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Executive Summary

PRODUCT LIABILITY GOVERNMENT STANDARDS DEFENSE PROPOSAL would have "little impact" on the pharmaceutical industry, Northeastern University law professor Michael Rustad predicted during a Sept. 19 hearing of the Senate Commerce/Consumer subcommittee. Proposed product liability reform legislation (S 640) includes a provision limiting punitive damages for certain products directly regulated by the federal government -- such as drugs and medical devices that require premarket approval by FDA -- unless fraud has occurred. Rustad told the subcommittee: "Since almost all the [punitive damages] drug cases we studied involved either fraudulent test results, suppression of negative impacts or withholding information from the Food and Drug Administration, compliance with the government standard provsions in S 640 will have little impact." Rustad's comments were based on an analysis of 355 product liability punitive damages verdicts issued since 1965 that he and a Northeastern colleague, Thomas Koenig, recently conducted. The analysis has led them to oppose giving a "safe harbor" to manufacturers who comply with FDA regulations "but still market their products knowing of excessive preventable danger." Sen. Kasten (R-Wis.), one of S 640's primary sponsors, said he expects that the full Commerce Committee will mark up the legislation within the next two to three weeks. The bill cleared the committee last year but was not taken up by the Senate. The Commerce markup date has not yet been scheduled. Rustad cautioned that in a "few exceptional cases," the government standards defense might bar punitive damages even though "deterrence is needed." In one case studied, Gonzales v. Surgidev Corporation, et. al., "patients were blinded by corneal decompensation caused by a defectively designed intraocular lens," Rustad explained. "A New Mexico jury awarded punitive damages based on evidence that the company continued selling the lens despite its own studies showing a three-to-five-times higher than expected rate of sight-threatening complications. The FDA held hearings in which the poor results of this product were fully aired and yet, ordered no recall." Rustad asserted: "The public should not be denied full protection of the remedy of punitive damages in cases where regulators are lax." Rustad reported that the median size of punitive damages awards for all the cases studied was $ 625,000. Actual damages exceeded punitive damages in 36% of cases. Punitive awards exceeded compensative awards by 10 times or more in 10% of cases, Rustad reported. Only 44% of plaintiffs received the full amount of initial verdict awards and more than one-third of plaintiffs in the end collected no damages, due to appeals decisions and settlement negotiations. However, Sen. Rockefeller (D-W. Va.), another of S 640's 36 Senate sponsors, responded to Rustad that the unpredictability of punitive damages verdicts, rather than their number, is what concerns businesses. Other subcommittee members noted the costs of cases that never reach a jury verdict. Manhattan Institute (New York) for Policy Research Senior Fellow Peter Huber presented findings of a book he co-edited with Robert Litan, The Liability Maze: The Impact of Liability Law on Safety and Innovation, that was published by the Brookings Institution earlier this year. Authors contributing to the report concluded that product liability has had "little if any adverse impact" on innovation in most industries, Huber said. In some segments, however, "most notably contraceptives, some types of pharmaceuticals and small aircraft, the combined effects of uncertainty and high awards appear to have discouraged research, development and marketing of entire categories of products."

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