2 December 2008

Product liability and class actions: Pharma and medical devices in the litigation league table

Jocelyn Kellam

By Jocelyn Kellam.

Key Points:
The number of product liability and class actions decisions in Australia is measured compared to some overseas jurisdictions In Australia pharmaceuticals and medical devices are the second most likely product to be involved in litigation and to be the subject of a class action, but the number of product liability decisions is far lower here than in Austria or Germany.

At the time when product liability reforms and class actions were introduced into Australia, a great deal of angst was expressed, particularly that a flood of pharmaceutical and medical device litigation would result.

Readers may recall that during 1992, the Australian Federal Government introduced both an equivalent strict liability regime for product liability claims (Part VA Trade Practices Act) and a class actions procedure (Part IVA Federal Court Act). Parallel with these developments, in 1985, the EC Directive on Defective Products was released and has subsequently been adopted throughout the European Union, including England (Part I Consumer Protection Act 1987 since 1 March 1988), Germany (ProdHaftG since 1 January1990) and Austria (Produkthaftungsgesetz since01.07.1988). True class actions, however, are not possible in those countries (although grouped proceedings are possible in England).

Where are we today? The statistics below suggest that pharmaceuticals and medical devices are the second most likely product to be involved in litigation and to be the subject of a class action. In itself, this is probably not surprising - however, the most likely category of products to be involved in litigation was building products. Pharmaceuticals and medical devices are also the second most likely product to be involved in a class action in Australia, surpassed only by food and drink. Overall, the good news is that the number of product liability decisions is far lower in Australia than in Austria or Germany. In addition, the number of product liability class decisions in Australia also appears to be on the decline.

Class actions in Australia

After the fifteenth anniversary of the introduction of class actions in 1992, the take-up in product liability class actions has been slower than some commentators had anticipated. That said, there can be little doubt that that they have become a prominent feature of both the Australian legal landscape and the Australian public's view of the law as reflected in the media.

The total number of product liability class actions commenced in Australia during the last fifteen years under Part IVA of the FCA is in the order of 35. Thus, product liability class actions comprise approximately 21 percent of the total number of 164 class actions commenced in the Federal Court as class actions as at February 2008. While this may appear to be a modest proportion of the total number of class actions commenced in Australia, it is generally accepted that, at least until tort law reform, product liability claims have dominated the Australian class actions landscape both in terms of publicity and relative to other types of class actions.

Twenty percent of Australian product liability class actions involve pharmaceuticals and medical devices. The 35 product liability class actions to date can be described as follows:

• the products involved are mainly food/drink (8); medicines or medical devices (7); agricultural chemicals/seed (5); supply of petrol, gas or water (4); truck/air seeder/harvester (4); consumer goods (3), cigarettes (2), aeroplanes (1); and the environment (1);
• the actions most frequently seek damages for personal injury (18) rather than for property damage (9) and/or economic loss (8).

Concerns that the US experience would be replicated in Australia with predictions that a large number of class actions would be filed have failed to materialised. Compared with the United States, where the number of class actions filed in US federal courts is large, the Australian experience with product liability class actions has been more restrained.

In what is good news for pharmaceutical and medical device companies, it appears that tort law reform has also had a marked impact on the number of judgments in product liability class actions. The number of product liability class action judgements peaked between 1999 and 2001 (totalling 31 over these three years) - when allegations that there was a tort crisis were at their peak -and have now returned to very low levels (totalling seven from 2005 to 2007).

Number of product liability decisions

The number of product liability decisions (that is, claims under laws based on the EC Directive 1985) handed down in Australia, Germany Austria and England vary significantly. In Austria there have been 77 decisions of the Austrian High Court. This high number is striking considering that in England there have been only 16 decisions, in Australia 36 decisions (first instance and on appeal) and in Germany, 108 decisions (with only seven decisions of the German High Court).

The stark difference in the number of decisions may be due to the availability of legal expenses insurance for individuals in Germany and Austria.

Looking at the frequency of Australian decisions involving Part VA of the Trade Practices Act, it seems clear that tort law reform in 2002 has had some impact on the number of decisions. The 36 decisions were handed down as follows:

• Pre-2002 tort law reform: 1995 (1), 1996 (1), 1997 (8), 1999 (4), 2000 (6), 2001(2), 2002 (2): 24/7 or 3.5 decisions per year
• Litigation likely commenced before 2002 but subsequent decision: 2003 (5), 2004(6) or 5.5 decisions per year
• Post-2002 tort law reform: 2005 (1), 2006(4), 2007 (3) or 2.7 decisions per year.

Categories of products

Overall, the number of decisions involving pharmaceuticals or medical devices in the four jurisdictions is 28/237 or 12 percent. The percentage of decisions for pharmaceuticals and medical devices in the respective countries varies widely between Germany (5/108 or 5 percent), Austria (6/77 or 8 percent), Australia (9/36 or 25 percent), and England (8/16 or 50 percent).

In Germany, the low number of claims may be due to the existence of a specific law relating to pharmaceuticals, the Arzneimittelgesetz.

Compared with other product types, there are more claims relating to building materials (36/237 or 15 percent overall and 5/36 or 14 percent in Australia) and other high risk products are kitchen/garden/household applicances (26/237 or 11 percent overall and 6/36 or 17 percent in Australia), cars/trucks/buses (24/237 or 10 percent overall and 3/36 or 8 percent in Australia) and food (22/237 or 9 percent and 2/36 or 0.5 percent in Australia).

Conclusion

"Lies, damned lies, and statistics" is part of a phrase attributed to the Conservative British Prime Minister Benjamin Disraeli and popularized in the United States by Mark Twain: "There are three kinds of lies: lies, damned lies, and statistics."

So how reliable are these statistics? Depending upon the country, it is now fifteen or twenty years later since they were introduced. One would think that a sufficient period has now passed to allow underlying trends to become evident.

What the statistics establish is that pharmaceuticals and medical devices are frequently the subject of litigation in Australia. This is of concern given that the preponderance of individual issues in pharmaceutical and medical device cases makes the apparent willingness of plaintiffs to commence class actions inappropriate.

Further, even within a particular jurisdiction, legal sociologists have reminded us that judgments are usually only the tip of the "dispute resolution pyramid". Further down the pyramid are settlements, case filings, claims made through lawyers or directly against manufacturers (but not filed), and latent claims. Across jurisdictions, the shape of these various stages in the evolution of a civil dispute can vary significantly. Even when comparing judgments, jurisdictions vary in the proportions of reported, unreported but accessible, and inaccessible judgments. So the statistics above do need to be approached with care, but they are an important first step in comparative empirical research into this hot topic world-wide.

The author thanks Dr Kullmann, Prof. Dr Posch, Rod Freeman and Stefan Lenze of Lovells, Michael Molitoris of Noerr Stiefenhoffer & Lutz and Simon Pearl of Davies Arnold Cooper for their help in relation to the identification of decisions and the provision of information in respect of their respective jurisdictions.

The author also thanks Eszter Sieber-Fazakas, formerly of Clayton Utz and now with Noerr Stiefenhoffer & Lutz for her work in relation to this part of a research project which is being undertaken with Luke Nottage of the University of Sydney.

For further information, please contact Jocelyn Kellam.