Expanded Liability Exposure for Drug and Medical Device Manufacturers: Uninjured Plaintiffs Seek Recovery for 'Artificially Inflated Prices' or Other Relief

When a patient files a lawsuit against a drug or medical device company, it is typically based on product liability allegations that the pharmaceutical product caused physical injury. In recent years, however, patients are asserting violations of state consumer fraud or unfair trade practices acts in addition to product liability claims. The benefit of doing so is clear. These claims, if successful, allow enhanced recovery of treble damages, attorneys' fees, court costs and fees.

What happens, however, when a drug or medical device has not caused the litigant any physical injury? Rather than claiming physical injury, a purchaser sues based on a state's consumer fraud or unfair trade practice act, alleging that the drug or medical device company engaged in fraudulent advertising or promotion, or withheld safety information from the physician and consumer. For example, uninjured plaintiffs seek damages for allegedly having paid an “artificially inflated price” due to the dissemination of misleading information about the product.

This article evaluates several recent cases involving patients, physicians and health care plans that sued pharmaceutical companies under their states' consumer fraud or unfair trade practices acts. These lawsuits involve various innovative theories of recovery. In some instances, courts summarily dismissed these actions, but in others, they permitted discovery to proceed.

Pleading 'Fraud on the Market' to Demonstrate Causation

A claim for “fraud on the market” seeks recovery for damages resulting from paying an artificially inflated price. It is a notion derived from securities law – where public misrepresentations can cause a company's stock to be temporarily overvalued, thereby injuring the class of plaintiffs who purchased shares at the inflated price. In the consumer fraud context, plaintiffs typically argue that a drug manufacturer drove the price of a drug to artificially high levels through direct-to-consumer advertising that misrepresented the product's effectiveness or by withholding safety information from physicians who prescribed the products.

In Heindel v. Pfizer Inc., 381 F. 2d 364 (D.N.J. 2004), the court rejected the “fraud on the market” theory (also known as the “inflated price” theory) in applying Pennsylvania law to a purported consumer class action. In Heindel, the named plaintiffs were two osteoarthritis patients who were prescribed COX-2 inhibitors (including both Vioxx and Celebrex) to treat their conditions. Though neither plaintiff suffered any physical injury, both claimed they were entitled to damages for the “economic injuries” they sustained because of the defendants' “uniform failure to disclose known cardiovascular risks associated with Celebrex and Vioxx,” which caused consumers to pay artificially inflated prices for them. Heindel, 381 F. Supp. 2d at 369. Notably, however, both plaintiffs conceded that they took Celebrex and/or Vioxx at the suggestion of their physicians, and did not rely on any promotional materials created or distributed by the defendants. Id. Additionally, both continued to use the drugs despite having filed lawsuits claiming that they had been defrauded.

The court concluded that plaintiffs' claim ' that had two particular clinical studies been more widely disseminated the plaintiffs would have paid less for Celebrex or Vioxx ' was “patently absurd.” Id. at 380.

[T]he only 'market for a prescription drug is the potential group of patients who will be prescribed it by their physician, and if the side effects of the drug make it overly risky to ingest, the doctor will either not prescribe it or the patients will decide not to take it. The suggestion that consumers might be inclined to take a drug with certain side effects if they could pay less for it, or that drugs with certain side effects should cost less, defies both reality and common sense.' Id. at 381.

Accordingly, the court held that the plaintiffs could not “use the fraud on the market theory to circumvent the reliance element” of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). Id. at 381.

Likewise, in N.J. Citizen Action v. Schering Plough Corp., 367 N.J. Super. 8 (App. Div.), certif. denied, 178 N.J. 249 (2003), the Appellate Division evaluated a complaint brought by several nonprofit organizations and individuals. The plaintiffs asserted consumer fraud, on behalf of a purported nationwide class, against a pharmaceutical manufacturer and two advertising companies that promoted Claritin. The plaintiffs relied on promotional claims that with the drug, “[y]ou … can lead a normal nearly symptom-free life again,” to support their primary contention. They argued that members of the class purchased these products at artificially inflated prices because the products were not universally effective.

In affirming the trial court's prior dismissal of the complaint for failure to state a claim under New Jersey's Consumer Fraud Act (“CFA”), N.J.S.A. 56:8-1 et seq., the court noted that to sustain a claim under the CFA, “a plaintiff must allege each of three elements: (1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants' unlawful conduct and the plaintiff's ascertainable loss.” N.J. Citizen Action, 367 N.J. Super. at 12-13 (citing Cox v. Sears Roebuck & Co., 138 N.J. 2, 24 (1994)).

First, the court explained that the plaintiffs' pleadings failed to allege conduct that could satisfy the first prong. In this particular case, the court distinguished what it classified as “mere puffing” about Claritin from a misrepresentation of fact that would be actionable under the CFA.

Second, the Appellate Division rejected plaintiffs' efforts to demonstrate a “causal nexus” between the alleged act of consumer fraud (ie, “fraud on the market” or artificially inflated price) and the damages sustained. Id. at 15. While a plaintiff need not prove reliance to recover damages under New Jersey's CFA, the plaintiffs' theory would “virtually eliminate the requirement that there be a [causal] connection between the misdeed complained of and the loss suffered.” Id. at 16.

Finally, the Appellate Division highlighted the long-standing distinction in the CFA itself between the private claims of aggrieved consumers, N.J.S.A. 56:8-19, and the Attorney General's prosecutions under that statute. N.J.S.A. 56:8-2. Under that distinction, private litigants must show that they suffered an “ascertainable loss,” ie, a harm that is quantifiable, which is not a requirement for claims that the Attorney General brings. As such, the court ruled that the plaintiffs' case was properly dismissed as failing to state a CFA claim.

Demonstrating an 'Ascertainable Loss'

What constitutes an “ascertainable loss” under New Jersey's Consumer Fraud Act was the subject of Thiedemann v. Mercedes-Benz USA, LLC, 183 N.J. 234 (2005). Specifically, Thiedemann addresses what a plaintiff must show to survive a summary judgment motion if the defendants argue that the statutory “ascertainable loss” requirement cannot be met. Although not a pharmaceutical case, the holding has important implications for all “no injury” product claims.

In Thiedemann, the lawsuit centered on an allegation that certain model years of a vehicle contained defective fuel gauge units that might malfunction at any time. The car manufacturer admitted to more than 43,000 fuel sending unit failures before Aug. 28, 2001. Nonetheless, the manufacturer contended that the company's actions to repair and replace problem units, taken in compliance with its warranty program, eliminated any loss for the plaintiffs. Id. at 239-40.

In opposing summary judgment, the plaintiffs produced no expert reports or affidavits to demonstrate that a loss was quantifiable, but they did argue that loss could be quantified in a number of ways. See id. at 243-244. For example, due to publicity regarding the particular model years affected, the plaintiffs might experience a decreased resale value if they attempted to sell their vehicles. Alternatively, the plaintiffs argued that the fuel used during test-driving of the vehicle at the time of warranty repair was a loss that could be calculated. Because the car company's engineers had not been able to pinpoint the cause of the faulty gauge, the plaintiffs argued that the replacement gauge might similarly malfunction.

Defendant Mercedes-Benz and amicus curie, the Product Liability Advisory Council (“PLAC”), argued that ascertainable loss is an essential element of the CFA and that the plaintiffs' failure to produce any evidence of such a loss at the time of summary judgment was fatal to their claims.

The Supreme Court agreed, holding that the mere fact that a product defect exists does not establish, in and of itself, a private right of action for damages under the CFA. Rather, private litigants must present some evidence, such as an expert affidavit, to demonstrate that a loss occurred due to violative conduct, and that such loss is quantifiable. “[W]hen a plaintiff fails to produce evidence from which a finder of fact could find or infer that a plaintiff suffered a quantifiable or otherwise measurable loss as a result of the alleged CFA unlawful practice, summary judgment should be entered in favor of defendant.” Id. at 238.

Claims Brought by Health Benefit Providers and Physicians

It is not just individual consumers who have brought unfair trade and/or consumer fraud actions against drug and medical device manufacturers. Indeed, both health benefit providers and physicians have attempted to enter the fray. For example, in Desiano v. Warner-Lambert Company, 326 F.3d 339 (2d Cir. 2003), plaintiff Louisiana Health Service Indemnity Company (“Blue Cross”), a Blue Cross/Blue Shield health benefit provider (“HBP”), filed a class action suit on behalf of all HBPs that paid for Rezulin during the period between February 1997 and April 2000.

The complaint alleged that the drug manufacturer, Warner-Lambert, had failed to adequately disclose the results of various clinical trials that had demonstrated elevated rates of liver toxicity and adverse heart conditions associated with Rezulin use. The plaintiffs further alleged that, in spite of these findings, Warner-Lambert “marketed Rezulin aggressively and priced it at three times the cost of appropriate treatments by other drugs.” Id. at 342. Specifically, the plaintiffs pointed to proclamations that Rezulin was “the first anti-diabetes drug designed to target insulin resistance,” a statement that, coincidentally, prompted the FDA to accuse Warner-Lambert of making “false and misleading statements.” Id. Warner-Lambert also “published two full-page advertisements ' one in the May 1, 1997 issue of The New England Journal of Medicine, and one in the June 19, 1997 Washington Post ' describing Rezulin as a drug with breakthrough effectiveness, and 'Side Effects Comparable to Placebo.'” Id.

The plaintiffs posited that these “misrepresentations” of Rezulin's safety directly caused economic loss to them as purchasers since, had they not been misled by the defendant's promotional efforts, they would not have bought the defendant's product rather than available cheaper alternatives. The alleged loss, therefore, was the excess money the plaintiffs paid the defendants for the Rezulin they would not have purchased “but for” the defendant's fraud. Id. at 349.

Conversely, the defendant argued that Blue Cross' damages were merely derivative of damage to a third party ' that the plaintiffs were “essentially financial intermediaries,” rather than actual “purchasers” of Rezulin pursuant to the CFA.

The Second Circuit reversed the trial court's dismissal of Blue Cross' complaint. The court noted that they, and other courts, “have long recognized the right of [HBPs] to recover from drug companies amounts that were overpaid due to illegal or deceptive marketing practices,” and that the lower court was obliged to accept as true Blue Cross' assertion that they were, in fact, the purchasers of the Rezulin. Id. at 350 (citing Hartford Hosp. v. Chas. Pfizer & Co., 52 F.R.D. 131, 133 (S.D.N.Y. 1971).

Relying in part on Desiano, a New Jersey trial court on July 29, 2005, certified a nationwide class of third-party non-government payors who have paid any person or entity for the prescription drug Vioxx. International Union of Operating Engineers Local #68 Welfare Fund v. Merck & Co., Inc., No. L-3015-03 MT (N.J. Sup. Ct., June 30, 2005). The class complaint alleges that the drug company provided false and misleading information regarding the safety and efficacy of Vioxx to the third-party payors. As a result of the manufacturer's purported malfeasance, the health plan allegedly granted preferred formulary status for Vioxx and provided coverage for the drug, even though it cost eight times more than over-the-counter alternatives with more favorable safety profiles. The 70-page unpublished opinion is available at www.judiciary.state.nj.us/mass-tort/vioxx/InternationalUnionClassCertification.pdf and addresses why, as to each state, choice of law principles support the uniform application of New Jersey's CFA to a nationwide class of third-party purchasers. On Sept. 27, 2005, the Appellate Division granted Merck's motion for leave to appeal. (Both the Pharmaceutical Research and Manufacturers of America and the Product Liability Advisory Council had joined as amici on the motion for leave to appeal). Merits briefing (by the parties and amici) was scheduled for completion by Dec. 8, 2005, and the appeal is calendared for Jan. 31, 2006.

Notably, 6 days before the New Jersey Appellate Division granted defendant leave to appeal in the Int'l Union of Operating Engineers case, the Southern District of New York granted defendant's motion in the Rezulin (Desiano) case dismissing all consumer fraud/unfair trade practices claims against HBPs. The district court held, among other things, that under New York law the HBPs were not “consumers” and there was no “consumer-oriented” conduct because defendant's marketing was directed to the pharmacy benefit manager and not to the ultimate drug consumers, ie, the patients. The district court's ruling similarly rejected a claim under Louisiana's Unfair Trade Practices Act and noted that a claim under New Jersey's Consumer Fraud Act would also fail. The opinion is available at In re Rezulin Prods. Liab. Litig., 2005 U.S. Dist. LEXIS 21571, *44-45 & *49-50 (S.D.N.Y. Sept. 29, 2005). (Note that the opinion was amended after its initial release on Sept. 21, 2005, to revise the analysis of Louisiana's statute.)

In another defense victory, the Third Circuit found that a physician who sought recovery for allegedly misleading information about a medical device that he used in his practice did not have a claim under Pennsylvania's Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). The primary question before the court in Balderston v. Medtronic Sofamor Danek, Inc., 285 F.3d 238 (3d Cir. 2002), was whether a prescribing physician has standing to assert a claim under the UTPCPL. Plaintiff Richard Balderston is an orthopedic surgeon specializing in spinal surgery. Defendants Medtronic Sofamor Danek, Inc. and Acromed Corp. manufacture the “pedicle screw.” From 1985 to 1993, Dr. Balderston used these screws in spinal fusion surgeries, believing they were FDA-approved for that particular use. Id. at 239.

Dr. Balderston alleged that the defendants misrepresented the FDA approval status of their pedicle screws. Dr. Balderston claimed that as a result of these misrepresentations, he unwittingly exposed himself to numerous lawsuits by failing to inform his patients of the FDA status of the pedicle screws used in their spinal fusion surgeries. He further contended that these lawsuits forced him to provide “uncompensated deposition and trial testimony.” Id.

Notably, however, Dr. Balderston acknowledged that he had not actually purchased the pedicle screws himself, but rather served as his patients' “purchasing agent.” Id. at 240. This concession proved fatal to his case. The Third Circuit held that the UTPCPL protects “only those who purchase goods or services.” Id. at 241 (quoting Gemini Physical Therapy & Rehabilitation, Inc. v. State Farm Mutual Auto Insurance Co., 40 F.3d 63 (3d Cir. 1994). Accordingly, although Dr. Balderston may have been indirectly injured, he was not an actual “purchaser” of the pedicle screws at issue and, therefore, did not have standing to bring a claim under the UTPCPL.

Conclusion

The cumulative significance of these decisions is yet unknown. Moreover, the fact-specific nature of each case makes predicting any future expansion of their essential holdings speculative at best. Nevertheless, because the penalties for consumer fraud and unfair trade practice act violations are substantial, we can expect plaintiffs to seek further expansion of these statutes. As a result, drug and medical device manufacturers will need to remain especially vigilant in monitoring legislative or judicial developments, particularly those that affect the ascertainable loss and standing requirements.

When a patient files a lawsuit against a drug or medical device company, it is typically based on product liability allegations that the pharmaceutical product caused physical injury. In recent years, however, patients are asserting violations of state consumer fraud or unfair trade practices acts in addition to product liability claims. The benefit of doing so is clear. These claims, if successful, allow enhanced recovery of treble damages, attorneys' fees, court costs and fees.

What happens, however, when a drug or medical device has not caused the litigant any physical injury? Rather than claiming physical injury, a purchaser sues based on a state's consumer fraud or unfair trade practice act, alleging that the drug or medical device company engaged in fraudulent advertising or promotion, or withheld safety information from the physician and consumer. For example, uninjured plaintiffs seek damages for allegedly having paid an “artificially inflated price” due to the dissemination of misleading information about the product.

This article evaluates several recent cases involving patients, physicians and health care plans that sued pharmaceutical companies under their states' consumer fraud or unfair trade practices acts. These lawsuits involve various innovative theories of recovery. In some instances, courts summarily dismissed these actions, but in others, they permitted discovery to proceed.

Pleading 'Fraud on the Market' to Demonstrate Causation

A claim for “fraud on the market” seeks recovery for damages resulting from paying an artificially inflated price. It is a notion derived from securities law – where public misrepresentations can cause a company's stock to be temporarily overvalued, thereby injuring the class of plaintiffs who purchased shares at the inflated price. In the consumer fraud context, plaintiffs typically argue that a drug manufacturer drove the price of a drug to artificially high levels through direct-to-consumer advertising that misrepresented the product's effectiveness or by withholding safety information from physicians who prescribed the products.

In Heindel v. Pfizer Inc ., 381 F. 2d 364 (D.N.J. 2004), the court rejected the “fraud on the market” theory (also known as the “inflated price” theory) in applying Pennsylvania law to a purported consumer class action. In Heindel, the named plaintiffs were two osteoarthritis patients who were prescribed COX-2 inhibitors (including both Vioxx and Celebrex) to treat their conditions. Though neither plaintiff suffered any physical injury, both claimed they were entitled to damages for the “economic injuries” they sustained because of the defendants' “uniform failure to disclose known cardiovascular risks associated with Celebrex and Vioxx,” which caused consumers to pay artificially inflated prices for them. Heindel, 381 F. Supp. 2d at 369. Notably, however, both plaintiffs conceded that they took Celebrex and/or Vioxx at the suggestion of their physicians, and did not rely on any promotional materials created or distributed by the defendants. Id. Additionally, both continued to use the drugs despite having filed lawsuits claiming that they had been defrauded.

The court concluded that plaintiffs' claim ' that had two particular clinical studies been more widely disseminated the plaintiffs would have paid less for Celebrex or Vioxx ' was “patently absurd.” Id. at 380.

[T]he only 'market for a prescription drug is the potential group of patients who will be prescribed it by their physician, and if the side effects of the drug make it overly risky to ingest, the doctor will either not prescribe it or the patients will decide not to take it. The suggestion that consumers might be inclined to take a drug with certain side effects if they could pay less for it, or that drugs with certain side effects should cost less, defies both reality and common sense.' Id. at 381.

Accordingly, the court held that the plaintiffs could not “use the fraud on the market theory to circumvent the reliance element” of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). Id. at 381.

Likewise, in N.J. Citizen Action v. Schering Plough Corp ., 367 N.J. Super. 8 (App. Div.), certif. denied , 178 N.J. 249 (2003), the Appellate Division evaluated a complaint brought by several nonprofit organizations and individuals. The plaintiffs asserted consumer fraud, on behalf of a purported nationwide class, against a pharmaceutical manufacturer and two advertising companies that promoted Claritin. The plaintiffs relied on promotional claims that with the drug, “[y]ou … can lead a normal nearly symptom-free life again,” to support their primary contention. They argued that members of the class purchased these products at artificially inflated prices because the products were not universally effective.

In affirming the trial court's prior dismissal of the complaint for failure to state a claim under New Jersey's Consumer Fraud Act (“CFA”), N.J.S.A. 56:8-1 et seq., the court noted that to sustain a claim under the CFA, “a plaintiff must allege each of three elements: (1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants' unlawful conduct and the plaintiff's ascertainable loss.” N.J. Citizen Action, 367 N.J. Super. at 12-13 (citing Cox v. Sears Roebuck & Co., 138 N.J. 2, 24 (1994)).

First, the court explained that the plaintiffs' pleadings failed to allege conduct that could satisfy the first prong. In this particular case, the court distinguished what it classified as “mere puffing” about Claritin from a misrepresentation of fact that would be actionable under the CFA.

Second, the Appellate Division rejected plaintiffs' efforts to demonstrate a “causal nexus” between the alleged act of consumer fraud (ie, “fraud on the market” or artificially inflated price) and the damages sustained. Id. at 15. While a plaintiff need not prove reliance to recover damages under New Jersey's CFA, the plaintiffs' theory would “virtually eliminate the requirement that there be a [causal] connection between the misdeed complained of and the loss suffered.” Id. at 16.

Finally, the Appellate Division highlighted the long-standing distinction in the CFA itself between the private claims of aggrieved consumers, N.J.S.A. 56:8-19, and the Attorney General's prosecutions under that statute. N.J.S.A. 56:8-2. Under that distinction, private litigants must show that they suffered an “ascertainable loss,” ie, a harm that is quantifiable, which is not a requirement for claims that the Attorney General brings. As such, the court ruled that the plaintiffs' case was properly dismissed as failing to state a CFA claim.

Demonstrating an 'Ascertainable Loss'

What constitutes an “ascertainable loss” under New Jersey's Consumer Fraud Act was the subject of Thiedemann v. Mercedes-Benz USA, LLC , 183 N.J. 234 (2005). Specifically, Thiedemann addresses what a plaintiff must show to survive a summary judgment motion if the defendants argue that the statutory “ascertainable loss” requirement cannot be met. Although not a pharmaceutical case, the holding has important implications for all “no injury” product claims.

In Thiedemann, the lawsuit centered on an allegation that certain model years of a vehicle contained defective fuel gauge units that might malfunction at any time. The car manufacturer admitted to more than 43,000 fuel sending unit failures before Aug. 28, 2001. Nonetheless, the manufacturer contended that the company's actions to repair and replace problem units, taken in compliance with its warranty program, eliminated any loss for the plaintiffs. Id. at 239-40.

In opposing summary judgment, the plaintiffs produced no expert reports or affidavits to demonstrate that a loss was quantifiable, but they did argue that loss could be quantified in a number of ways. See id. at 243-244. For example, due to publicity regarding the particular model years affected, the plaintiffs might experience a decreased resale value if they attempted to sell their vehicles. Alternatively, the plaintiffs argued that the fuel used during test-driving of the vehicle at the time of warranty repair was a loss that could be calculated. Because the car company's engineers had not been able to pinpoint the cause of the faulty gauge, the plaintiffs argued that the replacement gauge might similarly malfunction.

Defendant Mercedes-Benz and amicus curie, the Product Liability Advisory Council (“PLAC”), argued that ascertainable loss is an essential element of the CFA and that the plaintiffs' failure to produce any evidence of such a loss at the time of summary judgment was fatal to their claims.

The Supreme Court agreed, holding that the mere fact that a product defect exists does not establish, in and of itself, a private right of action for damages under the CFA. Rather, private litigants must present some evidence, such as an expert affidavit, to demonstrate that a loss occurred due to violative conduct, and that such loss is quantifiable. “[W]hen a plaintiff fails to produce evidence from which a finder of fact could find or infer that a plaintiff suffered a quantifiable or otherwise measurable loss as a result of the alleged CFA unlawful practice, summary judgment should be entered in favor of defendant.” Id. at 238.

Claims Brought by Health Benefit Providers and Physicians

It is not just individual consumers who have brought unfair trade and/or consumer fraud actions against drug and medical device manufacturers. Indeed, both health benefit providers and physicians have attempted to enter the fray. For example, in Desiano v. Warner-Lambert Company , 326 F.3d 339 (2d Cir. 2003), plaintiff Louisiana Health Service Indemnity Company (“Blue Cross”), a Blue Cross/Blue Shield health benefit provider (“HBP”), filed a class action suit on behalf of all HBPs that paid for Rezulin during the period between February 1997 and April 2000.

The complaint alleged that the drug manufacturer, Warner-Lambert, had failed to adequately disclose the results of various clinical trials that had demonstrated elevated rates of liver toxicity and adverse heart conditions associated with Rezulin use. The plaintiffs further alleged that, in spite of these findings, Warner-Lambert “marketed Rezulin aggressively and priced it at three times the cost of appropriate treatments by other drugs.” Id. at 342. Specifically, the plaintiffs pointed to proclamations that Rezulin was “the first anti-diabetes drug designed to target insulin resistance,” a statement that, coincidentally, prompted the FDA to accuse Warner-Lambert of making “false and misleading statements.” Id. Warner-Lambert also “published two full-page advertisements ' one in the May 1, 1997 issue of The New England Journal of Medicine, and one in the June 19, 1997 Washington Post ' describing Rezulin as a drug with breakthrough effectiveness, and 'Side Effects Comparable to Placebo.'” Id.

The plaintiffs posited that these “misrepresentations” of Rezulin's safety directly caused economic loss to them as purchasers since, had they not been misled by the defendant's promotional efforts, they would not have bought the defendant's product rather than available cheaper alternatives. The alleged loss, therefore, was the excess money the plaintiffs paid the defendants for the Rezulin they would not have purchased “but for” the defendant's fraud. Id. at 349.

Conversely, the defendant argued that Blue Cross' damages were merely derivative of damage to a third party ' that the plaintiffs were “essentially financial intermediaries,” rather than actual “purchasers” of Rezulin pursuant to the CFA.

The Second Circuit reversed the trial court's dismissal of Blue Cross' complaint. The court noted that they, and other courts, “have long recognized the right of [HBPs] to recover from drug companies amounts that were overpaid due to illegal or deceptive marketing practices,” and that the lower court was obliged to accept as true Blue Cross' assertion that they were, in fact, the purchasers of the Rezulin. Id. at 350 (citing Hartford Hosp. v. Chas. Pfizer & Co ., 52 F.R.D. 131, 133 (S.D.N.Y. 1971).

Relying in part on Desiano, a New Jersey trial court on July 29, 2005, certified a nationwide class of third-party non-government payors who have paid any person or entity for the prescription drug Vioxx. International Union of Operating Engineers Local #68 Welfare Fund v. Merck & Co., Inc., No. L-3015-03 MT (N.J. Sup. Ct., June 30, 2005). The class complaint alleges that the drug company provided false and misleading information regarding the safety and efficacy of Vioxx to the third-party payors. As a result of the manufacturer's purported malfeasance, the health plan allegedly granted preferred formulary status for Vioxx and provided coverage for the drug, even though it cost eight times more than over-the-counter alternatives with more favorable safety profiles. The 70-page unpublished opinion is available at www.judiciary.state.nj.us/mass-tort/vioxx/InternationalUnionClassCertification.pdf and addresses why, as to each state, choice of law principles support the uniform application of New Jersey's CFA to a nationwide class of third-party purchasers. On Sept. 27, 2005, the Appellate Division granted Merck's motion for leave to appeal. (Both the Pharmaceutical Research and Manufacturers of America and the Product Liability Advisory Council had joined as amici on the motion for leave to appeal). Merits briefing (by the parties and amici) was scheduled for completion by Dec. 8, 2005, and the appeal is calendared for Jan. 31, 2006.

Notably, 6 days before the New Jersey Appellate Division granted defendant leave to appeal in the Int'l Union of Operating Engineers case, the Southern District of New York granted defendant's motion in the Rezulin (Desiano) case dismissing all consumer fraud/unfair trade practices claims against HBPs. The district court held, among other things, that under New York law the HBPs were not “consumers” and there was no “consumer-oriented” conduct because defendant's marketing was directed to the pharmacy benefit manager and not to the ultimate drug consumers, ie, the patients. The district court's ruling similarly rejected a claim under Louisiana's Unfair Trade Practices Act and noted that a claim under New Jersey's Consumer Fraud Act would also fail. The opinion is available at In re Rezulin Prods. Liab. Litig., 2005 U.S. Dist. LEXIS 21571, *44-45 & *49-50 (S.D.N.Y. Sept. 29, 2005). (Note that the opinion was amended after its initial release on Sept. 21, 2005, to revise the analysis of Louisiana's statute.)

In another defense victory, the Third Circuit found that a physician who sought recovery for allegedly misleading information about a medical device that he used in his practice did not have a claim under Pennsylvania's Unfair Trade Practices and Consumer Protection Law (“UTPCPL”). The primary question before the court in Balderston v. Medtronic Sofamor Danek, Inc., 285 F.3d 238 (3d Cir. 2002), was whether a prescribing physician has standing to assert a claim under the UTPCPL. Plaintiff Richard Balderston is an orthopedic surgeon specializing in spinal surgery. Defendants Medtronic Sofamor Danek, Inc. and Acromed Corp. manufacture the “pedicle screw.” From 1985 to 1993, Dr. Balderston used these screws in spinal fusion surgeries, believing they were FDA-approved for that particular use. Id. at 239.

Dr. Balderston alleged that the defendants misrepresented the FDA approval status of their pedicle screws. Dr. Balderston claimed that as a result of these misrepresentations, he unwittingly exposed himself to numerous lawsuits by failing to inform his patients of the FDA status of the pedicle screws used in their spinal fusion surgeries. He further contended that these lawsuits forced him to provide “uncompensated deposition and trial testimony.” Id.

Notably, however, Dr. Balderston acknowledged that he had not actually purchased the pedicle screws himself, but rather served as his patients' “purchasing agent.” Id. at 240. This concession proved fatal to his case. The Third Circuit held that the UTPCPL protects “only those who purchase goods or services.” Id. at 241 (quoting Gemini Physical Therapy & Rehabilitation, Inc. v. State Farm Mutual Auto Insurance Co. , 40 F.3d 63 (3d Cir. 1994). Accordingly, although Dr. Balderston may have been indirectly injured, he was not an actual “purchaser” of the pedicle screws at issue and, therefore, did not have standing to bring a claim under the UTPCPL.

Conclusion

The cumulative significance of these decisions is yet unknown. Moreover, the fact-specific nature of each case makes predicting any future expansion of their essential holdings speculative at best. Nevertheless, because the penalties for consumer fraud and unfair trade practice act violations are substantial, we can expect plaintiffs to seek further expansion of these statutes. As a result, drug and medical device manufacturers will need to remain especially vigilant in monitoring legislative or judicial developments, particularly those that affect the ascertainable loss and standing requirements.