Shook Hardy Bacon: The Perils of Success: Innovator Liability & the Emerging Cannabis Market

Recreational marijuana and CBD products have swept the nation, with legal and regulatory acceptance growing on a daily basis. While some companies believe that the true value lies in cultivation of recreational marijuana or low-intensity CBD products, others have focused on developing patentable drugs from cannabis compounds.

Authors: Edd Gaus and Matt Williams

Edd Gaus and Matt Williams are trial lawyers at Shook, Hardy & Bacon where they defend manufacturers in a wide variety of industries including pharmaceutical. They both practice from the firm’s San Francisco office.

Edd Gaus

Matt Williams

For example, GW Pharmaceuticals’ highly concentrated CBD solution, Epidiolex, received FDA approval in 2018 to treat two forms of epilepsy. GW Pharmaceuticals has additional drugs in the approval pipeline, and traditional pharmaceutical companies are beginning to invest more time and resources in the cannabis space. As the trend towards state, and federal, legalization continues, cannabis drug developers must be mindful of the potential perils attached to being the “first-to-market” with a pharmaceutical product, as a minority of states, including California, recognize the concept of “innovator liability.”

This legal theory has its roots in Conte v. Wyeth, which held that a name-brand manufacturer’s duty to warn applies not only to those who use its products, but also extends to consumers who use the generic equivalents of the drug. 168 Cal. App. 4th 89, 105 (2008). In finding that a brand name manufacturer can be held liable under a failure to warn theory, for injuries suffered by consumers of the generic version of the same drug, even if the injured party never used the brand equivalent, the Court in Conte leaned heavily on the process by which brand and generic drugs make it to market. Like any other product, patents for pharmaceuticals are granted for a limited time. 35 U.S.C. § 154 (patents expire 20 years from date of filing). After the patent on a brand-name drug expires, generic manufacturers are free to produce a chemically-identical pharmaceutical, and do not need to seek entirely new FDA approval. Conte, 168 Cal. App. 4th at 98.

To avoid new FDA approval, the generic manufacturer cannot meaningfully alter any aspect of the approved drug, including its warning labels. As the California Supreme Court recently explained in T.H. v. Novartis, “[f]ederal law explicitly conveys to the brand-name manufacturer—and only that manufacturer—the responsibility to provide an adequate warning label for both generic [drugs] and [their] brand-name equivalent[s].” 4 Cal.5th 145, 155 (2017). “[O]nly the brand-name drug manufacturer has unilateral authority to modify the drug’s label by adding to or strengthening a warning.” Id. Therefore, the brand-name manufacturer—or “innovator”—carries all liability for warning defects, even if a plaintiff never consumed the original drug made by the original manufacturer. Id. at 165. “[O]ur careful review of the federal regulatory scheme . . . persuades us that a brand-name drug manufacturer has the duty under California law to warn of the risks about which it knew or reasonably should have known, regardless of whether the consumer is prescribed the brand-name drug or its [competitors’] generic ‘bioequivalent.’” Id.

Other states have followed the courts’ reasoning in Conte and T.H. v. Novartis, and imposed innovatory liability on brand-name drug manufacturers. See Kellogg v. Wyeth, 762 F. Supp. 2d 694, 706 (D. Vt. 2010); Rafferty v. Merck & Co., 479 Mass. 141, 157 (2018). Fortunately, there have been several recent corrections to the trend. See, e.g., Forest Labs., LLC v. Feheley, No. 1180387, 2019 WL 5485548, at *13 (Ala. Oct. 25, 2019) (recognizing that Alabama Supreme Court decision approving innovator liability was superseded by statute); Dolin v. GlaxoSmithKline LLC, 901 F.3d 803, 813-15 (7th Cir. 2018), cert. denied, 139 S. Ct. 2636 (2019) (finding Illinois state-law failure to warn claim preempted). But, brand name manufacturers remain on the hook in some of the nation’s largest drug markets.

Against this backdrop, cannabis companies preparing to develop and seek FDA approval for new prescription drugs must be mindful of potential litigation that could follow from being the first to market with that drug. Much care must be taken when developing sufficient warning labels, particularly as long-term effects of THC and CBD remain relatively unexamined. Businesses seeking to develop cannabis-derived therapeutics should engage counsel experienced in navigating the complex regulatory and legal risks posed by innovator liability. With some of the largest states endorsing innovator liability and many others still undecided, it will remain a threat to both traditional and cannabis-focused drug developers for years to come.


Top 200 Cannabis Lawyers

Cannabis Law Journal – Contributing Authors

Editor – Sean Hocking

Author Bios

Matt Maurer – Minden Gross
Jeff Hergot – Wildboer Dellelce LLP

Costa Rica
Tim Morales – The Cannabis Industry Association Costa Rica

Elvin Rodríguez Fabilena


Julie Godard
Carl L Rowley -Thompson Coburn LLP

Jerry Chesler – Chesler Consulting

Ian Stewart – Wilson Elser Moskowitz Edelman & Dicker LLP
Otis Felder – Wilson Elser Moskowitz Edelman & Dicker LLP
Lance Rogers – Greenspoon Marder – San Diego
Jessica McElfresh -McElfresh Law – San Diego
Tracy Gallegos – Partner – Fox Rothschild

Adam Detsky – Knight Nicastro
Dave Rodman – Dave Rodman Law Group
Peter Fendel – CMR Real Estate Network
Nate Reed – CMR Real Estate Network

Matthew Ginder – Greenspoon Marder
David C. Kotler – Cohen Kotler

William Bogot – Fox Rothschild

Valerio Romano, Attorney – VGR Law Firm, PC

Neal Gidvani – Snr Assoc: Greenspoon Marder
Phillip Silvestri – Snr Assoc: Greenspoon Marder

Tracy Gallegos – Associate Fox Rothschild

New Jersey

Matthew G. Miller – MG Miller Intellectual Property Law LLC
Daniel T. McKillop – Scarinci Hollenbeck, LLC

New York
Gregory J. Ryan, Esq. Tesser, Ryan & Rochman, LLP
Tim Nolen Tesser, Ryan & Rochman, LLP
Cadwalader, Wickersham & Taft LLP

Paul Loney & Kristie Cromwell – Loney Law Group
William Stewart – Half Baked Labs

Andrew B. Sacks – Managing Partner Sacks Weston Diamond
William Roark – Principal Hamburg, Rubin, Mullin, Maxwell & Lupin
Joshua Horn – Partner Fox Rothschild

Washington DC
Teddy Eynon – Partner Fox Rothschild