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We observed oral argument the other day in a case that could have a significant impact on potential liability under California tort law for pharma companies and all other innovators.  In Gilead v. Superior Court, No. A165558 (Cal. Ct. App. First Dist.), a panel of the California Court of Appeal is considering whether a prescription drug manufacturer can be liable in tort not for a product defect, but for negligence in failing to develop a different, allegedly safer product sooner than it actually did.  This is an important case, since a decision in favor of the plaintiffs would create a new “duty to innovate” under which a drug manufacturer could be liable for failing to develop a different drug that, in 20/20 hindsight, might have been better for some patients.  No court has allowed this. 

At issue are life-saving antiretroviral drugs used to treat patients with HIV, and we have written on similar cases involving the same drugs and legal theories before.  See, e.g., here and here.  The defendant in Gilead has developed multiple drugs used to treat or prevent infection with the AIDS virus, including several containing tenofovir disoproxil fumarate (“TDF”) as an active ingredient.  That is the group of drugs that the plaintiffs allegedly used and that allegedly caused harmful side effects.  Keep that in mind.  These plaintiffs are claiming that they used a product and suffered physical harm as a result—i.e., unambiguously product liability claims.

The problem for these plaintiffs is that there is no evidence of a product defect in TDF drugs.  As a result, they are not claiming a defect in design; they are not claiming that the drug warnings were inadequate; they are not claiming that TDF drugs should be withdrawn from the market; and they agree that TDF drugs have benefited and continue to benefit thousands of patients. 

So the plaintiffs pivoted.  The FDA approved the defendant’s first TDF drug in 2001, and the company started its first clinical trial on a different compound—tenofovir alafenamide (“TAF”)— about a year later.  Plaintiffs now claim that TAF has a better safety profile compared to TDF and that the defendant unreasonably (i.e., negligently) paused TAF’s development, thus depriving them of a drug that they say might have avoided their injuries. 

That is how we got to oral argument in the California Court of Appeal.  The trial court denied the company’s motion for summary judgment and ruled that the plaintiffs could pursue a negligence claim based on the purported delay in developing TAF drugs.  On the company’s interlocutory appeal (via a discretionary writ petition), highly skilled advocates for both sides argued their positions to a curious and prepared three-judge panel for more than an hour. 

The defense emphasized at the outset that no court has ever recognized a duty to develop a product more quickly.  One judge quickly challenged counsel on whether the duty here is the ordinary duty to exercise reasonable care to avoid foreseeable injury to others.  Another asked whether this was merely “old world negligence.”  Thus began argument on the origin and limits of tort duties in California.  Yes, the California Civil Code codifies a duty to avoid harm to others, but that does not mean everyone has a duty to avoid everything.  In other words, you can’t just say there is a “duty” and call it a day.  You have to ask what is the duty and what does the duty require?

Counsel argued that the answers depend on public policy, and compelling policy factors weigh against creating this new duty “not to delay development of a safer alternative drug.”  To begin with, the new duty would undermine decades of California product liability law, which centers on proof of a product defect.  Recall that these are unambiguously product liability claims, yet the plaintiffs here are seeking compensation without claiming that the product they used was defective. 

Moreover, a new “duty to innovate” would wreak havoc on product development, not only for prescription drug manufacturers, but throughout the biotech industry and beyond.  Companies make decisions on product development every day, including whether and where to allocate finite resources.  Imagine the chilling effect on innovation if companies had to make those decisions at the risk of being second guessed by juries 20 years down the road.  Finally, the plaintiffs’ proposed duty is unnecessary because product liability law already protects consumers.  The defendant here is not claiming “immunity.”  It was and remains subject to liability under established product liability law, provided the plaintiffs could plead and prove a claim. 

In the end, counsel urged that imposing undue liability would discourage drug development.  In Brown v. Superior Court, 44 Cal. 3d 1049 (1988), the California Supreme Court rejected strict product liability for prescription drugs partly because public policy favors the development and marketing of beneficial new drugs.  That public policy applies here.  By subjecting development decisions to hindsight scrutiny, years after the fact, the plaintiffs’ proposed duty would diminish a manufacturers’ incentive to develop superior products, presumably because any new, “better” product would open the door to claims that it should have been developed earlier and replaced its predecessor sooner.  That is especially true considering that tort inquiries are skewed, i.e., they are decided with reference to one plaintiff, which discloses only the risk side without consideration of the benefits. 

The plaintiffs argued out of the blocks that their negligence claim alleging a failure of reasonable care can and should proceed separate and apart from a product defect claim.  One judge asked whether TDF could be “defective” because there was a better alternative, apparently trying to reconcile the plaintiffs’ allegations with established product liability law.  Plaintiffs, however, did not bite.  Counsel argued that proof of a product defect in TDF would be a specific analysis under California law, but the plaintiffs’ claims have nothing to do with TDF.  As plaintiffs who took the TDF medicines, their claims are about the defendant’s failure to develop more quickly and market faster the later drug, TAF.  (Query how the plaintiffs’ claims could have nothing to do with a defect in TDF, the drug they ingested and that allegedly caused them harm.  But we will come back to that.) 

The duty, according to plaintiffs, is the general duty under the California Civil Code to take reasonable care to avoid causing injury to foreseeable product users.  In the plaintiffs’ view, the defendant has turned duty on its head:  Instead of asking whether the court should create a new duty, the court should accept the Civil Code as the source of a duty of reasonable care and then ask whether public policy should create an exception.  On this point, plaintiffs argued that the California Supreme Court has held that negligence and strict products liability are two separate things. 

One judge expressed surprise that, if plaintiffs’ view is the law, why courts don’t see more cases seeking liability based on product development decisions, using off-road vehicles as an example.  That prompted the plaintiffs to observe that most products are covered by strict products liability.  Prescription drugs are the exception under Brown v. Superior Court, which plaintiffs have to find a way around.  This to us was a significant point, since it basically admits that plaintiffs are trying to evade the limitations that California product liability law places on pharmaceutical design defect claims and the underlying public policy recognized by decades of California precedent. 

Two judges asked whether that means plaintiffs were proposing a duty to innovate, which plaintiffs promptly denied.  This part frankly was confusing, since plaintiffs argued that the defendant had “already innovated” TAF.  But what does that mean?  Sure, the defendant had TAF in development, but there are different stages of innovation, so at what point does the law impose an obligation to bring a product to market, or else face the prospect of tort liability at some undetermined point in the future? 

One judge asked that very question, noting that manufacturers would need to know if and when the law imposes that obligation.  Plaintiffs did not really have an answer, but reverted to their argument that the defendant’s breach of duty was deciding to “delay” development of TAF and that reasonableness is the standard.  Plaintiff closed by noting again, in response to a question, that this is not a product liability case.  The Court of Appeal might accept that, but of course we do not:  The plaintiffs’ core allegation is that they used a product and were harmed as a result.  This is a product liability case. 

On rebuttal, the defense reiterated that plaintiffs are claiming a duty to innovate and that, yes, manufacturers need to know whether and when the law imposes a duty to bring a product to market.  The defense also emphasized the consequences of creating a new duty.  Product development questions are not for juries to decide in hindsight 20 years after the fact.  The California Supreme Court protected incentives to develop and market new and beneficial drugs in Brown v. Superior Court, and the Court of Appeal should not create new duty that would undermine those incentives. 

We have a few observations after reflecting on this oral argument.  First, we agree with the defense that the Court of Appeal can and should confront and decide the core issues of duty presented by this petition.  There was some argument regarding waiver and preservation of issues (which we spared you in our recap).  But, in the end, the advocacy on both sides was top rate, and the panel was engaged.  No court will be better equipped to decide these issues anytime soon. 

Second, no matter the outcome, a petition for review to the California Supreme Court is certain.  The Court of Appeal clearly understands this too, as the panel expressly noted that it was not taking the matter under submission.  That is highly unusually under California procedure.  Because the statutory clock for filing an opinion in California starts ticking upon submission, the Court of Appeal has basically granted itself an unlimited extension of time.  The Presiding Justice said that the Court might request more briefing, or it might take the matter under submission on a later date.  Either way, the Court admonished the parties to “not call us, we’ll call you.”  They know their opinion will be subject to scrutiny and will take their time. 

Third, we could hazard a prediction of the outcome, but could not do so with any certainty.  The panel clearly understood from the beginning that the plaintiffs were asserting a negligence liability theory separate and apart from products liability (“old world negligence”), but the judges also explored the policy considerations more and more as the arguments progressed. 

Fourth, in our biased view, the defense has the better argument on the merits.  The plaintiffs are simply asking for too much.  If their claims really are unrelated to TDF drugs and instead focus only on the company’s purported delay in developing the allegedly safer TAF drugs, then it is difficult to see any limit to “failure to innovate” liability.  Taken to its logical conclusion, any person who might have benefitted from a product not yet on the market could claim that the manufacturer should have set different priorities or moved faster, including patients who received no treatment at all.  Would, for example, the advent of an effective anti-Alzheimer’s drug create claims for the millions currently afflicted by that condition?  That really would take the “product” out of product liability.  We also believe it is obvious that product development decisions should not be subject to 20/20 hindsight and that the Supreme Court’s endorsement of drug innovation in Brown v. Superior Court rings very loudly here.  Finally, the defense hack in us sees no one benefitting from this other than litigants and their lawyers.  A new duty to innovate will not result in more beneficial drugs coming to market, and it would likely have the opposite effect by penalizing companies that chose one development pathway other another, as all manufacturers do. 

We will keep you posted.