It has been four months since the world learned of coronavirus disease 2019 (“COVID-19”), the new strain of coronavirus causing respiratory infection in its victims. With nearly 154,000 confirmed cases and a current death toll exceeding 5,700,[1] the World Health Organization (“WHO”) has reluctantly declared COVID-19 a pandemic, in large part because of the numerous unknowns pertaining to transmission, protection, and treatment. Disease control organizations globally, including the Center for Disease Control (“CDC”) in the United States, are working tirelessly to learn more about COVID-19 so that individuals, communities, and businesses alike can best navigate this new and uncertain territory.
But new information cannot come soon enough, as COVID-19 is quickly making its mark on the economy. With communities on lockdown and bans placed on travel, many stocks and stock markets have entered bear market territory. As a result, not only must businesses focus on protecting the well-being of their employees, they must also focus on ensuring their continued viability. Businesses touching the products space are no exception—and many are at the forefront.
So how is COVID-19 affecting businesses operating in the products arena? And how can we expect it to impact these businesses in the future? As discussed more fully below, while some businesses should anticipate challenges accompanying uncertainty in meeting production and sales goals, others whose products are directly or tangentially related to the medical field should remain steadfast in following best practices and in-place protocols while satisfying increasing demand so as to avoid unnecessary risk down the road. Moreover, all products business should stay abreast of the most recent virus-related information, take preventative measures internally to protect both employees and consumers from contact-based transmission of the disease, and assess potential liabilities such as those arising from contract-based obligations.
The pharmaceutical product and medical device spaces are unsurprisingly seeing the most direct impact thus far, as concerns rise regarding possible supply shortages. Numerous active pharmaceutical ingredients (“API”), finished drugs, and essential medical devices are imported from China—where COVID-19 originated—and India, resulting in efforts by the U.S. Food and Drug Administration (“FDA”) to closely monitor America’s product supply.[2] Although shortages to date have been minimal,[3] India recently restricted the export of dozens of APIs “until further notice.”[4] In response, the federal government is advocating for a move away from importing pharmaceutical and other medical products. The New York Times recently reported an expected executive order “that would close loopholes allowing the government to purchase pharmaceuticals, face masks, ventilators and other medical products from foreign countries” with the intent to incentivize “companies to make their products in the United States, rather than China.”[5]
Along similar lines, although there is no known cure for COVID-19, certain drugs have been identified as useful in treating some of the damage caused by the virus, including an arthritis drug being used to treat lung damage.[6] As more currently-marketed products emerge as helpful in the treatment of COVID-19 symptoms and damage, we can expect supply and demand imbalances to increase.
Regrettably, but perhaps inevitably, some actors are attempting to profit from the heightened anxiety accompanying COVID-19, but their efforts are being quickly curtailed. For example, the FDA and the Federal Trade Commission (“FTC”) are issuing warning letters to companies claiming to sell products that either cure or prevent COVID-19.[7] As FTC Chairman Joe Simmons stated, “[w]hat we don’t need in this situation are companies preying on consumers by promoting products with fraudulent prevention and treatment claims.”[8] Both organizations stand ready to “take enforcement actions against companies that continue to market this type of scam.”[9]
Amazon is doing its part on this front, not only precluding the sale of falsely advertised COVID-19 treatment products, but also stopping third-party sellers from price gouging on products like face masks and hand sanitizer.[10] Along these lines, manufacturers should ensure those in their distribution chains are following contractual price-setting terms in place for their products.
As we learn more about how COVID-19 is spread, company bottom lines may be impacted in more ways than one. While the CDC has determined the most common means of spreading the virus is person-to-person, it has not ruled out contact with contaminated surfaces and objects as a means of transmission, stating “[i]t may be possible that a person can get COVID-19 by touching a surface or object that has the virus on it and then touching their own mouth, nose, or possibly their eyes.”[11] Significantly, coronaviruses can live on surfaces for up to nine days.[12] Businesses in the distribution chain should consider what measures they can take to disinfect products and the shipping materials containing them, as well as to ensure the individuals handling them along the way are not infecting these surfaces. Being proactive in efforts to prevent contamination and transmission may aid in avoiding future liability claims based on viral transmission from contact with a contaminated product, notwithstanding the viability of any such claim.
Businesses should also take the time to review their distribution contracts and insurance contracts as it relates to fulfillment obligations and supply/demand changes, as forced closures and quarantined employees may impact what they are capable of accomplishing. Future bans or limitations placed on imports and exports could impact product completion and distribution. And as more communities self-protect with quarantines and travel restrictions, businesses may experience sales fluctuations based on the types of products they make, distribute, and sell.
As to product liability concerns specifically, businesses that are either manufacturing products in the pharmaceutical and medical device/supply sector or that are tangentially connected to prevention, containment, or treatment efforts (e.g. manufacturers of latex gloves and face masks) should take care to ensure they are using reasonable care and following in-place protocols during the manufacturing process, notwithstanding increased demands. A disregard for standard protocols such as quality control measures can create unnecessary exposure and invite avoidable claims.
In sum, “[t]his is an emerging, rapidly evolving situation”[13] with an inherently unpredictable future landscape. Most businesses in the products space should plan for challenges arising from an economic downturn that could be exacerbated by uncertainty in how to contain the spread of COVID-19.[14] Staying informed, taking internal prevention measures, and assessing potential liabilities are some of the proactive steps that companies can take as we all work to navigate these unchartered waters.
[1] World Health Organization, Coronavirus disease 2019 (COVID-19): Situation Report – 55 (Mar. 15, 2020), available at https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200315-sitrep-55-covid-19.pdf?sfvrsn=33daa5cb_8 (last accessed Mar. 16, 2020).
[2] U.S. Food & Drug Administration, FDA Statement, Coronavirus (COVID-19) Supply Chain Update (Feb. 27, 2020), available at https://www.fda.gov/news-events/press-announcements/coronavirus-covid-19-supply-chain-update (last accessed Mar. 12, 2020).
[3] See id. (noting one human drug manufacturer notified it of a shortage caused by “an issue with manufacturing of an active pharmaceutical ingredient used in the drug” in a COVID-19-affected location)
[4] Palmer, Eric, FiercePharma, Manufacturing: Coronavirus spurs India to restrict exports of 2 dozen drugs (Mar. 3, 2020), available at https://www.fiercepharma.com/manufacturing/coronavirus-spurs-india-to-restrict-exports-two-dozen-drugs (last accessed Mar. 12, 2020).
[5] Swanson, Ana, The New York Times, Coronavirus Spurs U.S. Efforts to End China’s Chokehold on Drugs (Mar. 11, 2020), available at https://www.nytimes.com/2020/03/11/business/economy/coronavirus-china-trump-drugs.html (last accessed Mar. 12, 2020).
[6] Liu, Angus, FiercePharma, Pharma Asia: China turns Roche arthritis drug Acterma against COVID-19 in new treatment guidelines (Mar. 4, 2020), available at https://www.fiercepharma.com/pharma-asia/china-turns-roche-arthritis-drug-actemra-against-covid-19-new-treatment-guidelines (last accessed Mar. 12, 2020).
[7] U.S. Food & Drug Administration, FDA News Release, Coronavirus Update: FDA and FTC Warn Seven Companies Selling Fraudulent Products that Claim to Treat or Prevent COVID-19 (Mar. 9, 2020), available at https://www.fda.gov/news-events/press-announcements/coronavirus-update-fda-and-ftc-warn-seven-companies-selling-fraudulent-products-claim-treat-or (last accessed Mar. 12, 2020).
[8] Id.
[9] Id.
[10] Valinsky, Jordan, CNN Business: Amazon deleted 1 million items for price gouging or false advertising about coronavirus (Mar. 2, 2020), available at https://www.cnn.com/2020/03/02/tech/amazon-coronavirus-products/index.html (last accessed Mar. 12, 2020).
[11] Center for Disease Control and Prevention, Coronavirus Disease 2019 (COVID-19): What You Should Know, available at https://www.cdc.gov/coronavirus/2019-ncov/about/transmission.html (last accessed Mar. 12, 2020).
[12] Kampf, G., et al., The Journal of Hospital Infection, Persistence of coronaviruses on inanimate surfaces and their inactivation with biocidal agents (Feb. 6, 2020), available at https://www.journalofhospitalinfection.com/article/S0195-6701(20)30046-3/fulltext (last accessed Mar. 12, 2020).
[13] Center for Disease Control and Prevention, Coronavirus Disease 2019 (COVID-19), COVID-19 Situation Summary (Mar. 11, 2020), available at https://www.cdc.gov/coronavirus/2019-ncov/summary.html (last accessed Mar. 12, 2020).
[14] As McKinsey & Company predicts, there are “three broad economic scenarios [that] might unfold: a quick recovery, a global slowdown, and a pandemic-driven recession.” Craven, M., et al., McKinsey & Company, COVID-19: Implications for business (Mar. 9, 2020), available at https://www.mckinsey.com/business-functions/risk/our-insights/covid-19-implications-for-business (last accessed Mar. 12, 2020).
