A Medical Device Daily

Citing a "scheme to defraud its customers by selling defective and potentially dangerous medical devices," an amended "whistleblower" complaint has been filed against Hewlett-Packard (HP; Palo Alto, California) and spin-off entity, Agilent Technologies (also Palo Alto). A former employee has filed the suits on behalf of himself and the State of California.

The medical devices cited in the suit include anesthesia gas monitors, pulse oximeters and ultrasound imaging transducers used to produce images of structures, organs and blood flow inside the body. Disclosed this past week, the suit – filed in California Superior Court in San Francisco – charges violation of California's false claims laws and seeks treble damages estimated in the "tens of millions of dollars."

Bringing the action is Robert Hindin, who worked for HP as production manager and manufacturing engineer for eight years. He was terminated in 1997.

Hindin says that he uncovered HP's alleged improper practices and the "life-threatening failures" of its products in 1996 and that he informed management of the problems but was met with what he termed "nothing but hostility and threats." He charges also that he was fired after reporting HP's conduct to the FDA.

The lawsuit says that HP falsely certified its compliance with FDA rules, that it failed to report product defects and failed to investigate and address these problems.

Hindin filed a federal lawsuit initially in 1997 on behalf of himself and the U.S. government under federal false claims laws, charging that the company sold to California and the federal government thousands of medical devices for its hospitals which received reimbursement for the devices through the MediCal program.

Those fraud charges "were validated by a settlement in July 2002, in which HP/Agilent agreed to pay $7 million to the federal government," according to Hindin's attorneys, and it also settled Hindin's wrongful termination claim.

Announcing the settlement, U.S. Attorney Michael Sullivan in Boston, who prosecuted the case, described HP's conduct as "unconscionable," according to a statement issued by the attorneys last week.

During the government investigation, Hindin filed a parallel lawsuit in California that was recently served on the defendants. This most recent filing amends that complaint.

Pierce O'Donnell, lead plaintiff counsel with O'Donnell Shaeffer Mortimer (Los Angeles), called HP's conduct "conscience-shocking because these are medical products that can make a life or death difference for a patient" and that HP showed "a conscious disregard for public health and safety in the craven pursuit of profits."

Last week's amended legal action charges that HP concealed the existence and severity of product defects discovered in testing, that it violated government-prescribed standards and that it caused healthcare providers in the MediCal program to pass on a portion of the costs of substandard equipment to the State of California. According to the lawsuit, these products were manufactured and distributed by HP prior to November 1999, when it spun off these and other divisions to create Agilent Technologies. Agilent's Healthcare Solutions group alone reported revenues the following year of $1.4 billion. That group was acquired by Royal Philips Electronics (Amsterdam, the Netherlands) in a $1.7 billion deal in 2001 (Medical Device Daily, Aug. 2, 2001) and subsequently was integrated into Philips Medical Systems North America (Andover, Massachusetts).

O'Donnell added: "Since the U.S. government's settlement did not include any formal cease-and-desist directives regarding these products beyond 2002, we want to ascertain whether these defective products are still in the marketplace and if they are causing patient injuries."

In other legalities:

• Paradigm Medical Industries (Salt Lake City) reported that it agreed to settle the federal and state court class-action lawsuits filed against the company and its former executive officers, Thomas Motter, Mark Miehle and John Hemmer.

Under the terms of settlement, U.S. Fire Insurance, which issued a directors/officers liability and company reimbursement policy to Paradigm for the period July 10, 2002, to July 10, 2003, will pay $1,507,500 to class members that purchased Paradigm securities between April 17, 2002, and Nov. 4, 2002. And it will pay $625,000 to the class members that purchased shares of Series E convertible preferred stock on or about July 11, 2001.

Both agreements provide that U.S. Fire must not have exercised its option to terminate these agreements. U.S. Fire has the option to terminate the agreements if the cumulative dollar value of the claims held by individuals or entities that opt out of the federal and state class-action lawsuits exceeds $250,000. If such opt-outs exceed $250,000, plaintiffs will have five days to reduce the amount of opt-outs to less than $250,000.

If U.S. Fire exercises its option to terminate the agreements, then all parties to the settlement agreements will be restored to their respective positions in the various actions as of the date of the agreement. In addition, the terms and provisions of the settlement agreements will have no further force on the various parties and will be deemed null and void in their entirety.

On Jan. 26, Paradigm completed an agreement to settle the lawsuit that Innovative Optics (IO; Albuquerque, New Mexico) and Barton Dietrich Investments brought against Paradigm Medical and its former executives (Medical Device Daily, Jan. 28, 2005). U.S. Fire agreed to pay IO and Barton Dietrich Investments $367,500. Under the terms of the agreements, U.S. Fire will pay $2.5 million to the classes in the class-action suits and to IO and Barton Dietrich.

Paradigm is to pay U.S. Fire $220,000, the remaining amount owing under a $250,000 retention obligation in the insurance policy, and to execute a policy release in favor of U.S. Fire as to coverage under the insurance policy.

Paradigm Medical manufactures surgical and diagnostic equipment and products.

• CTI Molecular Imaging (CTI; Knoxville, Tennessee), a provider of positron emission tomography (PET) equipment, molecular probes and services, reported that the U.S. District Court for the Eastern District of Tennessee issued a judgment in favor of the company and CTI PET Systems (dba as CPS Innovations) as defendants in a patent infringement case brought by the Board of Regents, The University of Texas System and M.D. Anderson Cancer Center vs. CTI, CTI Molecular Imaging and CTI PET Systems.

The court granted the company's and CPS Innovations' motion for summary judgment on non-infringement of patents held by the University of Texas System and denied the plaintiffs' motion for summary judgment of infringement by the plaintiffs. The court's order operates as a "complete dismissal of all of the claims," CTI said.

Ronald Nutt, PhD, president and CEO of CTI, noted that the company has maintained that its patented detector block design "does not infringe upon the patents issued to the University of Texas System, and the ruling by the trial court is a complete vindication of our position."

• Suros Surgical Systems (Indianapolis), maker of the ATEC breast biopsy and excision system, said it has filed suit in the U.S. District Court for the Southern District of Indiana on Feb. 22, claiming patent infringement by SenoRx (Irvine, California). The complaint charges that the SenoRx breast biopsy device infringes Suros' U.S. Patent No. 5,997,560, with the action seeking standard remedies.

Suros manufactures minimally invasive surgical platform technology for biopsy and tissue excision. The Suros ATEC breast biopsy and excision system was cleared for sale in March 2002. Suros reports having five FDA clearances in the areas of neurosurgery, liver, lung, ENT and urology surgery, at least 15 issued patents and seven patents pending.

SenoRx is developing diagnostic and surgical instrumentation for breast cancer and related diseases.