When Elizabeth Conte went to the pharmacy to fill her acid reflux drug prescription, she accepted a generic in place of the Wyeth-branded drug her doctor had prescribed, as has become common practice in California and the many other states that allow such substitutions.

After nearly four years of taking generic Reglan, or metoclopramide, Conte developed tardive dyskinesia, an irreversible neurological disorder that causes uncontrollable bodily movements–and a known side effect of long-term use of metoclopramide. Conte sued three generic drug manufacturers and Wyeth, claiming the manufacturers knew or should have known that physicians tend to prescribe Reglan (and its generic versions) for long-term use, and that its product information understates the risk of serious side effects that long-term use can cause.

For all those years, Conte had taken generic metoclopramide, never once ingesting Wyeth’s Reglan. But in November, a three-judge California appeals panel in San Francisco affirmed summary judgment to the three generics, leaving them scot-free because no evidence showed Conte’s physician relied on generic-provided information.

Meanwhile, the court reinstated a negligent misrepresentation claim against Wyeth, sending the pharmaceutical defense bar reeling.

“The implication that the people who innovate the product can later be held liable because of something the person who copies the product does–does that satisfy your notion of justice?” says James Phelps, a former pharmaceutical general counsel and a partner at Hyman, Phelps & McNamara.

The appeals court decision departs from more than a decade of case law in other jurisdictions. But while it provided an attention-grabbing headline, the appeals court does not see innovation in its ruling.

“Our decision today is rooted in common sense and California common law,” Justice Peter Siggins wrote for the panel. “We are not marking out new territory.”

Circular Reasoning

According to a December report from IMS Health Inc., generic products now make up 63.7 percent of the U.S. pharmaceutical market, with generic prescriptions up 5.4 percent last year.

The rise of generic drugs and drug litigation intersected in 1994 in Foster v. American Home Products Corp. As in Conte v. Wyeth, the Foster plaintiffs sued the pioneer manufacturer, claiming negligent misrepresentation.

The 4th Circuit found no claim and no duty existed against American Home Products (now Wyeth) and granted the company summary judgment.

“Starting with Foster, every case decided since said you can’t hold the innovator liable when the customer wasn’t using the innovator’s drug,” says Mark Herrmann, a partner at Jones Day and co-author of the Drug and Device Law blog. “Conte is the first to break with this.”

The 4th Circuit concluded in Foster that no claim existed because any claim of harm a product caused is at its core a products liability claim, even if the plaintiff labels it as negligent misrepresentation, and strict product liability can only extend to the maker of the product. However, the appeals court in Conte rejected this reasoning, calling it “unpersuasive,” “problematic” and “circular.” It said that the Conte trial court, as in Foster, misapplied rules of product liability to a negligent misrepresentation claim.

“[Foster] misunderstands our argument,” says Brian Wolfman, director of Public Citizen Litigation Group and plaintiff’s counsel in Conte. “The claim is based on misrepresentation, not on a defect in the product. … The courts that have not accepted that argument have misunderstood the difference between this claim and an ordinary tort claim, and the decision in Conte understands that difference.”

Foreseeability Factors

At the heart of Conte is the court’s foreseeability analysis, under which it rejected Foster‘s contention that no duty existed for the pioneering drug company. Because federal law requires that generic and name-brand drugs be biologically equivalent, the court had no difficulty finding it “eminently foreseeable” that physicians might rely on Wyeth’s representations about Reglan when prescribing generic metoclopramide. Wyeth’s duty of care thus exists and extends to patients injured by the generic drug as well as Reglan, the court concluded.

Not everyone agrees with that line of reasoning, which greatly expands the duty of care for pioneer drug companies.

“It is a huge overreach,” Phelps says. “It was rejected by other courts, it should have been rejected by this one, and it probably will be rejected on appeal.”

But the court said its decision was rooted in California common law that has existed for more than 80 years.

“I don’t want it to be said that this is a bold, out-of-the-blue, newfangled law,” Wolfman says.

On a secondary factor in the duty of care analysis, the appeals court remained unpersuaded by Wyeth’s argument that imposing liability to pioneer companies would chill innovation in the pharmaceutical industry or subject Wyeth to uncontrolled liability “in perpetuity.”

However, those who take issue with the Conte decision say such factors should not be ignored (see “Conte’s Impact”).

“Though this court pooh-poohs the implications of it, saying they don’t think it’s a real problem, I think the industry knows it is,” Phelps says. “We’re talking about multibillions of dollars that could be involved in this kind of litigation.”

Given the nature of the pharmaceuticals market, in which it’s not uncommon for generics to have 80 or 90 percent of the market share over time, such a specter could surely dampen pioneer companies’ willingness to innovate, says Mark Haddad, a partner in Sidley Austin. “You’d have the original pioneer company being responsible for the liability, in effect for the entire market, even though it wasn’t the market they were selling in in a significant way.”

History & Hindsight

The pioneer drug companies themselves may have paved the way for Conte.

“The historical perspective is that 24 years ago, this is what they asked for and this is what they got,” says James O’Reilly, who wrote the seminal text on FDA law, which the U.S. Supreme Court has cited. O’Reilly is a volunteer professor of law at the University of Cincinnati.

In 1984, Congress passed the Drug Price Competition and Patent Term Restoration Act (or the Hatch-Waxman Act), amending the Federal Food, Drug and Cosmetic Act to lay out a generic drug system still in use today. In effect, Hatch-Waxman gave generics manufacturers a shortcut to FDA approval–a demonstration that they are biologically identical to the pioneering drug. Generics makers no longer had to submit full drug-approval applications and conduct studies and clinical trials.

As the generics market developed in the early 1980s, the pioneer drug companies likely recognized it could take on a life of its own. Allowing generic drug companies to make expanded claims about drugs would allow the generics to further poach business from the pioneers. So in Hatch-Waxman, the pioneers fought to require generics’ labeling information to mirror that of the pioneering drug, which made it difficult for generics to modify or expand the label claims.

“It would have been cleaner, of course, had the generic company [in Conte] been able to put on the additional warning,” O’Reilly says. “Perhaps the pharmaceutical manufacturer would not have made it difficult. But the historical track record of petitions by generic drug companies is that the pioneer usually objects to the change that’s being petitioned for. The generic drug company then has to fight [for the change] inside the boundaries of the FDA.”

Absent these circumstances, the ruling in Conte wouldn’t have been possible, O’Reilly concludes.

“The economic policy downside is a conundrum,” he says. “[Pioneer drug companies] will argue this is a fairness issue, but in 1983 they saw a profit in restraining the generic makers from expansive claims. If they had not insisted on the Siamese-twin label requirement in the 1984 amendments, this Conte outcome would not be their fate today.”