Practice Tip: The Expanding World of the Product Liability Litigator

Theories of Recovery

Generally speaking, there are four basic theories of recovery when dealing with a product alleged to be defective. These are: negligence, tortious misrepresentation, breach of warranty and strict product liability. All four theories have broad application to a vast array of products ' indeed, virtually anything that can be covered by a compound, composition, or machine patent, and even in some cases those covered by a process or method-of-use patent can fall within the proper scope of product liability. For instance, although not generally thought of as such, when a computer system malfunctions, it is, in all practical respects, a defective product. In addition to warranty law, which is theoretically contractually based and governed by Article 2 of the Uniform Commercial Code, there may be other product liability-based claims to contend with.

Gross Negligence

In fact, this was precisely the case in a recent arbitration involving a major medical device manufacturer that found itself embroiled in a battle over the implementation of an integrated computer software system. The crux of the issue was not the computer software itself, but the failure of the information technology consultants to follow established methodology in the deployment of the software that prevented the system from working properly. In order to complete the software installation successfully, certain fundamentals established in the industry were required to be followed with limited variation, depending on the preferences of the installer. In this particular case, the information technology consultants did not competently follow accepted protocols and, as a result, the installation could not move forward without major change and expense.

The obligations of the parties were set forth in a series of contracts. Thus, at first blush, this may not have seemed like the usual case for a product liability attorney to handle. However, in light of the expertise in dealing with allegedly defective and falsely represented chattels and experience in utilizing experts, retaining lawyers trained in product liability was a natural and successful fit.

The strategy used to litigate this contractually based claim was similar to the approach utilized in litigating any breach of warranty or strict product liability claim because the subject matter of the breach involved the workings of a product ' albeit an extraordinarily complicated and expensive product. Experts were utilized to help the trier of fact understand what the independent contractors should have done to enable the software to function properly, and ultimately what was not done, which resulted in the breach. Thus, as with any product liability action, the attorney's job was to ensure that the trier of fact understood what the product was supposed to do, and why there was a failure in its operation.

In addition to the contractual claims presented in this case, there was a claim sounding in gross negligence. Grossly negligent conduct is conduct that evinces a reckless disregard for the rights of others or that smacks of intentional wrongdoing. Federal Ins. Co. v. Automatic Burglar Alarm Corp., 208 A.D.2d 495 (2nd Dept. 1994).

In order to prevail on a theory of gross negligence, a special relationship must exist between the parties. Under New York law, professionals such as engineers can have special relationships with their clients based upon their training and expertise. Murphy v. Kuhn, 90 N.Y.2d 266 (1997). Specifically, New York law protects parties who allege a wrong against another party who possesses a greater degree of knowledge in a specialized field. (This heightened standard is akin to the basic theoretical basis for holding manufacturers to a higher level of care in the production of its product based upon strict product liability). Without a legally defined special relationship, however, some courts will step in and prevent litigants from pleading contractual- and negligence-based claims simultaneously, particularly where the recovery is sought purely for the economic loss of the property at issue.

When a plaintiff seeks to recover damages for purely economic loss resulting from the failure or malfunction of a product, such as the cost of replacing or retrofitting the product, or for damage to the product itself, the plaintiff's damages will be limited to a recovery sounding in breach of contract, or breach of warranty and not in tort. See Manhattanville College v. James John Romeo Consulting Engineer, P.C. (2nd Dept. 2006); IEFS Inc. v. Morie Company, 298 A.D.2d 551 (2nd Dept. 2002). Nonetheless, to the extent damages are incurred beyond the chattel itself, litigants can state a viable cause of action sounding in negligence and strict product liability. In the arbitration discussed above, the facts pointed to a special relationship and, therefore, there was no threat of being precluded from pleading both causes of action.

Blend of Principles

Even absent any claims for negligence or strict liability, however, a purely contractual-based claim involving a complex product is properly within the scope of a trial attorney trained to handle product liability cases. As is routine in product litigation, the essential question to be determined is whether certain engineering, production, or informational technology standards were met or breached. Simply put, the question is whether the product was defective or not. In order to answer this question, product liability attorneys utilize a blend of tort and contract principles and apply them to problems involving the sale of goods ' no matter how simple or complex. This is the usual course and a comfortable foray for the product liability attorney.

There are several tests and legal doctrines used to help a judge or jury determine whether a product is defective. These include, depending on the cause of action pled, the consumer expectation test, the deviation from design test, the malfunction theory, and the risk/utility test.

While space constraints preclude a detailed discussion of the various tests, it is important to note that there is considerable liability burden with product liability actions. Thus, familiarity with these doctrines is crucial in framing the issues and successfully litigating or defending a case involving a product defect.

Indeed, as the following cautionary tale demonstrates, creators of products would be well advised to consult with attorneys who have product liability expertise, even in matters outside the traditional boundaries of product liability expertise.

Case in Point

Cordis Corporation v. Boston Scientific Corp., 2007 WL 2775087 (D. Del. Sept. 24, 2007), involved ownership rights to a certain drug-coated cardiac stent patent. Cardiac stents are a small tubular device inserted into the coronary artery to prevent blockages. Drug-coated stents have a topcoat with a non-thrombogenic material, which provides long-term non-thrombogenicity to the device portion during and after release. The patent covering the specific stent at issue was construed by a prior court as “a material that does not promote thrombosis for a period of time that extends both during and after release of the biologically active material.”

In a final attempt to have the judge throw out adverse verdicts against it, Cordis Corporation argued that newly released medical studies, which suggested that a small but significant increase in the rate of death and heart attack ' possibly due to blood clots in patients treated with the drug-coated stents ' demonstrated conclusively that its product was non-infringing because the patent at issue had been construed as not causing blood clots. Stated another way, Cordis argued that its stent was non-infringing because it was a health hazard. This argument smacks of a final ditch attempt to retain patent ownership rights in what had proved to be a long, multi-pronged and expensive battle over control of the cardiac stent patent.

The ramifications of this argument go far beyond the infringement action into the realm of product liability litigation. Patent litigators have expertise in defending and prosecuting infringement and validity actions, whereas product liability litigators have expertise in prosecuting and defending claims surrounding allegedly defective products.

These worlds collided when, in Cordis, the patent attorneys argued in support of its ownership rights to the cardiac stent patent that the product covered by the patent was a health hazard. In making this argument it appears that they intentionally, and presumably knowingly, exposed Cordis Corporation to possible product liability claims and loss of public confidence. In fact, Cordis was criticized that its approach to litigating this infringement matter was myopic, given its disregard of the potential litigation costs, and possible loss of sales as a result of making such an argument.

Of course, in the Cordis case, given the long protracted battle over the ownership rights to the cardiac stent, and given that Cordis had already suffered adverse verdicts, the argument was likely the result of a careful risk-benefit analysis. Indeed, by all accounts, billions of dollars were at stake in the sale of these products and the court had already ruled against Cordis. Nevertheless it is still a remarkable argument in light of the host of product liability issues, the potential loss of goodwill, and the expense of litigating possible product liability actions that may arise ' made all the harder to defend in light of the company's admission in open court that its product has known adverse health affects.

Moreover, the problem was further exacerbated in terms of product liability exposure, given that the product implicated in Cordis was a medical device. Medical devices, like any mass produced product, are uniformly designed, produced, and distributed. Generally speaking, when a potential problem has been identified with a nationally produced product, manufacturers face liability exposure in all 50 states.

As a result, more often than not, when a problem arises, it manifests itself, not with one product liability suit, but with dozens upon dozens of lawsuits in what could properly be described as a mass tort. Mass torts have proven in the past to have cost companies millions and sometimes billions of dollars in adverse verdicts, legal fees and loss of sales.

Conclusion

The bottom line is that the boundaries of product liability law are expanding to meet the needs of a more complex and intellectual property-filled world. The potential application and scope of product liability principles spans well outside what is produced by the mechanical arts, into diverse and varied industries such as computer science, pharmaceutical and biotechnology. All these industries produce work product that, if faced with litigation, is well suited for the expertise of a product liability attorney. In light of this, potential litigants benefit from conferring and utilizing products liability experienced attorneys.

Joseph J. Ortego, a New York City partner at Nixon Peabody, is the leader of the firm's products, class action, trade and industry representation practice. Barbara A. Lukeman is a New York City associate with the firm in that practice. James W. Weller, a partner in the firm's products practice and based in the Jericho, NY, office, contributed to this article.

Traditionally, when one thinks of the specialization area of product liability, one conjures up images of cases involving some sort of broken industrial or consumer product resulting in some type of physical injury. For the modern day product liability litigator, this is only partly the reality. The fact is, the specialty of product liability legal practice is greatly expanding. Modern day product liability litigators are called upon to litigate cases involving subject matter that is far more complex and varied than years past.

The definition of “product” includes such varied items as, for instance, electricity, transfused blood, sperm, information technology, computer software, and medical devices. Moreover, product liability litigators are being called upon to consult on matters outside the usual purview of product liability law. For instance, there is a distinct trend of trademark owners and patent holders using product liability attorneys to protect and defend their intellectual property.

These litigants understand that misappropriation of intellectual property can expose a company whose products are copied to potential ' and possibly significant ' product liability exposure. There is an ever-increasing recognition that if a case involves a product ' even tangentially ' utilization of the expertise and trial skills of a product liability litigator will be beneficial. Those who have recognized this have benefited, whereas those who have not, as demonstrated below, have faced increased risk in terms of product liability exposure.

Theories of Recovery

Generally speaking, there are four basic theories of recovery when dealing with a product alleged to be defective. These are: negligence, tortious misrepresentation, breach of warranty and strict product liability. All four theories have broad application to a vast array of products ' indeed, virtually anything that can be covered by a compound, composition, or machine patent, and even in some cases those covered by a process or method-of-use patent can fall within the proper scope of product liability. For instance, although not generally thought of as such, when a computer system malfunctions, it is, in all practical respects, a defective product. In addition to warranty law, which is theoretically contractually based and governed by Article 2 of the Uniform Commercial Code, there may be other product liability-based claims to contend with.

Gross Negligence

In fact, this was precisely the case in a recent arbitration involving a major medical device manufacturer that found itself embroiled in a battle over the implementation of an integrated computer software system. The crux of the issue was not the computer software itself, but the failure of the information technology consultants to follow established methodology in the deployment of the software that prevented the system from working properly. In order to complete the software installation successfully, certain fundamentals established in the industry were required to be followed with limited variation, depending on the preferences of the installer. In this particular case, the information technology consultants did not competently follow accepted protocols and, as a result, the installation could not move forward without major change and expense.

The obligations of the parties were set forth in a series of contracts. Thus, at first blush, this may not have seemed like the usual case for a product liability attorney to handle. However, in light of the expertise in dealing with allegedly defective and falsely represented chattels and experience in utilizing experts, retaining lawyers trained in product liability was a natural and successful fit.

The strategy used to litigate this contractually based claim was similar to the approach utilized in litigating any breach of warranty or strict product liability claim because the subject matter of the breach involved the workings of a product ' albeit an extraordinarily complicated and expensive product. Experts were utilized to help the trier of fact understand what the independent contractors should have done to enable the software to function properly, and ultimately what was not done, which resulted in the breach. Thus, as with any product liability action, the attorney's job was to ensure that the trier of fact understood what the product was supposed to do, and why there was a failure in its operation.

In addition to the contractual claims presented in this case, there was a claim sounding in gross negligence. Grossly negligent conduct is conduct that evinces a reckless disregard for the rights of others or that smacks of intentional wrongdoing. Federal Ins. Co. v. Automatic Burglar Alarm Corp. , 208 A.D.2d 495 (2nd Dept. 1994).

In order to prevail on a theory of gross negligence, a special relationship must exist between the parties. Under New York law, professionals such as engineers can have special relationships with their clients based upon their training and expertise. Murphy v. Kuhn , 90 N.Y.2d 266 (1997). Specifically, New York law protects parties who allege a wrong against another party who possesses a greater degree of knowledge in a specialized field. (This heightened standard is akin to the basic theoretical basis for holding manufacturers to a higher level of care in the production of its product based upon strict product liability). Without a legally defined special relationship, however, some courts will step in and prevent litigants from pleading contractual- and negligence-based claims simultaneously, particularly where the recovery is sought purely for the economic loss of the property at issue.

When a plaintiff seeks to recover damages for purely economic loss resulting from the failure or malfunction of a product, such as the cost of replacing or retrofitting the product, or for damage to the product itself, the plaintiff's damages will be limited to a recovery sounding in breach of contract, or breach of warranty and not in tort. See Manhattanville College v. James John Romeo Consulting Engineer, P.C. (2nd Dept. 2006); IEFS Inc. v. Morie Company , 298 A.D.2d 551 (2nd Dept. 2002). Nonetheless, to the extent damages are incurred beyond the chattel itself, litigants can state a viable cause of action sounding in negligence and strict product liability. In the arbitration discussed above, the facts pointed to a special relationship and, therefore, there was no threat of being precluded from pleading both causes of action.

Blend of Principles

Even absent any claims for negligence or strict liability, however, a purely contractual-based claim involving a complex product is properly within the scope of a trial attorney trained to handle product liability cases. As is routine in product litigation, the essential question to be determined is whether certain engineering, production, or informational technology standards were met or breached. Simply put, the question is whether the product was defective or not. In order to answer this question, product liability attorneys utilize a blend of tort and contract principles and apply them to problems involving the sale of goods ' no matter how simple or complex. This is the usual course and a comfortable foray for the product liability attorney.

There are several tests and legal doctrines used to help a judge or jury determine whether a product is defective. These include, depending on the cause of action pled, the consumer expectation test, the deviation from design test, the malfunction theory, and the risk/utility test.

While space constraints preclude a detailed discussion of the various tests, it is important to note that there is considerable liability burden with product liability actions. Thus, familiarity with these doctrines is crucial in framing the issues and successfully litigating or defending a case involving a product defect.

Indeed, as the following cautionary tale demonstrates, creators of products would be well advised to consult with attorneys who have product liability expertise, even in matters outside the traditional boundaries of product liability expertise.

Case in Point

Cordis Corporation v. Boston Scientific Corp., 2007 WL 2775087 (D. Del. Sept. 24, 2007), involved ownership rights to a certain drug-coated cardiac stent patent. Cardiac stents are a small tubular device inserted into the coronary artery to prevent blockages. Drug-coated stents have a topcoat with a non-thrombogenic material, which provides long-term non-thrombogenicity to the device portion during and after release. The patent covering the specific stent at issue was construed by a prior court as “a material that does not promote thrombosis for a period of time that extends both during and after release of the biologically active material.”

In a final attempt to have the judge throw out adverse verdicts against it, Cordis Corporation argued that newly released medical studies, which suggested that a small but significant increase in the rate of death and heart attack ' possibly due to blood clots in patients treated with the drug-coated stents ' demonstrated conclusively that its product was non-infringing because the patent at issue had been construed as not causing blood clots. Stated another way, Cordis argued that its stent was non-infringing because it was a health hazard. This argument smacks of a final ditch attempt to retain patent ownership rights in what had proved to be a long, multi-pronged and expensive battle over control of the cardiac stent patent.

The ramifications of this argument go far beyond the infringement action into the realm of product liability litigation. Patent litigators have expertise in defending and prosecuting infringement and validity actions, whereas product liability litigators have expertise in prosecuting and defending claims surrounding allegedly defective products.

These worlds collided when, in Cordis, the patent attorneys argued in support of its ownership rights to the cardiac stent patent that the product covered by the patent was a health hazard. In making this argument it appears that they intentionally, and presumably knowingly, exposed Cordis Corporation to possible product liability claims and loss of public confidence. In fact, Cordis was criticized that its approach to litigating this infringement matter was myopic, given its disregard of the potential litigation costs, and possible loss of sales as a result of making such an argument.

Of course, in the Cordis case, given the long protracted battle over the ownership rights to the cardiac stent, and given that Cordis had already suffered adverse verdicts, the argument was likely the result of a careful risk-benefit analysis. Indeed, by all accounts, billions of dollars were at stake in the sale of these products and the court had already ruled against Cordis. Nevertheless it is still a remarkable argument in light of the host of product liability issues, the potential loss of goodwill, and the expense of litigating possible product liability actions that may arise ' made all the harder to defend in light of the company's admission in open court that its product has known adverse health affects.

Moreover, the problem was further exacerbated in terms of product liability exposure, given that the product implicated in Cordis was a medical device. Medical devices, like any mass produced product, are uniformly designed, produced, and distributed. Generally speaking, when a potential problem has been identified with a nationally produced product, manufacturers face liability exposure in all 50 states.

As a result, more often than not, when a problem arises, it manifests itself, not with one product liability suit, but with dozens upon dozens of lawsuits in what could properly be described as a mass tort. Mass torts have proven in the past to have cost companies millions and sometimes billions of dollars in adverse verdicts, legal fees and loss of sales.

Conclusion

The bottom line is that the boundaries of product liability law are expanding to meet the needs of a more complex and intellectual property-filled world. The potential application and scope of product liability principles spans well outside what is produced by the mechanical arts, into diverse and varied industries such as computer science, pharmaceutical and biotechnology. All these industries produce work product that, if faced with litigation, is well suited for the expertise of a product liability attorney. In light of this, potential litigants benefit from conferring and utilizing products liability experienced attorneys.

Joseph J. Ortego, a New York City partner at Nixon Peabody, is the leader of the firm's products, class action, trade and industry representation practice. Barbara A. Lukeman is a New York City associate with the firm in that practice. James W. Weller, a partner in the firm's products practice and based in the Jericho, NY, office, contributed to this article.