California’s Negligence Tort Empowers Juries, Hurts Innovation

A California state appellate court on Jan. 9 affirmed in Gilead Life Sciences, Inc. v. Superior Court of San Francisco the creation of a novel corporate tort, holding a firm liable for negligence for failing to develop and market a product superior to the firm’s current product on the market.

This is a radical change in the tort of negligence, first by allowing recovery of losses from side effects of which the purported victims had been informed, and second by empowering lay juries to determine how quickly a new, superior product must be introduced.

In the case, a class of 24,000 consumers using TDF, a medication to treat HIV/AIDS, sued Gilead Sciences Inc., the product’s manufacturer—not on the grounds that the product was defective in any regard, but because Gilead was negligent in not bringing a separate, allegedly superior product to the market earlier.

In our legal system, the tort of negligence typically charges a jury to determine whether an action of one party caused an injury to another because the first party failed to use reasonable care, leading to the injury. In product liability law, that usually means showing a product was defective due to negligent manufacture or design, or negligent failure to warn of dangers that better-informed consumers could avoid.

The class members admitted TDF wasn’t defective in any respect besides side effects that had been disclosed to them beforehand. Instead, they claimed Gilead was negligent by not developing and selling a substitute product with fewer side effects—purportedly to increase profits by not undercutting sales of the earlier product. They claimed as damages their injuries from the side effects.

The appellate court’s expansion of negligence in its ruling for the class members will likely reduce the number of new beneficial drugs on the market, increase their prices, and deter innovation in pharmaceuticals and other products.

TDF had harmful side effects, but it was approved by the Food and Drug Administration because the health benefits of the drug exceeded the harm from the side effects. Under basic products liability law, this makes the drug neither defective nor negligently designed as long as the potential side effects were communicated to consumers, which they were. Nonetheless, the negligence theory affirmed by the court makes Gilead liable for TDF’s side effects.

Manufacturers such as Gilead develop and market pharmaceuticals based on FDA approval—not on the expectation that they will bear liability for all the costs of harmful side effects. Because side effects can’t be totally eliminated, this new negligence rule compels manufacturers to build into the price of the product the expected liability costs from users who claim to have suffered side effects.

Lay juries may have the capacity to determine whether a product suffered a manufacturing defect, as those cases are typically settled before trial. But it’s questionable whether they can decide a product was defectively designed based on mere expert testimony that, in hindsight, some change in design would have prevented the injury. The same goes for determining, in a failure-to-warn case, whether the consumer could have avoided the injury had a different warning been offered.

Under the new tort theory affirmed in Gilead, a jury would be asked to review the development history of an alleged subsequent superior product and decide whether the experts manufacturing the product were negligent in not developing and selling the product earlier. They would also conclude what the loss to each plaintiff was, given the passage of time between their use of the earlier product and their adoption of the subsequent product.

This puts the timing of corporate decisions about product development into the hands of lay juries. Gilead involved pharmaceuticals, but its theory could be applied to automobiles—when the invention of the adjustable windshield wiper should have been brought to market, for example—or to any other manufacturing process for which safety has improved over time.

Tort law is one of many features of our modern legal system that has expanded dramatically since the 1960s. A major effect has been to substitute judgments by lay juries for those of legislators, regulators, and, most importantly, companies that must commit to improving safety or lose out to competitors.

This California case deters innovation and shifts power to lay juries at a vastly new level.

The case is Gilead Life Scis., Inc. v. Superior Ct. of S.F., Cal. Ct. App., 1st Dist., No. A165558, 1/9/24.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

George L. Priest is professor of law and economics at Yale Law School.

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