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Plan Ahead to Protect Your Innovation: Product Liability Risks for Medtech Startups
With the recent surge in product liability litigation pursuing the life sciences industry, companies are on notice to start prioritizing product liability risk management.
8 Min Read
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A medtech startup typically focuses on two key legal needs: (1) ensuring that its technology has proper and thorough intellectual property protection, and (2) outlining a detailed pathway for FDA clearance.
Those two priorities are understandable. The areas of intellectual property protection and a regulatory pathway are threshold issues that every potential investor wants addressed before funding a company. The hypothetical risk of future product liability litigation is not as high a priority for startup companies who have yet to commercialize. However, with the recent surge in such litigation pursuing the life sciences industry, companies are on notice to start prioritizing product liability risk management.
In 2023, for example, there were nearly 275,000 personal injury lawsuits pending against 3M related to its military combat earplugs, which 3M agreed to settle for a reported $6 billion.
Similarly, as of February 2024, 760 personal injury cases were pending against Phillips in connection with alleged issues relating to its CPAP machines.
With certain federal rules allowing for a large number of cases to be consolidated and litigated together, combined with mounting settlement values, personal injury attorneys are more motivated than ever before to generate additional claims. To that end, a report from X Ante, a company tracking legal advertisements, shows that in the first quarter of 2024, more than 14,000 television advertisements aired targeting legal action against medical devices. X Ante further estimates that in 2023, plaintiffs’ law firms spent more than $20 million on television advertisements targeting various life sciences companies. Private investors contributed about $17 million in 2023 to help fund these litigation efforts. Due to this strong financial backing and the ability to advertise widely across the country, legal experts expect that product liability litigation against the medical device industry will continue to expand.
While no one has a crystal ball to predict which product will become the center of the next large litigation, companies should understand the current litigious environment when developing medical devices.
Product liability 101
Although there are a number of nuances and exceptions under various state laws, a basic understanding of product liability will help guide entities as they design and develop products, draft labeling, and implement quality control programs.
Product liability exposure attaches when a product is deemed defective and that defect caused the alleged injuries. A product may typically be found defective in one of three ways: design, manufacture, or labeling.
Generally, design defect liability attaches when the manufacturer could have reduced a foreseeable risk of harm by adopting a reasonable and economically feasible alternative design. Many states also determine design defect by evaluating whether a product is “unreasonably dangerous” after weighing the utility of the product against its risks.
A manufacturing defect claim requires proof that the product at issue somehow deviated from its intended design. For example, a deviation could be that one batch of products was not manufactured within the tolerances specified in the design drawings.
Finally, a defect in labeling, commonly referred to as a failure to warn claim, typically requires proof that a manufacture failed to provide adequate warning when it was known or reasonably ought to have been known that a product was unsafe for use by its expected and intended users. Failure claims present a challenge for companies to defend against because juries are prone to believe that it is easy for companies to provide a few additional warnings to labels or promotional materials.
Again, every state has different laws and wrinkles that may affect what steps an entity considers in trying to protect itself from liability. Nevertheless, this general overview will help frame the below discussion.
What drives litigation?
By understanding what drives potential litigation, startup companies can better position themselves to try to avoid certain pitfalls. The extent of the potential injury from a given device is a primary consideration. For example, the products liability risk analysis for an FDA class I medical device such as a toothbrush is quite different than that of a class 3 orthopedic device. Beyond the inherent dangers of any medical device though, there are several external factors that may drive litigation. The below list provides some of the primary examples, but is by no means exhaustive.
Recalls and other FDA actions: The most obvious driver of product liability litigation are medical device recalls, including voluntary recalls. Although recalls may be for a number of reasons, plaintiffs often paint these actions as an admission of wrongdoing; a difficult presumption to overcome if such evidence is permitted at trial. Similarly, attorneys use FDA warning letters and integrity holds to cast doubt on a company’s transparency and the strength of its compliance programs.
Innovation: While innovation is the lifeblood of the medtech industry, it can introduce some additional risk. Compliance with well-established FDA regulations or industry standards, such as ISO and ASTM, provide a strong safety net for companies to justify how their actions were reasonable. However, when innovation moves faster than FDA regulation and industry standards, companies find themselves in a difficult position. For example. FDA’s Dec. 5, 2017 guidance document on 3D printing suggests having procedures and validation processes to address certain issues unique to 3D printing, such as the use of reused materials, software integration, and build path variables. However, it does not identify any specific “how to” information for those procedures or tests. Without such guidance or time-tested applicable standards at the time, manufacturers were in the unenviable position of having FDA identify a concern, but not offer any consensus standard for addressing it.
Key opinion leaders: Medical advisers or key opinion leaders (KOLs) play a critical role for startups by assisting with product development and advising on market adoption. However, if relationships sour with KOLs for whatever reason, i.e., disputes regarding royalties or belief that the company was not responsive to feedback, KOLs can become strong advocates for a plaintiff’s case. Startups should carefully select KOLs and strive to maintain a positive relationship with these advisors.
Competitive products: Even if a startup’s product demonstrates strong clinical performance, it is not immune from risk. A competitor’s product can spark a condemnation of all related products. A recent example involves metal-on-metal hip implants, where Depuy’s ASR devices had reportedly higher revision rates in 2010, leading to the plaintiffs’ bar focusing on metal-on-metal as a whole. Within a few short years, every manufacturer of metal-on-metal implants faced large numbers of lawsuits.
So, how can medtech startups mitigate product liability risk?
While it is impossible to predict the future and avoid all risk of potential liability, companies can take action to increase protection against threats of litigation. Below are just a few examples of certain issues for startups to consider during the design and development process.
Insurance: It is understood that medical device companies will want liability claims protection. While the amount and timing of that protection are certainly important, it is equally important that the company understands the terms and exclusions of a policy. Brokers and/or coverage attorneys can help explain the potential risks and limitations of any proposed coverage plan.
Documenting the “state of the art”: In most states, a company is judged on the state of the industry knowledge at the time of sale. Manufacturers are not held to a knowledge base possessed at the time of trial or even the date of the alleged injury. During the design process, companies should succinctly document both the industry need for the product as well as limitations with current device offerings within the same space. For example, if developing an implant with a new material or design feature, a startup may consider adding literature to its design files that details limitations with the current materials and options. FDA requirements for design files and device history records require such information. However, a company can organize its literature and design rationale in a manner that (1) best presents its story and (2) serves as a “time capsule” detailing the state of the knowledge during the period the product was designed. If done well, companies can use design files as a very helpful exhibit in litigation to justify its design rationale.
Contracts with suppliers and distributors: Startups are rightfully excited to enter into agreements with contract manufacturers, suppliers, and distributors. However, startups must remember that if something later goes wrong, as the developer of the product, the startup will likely be the named defendant in any lawsuit. It is therefore critical that startups understand the indemnity obligations (i.e., whether a supplier or contract manufacturer may be liable under the contract) of the parties. Companies should carefully review and understand indemnity provisions during the contract negotiation process before agreeing to them.
Marketing and sales training: Plaintiffs’ attorneys frequently use marketing claims or statements made by sales representatives as evidence of how a product did not meet performance expectations. Companies are well advised to take a cross-functional review of all marketing materials—seeking insight from the research and development team, legal and regulatory consultants, and medical advisers. Similarly, it is critical that companies properly educate sales representatives and distributors on instructions for use, warnings and the recommended surgical techniques, and that this information is properly conveyed to the end user.
Medtech startups bring exciting innovation to the industry and address critical patient needs. It is understandable that companies want to develop and commercialize these exciting innovations as quickly as possible. However, by taking brief pauses at key junctures during the development process, startups can weigh risks and benefits of each step and its potential impact on future product liability claims. Not every consideration discussed above fits each company or product. Nevertheless, by understanding the risks, potential pitfalls, and possible steps to address it, companies can better protect their innovations.
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