An Intro to Behavioural Law & Economics, or Law & Economics 2.0

The last lecture of the course on Economic Analysis of Law I have taught this year at the University of Bristol Law School, concentrated on behavioural economics and the way it has pushed for the emergence of a law and economics 2.0.

Preparing for the lecture gave me the opportunity to re-read the seminal paper by Jolls, Sunstein & Thaler's A Behavioural Approach to Law and Economics,  Thaler & Sunstein's Nudge, and to read for the first time Thaler's Misbehaving, as well as adding Lewis' The Undoing Project to my "to read list" for the Easter vacation. I thoroughly enjoyed revisiting this area of the literature and I think my students enjoyed it (even) more than the rest of the course. Mental note: I should expand the scope of the discussion of law & economics 2.0 next year.

These are the slides I used, which spurred significant discussion with my students, and which have set the scene for the last round of seminars where we will be discussing these and other issues. Feel free to reuse them.

Don't skip a beat: CJEU intends to strengthen consumer protection of medical devices, but does it? (C-503/13)

In the interesting Judgment in Boston Scientific Medizintechnik, C-503/13, EU:C:2015:148, the Court of Justice of the European Union (CJEU) has clarified the requirements for the application of the EU rules on liability for damage caused by defective products to the manufacturers of potentially defective medical devices which substitution require surgical intervention. 

In the case at hand, the issue was whether the manufacturer of potentially defective pacemakers and implantable cardioverter defibrillators was liable to cover the cost of surgery and related damages to patients that needed those potentially defective products replaced. 

In a clear and rather short Judgment, the CJEU has ruled that such situations are covered by the special liability regime. This is bound to trigger commercial adjustments in this sector, as well as in the insurance sector and I would not be surprised if the Boston Scientific Medizintechnik is strongly criticised. I can think of some reasons why, which I sketch below.

The key controversial legal issues were whether the mere fact that a specific product is potentially defective suffices to classify it as defective for the purposes of EU law and, if so, whether the surgery needed to replace (potentially) defective medical devices was within the scope of the damages imposed on the producer. The CJEU has answered both questions in the affirmative. Some of its reasoning is worth considering in detail.

Firstly, regarding the way in which potentially defective medical devices should be treated, the CJEU determined that
37 ... a product is defective when it does not provide the safety which a person is entitled to expect, taking all the circumstances into account, including the presentation of the product, the use to which it could reasonably be expected that it would be put and the time when the product was put into circulation. Moreover ... that assessment must be carried out having regard to the reasonable expectations of the public at large.
38 The safety which the public at large is entitled to expect ... must therefore be assessed by taking into account, inter alia, the intended purpose, the objective characteristics and properties of the product in question and the specific requirements of the group of users for whom the product is intended.
39 With regard to medical devices such as the pacemakers and implantable cardioverter defibrillators at issue in the main proceedings, it is clear that, in the light of their function and the particularly vulnerable situation of patients using such devices, the safety requirements for those devices which such patients are entitled to expect are particularly high.
40 Moreover, as observed, in essence, by the Advocate General at point 30 of his Opinion, the potential lack of safety which would give rise to liability on the part of the producer ... stems, for products such as those at issue in the main proceedings, from the abnormal potential for damage which those products might cause to the person concerned.
41 Accordingly, where it is found that such products belonging to the same group or forming part of the same production series have a potential defect, it is possible to classify as defective all the products in that group or series, without there being any need to show that the product in question is defective
(C-503/13, paras 37 to 41, emphasis added).
This is a very significant line of reasoning, as it clearly establishes that the potential for damage is an element to take into consideration when assessing the level of safety that users of specific products can expect. In that regard, the higher the potential for damages (in this case, possibly, death), the lower the threshold for the special liability regime to be applicable. This basically comes to create a further objectification of the test for the imposition of objective liability under the EU rules and, in my view, significantly raises the financial risks faced by producers of medical devices. 

A law and economics detailed assessment would be necessary, but this case seems like a good candidate in the list of cases where the good intentions of the CJEU may create unforeseen and undesirable effects, eg by imposing additional costs on producers of medical devices that they pass-on to consumers, ultimately pricing out those with a lower acquisition power [for general discussion, see A Sanchez Graells,  The Importance of Assessing the Economic Impact of the Case Law of the Court of Justice of the European Union: Some Exploratory Thoughts (April 18, 2013)].

An alternative approach could have been explored by focusing on the level of security that medical professionals could expect, as medical devices are clearly not products directly offered to their end users. More alternatives could have been explored in view of the fact that the claimants in the case are mandatory insurance funds and not the ultimate users of the medical devices, which could also have triggered an analysis of the justification for medical insurance itself and the eventual obligation of medical insurers to absorb some of the risks they are perceived to insure. However, none of these issues are addressed by the CJEU in its Boston Scientific Medizintechnik Judgment.

http://candorville.com/2013/08/16/hypocritical-oath/

Secondly, regarding the classification of the surgery costs and related damages as "damage caused by death or by personal injuries" for the purposes of EU law, the CJEU made a distinction based on the recommendations of the manufacturer as to how best to minimise or reduce the risk derived from the potential defect. In that regard, it is worth stressing that
49 Compensation for damage thus relates to all that is necessary to eliminate harmful consequences and to restore the level of safety which a person is entitled to expect...
50 As a consequence, in the case of medical devices, such as pacemakers and implantable cardioverter defibrillators, which are defective ... compensation for damage must cover, inter alia, the costs relating to the replacement of the defective product.
51 In the present case ...
[the manufacturer/importer] recommended to surgeons that they should consider replacing the pacemakers in question.
52 In that case, the Court finds that the costs relating to the replacement of such pacemakers, including the costs of the surgical operations, constitute damage ... for which the producer is liable...
53 That finding may be different in the case of implantable cardioverter defibrillators, as
[the manufacturer/importer] recommended ... that the magnetic switch of those medical devices should simply be deactivated.
54 In that regard, it is for the national court to determine whether, having regard to the particularly vulnerable situation of patients using an implantable cardioverter defibrillator, the deactivation of the magnetic switch is sufficient for the purpose of overcoming the defect in that product, bearing in mind the abnormal risk of damage to which it subjects the patients concerned, or whether it is necessary to replace that product in order to overcome the defect
(C-503/13, paras 49 to 54, emphasis added).
In my view, this nuanced approach of the CJEU that makes the imposition of liability dependent on the recommendation issued by the manufacturer/importer of the potentially defective medical devices is tricky. On the one hand, it shows some space for technical considerations and allows manufacturers to take responsibility in finding the best ways to correct the defect or substitute the defective product. 
 
On the other hand, however, the CJEU is not very clear on this point and hints at the fact that the "particularly vulnerable situation of patients using an implantable cardioverter defibrillator" may tilt the national court's assessment on whether the manufacturer/importer's recommendation was actually fit for purpose. Once more, the focus seems to be in the wrong place, as the technical criteria of the doctors is not being taken into consideration.

If doctors performed an operation to substitute certain medical devices despite the fact that the manufacturer/importer had recommended a less intrusive approach, the medical criterion should be taken into account and, most likely, prevail. A doctor under the Hippocratic Oath is under a duty not to impose (unnecesary) suffering or damage. In this specific context, a doctor would be liable for performing an unnecessary surgery to replace a potentially defective medical device that could be satisfactorily fixed in an alternative way.
 
Hence, determining that the intervention was not necessary (ie releasing the manufacturer/importer from liability) would almost automatically trigger liability for the doctor. This, again, would create undesirable incentives for physicians, who would abstain from replacement surgery where the manufacturer/importer recommendation was different. In that case, there would be no technical check on the manufacturer/importer's views, and users (rectius, patients) could be at a clear disadvantage.

All in all, then, I think that the CJEU's Boston Scientific Medizintechnik Judgment creates significant distortions in the incentives that all parties involved have when medical devices are potentially defective. In my view, this derives from a lack of thought on the implications derived from the fact that medical devices are not acquired freely or willingly by their users, but under a strong prescriptive supervision by the medical profession. And that, in turn, their activities are further overseen (and influenced) by medical insurers. This is something that I would like to see gain more space in future Judgments or, otherwise, the consumerization of healthcare will end up actually under-protecting patients.