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Innovator Liability, Take Two

The Wall Street Journal

Innovator Liability, Take Two

A state supreme court takes a needed second look at bad precedent.

The Alabama Supreme Court put businesses on edge in January when it endorsed a theory of innovator liability that would allow plaintiffs lawyers to sue manufacturers over products they didn’t make. The court revisited that ruling in oral argument on Wednesday, and a better decision would reduce the threat of similar nitwit lawsuits across the economy.

The case began when Alabama resident Danny Weeks sued pharmaceutical company Wyeth for fraud over side effects he said he suffered from taking the generic version of the acid reflux drug Reglan. Wyeth didn’t produce the drug that he took and hadn’t made Reglan for years before he took it. But because federal law requires generic manufacturers to use the same warning labels as brand-name drugs, the court ruled 8-1 that Wyeth was on the hook for Mr. Weeks’s complaints.

That decision galled Alabama Supreme Court Justice Glenn Murdock, who wrote in dissent that the majority unjustly distributed risk among businesses and jeopardized innovation. To transfer all liability to brand-name manufacturers in lieu of generics, Justice Murdock wrote, the Alabama judgment would “create a precedent that poses danger for the prescription medicine industry and, by extension, all industry,”

The suit was the creation of the tort bar, which began prospecting for new targets after the Supreme Court ruled in 2011’s Pliva v. Mensing that because generic makers didn’t control their warning labels, they couldn’t be sued for any problems that transpired.

Justice Clarence Thomas noted in his majority opinion that this left some consumers without an effective avenue to sue. But the remedy was not in the hands of the court, he wrote. If different regulatory rules for brand name and generic drugs created legal problems, Congress and the Food and Drug Administration had to fix it.

That has begun to happen. In July, the FDA signaled its plans for a new rule-making that would allow generic manufacturers to adjust their warning labels, which would take them out of the liability imbalance created by the Supreme Court in Pliva.

Since the Alabama Supreme Court’s January decision, 11 courts have refused to hold brand names accountable for complaints derived from generics. Altogether, 86 courts have rejected this innovator liability theory including the Fourth, Fifth, Sixth, Eighth, Tenth, and Eleventh Circuits.

Plaintiffs lawyers need no invitation to launch creative lawsuits, but to the extent that liability is genuine it belongs to the maker of the product. In Alabama’s bizarre regime, brand-name manufacturers would make all the investment in a drug. Then when it goes generic they’d lose the profit from the reduced sales and be open to liability suits for products they no longer control.

The effect would be to make brand-name companies the de facto insurers of the entire industry, depleting their profitability and reducing the incentive to invest in new products. The FDA should write a new rule, and we’re glad the Alabama justices are giving the case a second look.

A version of this article appeared September 5, 2013, on page A14 in the U.S. edition of The Wall Street Journal, with the headline: Innovator Liability, Take Two.

About Nancy Hewston

Nancy Hewston
Vice President of Communications, Strategic Information and Federal Affairs
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