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New biotechnology: how to protect from a product liability claim

In brief: Allens Partner Maryjane Crabtree (view CV) provides an invaluable product liability checklist for the biotechnology industry.

Introduction

In the heady, exciting period of discovery or development of new biotechnology, backers of any new offering are concerned with many important things:

  • Is there a market for it?
  • How can I prevent someone else beating me to the market with it?
  • Who will invest in the venture?

Much of the energy of those engaged in the commercialisation of new biotechnology is so focussed on resolving these questions – protecting the intellectual property, finding the money, completing the trials and planning the production and marketing that it is no wonder that they can overlook the prospect that at some stage the product may fail to deliver what is expected of it, and an unhappy consumer may seek redress.

In contrast, those of us who are accustomed to defending a range of products against such consumer attacks, often look back at those early days and say 'If only they had ...'.

If the developers, funders and promoters of new biotechnology consider the matters raised in the checklist below, and discuss protection against product claims with an experienced product liability lawyer, the risk of consumer claims occurring may be significantly reduced, or if they cannot be avoided, then their impact may be contained.

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Regulatory compliance

  • Is there a full understanding of the regulatory framework affecting the product?
  • Requirements of the Therapeutic Goods Administration for biotechnology are developing – will the product comply with proposed frameworks for human tissue and emerging biological therapies?
  • Beyond any requirements for registration, are the requirements for notification of adverse reaction or experience properly understood?
  • Is the product subject to any legislatively mandated requirement for warnings or information such as a Product Information as required by the TGA?
  • For new human embryonic stem cells:
    • Are the requirements for research involving the Human Embryos Acts understood?
    • Consideration must be given to:
      • Licensing for derivation of new embryonic stem cells
      • Must have Ethics Committee approval
      • Must have regard to:
        • consent of donor
        • the number of embryos used
        • is there a significant advance in knowledge?
      • Artificial Reproductive Technology Ethical Guidelines
      • National Statement on Ethical Conduct in Research Involving Humans

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Insurance

  • Is the insurance cover adequate?
  • Does the insurance cover all markets the product is sold in?
  • Does the insurance properly cover costs for recall and does it also cover consequential loss?
  • Are there any gaps between policy periods? (For example, between different policy types for different periods, that is, claims incurred or claims made policy types).
  • Are any liabilities assumed under contractual arrangements with suppliers and distributors covered?
  • Are directors and officers properly covered?
  • Are off-label uses covered?
  • Is there a proper understanding of the duties of good faith disclosure and notification owed to the insurer in order to preserve indemnity?
  • Are all interested parties named on the policy?

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Contractual issues

  • Contracts may be entered into between a range of parties including:
    • owners of the intellectual property
    • component manufacturers
    • members of the supply chain
    • third party manufacturers
    • institutions conducting medical research
  • Has the protection of the interests of those owning the intellectual property been addressed?
  • Do the contracts with third party manufacturers, licensees, suppliers and distributors address the issues of liability for loss, including consequential loss?
  • Are the warranties and indemnities obtained and given adequate to protect from, or spread, the risk of potential liabilities?
  • Do the warranties given by component manufacturers, or to consumers by retailers, all mesh together consistently?
  • What is the mechanism for passing warranty claims 'up the chain'? Who will have conduct of any claim?
  • What are the rights and obligations of component manufacturers and material suppliers in circumstances requiring a product recall?

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Product recall

  • Is there a clearly stated product recall policy which can be implemented immediately?
  • Has the product recall response team rehearsed the recall procedure and satisfied itself that the procedure is operative and delivers adequate recovery of product?
  • Has the inventory management system been developed to enable the rapid and accurate identification of the product batch affected, the distribution area, the component/materials incorporated in the product and the operators involved in the manufacture of the affected product so as to enable the narrowest effective recall, and to identify potential sources and causes of contamination?
  • In case of products involving stem cells, it can be very difficult to identify the full history of the original stem cell line – what is known that may help identify or alert you to problems experienced in other uses of that cell line that may hint at problems in your own?

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Complaints handling (consumer interface)

  • Has a consumer grievance handling procedure been developed which covers the particular product?
  • Have consumer interface personnel been trained on the attributes of the product and any inherent risks, together with any specific reporting requirements?
  • Does the complaints handling system comply with the Australian Standard?
  • Are complaints reviewed to detect emerging product liability issues and is appropriate information elicited to allow rapid investigation and product recovery in circumstances which might indicate the need for a recall?

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Marketing

Stem cell technology is surrounded by many who are desperate for a cure, and also, many who have ethical objections. This is a volatile environment in which to be marketing.

  • Are all restrictions on marketing complied with?
  • Is the product labelling compliant with any specific regulatory requirements?
  • Are the warnings on the product adequate?
  • Is the continuing obligation to warn as risks become known observed?
  • Is the product literature properly drawn so as to inform the consumer, or 'learned intermediary' adequately, without overstating the risk?
  • If stem cells have been used, is this disclosed in the Product Information or Consumer Medical Information to assist medical practitioners and patients to make an informed choice on ethical, moral or religious grounds?
  • Does any duty arise not to sell a particular product for a non-recommended use?
    • eg cross organ usage
  • Are marketing personnel trained on the corporation's obligations under the Trade Practices Act to avoid false and misleading statements, and collusive dealings?
  • Are there any off-label uses and is the corporation thereby exposed to any liability?

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Ethical issues

  • What ethical issues arise out of research, particularly clinical trials involving the product? If informed consent is required, was it properly obtained and has proper disclosure been made to the research institution?
  • Are Serious Adverse Events (SAEs) properly evaluated, and is there a contractual ability to terminate the research if SAEs reach an unacceptable level?
  • Is liability to the institution and to the trial subject properly limited?
  • Do any contractual relationships with the research institution, or the subjects, operate to prevent suspension of the trial under any circumstances?
  • What conflicts of interest arise and how are they, or how have they been handled?
  • For research involving human or embryonic stem cells
    • is there compliance with National Guidelines?
    • Embryonic stem cells must be:
      • Licensed if Australian or compliant with Australian requirements if from overseas
    • Non embryonic stem cells must comply with:
      • National Guidelines if Australian, or
      • equivalent if for overseas

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Employment issues

  • Have the moral rights of any employees involved in the invention or design of the product been waived or properly compensated?
  • Have confidentiality agreements for the protection of trade secrets and restraints of trade been executed by relevant employees?
  • Are there any risks to employees in the manufacture of the products, for example to bio-hazards which require pre-employment screening and health monitoring?

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Document issues

If a product is the subject of litigation, it will become essential to be able to follow the history of the product through its research and development and the commercialisation process, particularly to identify relevant facts and witnesses and to establish that proper research was undertaken to defeat allegations such as the typical 'race to market' liability model. To enable this, there must be a document management plan. Personnel involved with the product must understand:

  • What constitutes a document for evidentiary purposes. For example, any permanent record of data, words, sounds or images, including records in machine readable form;
  • How to write without inviting liability;
  • That the documents which tell the product's story must be preserved, properly catalogued and accessible;
  • That all statutory and business requirements for the retention of documents relevant to the product must be recognised and complied with;
  • That if there is any expectation of a claim, all relevant records must be retained.

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Conclusion

If you are responsible for the commercialisation of new biotechnology, as well as ensuring the commercial prospects of the product, I ask you to consider and talk to a product liability expert at the development stage.

Discuss with the product liability expert what might go wrong? Be creative, predictive, and think of the broadest range of factors, organisations and people who may be impacted – and think about how to insulate you, your staff and your investors from the kind of liability that we have seen for products like Silicone Breast Implants and IUDs.

For further information, please contact:

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