Smith & Nephew Settles Whistleblower Suit For $11M

By Jof Enriquez,
Follow me on Twitter @jofenriq

British medical device manufacturer Smith & Nephew (S&N) recently agreed to pay $11.3 million to settle a 2008 whistleblower lawsuit alleging that the company violated United States foreign trade agreements.

A Tennessee federal court ordered S&N to pay the U.S. government $6 million, the whistleblower Samuel Cox $2.3 million, and attorneys $3 million, in a case believed to be the first false country of origin claims involving medical devices, a report from Reuters said.

Cox was a former information technology manager of S&N who claimed that his former employer violated the U.S. federal Trade Agreements Act (TAA) by selling the Department of Veterans Affairs orthopedic devices made in Malaysia, and passed them off as made in the U.S. That law restricts sales to federal agencies to products only made in the U.S., or in countries which have standing trade pacts with the U.S. — which Malaysia does not have, according to the Reuters report.

Whistleblowers are entitled to a share of settlement proceeds from a case under the provisions of the False Claims Act (FCA) for violating the TAA, a press release from the office of the attorney who represented Cox explained.

The U.S. government did not intervene, but Cox proceeded without formal government assistance, his attorney said. Under whistleblower provisions of the TAA, private citizens — referred to as “Realtors” — can file charges on behalf of the government.

“Today's settlement sends a clear message to those medical device companies that routinely violate the Trade Agreements Act by misrepresenting the "Country of Origin" of goods sold under contract to U.S. Government agencies,” H. Vincent McKnight, Jr., Co-Chair of Sanford Heisler's whistleblower practice, said in the statement.

“This inaugural settlement will create a ripple effect for other medical device companies that choose to turn a blind eye to their obligations under the Trade Agreement Act,” McKnight continued. “The Government has turned its attention to these flagrant violations and is stepping up enforcement.”

The S&N case is the first TAA settlement involving willful misrepresentation of products by a medical device company. As noted in a Barnes/Richardson Global Trade Law article, “earlier trade related cases brought under the FCA involved claims of undervaluation, misclassification to avoid payment of duties or misrepresentation of country of origin to avoid payment of antidumping or countervailing duties.”

Smith & Nephew is a significant player in the U.S. medical device sector. It recently unveiled a low-cost sales strategy called Syncera targeted at hospitals that are unable to afford their standard offerings.