that, Hawking developed laws of black hole mechanics. He dealt with rotating black holes, and determined that contrary to their initial definition (and Hawking's own prior work) black holes could under some circumstances emit radiation due to annihilation of particles near the event horizon (it's complicated – you can access Hawking's many and varied ideas here). That radiation is now called "Hawking radiation," and over cosmological time (trillions of years or longer) can cause black holes to evaporate and eventually explode.

He will be missed.

The massive gravity of black holes sucks in everything surrounding them and crushed it into effectively nothing but mass and spin. We immediately thought of black holes in the legal context when we learned on Friday that the Massachusetts high court (called the "Supreme Judicial Court") decided to recognize a form of innovator liability – imposing liability for injuries caused by generic drugs on their branded competitors. See Rafferty v. Merck & Co., ___ N.E.3d ___, 2018 WL 1354064 (Mass. March 16, 2018).

As we had feared, California did this first, adopting an extreme – even more extreme than usual - version of innovator liability in T.H. v. Novartis Pharmaceuticals Corp., 407 P.3d 18 (Cal. 2017). In Hawking's parlance, that would make the state a "supermassive" legal black hole. Massachusetts isn't as big a state, and its innovator liability theory isn't as downright bizarre as California's, so Rafferty probably created an intermediate-mass legal black hole. But liability for injuries caused by products that the defendant never even made (and thus made no money from) is potentially crushing to innovator drug companies no matter what.

So what exactly did Rafferty hold?

For one thing, much more than in T.H. the Massachusetts court was quite frank that it was only doing this because preemption prevented plaintiffs purportedly injured by generic drugs from suing generic manufacturers. There was none of this bullhockey that we got from California about innovator liability stemming from well-established negligence principles. Before ever getting to state-law issues (or even to the facts of the case) Rafferty identified generic preemption as the problem:

This allocation of labeling responsibilities under Federal law has proved difficult to reconcile with the duties required of generic drug manufacturers under State tort law. . . . Under Federal regulations . . . manufacturers of generic drugs - because they lack the power to change the warning labels on their products unilaterally - cannot independently fulfil these State law duties. . . . The practical consequence is that a consumer who suffers injury arising from an inaccurate or inadequate drug warning label can sue the manufacturer for damages caused by his or her injury only if the consumer ingested a brand-name version of the drug — but not if the consumer ingested the generic version.

2018 WL 1354064, at *2 (citations omitted). For this reason, innovator liability could not exist as a product liability claim as "product liability" is normally understood:

[U]nder our prevailing law, . . . [defendant] owes [plaintiff] no duty to warn under the law of products liability. As noted by the judge, a manufacturer may be found liable for a failure to warn only where the product that caused the injury was made by that manufacturer; its duty of care extends only to users of its own product.

Id. at *3 (discussion of several prior Massachusetts product liability cases omitted). Unlike California, Rafferty held that there was no basis for innovator liability in product liability (including ordinary negligence), or the Massachusetts consumer fraud statute. See also Id. at *13 (discussing consumer protection).

But in today's day and age, at least in Massachusetts or California, a result that produces no liability against anyone is apparently intolerable. Thus, the court in Rafferty, using its common-law powers, made something up – product liability for "recklessness." Rafferty turned to "a general principle of tort law," hitherto unknown in product liability, that "[e]very actor has a duty to exercise reasonable care to avoid physical harm to . . . all persons who are foreseeably endangered by his conduct, with respect to all risks which make the conduct unreasonably dangerous." Id. at *5 (quoting Jupin v. Kask, 849 N.E.2d 829, 835 (Mass. 2006)). And what did Jupin quote for this broad, vague declaration of anyone potentially liable to everyone for anything? Not any Massachusetts case, but rather Tarasoff v. Regents, 551 P.2d 334, 344 (Cal. 1976). Argh? Even though we're in Massachusetts, the principles of crazy California tort law are still around, expanding liability.

However, unlike the California Supreme Court, Rafferty was at least willing to "recognize[] . . . that, even where the requirements of negligence are satisfied, there may nevertheless be a public policy justification for declining to impose a duty of care where "the imposition of a precautionary duty is deemed to be either inadvisable or unworkable." 2018 WL 1354064, at *5 (citation and quotation marks omitted). But while "in the vast majority of . . . cases, the duty to warn would be limited to the manufacturer of the product - even if the plaintiff were to bring a general negligence claim - because the risk of harm arising from an inadequate warning would be foreseeable to a manufacturer only with respect to users of its own product," id. at *6, prescription drugs were different, because to comply with the FDCA, innovator manufacturers are required to let generic manufacturers use their labels verbatim.

With generic drugs, it is not merely foreseeable but certain that the warning label provided by the brand-name manufacturer will be identical to the warning label provided by the generic manufacturer, and moreover that it will be relied on, not only by users of its own product, but also by users of the generic product.

Id. at *6 (emphasis original). Innovator liability thus exists to make innovator manufacturers pay for having complied with the "require[ments]" of the regulatory scheme imposed by the "Hatch-Waxman amendments," and for no other reason. Id.

Where a brand-name drug manufacturer provides an inadequate warning for its own product, it knows or should know that it puts at risk not only the users of its own product, but also the users of the generic product. Consequently, this is the rare (perhaps the only) type of case involving a manufactured product where the requirements of general negligence may be satisfied even where the requirements of products liability are not.

Id. at *6 (emphasis added).

"Perhaps the only" – there it is, a unique, expansive duty imposed on a non-manufacturing innovator pharmaceutical company because its FDA-approved warning is deemed inadequate under state law, with the duty expanded to include generic drug users because the defendant is forced by Hatch Waxman to let generic manufacturers (who are equally subject to the federal requirement) use its labeling verbatim. Under Rafferty, innovator liability is a consequence of a branded drug company's compliance with the FDCA, and nothing else. In and of itself, this massive transfer of liability based on conformity with the requirements of federal law raises serious preemption issues.

Back to Rafferty's rationale.

Unlike California, the Massachusetts court in Rafferty at least had the good sense to recognize that there were countervailing public policy considerations implicated by making a drug manufacturer liable for injuries caused by competing products:

[I]f consumers of generic drugs were allowed to recover damages for a brand-name manufacturer's negligent failure to warn, it would be far more difficult for the manufacturer to shoulder these costs, for three reasons.

First, these costs would not be incurred until after the brand-name manufacturer's patent monopoly expires and generic competitors enter the market, at which point the brand-name manufacturer will have suffered a precipitous decline in sales of its product. . . .

Second, because prices drop with generic drug competition, the sales of generic drugs may exceed the sales generated during the patent monopoly period, and may even continue indefinitely, long after the brand-name manufacturer has moved on to focus on other patented products. . . .

Third, because . . . [f]ederal preemption bars any generic drug consumer from bringing a failure to warn claim against any generic manufacturer, all such claims would be brought only against the brand-name manufacturer . . ., leaving the brand-name manufacturer without any ability to share the costs of litigation, or of a damage award or settlement, with the generic manufacturer.

Rafferty, 2018 WL 1354064, at *7-8 (citations and quotation marks omitted). Innovator manufacturers are thus "not in the best position to bear its [innovator liability's] costs." Id. at *8. Such liability "impose[s] on brand-name manufacturers an additional 'cost of production' for products that, in reality, they no longer produce." Id.

What is a "cost of production" for a "product[] that, in reality [is] no longer produce[d]"? Quite frankly, it is a cost that must inevitably be inequitably recouped, because the only way a drug manufacturer will pass along that cost is to consumers of other, non-defective products. With all the brouhaha lately about reducing the price of prescription drugs, innovator liability is a recipe for increasing those costs substantially.

[A]s a matter of public policy . . . allowing a generic drug consumer to bring a general negligence claim for failure to warn against a brand-name manufacturer poses too great a risk of chilling drug innovation, contrary to the public policy goals embodied in the Hatch-Waxman amendments.

Id. at *10.

Nonetheless, liability uber alles prevailed. Precedent be damned. Id. at *11 ("we find ourselves in the minority of courts that have decided this issue" – see our scorecard). "The widespread use of generic drugs means that, if we decline to impose any liability on brand-name manufacturers, countless consumers would be left without a remedy." Rafferty, 2018 WL 1354064, at *9. Rather than letting the state legislature (let alone Congress, which enacted Hatch-Waxman) balance large-scale public policy concerns, Rafferty created innovator liability for "reckless" conduct:

In other types of cases where we have circumscribed liability for public policy reasons, we have nevertheless consistently recognized that there is a certain core duty - a certain irreducible minimum duty of care, owed to all persons - that as a matter of public policy cannot be abrogated: that is, the duty not to intentionally or recklessly cause harm to others.

Id. Thus, Rafferty professed to "tolerate[] ordinary negligence but draw[] the line at recklessness. Id.

But did it really? There are two types of "reckless" conduct, as explained in Restatement (Second) of Torts §500 (1965) (defining "reckless disregard"). One is where the "actor knows, or has reason to know, . . . of facts which create a high degree of risk of physical harm to another, and deliberately proceeds to act, or to fail to act, in conscious disregard of, or indifference to, that risk." The second is where the "actor has such knowledge, or reason to know, of the facts, but does not realize or appreciate the high degree of risk involved, although a reasonable man in his position would do so." Id. comment a. The second of these is really just a glorified type of negligence. "An objective standard is applied . . ., and [the actor] is held to the realization of the aggravated risk which a reasonable man . . . would have, although he does not himself have it." Id.

Rafferty chose the second, dumbed-down version of "reckless disregard," using the Restatement's weak alternative definition of recklessness:

[H]e does an act or intentionally fails to do an act which it is his duty to the other to do, knowing or having reason to know of facts which would lead a reasonable man to realize, not only that his conduct creates an unreasonable risk of physical harm to another, but also that such risk is substantially greater than that which is necessary to make his conduct negligent.

Rafferty, 2018 WL 1354064, at *10 (quoting a case that quotes from Restatement §500) (emphasis added).

Under this standard, a brand-name manufacturer that intentionally fails to update the label on its drug to warn of an unreasonable risk of death or grave bodily injury, where the manufacturer knows of this risk or knows of facts that would disclose this risk to any reasonable person, will be held responsible for the resulting harm.

Id. at *11 (emphasis added). At least the "fails to update" language seems to limit liability to current NDA holders, which is some improvement on the even more malignant California style of innovator liability.

Is Rafferty's "recklessness" standard really going to contain the evil genii of innovator liability that has been let out of the bottle? We aren't holding our breath. Our brethren on the other side of the "v." have proven time and time again to be willing and able to allege whatever is necessary to state whatever cause of action they have to, whether or not the facts support it. Then they file hundreds or thousands of cases until the defendant settles rather than risks catastrophic liability – the legal "black hole" we mentioned at the outset of this post. Thus, we are skeptical, to say the least, of Rafferty's assurances that this novel form of liability "will not materially chill innovation or increase drug prices." Id. at *12. While Congress "in enacting the Hatch-Waxman amendments . . . expected that its Federal regulatory scheme would be supplemented with traditional State law remedies," id., innovator liability, is anything but "traditional," as indeed Rafferty itself recognized in the course of reaching its admittedly "minority" result.

Back when we first encountered mass torts in the prescription medical product context we realized that, as plaintiffs created new theories of liability, it was up to us to create new defenses to counter them. That's how Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341 (2001), came to be. We'll see what we can come up with this time. After all, as Stephen Hawking himself said, "[i]ntelligence is the ability to adapt to change."

This article is presented for informational purposes only and is not intended to constitute legal advice.

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