Contributed By Arnold & Porter Kaye Scholer LLP
The primary legislation governing the authorisation, marketing, sale and supply of pharmaceutical products by the US Food and Drug Administration (FDA) is the Federal Food, Drug, and Cosmetic Act (FD&C Act), which has been amended many times over the years to reflect increasing FDA mandates for regulation of pharmaceutical products. The Public Health Service Act (PHS Act) is the specific authority utilised to approve or license biologic (including biosimilar) products. Controlled substances, such as opioids, are also scheduled, and subject to quotas and distribution controls, under the Controlled Substances Act administered by the Drug Enforcement Administration.
A drug is defined as:
A biologic is defined under the PHS Act as “a virus, therapeutic serum, toxin, antitoxin, vaccine, blood, blood component or derivative, allergenic product, protein (except any chemically synthesized polypeptide), or analogous product, or arsphenamine or derivative of arsphenamine (or any other trivalent organic arsenic compound), applicable to the prevention, treatment, or cure of a disease or condition of human beings.” Biological products are also included within the drug definition and are generally covered by most of the same laws and regulations, but differences exist in the regulatory approach, particularly with respect to manufacturing processes.
Medical devices are also regulated by the FDA under the FD&C Act and, although subject to similar intent standards, such products generally are primarily intended to act via mechanical rather than chemical or biological modes of action. Medical devices are classified by risk and may be exempt from FDA review, subject to a '510(k)' pre-market notification process based upon a showing of substantial equivalence to a 'predicate' device, subject to down-classification via the 'de novo' submission process, or eligible for full approval via a pre-market approval application (PMA).
The primary agency responsible for the regulation of pharmaceutical and medical device products is the FDA, although the Drug Enforcement Administration also regulates FDA-approved drugs that are controlled substances. The government agencies touching on pricing and reimbursement vary depending upon the payer programme, and include the Centers for Medicare & Medicaid Services (CMS), the Veterans Health Administration and state Medicaid agencies. The Department of Health and Human Services Office of Inspector General oversees laws governing fraud and abuse in the sale of biomedical products and healthcare services. The Federal Trade Commission (FTC) regulates the advertising of non-prescription drugs and non-restricted medical devices.
Agency decisions may be challenged informally, via guidance processes governing informal dispute resolution, or via more formal regulatory processes specified under FDA regulations. In addition, a general-purpose vehicle for bringing issues before the agency is the Citizen Petition, which allows the petitioner to bring a request before the agency and create a public docket.
Once administrative processes are exhausted, parties with appropriate standing may challenge FDA agency decisions in court under the Administrative Procedure Act (APA), typically involving a demonstration that an agency action was arbitrary or capricious, or otherwise not in accordance with governing law.
Borderlines between categories of products are generally initially drawn by the FDA in administrative decisions made when products are presented to the agency. If a product is a combination of categories of products – eg, has both drug and device properties – a Request for Designation may be submitted to the FDA.
Conventional foods with functional health properties are regulated under general food requirements under the FD&C Act, with ingredients limited to those that are demonstrated to be "generally recognised as safe" (GRAS) or approved as food additives. Such products may bear claims relating to the impact of the food on the structure or function of the body via traditional nutritive value or other conventional food properties, as well as specific, FDA-approved health claims.
Dietary supplements are regulated under the FD&C Act as amended by the Dietary Supplement Health and Education Act of 1994. Under those provisions, dietary ingredients that were marketed for use in food or dietary supplements prior to 1994 may continue to be used, but new dietary ingredients must be the subject of notifications to the FDA. Dietary supplements may also be the subject of structure or function claims (without respect to traditional nutritive effects on structure or function), but cannot be the subject of disease-related claims without FDA approval of such claims via rule-making. The advertising of these products is regulated by the FTC.
A medical food is defined as “a food which is formulated to be consumed or administered internally under the supervision of a physician and which is intended for the specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognised scientific principles, are established by medical evaluation.” The FDA construes this statutory definition very narrowly. An example would be a specially formulated food for patients with an inborn error of metabolism.
Most initial drug approvals specify that the product is a prescription drug. Prescription drugs must be labelled as such and are subject to physician prescribing, and pharmacy dispensing and substitution controls under state law. However, it is possible to seek an initial FDA approval for the sale of a drug product OTC, or seek to 'switch' a prescription product to OTC status by demonstrating that the condition is capable of self-diagnosis and treatment in accordance with labelling. Moreover, over the decades, the FDA has also developed OTC monographs that permit the marketing, without approval, of certain OTC drugs that meet the specific terms. Currently pending legislation may liberalise the processes for amending OTC monographs and provide incentives that could reinvigorate OTC product development in the USA.
For drugs and biologics, unless subject to specific exemptions, an investigational new drug application (IND) must be submitted to obtain FDA clearance prior to engaging in clinical research. Such submissions typically include extensive pre-clinical data, information on chemistry, manufacturing and controls, prior human data and the proposed protocol(s). The FDA has 30 days to allow the clinical study to proceed or impose a clinical hold until outstanding issues are resolved. The FDA maintains an array of good clinical practice regulations governing clinical research. Similar rules apply to medical device research and, depending upon the risk posed by the device, a device study may require the submission of an investigational device exemption (IDE) prior to initiating clinical research.
As noted, in addition to obtaining approval to proceed with clinical research by filing an IND or IDE, as appropriate, virtually all studies must be reviewed by one or more IRBs prior to initiation. FDA regulations specify the requirements applicable to the composition and activities of IRBs.
The US National Institutes of Health maintains a database at www.clinicaltrials.gov and most controlled, interventional clinical investigations, other than Phase I clinical investigations, of drugs or biologic products subject to FDA regulation must be registered with the site. A recently finalised rule greatly expanded the obligation to post results information. While there is no general requirement to publish clinical trial data in journals, as a practical matter the industry has pledged to seek such publication where possible.
Such online tools may be used as long as they comply with applicable requirements (eg, privacy, data security, informed consent and other good clinical practice requirements, and establishing lawful status if such tools incorporate certain regulated medical device functionalities). Particular requirements apply to recruiting subjects for clinical studies, and advertisements for study subjects, whether online or otherwise, must be limited to basic information.
The data resulting from clinical trials would be considered protected, although in certain scenarios the sponsor and the FDA will have access to such information, including patient identifiable information, in order to conduct and analyse the data from the study properly.
As long as any transfer of resulting data to a third party or an affiliate is consistent with contractual obligations, informed consent and privacy protections, such transfers are permitted.
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A database containing personal or sensitive data may be subject to both contractual and statutory protections obliging maintenance of data security and privacy. Such data is also typically protected under the Freedom of Information Act to the extent it has been submitted to a US government agency.
Such determinations are typically made by assessing the mode of action of the product and whether it works by chemical or biological (pharmaceutical) or other means. If the product has both chemical/biological and mechanical modalities, a Request for Designation may be submitted to the FDA to seek a ruling on the proper pathway for approval.
Drug products are approved via New Drug Applications (NDAs) and additional indications, dosage forms, etc, may be added via NDA supplements. Biologic products are approved via a virtually identical process for Biologics License Applications (BLAs). The standard for approval is “substantial evidence” based upon at least one, and typically several, adequate and well-controlled clinical studies, although some flexibility is often shown vis-à-vis drugs used in orphan populations. The typical drug or biologic review process takes ten months after initial acceptance for filing, although priority review of six months is given to certain drugs and biologics intended to treat serious or life-threatening conditions.
Under the 505(b)(2) NDA process, an applicant may submit an NDA that relies in whole or in part on data and literature that is in the public domain and for which the applicant does not have a right of reference. Generic applicants submitting Abbreviated New Drug Applications (ANDAs) may also rely upon FDA findings with respect to a prior reference listed brand drug, assuming they are not blocked from such reliance by outstanding statutory exclusivities or the terms of listed patents and they have successfully invalidated or demonstrated non-infringement of the listed patents in court after a certification under the Hatch-Waxman statutory process.
Medical devices may be cleared via a 510(k) pre-market notification or PMA, depending upon the risk classification of the device, and those processes may require from 100 days for a 510(k) submission to a year for a full PMA.
Substantial user fees are required to facilitate review of applications, at the high end ranging to approximately USD2.4 million for an NDA or BLA containing clinical data.
There is no mandatory reauthorisation or renewal process for approved products. However, the FD&C Act and FDA regulations include processes for the withdrawal or revocation of an approval based upon non-compliance with approval requirements, or a significant safety or effectiveness issue. In general, a marketing authorisation may not be revoked merely because the product has not been placed on the market, although a failure to market an orphan drug could result in orphan exclusivity.
As noted, the pathways for approval of drugs consist of the submission of an NDA (including a 505(b)(2) NDA relying on data for which the applicant does not have a right of reference) and the ANDA for generic products, which demonstrates equivalence to a reference listed drug. A biologic is licensed via the submission of a BLA, although that process is largely the equivalent of an NDA submission. A biosimilar application demonstrates that the biosimilar is, based on the totality of the evidence, “highly similar” to, or interchangeable with, a reference biologic. To date, no such submission has resulted in a determination of interchangeability.
The FDA is authorised to require paediatric studies of drugs or biologics when other approaches are insufficient to ensure that the products are safe and effective for use in children. The Agency may also issue a written request for paediatric research and if the sponsor fulfils the data request, it may obtain six months of paediatric exclusivity.
As noted, changes to an existing marketing authorisation may be obtained through supplements or amendments to existing applications. With respect to medical devices, submission of additional 510(k)s can result in the clearance of changes to previously cleared device products and a PMA may also be supplemented or amended.
In many cases, the transfer of a clearance or approval without manufacturing site or product changes requires only fairly simple notifications to the FDA to transfer the authorisation or application and appropriate amendment of product listings.
The FDA maintains regulations permitting expanded access to investigational products. Such expanded access INDs and IDEs may relate to an individual patient (often called a compassionate use IND or IDE), or may allow broad use by patients not eligible for controlled clinical trials, depending upon the known risk-benefit and availability of alternative treatments. Sponsors of such INDs may not charge patients for the investigational drug without specific authorisation from the FDA permitting cost recovery.
In addition, the 2018 'Right to Try' Act permits certain eligible patients to have broad access to eligible investigational drugs in certain circumstances. To date, most companies have shown a reluctance to permit their products to be used via this pathway in lieu of the more traditional IND pathway.
Every drug, biologic or device product is subject to ongoing requirements relating to establishment registration, product listing, compliance with cGMPs/quality systems, track and trace requirements, and safety/adverse event reporting regulations. In certain cases, the FDA may require closer, ongoing oversight of a drug or biologic under a Risk Evaluation and Mitigation Strategy (REMS), or mandate post-market studies or trials. The FDA now has extensive authority to require post-market studies or trials as a condition of drug or biologic marketing authorisation, subject to specific standards.
While the FDA does release approval letters and – after review for redaction of confidential and trade secret information – summary approval documents, the FDA does not currently publish 'Complete Response Letters' that reject an application under review. Such information on approved products may be obtained via the FDA’s Drugs@FDA website. Often, extensive information about pending applications is released in the form of briefing papers and presentations used at FDA Advisory Committee meetings. The FDA does not reveal the existence of pending INDs or IDEs unless the sponsor has publicly acknowledged the findings.
Third parties may submit requests for information under the Freedom of Information Act (FOIA), although there are a variety of exceptions from disclosure.
In 2013, Congress enacted the Drug Supply Chain Security Act (DSCSA), which mandates steps to build an electronic, interoperable system to identify and trace certain prescription drugs as they are distributed in the USA. The objective is to enhance the FDA’s ability to help protect consumers from exposure to drugs that may be counterfeit, stolen, contaminated, or otherwise harmful, and improve detection and removal of potentially dangerous drugs from the drug supply chain.
The FDA’s Office of Criminal Investigation (OCI) has primary responsibility for policing drug and medical device counterfeiting and diversion, and at times companies will approach the OCI and other law enforcement bodies to seek an investigation and enforcement action.
The FDA and Customs and Border Protection work together to identify and detain counterfeit medical products, and it is possible to work with those agencies to seek enhanced surveillance with respect to potential importation of such products. The FDA has extensive powers to stop products at the border if they are suspected to be adulterated or misbranded. In addition, companies may file actions seeking an investigation under Section 337 of the Tariff Act with respect to unfair acts in the importation of articles, although such actions may fail if positioned as an attempt to enforce the FD&C Act privately.
The USA has few price controls for pharmaceutical products and none for medical devices. Therefore, in most cases, the manufacturer of a product sets the initial price and adjusts prices (including rebates and other price concessions) over time in response to market conditions. However, there are a few federal laws that cap pharmaceutical prices to certain purchasers or require minimum rebate levels:
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In the USA there is no national health authority that negotiates or approves prices of pharmaceutical products. If a new drug is costly then many payors (both private and public) may seek to negotiate a rebate with the manufacturer to reduce the drug’s net cost before deciding whether to include the drug on their formulary and, if so, which formulary tier the drug will occupy, and whether it will be subject to utilisation management restrictions such as prior authorisation or step therapy.
The largest healthcare programme in the USA today is the Medicare programme, which provides healthcare coverage for people who are 65 and older, disabled (for two years or more), or have end-stage renal disease. Medicare accounts for roughly 20% of US health spending. Today, most pharmaceutical products are eligible for some form of Medicare coverage, either through:
The second-largest healthcare programme today – accounting for roughly 17% of US health spending – is the Medicaid programme, which is a joint federal-state programme providing coverage for certain low-income individuals (with the specific eligibility criteria varying by state). Medicaid is run chiefly by states, with federal government oversight.
The process and evidence that US payors use to make decisions about pharmaceutical and medical device coverage varies widely by payor (and is not always entirely transparent). These variations can include the criteria considered appropriate for evaluation (eg, whether a product’s cost or cost-effectiveness is taken into account in coverage decisions), the scientific rigour of the evidence considered and the weight placed on the types of evidence considered, the decision-making body and the processes for making coverage decisions, and the legal standards that apply to the coverage decision-making process and the resulting package of covered products and services. There are several organisations engaged in developing value-assessment tools of various sorts, which essentially are tools designed to help payors, healthcare providers and patients compare certain demonstrated outcomes of competing pharmaceuticals on a systematic basis and thus to reach conclusions about their value in a more systematic and rigorous way than is common today.
Pharmacists are paid for dispensing prescriptions by the patient’s insurer (assuming the patient is insured and the product is covered) and the patient. The circumstances in which pharmacists may dispense a substitute for the prescribed product without obtaining the prescriber’s authorisation are governed by state law. State laws on this issue can vary, but generally they permit pharmacists to substitute a product approved by the FDA as a generic equivalent for the prescribed product (unless the prescription specifically states “dispense as written” or a similar phrase indicating no substitution).
These laws generally permit biosimilar pharmacy-level substitution only if the substituted product has been designated as interchangeable with the prescribed biological by the FDA, which has not occurred to date.
Under the FD&C Act, the FDA has promulgated extensive regulations and guidance governing the promotion and marketing of prescription pharmaceutical and medical device products. These rules are under considerable scrutiny at this time due to developing case law questioning the basis for the FDA to restrict the flow of truthful and non-misleading information regarding off-label uses. In recent guidance documents, the FDA has indicated significant new flexibility with respect to claims for products that, while not in the label, are nonetheless 'consistent' with the label, such as subgroup analyses of pivotal trial data. The FDA has also signalled significantly greater flexibility with respect to communications to payors relating to investigational products and investigational uses of approved products. In addition, special statutory rules allow the communication of on-label healthcare economic analyses to payors and similar entities based upon a competent and reliable scientific evidence standard.
The rules governing OTC products are somewhat different, with the FDA regulating the labelling of such products and the FTC regulating most OTC drug advertising.
Similar but less extensive rules apply to the promotion of medical device products, although the level of FDA enforcement relating to medical device promotion is considerably lower, and the FTC has primary jurisdiction over the advertising of non-restricted medical devices.
For drug and biologic products generally, promotional labelling and advertising must be submitted to the FDA at the time of initial dissemination, but no pre-approval is required. However, a special pre-submission regime applies to drug and biologic products approved on an accelerated basis founded on surrogate markers or endpoints (subpart H drugs).
There is no self-regulatory body for the promotion of prescription drug or medical device products, although the industry associations PhRMA and AdvaMed have published compliance codes of conduct that pertain to promotional activities. For OTC products, at times the dispute resolution procedures of the National Advertising Division of the Better Business Bureau (NAD) may be utilised. The NAD proceedings generally pertain to advertising that is national in scope or disseminated on a broad regional basis. Such cases can result in a referral of the matter to the FTC. Companies may also resort to the courts to seek redress against competitors under the Lanham Act and similar laws. However, such laws cannot be utilised as a private right of action to enforce violations of the FD&C Act.
For prescription drugs, breaches are generally subject to enforcement by the FDA via untitled and warning letters, and the threat of court action with the Department of Justice. If the promotional violations relate to the flow of money to healthcare providers or institutions, other statutes, such as the Anti-kickback Statute administered by the Office of Inspector General, may be the source of charges by the Department of Justice, or private relators who may initiate an action under the False Claims Act.
There is a wide variety of sanctions possible for promotional violations, depending upon the enforcing body and the applicable statute. The FD&C Act provides for both civil and criminal penalties, injunctive relief and product seizure. Treble damages may be obtained by private relators and the government under the False Claims Act. Companies and individuals may be excluded from participation in government healthcare programmes. In addition, companies and individuals may be forced to enter into consent or deferred prosecution agreements, as well as Corporate Integrity Agreements.
As noted, competitors may sue each other under the Lanham Act or equivalent state laws, complain to the FDA or other enforcement agencies to seek action, or resort to the NAD process.
NAD dispute resolution processes may result in a ruling requesting corrective action and if the party involved does not respond, a referral to the FTC may occur. In Lanham Act cases, injunctive relief and monetary damages may be sought, but such cases require significant devotion of resources and may take several years to resolve. Similar cases may be brought under state unfair trade practices laws.
This is a very significant area of enforcement due to the Anti-Kickback Statute, which prohibits remunerating healthcare professionals for prescribing. Extensive law has developed around appropriate means of engaging healthcare professionals (eg, consulting, advisory boards, speakers), providing grants and sponsorships, and similar activities. At a high level, these restrictions focus on ensuring a bona fide lawful purpose and fair market value for the provision of legitimate services. US trade associations, such as PhRMA and AdvaMed, have also developed codes that seek to ensure that these relationships are compliant and appropriate. In general, the provision of gifts to healthcare professionals is rarely allowed.
In the USA the Physician Payment Sunshine Act, administered by CMS as the Open Payments programme, requires manufacturers of drugs, medical devices and biologicals that participate in US federal healthcare programmes to report publicly most payments and items of value given to physicians and teaching hospitals, as well as certain physician financial interests in manufacturers. Per recent legislation, after 1 January 2022 such reports must also include information regarding payments and transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anaesthetists and certified nurse-midwives.
Regardless of promotional medium, the FDA generally focuses on investigational products, newly approved products, products with significant risks (eg, those with black box warnings and/or REMS), products cited for violations in the past, products cited in complaints and products promoted with far-reaching campaigns.
The Department of Justice and Office of Inspector General focus on the above areas in investigations and False Claims Act cases, but also have a strong focus on prosecuting kickbacks paid to healthcare practitioners and institutions.
Although the primary statutory authority is the FD&C Act, the FTC and states may also take action with respect to allegations of false, misleading, or otherwise deceptive drug or device promotional practices under the FTC Act and equivalent state laws.
The FDA has been very active in providing guidance in this area and has carved out large categories of apps and platforms from regulation. On 7 December 2017, the FDA announced several health policy documents designed to "encourage innovation" and "bring efficiency and modernisation" to the agency's regulation of digital health products. The guidance documents address, in part, the important changes made by Section 3060 of the 21st Century Cures Act (Cures Act) to the medical device provisions of the FD&C Act that expressly excluded from the definition of medical device five distinct categories of software or health products.
First, the FDA released its long-awaited draft guidance on Clinical and Patient Decision Support Software, which outlines the FDA's approach to clinical decision support software (CDS). The draft guidance is intended to "make clear what types of CDS would no longer be defined as a medical device, and thus would not be regulated by" the FDA.
Second, the FDA issued draft guidance entitled Changes to Existing Medical Software Policies Resulting from Section 3060 of the 21st Century Cures Act, which outlines the FDA's views as to the types of software that are no longer considered medical devices (eg, lifestyle or wellness apps).
Lastly, the FDA finalised its October 2016 draft guidance on the clinical evaluation of software as a medical device (SaMD), which establishes common principles for regulators to use in evaluating the safety, effectiveness and performance of SaMD.
The FDA does not regulate the practice of medicine and the Agency generally defers to the states to determine what is a valid physician-patient relationship and prescription. Although telemedicine is growing in the USA, and more and more physician consultations are being provided online via chat-based or video exams, the permissibility of such activities varies by state. Various laws govern issues such as the corporate practice of medicine, minimum rules for a genuine patient relationship, cross-border prescribing and lab orders, privacy, and payments and referrals to telemedicine physicians.
Medicinal and medical device products may generally be promoted online, on company websites, and via social media. However, such media present special challenges to ensure that the promotion is fairly balanced, truthful and non-misleading, transparent as to the company’s involvement and adequately provides safety information in particular. The FDA has developed several guidance documents in this area.
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In addition to FDA rules, addressed above, regarding digital tools that convey health records and images, there are many other aspects to the regulation of electronic health records in the USA. In particular, the HHS Office of the Coordinator for Health Information Technology (ONC) is responsible for implementing statutory provisions relating to advancing interoperability, clarifying Health Insurance Portability and Accountability Act (HIPAA) privacy rules, prohibiting information blocking, and enhancing the usability, accessibility, and privacy and security of health IT. The Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009 provided HHS with the authority to establish programmes to improve healthcare quality, safety and efficiency through the promotion of health IT, including electronic health records and private and secure electronic health information exchange.
Manufacturers are required to register their establishments and list the products that are manufactured at that establishment, and pay associated user fees, but the authorisation of the manufacture is tied to the approval of the corresponding product. The FDA routinely inspects manufacturing facilities prior to approval to ensure that the manufacturing activities are consistent with the terms of the application and cGMP requirements. There is no time period for the manufacturing authorisation and establishments are inspected by the FDA throughout the life of the product on both a routine and for-cause basis.
The primary inspections are conducted by the FDA, typically involving both FDA field personnel and headquarters' drug manufacturing compliance experts. Inspections are typically conducted for pre-approval, on a periodic basis (eg, every two years), and for-cause. Inspections are typically unannounced and may be conducted at any reasonable time and in any reasonable manner. Inspectors may request documents and often spend days or weeks reviewing records and observing manufacturing processes. If observations of potentially violative conditions are found, an FDA Form 483 is issued to the manufacturer, detailing the observations. The manufacturer typically responds within 15 business days (in the absence of an emergency finding) and then the FDA determines whether further action is indicated, ranging from a warning letter to a criminal prosecution.
In general, wholesale activities are subject to licensure requirements at the state level and registration as distributors at the federal level.
The FDA may inspect any facility holding drugs for shipments, and state inspection activities and fees vary greatly. Significant additional requirements administered by the Drug Enforcement Administration and states apply to wholesale trade in controlled substances.
The authorisation to trade in pharmaceuticals varies greatly by state, but most pharmaceutical distributors must hold a state licence.
Drugs may be either prescription (as defined under state law, generally subject to prescription by a designated healthcare practitioner and dispensing by a licensed pharmacist) or OTC (permitting sale without intervention by a healthcare practitioner or pharmacist). Certain products (pseudoephedrine) are required by be kept behind the pharmacy counter due to specific statutory requirements and the FDA is exploring methods for expanding direct availability of products via the use of apps and kiosks in pharmacies permitting education and diagnostic screening.
The FD&C Act and general import and export administration laws govern the import/export of pharmaceuticals and medical devices. In general, imported medicines and medical devices must be subject to an approval or clearance, if applicable, in the USA. Only the original manufacturer of a drug may reimport a drug product back into the USA. The importation of even an identical drug produced at a facility that is not inspected in the course of the US approval would be considered unlawful.
At the border, the primary regulators are the FDA, administering the FD&C Act for potential violations, and US Customs and Border Protection, administering the broad array of US laws governing customs matters. Other agencies, such as the Department of Commerce and Department of Agriculture, may have responsibilities as well, depending on the nature of the imported article.
Importers of record have specific responsibilities. A US importer of record (ie, the owner, purchaser, or licensed customs broker designated by the owner, purchaser, or consignee) files entry documents for the goods with the port director at the goods' port of entry. It is the importer of record's responsibility to arrange for examination and release of the goods. Initial importers may also be responsible for registration and listing requirements as well. Customs requires the importer of record to file an importation bond, typically at least equal to three times the invoice value of the goods.
A drug or medical device must be cleared or approved (and the product properly listed in association with a registered establishment), or the subject of an active IND or IDE, in order to be lawfully imported. Exceptions are made for importation of a very limited amount of a product for personal use and the FDA will work with potential importers in certain situations (eg, compassionate use, short supply) to expedite satisfaction of regulatory requirements.
Upon entry into the USA, declarations and information must utilise the Customs Harmonized Tariff Schedule codes according to the Harmonized Tariff Schedule of the US (HTSUS) and FDA product codes. Such declarations are subject to specific regulations issued by Customs and the FDA. A failure to classify a product properly may result in an improper payment of Customs duties and associated penalties.
Certain technologies may require an export control licence from the US Department of Commerce under the Export Administration Regulations (EAR). The Export Control Classification Numbers drives the level of export restriction under the EAR.
The US Department of Commerce regulates the export of 'dual-use' items that have commercial and military or proliferation applications. Dual-use export licences are required in certain situations involving national security, foreign policy, short-supply, or chemical and biological weapons, and the licence requirements depend on the item's technical characteristics, the destination, the end-use and the end-user, and other activities of the end-user.
The USA is a member of the WTO and has free trade agreements in effect with 20 countries. Some are bilateral agreements, but others are multilateral in nature.
The USA maintains a fairly extensive array of economic sanctions regimes, including specific frameworks relating to Iran, Russia, Syria, Sudan and Cuba. Others sanction regimes are targeted at specific areas, such as counter-terrorism and counter-narcotics, and focus on specific individuals and entities. US sanction regimes often include humanitarian exceptions that permit the export of medical products to the sanctioned jurisdiction, subject to certain limitations.
The statutory framework for US patent law is generally set out in United States Code Title 35. The Leahy-Smith America Invents Act (AIA), Public Law 112-29, 125 Stat 284 (16 September 2011) effected sweeping changes to US patent law; one of the most significant of these changes was to bring the USA (mostly) into compliance with the rest of the world with respect to prior-art determinations. Post-AIA, the USA is a 'first-inventor-to-file' jurisdiction approaching the 'first-to-file' methodology employed virtually everywhere else in the world.
The Drug Price Competition and Patent Term Restoration Act, commonly known as the Hatch-Waxman Act (Public Law 98-417), amended the FD&C Act and framed the government’s regulation of generic drugs, including an orderly process for co-ordinating FDA generic approval with ongoing litigation relating to patents listed by brand manufacturers if a generic files a Paragraph IV certification.
Although not technically a patent law, the Biologics Price Competition and Innovation Act of 2009 amended the Public Health Service Act to create an abbreviated licensure pathway for biological products that are demonstrated to be 'biosimilar' to or 'interchangeable' with an FDA-licensed biological product, with a parallel set of rules relating to patent litigation.
To be patentable under US law, an invention must be (i) patentable subject-matter, (ii) novel and (iii) not obvious. Patentable subject matter includes “any new and useful process, machine, manufacture, or composition of matter” (35 USC §101). Novelty requires that the invention has not previously been “patented, described in a printed publication, or in public use, on sale, or otherwise available to the public before the effective filing date of the claimed invention” (35 USC §102). Finally, an invention must not be obvious; ie, it cannot be the case that “the differences between the claimed invention and the prior art are such that the claimed invention as a whole would have been obvious before the effective filing date of the claimed invention to a person having ordinary skill in the art to which the claimed invention pertains” (35 USC §103).
Patent protection is available for new uses of known compounds, processes, manufactures, etc, that satisfy the general requirements for patentability (including novelty and non-obviousness). Claims may be directed to 'methods of treatment'.
A new dosage regime may be patentable if it satisfies the requirements for patentability. Such claims are often subject to obviousness challenges.
A claim could be directed to a method of treating a patient suffering from new disease X by administering an effective amount of known compound Y to the patient.
35 US Code §§ 154 and 156 address certain adjustments and extensions of patent term, with Section 156 being particularly applicable to pharmaceuticals. Certain medical devices may also be eligible for patent-term extension; however, such devices must be reviewed and approved via a PMA The FDA assists the US Patent and Trademark Office (USPTO) in determining a product’s eligibility for patent-term restoration and provides information to the USPTO regarding a product’s regulatory review period. The USPTO is responsible for determining the period of extension subject to statutory requirements.
Infringement may occur if the defendant has made, used, sold, offered to sell or imported an infringing invention or its equivalent. A generic applicant may file an ANDA, which allows that applicant to rely on the safety and efficacy studies supplied by the brand name manufacturer if the generic manufacturer shows that its generic product contains the same active ingredient as, and is bioequivalent to, the brand name drug listed in the Approved Drug Products with Therapeutic Equivalence Evaluations publication commonly known as the Orange Book. In doing so, the generic applicant must make one of four certifications with respect to any patents associated with the drug. The fourth is that the “patent is invalid or will not be infringed by the manufacture, use, or sale of the new drug for which the application is submitted” (21 USC §355(j)(2)(A)(vii)). Such a 'paragraph IV' certification is deemed a constructive act of infringement and the patent-holder then has 45 days to file an infringement lawsuit against the ANDA applicant. If such a lawsuit is filed, the FDA generally may not grant final approval of the ANDA for 30 months after the filing date or until the ANDA filer prevails in litigation. If patent validity and infringement remain unresolved after the 30-month stay, the FDA may approve the ANDA. There is no equivalent statute and regime for medical devices.
Under 35 USC § 271(e)(1), it is not an act of infringement to make, use, offer to sell or sell within the USA or import into the USA a patented invention “solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.” In Merck KGaA v Integra Lifesciences I, Ltd, the US Supreme Court held that the statute exempts from infringement all uses of compounds that are reasonably related to submission of information to the government under any law regulating the manufacture, use or distribution of drugs.
Compulsory licences are available only in very specific situations and generally not under patent law.
Typically, the patent-owner brings the suit alleging patent infringement. Depending on the wording of the licence agreement, an exclusive licensee may also have standing to enforce the licensed patent.
Remedies may include a temporary or permanent injunction, destruction of infringing articles, the award of damages (including the infringer’s profits) and, in certain limited circumstances, attorneys’ fees. Patent litigation is much like other civil litigation in the federal district courts in the USA (including a very high settlement rate). In addition to raising invalidity as a defence in court, a potential infringer (or any third party) can challenge the validity of a patent in proceedings before the Patent Trial and Appeal Board (PTAB).
An NDA includes patent information and the FDA considers patent protection as part of the approval process for certain drug applications. If a patent that covers the drug exists, marketing approval will not be granted to a generic until the patent has expired or is found to be invalid. An ANDA filer must make one of four certifications with respect to any patents associated with the drug. It is possible that after making a Paragraph IV certification, the patent-holder may elect not to file an infringement lawsuit. If the patent-holder does not bring suit, the FDA may approve the ANDA. An ANDA filer may not file a declaratory judgment suit during the 45-day period in which the patent holder may elect to bring a suit. If the patent-holder files suit against the generic applicant within the 45-day period, the generic may file a declaratory judgment counterclaim so long as an actual case or controversy continues to exist. A generic drug manufacturer may also challenge the listing of a patent in the Orange Book as part of a counterclaim or non-infringement declaratory judgment action.
A generic drug manufacturer may launch 'at risk' if patent validity and infringement remain unresolved after the 30-month stay and FDA approves its ANDA. In such cases, the generic may be liable for damages if the patent(s)-in-suit are ultimately held to be valid and infringed.
Trade mark and trade dress owners can sue manufacturers and sellers of counterfeit pharmaceuticals and medical devices for infringement. Additionally, a general exclusion order can be sought in the International Trade Commission (ITC) seeking to have infringing articles seized at the border by Customs. The possession, trafficking and purchasing of counterfeit pharmaceuticals and medical devices can also be criminally actionable on the federal or state level.
A US adopted name (USAN), which is a non-proprietary name reviewed by the World Health Organization, is necessary to market a pharmaceutical in the USA. The USPTO reviews and registers federal trade marks (pursuant to the Lanham Act). In doing so, the USPTO considers the likelihood of confusion with other marks and whether the mark is distinctive along with whether the mark is a surname, likeness, geographically descriptive of the origin of the goods, disparaging or offensive, a foreign term that translates to a descriptive or generic term, or is purely ornamental. The Trademark Trial and Appeal Board may cancel a mark if it finds that a registrant was using the mark to misrepresent the source of the corresponding goods or differences with prior marks do not offset the likelihood of confusion.
The FDA has authority under the FD&C Act to determine whether a pharmaceutical is misbranded; ie, “its labelling is false or misleading in any particular” (21 USC § 352(a)).
The Lanham Act and the Tariff Act (19 USC § 1526) may provide a basis to bring claims in federal district court against parallel importers for damages and injunctive relief. Any injunction would be enforced through the federal courts rather than Customs and Border Patrol. Sometimes, the district court action is stayed pending the outcome of an ITC proceeding.
Importation may violate Section 337 of the Tariff Act, which grants the ITC jurisdiction to investigate claims of trade mark infringement (19 USC § 1337). The ITC cannot award damages, but can issue exclusion orders that are enforced by Customs and Border Patrol.
Trade dress protection is available for colour, shape (including pill shape) and packaging that identifies the source of the product and otherwise distinguishes the product but is not purely functional or likely to be confused with the trade dress of another product.
For pharmaceuticals, under the Hatch-Waxman Act described above, there is a period of data exclusivity of five years from the date of approval of data exclusivity for new chemical entities and a period of data exclusivity of three years from the date of approval for supplemental applications, including clinical studies sponsored by the applicant that are essential to the approval. An approved biologic may be subject to 12 years of exclusivity. Such periods can run irrespective of, but concurrent with, any patent term associated with the drug or treatment using the drug. Other exclusivities are available for designated orphan drugs (seven years of market exclusivity), designated Qualified Infectious Disease Products (five years of additive exclusivity), 180 days (first generic applicant filing a patent certification) and satisfying paediatric study requests (six months of additive exclusivity).
There is no true exclusivity framework for medical devices and 510(k)-cleared devices may be designated as predicate devices immediately upon clearance. However, subsequent applicants for a class III device may not rely on data in PMA-approved medical device products.
The pharmaceutical and medical device industries area is subject to challenges involving the same general anti-competitive conduct seen in other industries, such as conspiracies, exclusive dealing, bundling/tying and deceptive advertising practices. Additionally, however, there are a few major topics that are more prominent in, or unique to, the pharmaceutical industry. Especially of late, there has been a major focus on certain settlements of Hatch-Waxman patent cases, commonly known as 'reverse payment' or 'pay-for-delay' cases. These challenged agreements involve the settlement of patent infringement claims involving a patent-holder and potential generic entrants, in which the generic manufacturer receives value as part of the settlement beyond an earlier entry date to the marketplace.
Another prominent area of antitrust law within the pharmaceutical sector is alleged 'product-hopping', which involves exclusionary conduct around the launch of a new product. The concern in these situations is that patent-holders could extend their periods of exclusivity and monopoly profits by coercing customers to switch to a new, non-expiring product.
Bundling and tying concerns are also particularly prominent in the pharmaceutical industry, due to the prevalence of patented products. Finally, the industry is also ripe for violations of the Robinson-Patman Act, which prohibits price discrimination among purchasers that are in competition.
As mentioned above, these agreements are the subject of one of the most active areas of antitrust law in the USA, with over a dozen cases currently ongoing. 2015 was a particularly notable year in this area, with the FTC settling for disgorgement of USD1.2 billion in the long-running dispute over Provigil®, while a case involving Nexium® became the first case to go to trial since the Supreme Court’s 2013 decision in FTC v Actavis.
Essentially, the theory of harm recognised by the Supreme Court is that in a pay-for-delay case the brand manufacturer is providing a large payment in exchange for delayed entry and thereby restricting output. While the arrangement would be likely to benefit both parties to the agreement, the presumption is that drug purchasers would be harmed by the extended period of exclusivity. There are numerous questions that the Actavis decision left to be answered by lower courts.
The use of successor drugs to extend an expiring patent, often characterised as 'product-hopping', has been heavily scrutinised (see, for example, NY v Actavis). The theory of harm in these cases posits that product-hopping prevents generic competitors from entering and competing with the newly expired product, allegedly forcing supra-competitive prices to remain long past the expiry of the original patent.
The Department of Justice and the FTC are the primary governmental enforcers of civil antitrust laws. Each agency has the ability to bring suits related to mergers or conduct, while the FTC also deals with issues surrounding unfair trade practices and consumer protection. In addition, the Department of Justice may bring suit to prosecute criminal antitrust violations. Attorneys general representing individual states also have the ability to bring suit under state antitrust laws, which often closely resemble their federal counterparts, or based on federal laws, on behalf of individuals residing within their states or the states themselves. Ultimately, however, the majority of suits are actually brought by private plaintiffs, who also have the ability to file suit for damages and injunctions under most federal and state causes of action. Most antitrust suits are heard in federal or state court, although the FTC will sometimes file administrative complaints, which initiate formal proceedings before administrative law judges.
The convoluted structure of the pharmaceutical industry can lead to unique allegations of anti-competitive conduct. For instance, the last few years have also seen a rise in cases in which a branded pharmaceutical manufacturer has sued another brand manufacturer for using its dominant market position to foreclose an upstart competitor. These cases all involve allegations that the defendants induced pharmacy benefit managers, insurers and/or other third-party payors to exclude the products of competing manufacturers expressly or implicitly in favour of their own dominant drugs by offering attractive discounts and rebates that were conditional on the exclusivity. Several of these cases have now advanced past the motion-to-dismiss stage and further substantive rulings could have wide-ranging impacts on pharmaceutical contracting practices.
The legal provisions that are important for each relevant agreement or deal structure are detailed below.
The important legal provisions for US life sciences M&A transactions structured as share sales typically include purchase price calculations (including milestone payments, if applicable) and adjustments (which are addressed in more detail below), disclosure, conditionality and risk allocation. The seller’s representations and warranties in the share purchase agreement play a critical role with respect to each of the last three topics.
Parties to US life sciences share sale transactions will also typically spend considerable time negotiating pre-closing covenants (including undertakings by the seller to operate the target business in the ordinary course, consistent with past practice, between signing and closing), post-closing covenants (which may include non-competition and non-solicitation undertakings), other conditions precedent to the parties’ obligations to complete the transaction (including the receipt of any required governmental or third-party consents or approvals and, in many cases, the absence of any material adverse change in the target’s business), and the terms of the parties’ indemnification obligations to each other (including monetary limitations on such obligations, such as 'baskets', 'thresholds' and 'caps', and waivers of specified categories of contractual damages).
Other than with respect to deal structure, the important contractual terms for US life sciences M&A transactions structured as asset sales are substantially similar to the share sale terms described above. The fundamental challenge in documenting an asset sale transaction is to define and describe, with specificity, the scope of the assets to be purchased by the buyer (or excluded) in the transaction and the scope of the liabilities to be assumed by the buyer (or excluded).
A joint-venture structure includes many of the same items described above for share and asset sales, in so far as the parties’ relative contributions to the joint venture are concerned (particularly as such terms relate to the identification and allocation of assets and liabilities) and many of the same items as described below for commercial agreements (particularly in relation to the ownership and licensing of IP). The fundamental differences between M&A terms, on the one hand, and joint-venture terms, on the other, relate to corporate governance and exit provisions. As a 'living document', a joint-venture agreement between two or more companies will contain detailed descriptions of management rights and decision-making authorities, the terms of which will vary based on the relative ownership and control of the joint-venture entity among the parties. Equally important will be to specify the manner in which the joint venture will be terminated or unwound and the terms and conditions on which one or more parties to the joint venture may transfer or sell its interest in the joint venture to a third party. In addition, there are some unique legal issues presented when one of the joint venture partners is a tax-exempt organisation.
Licence agreements typically involve technology of one or both parties. Therefore, one key contractual issue is the ownership and licensing of IP. It is to the benefit of each party to state expressly who owns IP created prior to their entry into the agreement, who owns IP created thereafter and who is responsible for protecting and enforcing that IP. If one party will need access to the IP of the other, another key term will be the scope of any licences granted to the other party, including what rights the licensee has to use the IP, what IP the licence covers, the territory in which the licence is valid, whether it is limited to a particular field of use, and whether and to what extent the licence may be further sublicensed or transferred.
Typical life sciences commercial arrangements include collaboration agreements, development agreements, commercialisation agreements, manufacturing agreements and, frequently, combinations of the foregoing. Along with the considerations described above with regard to licence agreements, in collaboration and development arrangements the parties often also include milestone payments for a party’s completion of regulatory events and/or commercial success. In some cases, particularly when one party has an existing product that may compete with the new product (ie, the product subject to the parties’ collaborative efforts), the parties may agree to a profit share.
Deal terms for US M&A transactions in the life sciences industry have become increasingly complex in recent years to address disagreements over valuation and risk. For example, parties to M&A transactions have incorporated terms from licensing and collaboration agreements to shift risk and identify valuation points that allow differences in valuation to be resolved among the parties with the passage of time and events. Milestone payments and similar adjustments that can 'bridge the gap' are commonly tied to research, development, regulatory and commercial achievements that have more traditionally been tied to licensing and collaboration agreements, and, as with purchase price adjustments (described below), escrow funds can be used to secure the buyer’s obligations to fund such milestone payments. Milestone payments may take the form of earn-out clauses or contingent value rights. Additionally, 'go-shop' rights and matching rights can be utilised to provide more certainty to the parties that the best deal is on the table.
Particularly in the case of US life sciences targets with more mature product portfolios, buyers will customarily include purchase price adjustments, which are most commonly based on changes in net working capital at closing as measured against an agreed target amount (calculated based on a trailing twelve-month average or similar 'normalised' amount). 'Locked box' arrangements are significantly less common in the US market than they are in Europe. In the case of transactions that are priced on a 'cash-free, debt-free' basis, there may also be separate adjustments to the purchase price to reflect the cash and/or debt position of the target at closing. It is equally customary for a portion of the purchase price to be funded into an escrow account to secure the seller’s indemnification provisions. However, it is also becoming increasingly common for one of the parties (typically the buyer) to purchase a representation and warranty insurance policy, which can reduce the amount funded into escrow to secure the seller’s indemnification obligations.
Customary deal protection terms in US public M&A transactions involving life sciences companies include one or more of the following:
For sellers, public M&A transactions typically include the following protections:
Under the Hart-Scott-Rodino Act (HSR), certain acquisitions of voting securities or assets must be reported to the US antitrust agencies if they exceed certain statutory thresholds. Under the HSR rules, the grant of an exclusive licence to a US patent is a potentially reportable asset acquisition. To be reportable, the licence must be exclusive even against the patent-holder. This means that the patent-holder’s retention of manufacturing rights or co-development rights may render the licence non-exclusive and, therefore, non-reportable. The HSR rules for pharmaceutical licences, however, are slightly more strict in what is considered 'exclusive'. An exclusive licence of US pharmaceutical patent rights constitutes a potentially reportable transaction if “all commercially significant” rights to a therapeutic area (or specific indication within a therapeutic area) are transferred to the licensor. The HSR rules state that “all commercially significant rights” are transferred even if the patent-holder retains limited manufacturing rights – for example, rights to manufacture a pharmaceutical product solely for the licensee – or so-called co-rights, such as rights to co-develop or co-commercialise the product with the licensor.
In a taxable purchase of stock, the historical tax attributes of the target company, such as the target's tax basis in assets, carry over to the acquiring company. The target company pays no tax on the transaction. The target's shareholders pay tax at capital gains rates, which will be long-term if the shareholders held the target stock for at least a year prior to the sale, on the difference between the amount paid for the target stock and each shareholder's cost basis in the stock sold.
In a taxable purchase of assets, the target company is treated as having sold its assets to the acquiring company for cash. This is a taxable transaction for the target, which will owe tax at prevailing corporate tax rates on the difference between its tax basis in the assets and the purchase price for the assets. If the cash is then distributed, or treated as distributed, to the shareholders of the target company, the shareholders will have taxable gain calculated in the same manner as if they had sold their stock for the amount of cash received. The acquiring company will acquire the assets of the target company with a 'stepped up' or fair market-value basis, which will generate future tax benefits for the acquiring company in the form of additional depreciation and amortisation deductions.
Thus, although an asset purchase creates useful tax benefits to an acquiring company, it is tax-inefficient from the point of view of the target company because it creates two levels of tax, one at the target level and one at the shareholder level, while a taxable stock purchase only generates one level of tax, at the shareholder level. Most acquisitions of public companies are structured as an acquisition of stock for tax purposes to avoid the double taxation that results from an asset acquisition.
The US Bankruptcy Code provides a debtor in bankruptcy (or its bankruptcy trustee) with the option to assume or reject (breach) its executory contracts, subject to certain exceptions and to approval by the Bankruptcy Court. Most licences are held to be executory contracts in a debtor’s bankruptcy. This means that a licensor in bankruptcy (or its bankruptcy trustee) can elect to reject the licence.
To prevent this unnecessarily harsh treatment of licensee non-debtors, the US Bankruptcy Code provides certain protections to the licensee in the case of the licensor’s rejection of a licence. Section 365(n) of the US Bankruptcy Code provides, in relevant part, that upon rejection, the non-debtor IP licensee can elect to treat the licence as terminated or retain its rights to use the IP under the terms of the licence. If a licensee elects to retain its rights to the IP, the debtor (or the bankruptcy trustee) must permit the licensee to exercise its rights for the remaining life of the licence plus any period for which such contract may be extended by the licensee as of right under applicable non-bankruptcy law. Notably, there are some limitations to these protections (eg, Section 365(n) only applies to IP as defined in Section 101(35A) of the Bankruptcy Code).
The USA is a litigation and investigation-intensive environment, and over the last 15 years government prosecutors (both federal and state) have focused on a broad array of enforcement theories, with the most notable being allegations of provision of kickbacks to prescribers and institutions, and violations of requirements relating to price reporting. The basic thrust of most such cases is an allegation that the underlying promotion or transfer of value induced a false claim to the government for product payment. Often such cases result in a high-dollar settlement and the imposition of a corporate integrity agreement (CIA) by the Department of Health and Human Services Office of Inspector General. A particular recent focus of investigations has been manufacturer reimbursement support activities, and contributions to patient foundations in particular. The FDA has also focused on non-compliant manufacturing and research activities, with a particular emphasis on data integrity issues that threaten patients or the integrity of the FDA approval process.
It is critical to understand the complex theories and numerous precedents and trends in government enforcement, and the limits of the government’s statutory authorities. Other critical aspects of handling such investigations include:
There have been numerous settlements in recent years totalling many billions of dollars. However, the recent landmark cases have focused on the limits of the government’s authority to prosecute pharmaceutical and medical device manufacturer speech to physicians and patients under First Amendment free speech protections. Recent decisions in cases such as Sorrell, Caronia and Amarin have made it clear that there are very significant limitations on the FDA’s ability to regulate truthful and non-misleading manufacturer communications regarding off-label data.
Although the US legal system in this field is unique in many ways, a few factors are particularly important, including:
While certain legal doctrines have special relevance to pharmaceutical and medical device product liability cases, in the USA general principles of product liability law govern actions involving claims of injury from such products. The precise legal theories available depend significantly on which state law applies. While the broad principles tend to be similar, each of the 50 states has a different product liability regime.
There are various nuances to drug and device product liability law, but one overarching difference is that most states recognise the 'learned intermediary' doctrine in such cases. Under that doctrine, the manufacturer has a duty to warn the prescribing healthcare provider, rather than the consumer, of the risks associated with the product. The role of regulation and the content of the label as approved by the FDA is a major component of drug product liability law relative to other categories of products, particularly given the federal/state pre-emption implications, as addressed below.
The basic legal theories in pharmaceutical and medical device product liability cases depend on state law, but often include strict liability (including failure to warn, manufacturing defect and design defect), negligence and breach of warranty. Some states have also enacted consumer fraud statutes, which can also impose liability on a manufacturer of pharmaceutical products.
Plaintiffs generally have the burden of proving at trial, by a preponderance of the evidence, that the product caused their alleged injury. Plaintiffs typically must also prove 'product identification'; that is, prove that the defendant and not some other company manufactured the particular product to which the plaintiff was exposed. In most jurisdictions, the plaintiff usually also has the burden to show that a different warning would have changed the healthcare provider's decision to prescribe the drug or use the device.
Defendants have a variety of defences in US pharmaceutical and medical device product liability litigation. The learned intermediary doctrine, referenced above, is a key defence to failure to warn claims. A pre-emption defence may be available to manufacturers of drugs on the basis that state law tort actions are inconsistent with FDA determinations concerning the product’s labelling or where the defendant cannot make a labelling change without FDA pre-approval. Where pre-emption is not available, compliance with FDA regulations usually can be introduced as evidence by the defence but generally does not immunise a defendant from liability. In addition, 'comment k' to the Restatement (Second) of Torts § 402A provides a defence to design defect claims for certain products, such as prescription drugs, that are incapable of being made completely safe. Under comment k, such products are not defective as long as they are properly prepared and accompanied by proper directions and warnings. Some states recognise a state-of-the-art defence, which may allow a defendant to avoid liability when the risks complained of by a claimant were not known or reasonably knowable at the time a product was sold.
The defence may typically introduce compliance with FDA regulation as evidence, but regulatory compliance will not immunise a defendant from liability. Under certain circumstances, such as if the defendant can show that the FDA would have rejected the same warning that plaintiffs allege should have been given or where a defendant cannot make a labelling change without FDA pre-approval, the federal determination may pre-empt state tort claims and offer a complete defence.
Typically, the plaintiff must identify which specific manufacturer’s product he or she ingested to prevail. A few states have adopted a theory of market share liability, which developed to provide a remedy when there is an inherent inability to identify the manufacturer of a product that causes injury. The theory varies from state to state, but generally does not apply in pharmaceutical cases.
Generally, the statute of limitations for product liability claims ranges from two to three years, but the exact parameters depend on the state and claims at issue. Most jurisdictions apply some form of the discovery rule that tolls the running of the statute of limitations until a plaintiff knows or should have known of the facts giving rise to his or her cause of action. Limitations is an affirmative defence for which the defendant bears the burden of proof.
A plaintiff may typically make a claim for information against manufacturers of pharmaceuticals or medical devices only through pre-trial discovery after a lawsuit seeking damages is filed. Discovery generally proceeds by service of requests for production of documents, interrogatories and depositions. The standards vary depending on the jurisdiction, but discovery is typically allowed of any matter that is relevant or reasonably calculated to lead to the discovery of admissible evidence.
The kinds of damages available in a pharmaceutical product liability action vary from state to state, but a plaintiff may seek compensatory damages, which includes economic damages (such as medical expenses or lost wages) and non-economic damages (such as pain and suffering). A majority of states also allow for punitive damages, although some states cap or otherwise limit punitive damages. Awarding damages for medical monitoring also receives varying treatment; some states allow it, other states have rejected it, and some states have not addressed it.
The amount of damages a claimant can recover will vary by state. Typically states allow claimants to seek the full measure of their compensatory damages. Some states have, however, established caps on the amount of punitive damages a claimant can recover or have abolished punitive damages altogether. In addition to state law, the federal Constitution also limits “grossly excessive” punitive damages awards.
In 2017, the US Supreme Court issued an important decision concerning the ability of US state courts to hear claims against out-of-state defendants (see Bristol-Myers Squibb Co v Superior Court of California, 137 S Ct 1773 (2017)). The court held that product liability plaintiffs who resided and were injured outside California could not establish jurisdiction in California to sue a defendant headquartered outside that state. Under prior case law, plaintiffs had significant flexibility to bring product liability claims against large corporations wherever those companies did substantial business, without regard to where the parties resided or where the injury occurred. As a result, it will be much harder for plaintiffs to sue corporations in state courts other than where the injury occurred or where the defendant is incorporated or has its principal place of business.
More recently, the US Supreme Court heard argument on 7 January 2019, in another case addressing pre-emption issues, Merck Sharp & Dohme Corp v Albrecht, No 17-290. The case raises two issues concerning when claims against branded manufacturers are pre-empted under the Court’s prior decision in Wyeth v Levine: (i) whether the trial judge or a jury should decide pre-emption and (ii) the standard of proof a defendant must meet to establish pre-emption.
Pharmaceutical and medical device product liability cases are generally tried before a jury, unless the plaintiff does not request a jury trial and the defendant agrees to forgo one.
As in other civil cases, the parties to pharmaceutical and medical device product liability cases often must make certain initial disclosures pursuant to federal or state discovery rules, which generally include the identity of certain witnesses and relevant documents. Discovery then generally proceeds by service of requests for production of documents, interrogatories and depositions. The standards vary depending on the jurisdiction.
For many years, there have been debates at the federal and state levels regarding drug product liability, often focusing on issues such as caps on damages. Pre-emption also continues to be an area where the law is developing and depending on the breadth of the Court’s ruling, the Merck case discussed above has the potential to affect the scope and use of that doctrine significantly.
Both federal and state law govern the privacy and data protection of patient information.
The principal federal law in this area consists of a set of regulations promulgated pursuant to HIPAA. These regulations include a Privacy Rule, a Security Rule and a Data Security Breach Notification Rule. There are additional rules for clinical laboratories under the Clinical Laboratory Improvement Amendments (CLIA), as well as the Genetic Information Nondiscrimination Act (GINA). Each of these laws has a specific scope of application: for example, the HIPAA rules apply only to health insurance plans and certain healthcare providers (including pharmacies), and not to most pharmaceutical or medical device companies. The individual states also regulate patient information privacy and data protection in various ways and to varying degrees. Virtually every state has enacted statutes applicable to healthcare providers and health insurers that restrict the circumstances when those entities may use or disclose patient-identifiable information without the patient’s consent.
The US Department of Health and Human Services (HHS), through its Office of Civil Rights, applies and enforces the HIPAA regulations, as well as the privacy provisions of GINA. The US Department of Justice has authority to pursue criminal cases under the HIPAA regulations in the event of violations done with intent.
The state health and insurance regulatory agencies implement the state laws governing the privacy and security of patient-identifiable information. The state attorneys general typically enforce those laws.
At both the federal and state levels, individually identifiable health information is regulated more strictly than other personal information. The term 'sensitive data' or 'sensitive information' exists in some but not many of these laws; where it does exist, the term almost always includes personal health information.
Under HIPAA, there are tiered penalties for violating the Privacy Rule or Security Rule. The penalties for non-compliance are based on the level of negligence and can range from USD100 to USD50,000 per violation (or per patient record), with a maximum penalty of USD1.5 million per year for violations of an identical provision. Violations can also carry criminal charges that can result in prison sentences.
The states differ in the sanctions they impose for statutory or regulatory privacy/security violations. At the state level, too, the sanctions may include civil and criminal penalties, depending on the degree of negligence or intent.
Regulation of cloud platforms in the USA is emerging slowly. Under HIPAA, a cloud platform is regulated for privacy and data protection purposes if the platform is used by or for a HIPAA-regulated entity (eg, a hospital, clinic, etc). State laws to date treat cloud platforms in the same manner as other data storage entities. Regulatory and industry guidance on the security of cloud platforms is becoming more developed over time.
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