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Authorised representatives and liability for defective products

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Authorised representatives and liability for defective products

The European Association of Authorised Representatives (EAAR) believes that the Council’s proposal to make authorised representatives liable for defective products in the proposed medical device Regulations (new Art. 9.4a) should not be adopted for the following reasons:

It creates a conflict with European law on product liability

Under current European law (Directive 85/374/EEC )[1] producers and importers are liable for defective products. If they cannot be identified, the supplier of the product becomes liable. Liability therefore resides within the supply chain. Authorised representatives are not mentioned in this Directive and are not involved in the supply chain (importing, receiving, handling or supplying medical devices). The suggested amendment would therefore conflict with current European law.
Liability of the manufacturer (producer) is logical, as defects in products usually arise from faulty design or errors in manufacturing. The authorised representative is not involved in these processes and therefore has no possibility to undertake measures that prevent such defects from occurring.
Importers into the European Union are also assigned responsibility for defective products under Directive 85/374/EEC, and if neither the manufacturer nor the importer is known, the supplier of the product may be held responsible. The law therefore recognises that there can be circumstances in which the manufacturer cannot be found or its responsibility engaged in practice and resolves the problem by assigning liability to entities in the supply chain who assume the commercial risk of liability. This makes sense because the revenue in the supply chain is proportionate to the type and volume of products handled, whereas authorised representatives typically charge a nominal retainer for what is in many ways an administrative service.
The proposed Art. 9.4a makes reference to a new proposed Art. 8.13, which states “Natural or legal persons may claim compensation for damage caused by a defective device in accordance with applicable Union and national law.” This would normally be understood as a reference to Directive 85/374/EEC. However, as this Directive does not even mention the authorised representative, it is difficult to see how its requirements would be applied to authorised representatives even if Art. 9.4a is interpreted as an additional layer to Directive 85/375/EEC. For instance this Directive excludes the liability of an entity that did not put the product into circulation, which is almost always the case of an authorised representative.
If the intent of the proposal is to create a new separate product liability regime for authorised representatives, distinct from Directive 85/374/EEC, then it fails to identify the nature of this liability (strict liability or one based on negligence) as well as the relevant operational details of the system (e.g. financial caps, allowed defences, etc.).
The Council’s proposal does not indicate that manufacturers, importers and distributors should be liable for defective devices. It does not make sense to make the only economic operator incapable of causing product defects to be liable for such defects. EAAR recognizes that the proposed Art. 8.13 would require manufacturers to consider taking out product liability insurance, suggesting that the manufacturers’ liability is recognised. However, this manufacturers’ liability is not stated as clearly as the proposed liability for the authorised representatives.

[1] Council Directive of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products (85/374/EEC), Article 3

It may violate European Union’s international obligations

The Agreement on Technical Barriers to Trade[2] of the World Trade Organisation (WTO) states in its Article 2.1

Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favourable than that accorded to like products of national origin and to like products originating in any other country.

This Agreement is likely to be incorporated as such in the agreement on Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated between the European Union.
The proposal to make authorised representatives liable for defective products may be regarded as a technical barrier to trade under these Agreements for the following reasons:

  • There is no such explicit equivalent requirement for manufacturers in the European Union in the proposed Regulations. Since the requirement would be unworkable under Directive 85/374/EEC (see Article 7 (a) and (c)), there would have to be a new regime for this type of liability.
  • The authorised representatives would have to take protective measures against non-European manufacturers and impose costs that European based manufacturers would not have to face.
  • This is likely to cause many non-European small and medium sized medical device manufacturers cease trading with the European Union.

It is interesting to note that the US FDA decided to suspend in 1996 its requirement for foreign manufacturers to appoint US designated agents for various reasons. These reasons included the difficulty of finding suitable agents and the high cost of such agents to the manufacturers resulting from the heavy regulatory responsibilities assigned to these agents. This is analogous to the potential outcome of the requirement of product liability imposed on authorised representatives in that it might reduce the pool of authorised representatives willing to accept such a responsibility and vastly increase the cost of authorised representatives to the manufacturers.
Considering their own experience, the USA may consider the outcome suggested above in Europe as akin to a barrier to trade for the US manufacturers. It may then become a factor in the TTIP negotiations.

[2] Agreement On Technical Barriers To Trade (https://www.wto.org/english/docs_e/legal_e/17-tbt.pdf)

It is at variance with the accepted role for the authorised representative in the context of the New Legislative Framework

The New Legislative Framework[3] (previously known as the “New Approach”) sets out the basic principles of authorised representation, which have been applied in various directives, including those for medical devices. It does not hold the authorised representatives liable for defective products. Adding such a requirement would therefore constitute a substantial departure from the New Legislative Framework and cause confusion about the roles of the various economic operators and how liability for defective products is shared by them.
The role of the authorised representative is to act as an intermediary between the manufacturer and national competent authorities. If a competent authority has a query about proof of compliance, the authorised representative must be able to communicate with the manufacturer in such a way that it can transmit the manufacturer’s answers rapidly to the competent authority. Authorised representatives often also play a useful function in advising the manufacturer about regulatory requirements and assisting in certain tasks such as vigilance and field safety corrective action.
The current regulatory system already provides for third party controls of product design and manufacturing in the form of audits and certification by Notified Bodies. However, there has never[4] been a requirement or even a suggestion in the past or in the proposed Regulations that the authorised representative should carry out verification of the manufacturer’s design and manufacturing activities. Should authorised representatives be made liable for defective products, the nature of authorised representation would have to radically change, as authorised representatives would need to be given, by law, the necessary tools to minimise the risk of defective products.
The radically changed role of the authorised representatives would require rethinking of the New Legislative Framework and in particular of the respective roles and relationships of the economic operators and of the Notified Bodies. Such a new role for authorised representatives would be a source of potential conflicts between economic operators.

[3] As defined in Regulation (EC) No 765/2008 setting out the requirements for accreditation and market surveillance relating to the marketing of products, Decision No 768/2008/EC on a common framework for the marketing of products and the “Blue Guide” on the implementation of EU product rules
[4] This is true of the above documents setting out the “New Legislative Framework” as well as the medical device directives and the proposed new regulations.

It would require substantial additional changes in the proposed Regulations

Defects in medical devices result from design flaws and problems in manufacturing. A recent study by the US Food and Drug Administration (FDA)[5] determined that “the most frequent causes for recalls are related to device design, software, and non-conforming material or component issues”.
Directive 85/374/EEC assigns the primary liability for defective products to the producer (i.e. the manufacturer). This makes sense as the manufacturer assumes the risks of placing the product on the market and exposing users to it. The manufacturer has also detailed knowledge of the product and control over the design and manufacturing processes. Authorised representatives are not involved in these processes.
Authorised representative do not have the means to minimise the risk of defects in medical devices under the current system. Being held liable for defective products would require a major reconsideration of the role of the authorised representative and imply the need for substantial new amendments in the proposed medical device Regulations.
The “hands off” nature of authorised representation is clear in Art. 9.4 which prohibits delegation of several core compliance aspects to the authorised representative as “laid down in Article 8(1), (2), (3), (3a), (5), (6), (7) and (8)“. These “prohibited” obligations include:

  • Design and manufacture;
  • Technical documentation development and maintenance;
  • Drawing up a Declaration of Conformity;
  • Attaching the CE mark;
  • Complying with Universal Device Identification (UDI) obligations;
  • Maintaining conformity through series production;
  • Implementing and maintaining a post-market surveillance plan;
  • Provision of instructions for use;
  • Taking corrective action to bring non-conforming devices into conformity.

Authorised representatives would have to be given substantial powers to inspect, assess and monitor manufacturers and their products in order to carry out the necessary due diligence implied by this proposed new responsibility for liability. To the extent that product defects might arise during transport and storage, these powers would also need to allow inspection of importers and distributors by the authorised representatives. Without such powers, authorised representatives would be held responsible for events that were totally outside their ability to prevent.
It would be important to carry out an impact assessment on this suggested amendment before introducing it into law, because of its likely disruptive effect on the authorised representative sector and the smooth functioning of the regulatory system. The cost impact for health care systems could be significant as authorised representatives would have to raise their fees by an order of magnitude, with no corresponding demonstrable benefits to it.

[5] Medical Device Recall Report FY2003 to FY2012
http://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDRH/CDRHTransparency/UCM388442.pdf

It would not work

The current legal systems of liability would have to be changed in order to accommodate liability by authorised representatives, in particular because of the absence of causal links between authorised representation and the process by which product defects arise. Even if this hurdle was overcome, serious problems would remain.
The purpose of product liability is to compensate victims, to act as a deterrent to manufacturers and to encourage them to minimise the risk of defective products.
Major multinational medical device companies have authorised representatives within their European organisations for the non-European manufacturers of their group. However, most small and medium sized non-European manufacturers use independent authorised representatives. Some of these provide authorised representation services alongside other services such as regulatory consultancy, quality assurance services, organisation of clinical studies, etc. Some may represent only a few manufacturers while others have authorised representation as their main business and may represent hundreds of manufacturers.
The revenue generated by independent authorised representatives from authorised representation activity is a very small fraction of the revenue of medical device manufacturers. Among EAAR members it is estimated that the annual fee for authorised representation services is less than 100 euro per device type. The ability of manufacturers to sustain litigation costs and insurance premiums is orders of magnitude greater than that of authorised representatives. A single product liability suit, even if unsuccessful, could be financially disastrous for an authorised representative, considering the legal fees and compensation awarded to the victims.
The bankruptcy of a single authorised representative caused by one manufacturer with defective products could create a major problem for many other manufacturers who would lose their authorised representative through no fault of their own.
The liability of an independent authorised representative would not have great impact on the manufacturer of the defective product as they are separate legal entities. The disappearance of the authorised representative would deny the patient compensation but the manufacturer could easily find a new authorised representative.
The risk of being held liable for defective medical devices whilst being powerless to prevent such defects would cause many service providers to drop authorised representation from their service offering and may cause many of the smaller authorised representatives to close. The rogue authorised representatives would stay in business as they would simply disappear at the first sight of trouble. The quality of authorised services provided would thus be diminished.
If the purpose of the proposal is to find a deterrent and punitive measure that can be used against an entity located in the European Union when the manufacturer is out of reach of European law, its effect might be limited to the elimination of many highly qualified authorised representatives who had no means to prevent defects in medical devices. It is difficult to see how this would deter manufacturers of defective products, or be of benefit to patients or the overall regulatory system.

It would not help patients.

It would not help the victims of the defects.
A patient victim of a defective device would be led to believe that the authorised representative rather than the manufacturer could be sued. However, such a law suit might face significant difficulties as the European and national law is not adapted to assign liability for defective devices to an entity that bears no responsibility for producing or placing on the market of the product in question.
In addition, it is much more likely that the victim of the defect and the authorised representative would be in different member states when compared to economic operators in the supply chain being held responsible under Directive 85/374/EEC. Such a difference in geographic location could significantly complicate the ability of the patient to obtain compensation for the victim, and increase the costs of seeking that compensation.
The authorised representative might not even have the necessary financial resources to defend itself and could therefore cease to exist before a court could handle the case. Even if the case did reach the court and the victim won it, the authorised representative might not have the financial resources or the level of insurance to provide the compensation awarded by the court.
The victim would therefore risk following an unproductive pathway instead of pursuing one of the existing and well developed compensation routes.

The existing legal framework already provides a better solution

The current European legal system for product liability has provided an appropriate solution since 1988 (Directive 85/374/EEC). It allows plaintiffs to seek compensation by demonstrating that a defect caused the damage sustained. If the manufacturer cannot be sued for whatever reason, the plaintiff can direct the law suit against the importer of the device or its supplier. The proposed regulations rightly create new obligations for the entities in the supply chain in terms of traceability. This makes it easier for the patient to seek compensation for defective products under the existing Directive on liability.
Many national healthcare systems have established compensation schemes for patients.
If negligence is involved, there are possibilities under national legal systems. Many personal injury lawyers will provide their services free to the victims of defective products, thus making this a relatively easy option for the victim
Creating a new system of liability directed against the authorised representatives will not improve the existing systems.
In the event that defective medical devices cause harm to patients, the vigilance system is activated. This system was established already in the 1990s under current directives and has been further developed under the proposed regulations. In the vast majority of cases, the manufacturer will investigate adequately any allegations of defective products and undertake appropriate corrective action to prevent any recurrence. Should the manufacturer not comply with the requirements related to vigilance, the competent authorities can take the necessary enforcement measures to prevent defective devices reaching the market.