Drug Product Liability

DePuy ASR Settlement1DePuy ASR Hip Implant CasesSettlement Agreement

Prof. George ConkFordham law School1ASR metal on metal hip implantFDA substantial equivalence reviewHigh failure rateTardy warningsProduct withdrawn from market voluntarilyDePuy ASR Settlement2DePuy ASR Settlement3 Available Causes of action* State tort claims no preemption* implied warranty* 402A `strict liability* manufacturing defects* design defects* warning defectsProducts Restatement 2(b) Reasonable alternative design defect

3DePuy ASR Settlement4 6 (c) Design defects products restatement (c) A prescription drug or medical device is not reasonably safe due to defective design if the foreseeable risks of harm posed by the drug or medical device are sufficiently great in relation to its foreseeable therapeutic benefits that reasonable health-care providers, knowing of such foreseeable risks and therapeutic benefits, would not prescribe the drug or medical device for any class of patients.Not embraced by courts 4The net benefit rule* what about cosmetics medicines? Botox?Is this as Nebraska Court says, too strict a rule that would immunize drug mfrs?Product Liabililty Restatement Design defect & warning claims3rd restatementSection 2

* Practical and feasible alternative safer design unreasonably omitted rendering product not reasonably safeInadequate warnings regarding risks and safe useManufacturing defectsDePuy ASR Settlement5Barker v. Lull Engineering (CA 1978) TWO PRONGSA product is defective in design Consumer expectations(1) the product has failed to perform as safely as an ordinary consumer would expect when used in an intended or reasonably foreseeable manner, or Risk-Utility(2) in light of the relevant factors discussed below, the benefits of the challenged design do not outweigh the risk of danger inherent in such design.

6Ch. 8 Product Liability6Barker v. Lull Engineering (CA 1978)Risk/utility testA product may be found defective in design, even if it satisfies ordinary consumer expectations, if through hindsight the jury determines that the product's design embodies 'excessive preventable danger,' or, in other words, if the jury finds that the risk of danger inherent in the challenged design outweighs the benefits of such design.7Ch. 8 Product Liability7Barker v. Lull Engineering (CA 1978)The risk-utility factors to determine strict liability in tort(1) the gravity of the danger posed by the challenged design

(2) the likelihood that such danger would occur

8Ch. 8 Product Liability8Jury factors and also may be factors to decide3 if strict liability applies* morphs into negligence hereBarker v. Lull Engineering (CA 1978)(3) the mechanical feasibility of a safer alternative design (4) the financial cost of an improved design, and (5) the adverse consequences to the product and to the consumer that would result from an alternative design. 9Ch. 8 Product Liability9Jury factors and also may be factors to decide if strict liability applies* morphs into negligence hereSettlement AgreementBetweenDePuy Orthopaedics, Inc.AndThe Counsel Listed on the Signature Pages HeretoDated As Of November 19, 2013DePuy ASR Settlement10SETTLEMENT AGREEMENTSETTLEMENT AGREEMENT, dated as of November 19, 2013 (the Execution Date),between (i) DePuy Orthopaedics, Inc., an Indiana corporation (together with its successors and assigns, DePuy), and (ii) the counsel listed in the signature pages hereto under the heading Settlement Oversight Committee (collectively, the SOC; the SOC and DePuy, each a Party and collectively the Parties).PREAMBLEThis is an agreement between (i) DePuy and (ii) the SOC, which is a committeecomprised of certain counsel appointed by the Hon. David A. Katz to the Plaintiffs Executive Committee in In re DePuy Orthopaedics, Inc. ASR Hip Implant Products Litigation, MDL Docket No. 1:10 md 2197, a federal multi-district litigation which is venued in the United States District Court for the Northern District of Ohio (such court, the MDL Court, and such executive committee, the PEC) and plaintiffs leadership counsel in state court coordinated proceedings currently pending in state courts in California before Judge Richard Kramer, JCCP 4649; Illinois before Judge Deborah Dooling, Case No. 10 L 10506 and New Jersey before Judge Brian Martinotti, Master Docket No. BER-L-3971-11. This Agreement establishes a private settlement program to resolve the actions, disputes and claims whether filed or unfiled ofU.S. claimants against DePuy relating to the implantation, use and removal of the ASR XL Acetabular Hip System (ASR XL), or the ASR Hip Resurfacing System (ASR Resurfacing), and any and all Component and Ancillary Parts (collectively referred to as ASR Hip Implants and each ASR Hip Implant also being a Qualified Device) under the terms set forth below.RECITALS10Comprehensive but not global - settlementU.S. claimants only QUSCsMDL 2197 In re DePuy Orthopaedics, Inc. ASR Hip Implant Products LitigationCaliforniaIllinoisNew JerseyDePuy ASR Settlement11QUSC Qualified U.S. Program Settlement Claimant11A private settlement agreementAn MDL, not a class actionEstablishes a fundFund administratorSettlement oversight committeeDePuy ASR Settlement12A private settlement programNo admission of liability or injuryCovers filed and unfiled ASR claims by those whose hips were revised prior to August 31, 2013DePuy - no administrative responsibilityAdministrator chosen by DePuy and the Settlement Oversight Committee

DePuy ASR Settlement1313ExclusionsTrauma related revision surgeryInfection-related revision surgeryFemoral side surgery without cup revisionPinnacle hip implant claimsDePuy ASR Settlement14Excluded ASR Resurfacing and Hemiarthroplasty Revision means asurgery on the femoral side without revision of the cup of the ASR XL or ASR Resurfacing and thus does not constitute an ASR Revision Surgery and does not entitle a Claimant to a Base Award. If the cup is revised in a Resurfacing Claimant, that Claimant may qualify as a Qualified U.S. Claimant eligible for a Base Award in connection with said ASR Revision Surgery, but is also subject to all of the other terms, exclusions, and reductions in this Agreement. A Qualified U.S. Claimant is entitled to only one PART A Base Award. If a Qualified U.S. Claimant had more than one ASR cup subject to ASR Revision Surgery, compensation, if any, based on ASR Revision Surgery for additionalcups is an award under PART B.

14Aggregate Limit and LiensPart A $2.475 billion +/-Part B maximum funding obligation $475,000,000Liens to be satisfied (Medicare, Medicaid, ERISA plans)Punitive damage claims waived

DePuy ASR Settlement15Aggregate limits assume 8,000 claimantsLien means any mortgage, lien, pledge, charge, security interest,encumbrance, assignment, subrogation right, third-party interest or adverse claim of any nature whatsoever, in each case whether statutory or otherwise.

Maximum PART B Payment Obligation is the maximum funding obligation of DePuy for the PART B Program as calculated according to Sections 6.3 and6.5. For illustration purposes, if exactly 8,000 Qualified U. S. Claimants enroll in the U.S. Program, the Maximum PART B Payment Obligation will be Four Hundred Seventy-five Million Dollars ($475,000,000.00).15Threshold, requirements, and time limits94% participation thresholdInterested attorneys to report all claimsJ&J walk Away DeadlineProduct usage proven by contemporaneous medical recordsGeneral release requiredUnrepresented claimantsDePuy ASR Settlement16Walk Away Rights and Participation RequirementsSection 17.1. Walk Away Rights and Termination of the Agreement

17.1.1. DePuy shall have the option, in its sole discretion, to terminate the U.S. Program and this Agreement under any of the following circumstances (such option, the Walk Away Right), if:

17.1.1.1. if the enrollment in the U.S. Program of EUSCs who become QUSCs (without regard to the Trauma and Infection exclusions of Sections 1.2.9.3 and 1.2.9.4) is less than 94% of those persons identified (including any persons who should have been identified but were not) in response to the Registration Orders requiring the registration of all U.S. Claimants and claims Connected with ASR Hip Implants who on the basis of information provided in response to the Registration Orders are EUSCs without regard to the Trauma and Infection exclusions set forth in Sections 1.2.9.3 and 1.2.9.4 (that is, aU.S. Patient, ASR Index Surgery in U.S., and ASR Revision Surgery without regard to Trauma and Infection exclusions); or

17.1.1.2. the MDL Court, any state court in a Coordinated Proceeding fails for any reason to enter the Registration Order by the 30th dayer the Execution Date.

16Dispute resolutionThree special masters appointed to resolve eligibility disputes, etc.

DePuy ASR Settlement17Qualifying Base Award 5.1Part A $250,000Part B Bilateral/Extraordinary Injury FundSubject to liens and counsel fees, etc.DePuy ASR Settlement18All awards issued pursuant to the U.S. Program are subject to theprovisions on Liens in Article 18.

The consideration for the Releases and Dismissal With Prejudice Stipulations, if applicable, provided by EUSCs is the establishment of the U.S. Program. The U.S. Program has a Base Award Program, which may also be referred to as the PART A Program and a Bilateral/Extraordinary Injury Fund (EIF) Award Program, which is also referred to as the PART B Program. The PART A Program contains certain Base Awards for QUSCs, which awards are subject to reductions and limitations. The PART B Program provides supplemental awards other than Base Awards forQUSCs in connection with Bilateral Revisions, Re-Revision situations, andExtraordinary Injuries incurred by some QUSCs to the extent such PART B ProgramAwards are claimed and established by the Claim Package and Additional ClaimInformation, if any, of the QUSCs in accordance with the terms of this Agreement. PARTB Awards also are subject to reductions and limitations as specified.

18Reduction for length of implantationImplantation Length from date of ASR Index Surgery to date of ASR Revision Surgery (X)ASR XL Base Award Amount Funding11180 days < X < 5Years$250,0005 Years X < 6 Years$225,0006 Years X < 7 Years$200,0007 Years X 8 Years$150,000Unrepresented: 71%

DePuy ASR Settlement19Other reductionsASR XL implanted as a revision device 20% +/- reductionBody Mass Index reductions 10 20%Death w/i 5years of revision surgery up to 25% as set by SOCAge reductions starting at age 70 4 % 15%

DePuy ASR Settlement20ASR XL Implanted as a Revision Device in place of an ASR XL orNon-ASR hip implant product. Where an ASR XL that was the subject of an ASR Revision Surgery was implanted as a revision device, the PART A Base Award will be reduced by up to 20% (with the exact percentage of reduction to be determined by the SOC).

BMI. There will be a up to 10% reduction of a U.S. Claimants applicable PART A Base Award if the U.S. Claimant had a BMI of 3540 at the time of the ASR Index Surgery. If the U.S. Claimant had a BMI of 4050 at the time of the ASR Index Surgery, the reduction to the applicable PART A Base Award shall be up to 15%. If the U.S. Claimant had a BMI of 50 at the time of the ASR Index Surgery, then to the applicable PART A Base Award shall be up to 20%.

20Minimum Part A Base AwardsImplantation Length% - 6 years $150,0006 7 years $125,0007 8 years $100,000(proportiona l reductions for the unrepresented)

DePuy ASR Settlement21Section 7.4. Minimum PART A Base Award

7.4.1. Except in cases of Unrepresented Claimants or in cases where the length of implantation lasted more than 5 years, the Minimum PART A Base Award to a QUSC shall be $150,000, irrespective of the number of reductions. The only exception to the Minimum PART A Base Award is for length of implantation and Unrepresenteds, and the minimum PART A Base Awards for which will be as follows:Implantation Length from ASR Index Surgery to date of ASR Revision Surgery (X)Minimum PART A Base Award for Represented QUSCMinimum PART A Base Award for Unrepresented QUSC5 Years X < 6 Years$150,000$106,5006 Years X < 7 Years$125,000$88,7507 Years X 8 Years$100,000$71,000

21Extraordinary injury claimsDeathHeart attack or strokeInfection and post ASR re-revisionsFoot DropDislocation and revisionPulmonary embolism or DVTRe-Revision surgery

DePuy ASR Settlement22Section 8

22Part B Extraordinary injury Award ProcessDetermined by SOCClaimants must allow access to medical records, rog answers, etc.No other discoveryDecisions entirely on the papers

DePuy ASR Settlement23Administrative expensesBorne by claimants$10 million initia contribution by DePuy (reduces aggregate)6% shall be paid to common benefit fund by DePuyClaims rocessor: Brown Greer, PLCFund shall be audited

DePuy ASR Settlement24Lien ResolutionEach QUSC shall identify, all Qualified LienholdersDePuy will be responsible for the negotiation and resolution of Assumed Liens asserted by Qualified Lienholders

DePuy ASR Settlement25.Article 18LiensSection 18.1. Lien Responsibilities

Each QUSC shall identify, through procedures and protocols to be established by the Claims Administrator, all Qualified Lienholders that have paid for, or asserted a lien or other claim for reimbursement for medical care associated with a Qualified Device.

DePuy will be responsible for the negotiation and resolution of Assumed Liens asserted by Qualified Lienholders that are identified by the QUSC. All other Liens shall be the responsibility of the respective QUSCs affected by any such other Liens.

The Parties recognize that nothing herein is intended to create a right of reimbursement where none would otherwise exist under applicable state or federal law. Nothing herein shall prevent DePuy from asserting any and all available rights or defenses with regard to resolution of an Assumed Lien which may otherwise be available to the insured or claimant.

DePuy will defend, indemnify, and hold harmless all QUSCs and their respective Counsel from any Assumed Liens identified by the QUSC and will not make a claim against QUSCs or their Counsel with respect to the Assumed Liens so identified, provided that QUSCs and their respective Counsel cooperate with procedures establishedtion of Assumed Liens and provide copies of all correspondence from Qualified

ASR Hip Settlement Agreement76Lienholders(s) addressing liens, claims and interests related to a Qualified Device or ASRRevision Surgery.

Qualified Lienholders shall be defined as the following:

government program insurers such as the Medicare and Medicaid programs, the CHAMPVA Program, the TRICARE Program and any other federal, state or local reimbursement program involving payment of governmental funds (including Federal healthcare programs as defined in 42U.S.C. 1320a 7b(f)) or other payor program administered by any governmental authority;

private and commercial payors including commercial insurance carriers, managed care organizations, and self-funded health insurance plans; and

an individual or entity that has provided healthcare items and services to a QUSC to the extent the QUSC had no third party insurance to cover the items and services furnished to the QUSC.

Assumed Liens shall mean Liens or claims asserted by a Qualified Lienholder with respect to a QUSC's Settlement Payment related to reimbursement for, or payment of:

medical care directly associated with a compensable Revision Surgery; and/or

medical care directly associated with a Qualified Device that was incurred between August 24, 2010 and the date of Revision Surgery and due to the Reasons underlying the Recall.

For purposes of clarity, Assumed Liens includes the Assumed Liens asserted by the federal government on behalf of the Centers for Medicare & Medicaid Services pursuant to 42 U.S.C. 1395y(b)(2)-(3) and associated regulations. However, for any ASR Revision Surgery that takes place outside of the United States, DePuy is not responsible for the resolution of Liens pertaining to ASR Revision Surgery or treatment that occursside of the United States.

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