Medical Device Litigation in Russia: Registration & Procurement Disputes

July 31, 2022

BRACE Law Firm ©

Currently, the circulation of medical devices (hereinafter also referred to as "MD") is regulated by Federal Law No. 323-FZ dated November 21, 2011, "On the Fundamentals of Health Protection of Citizens in the Russian Federation" (hereinafter, the "Law on Health Protection") and includes a significant number of technological processes: technical tests, toxicological studies, clinical trials, expertise of the quality, efficacy, and safety of medical devices, state registration, production, manufacture, import into the Russian Federation, export from the Russian Federation, confirmation of conformity, storage, transportation, sale, installation, adjustment, application, operation, including maintenance, repair, disposal, or destruction.

To date, a significant number of cases related to the circulation of medical devices have accumulated in judicial practice. This article examines the main types of legal disputes and possible ways to protect the violated rights of holders of registration certificates for medical devices.

Challenging the Refusal of State Registration of a Medical Device

In accordance with Part 4 of Article 38 of the Law on Health Protection, the circulation of medical devices that have undergone state registration is permitted in the territory of the Russian Federation. The procedure for state registration of medical devices is established by the Rules for State Registration of Medical Devices, approved by Decree of the Government of the Russian Federation No. 1416 dated December 27, 2012 (hereinafter, the "Rules").

In accordance with these Rules, the registration authority (Roszdravnadzor) may refuse to register a medical device in the following cases:

• Receipt from the expert institution of a conclusion on the impossibility of conducting clinical trials of the MD (Clause 25 of the Rules);
• Receipt from the expert institution of a conclusion based on the results of the expertise of the quality, efficacy, and safety of the medical device, testifying that the quality, and (or) efficacy, and (or) safety of the device being registered have not been confirmed or the risk of causing harm to the health of citizens and medical workers due to its use exceeds the efficacy of its use (Subclause "a" of Clause 35 of the Rules);
• Identification by Roszdravnadzor, based on the results of state control over the circulation of medical devices, of discrepancies between data on the efficacy and safety of the medical device and data contained in the application and other documents submitted for registration (Subclause "b" of Clause 35 of the Rules).

Decisions and actions (inaction) of the registration authority may be appealed in court. The challenge is carried out according to the rules of Chapter 24 of the Arbitration Procedure Code of the Russian Federation "Challenging non-normative legal acts, decisions, and actions (inaction) of state authorities." For the court to satisfy the application, it will be necessary to prove the following circumstances in aggregate:

• Non-compliance of the challenged decision, action (inaction) with the law or other legal act;
• Violation of the rights and legitimate interests of the applicant in the sphere of entrepreneurial and other economic activity or illegal imposition of any duties on them, creation of other obstacles to the implementation of entrepreneurial and other economic activity.

Let us consider the specifics of such cases using the example of Case No. A40-172170/2018, in which the applicant demanded to declare illegal the order of Roszdravnadzor on the refusal of state registration of a medical device. The dispute arose under the following circumstances. According to the case materials, a legal entity applied to Roszdravnadzor for state registration of a medical device: Altrazeal transforming powder dressing, manufactured in the USA. Based on the results of the MD expertise, the expert institution issued a conclusion stating that its efficacy and clinical safety were not confirmed by the submitted materials. Roszdravnadzor refused state registration. The company tried to challenge the refusal in court, citing violations committed during the expertise. However, the court decided that the applicant did not provide evidence of what was violated during the expertise. The reference to the subsequently corrected conclusion of the expert organization was also not taken into account, since it was no longer a stage of quality expertise and did not create an obligation for Roszdravnadzor to make a decision on the state registration of the medical device. The Roszdravnadzor order on refusal of registration was recognized as lawful and justified [1].

Note that sometimes applicants choose the wrong method of protection. Thus, in Case No. A40-114345/2020, a Joint-Stock Company (JSC) applied to the arbitration court with a statement to invalidate the negative conclusion of FSBI "VNIIIMT" of Roszdravnadzor regarding a diagnostic system for ultrasound examinations. The JSC argued its position by stating that significant violations of the procedure for conducting the expertise of quality, efficacy, and safety of the medical device were committed, which led to errors and contradictions in the conclusion. Courts of all instances, including the Supreme Court of the Russian Federation, refused to satisfy the application and justified this by stating that the challenged expert conclusion does not establish the fact of violation of legislation, does not create obstacles to the implementation of economic activity, and does not generate legal consequences, and, therefore, cannot be challenged under the procedure of Chapter 24 of the Arbitration Procedure Code of the Russian Federation [2].

Disputes Regarding the Procurement of Medical Devices

A significant number of purchases of medical devices are made at tenders regulated by Federal Law No. 44-FZ dated April 5, 2013, "On the Contract System in the Sphere of Procurement of Goods, Works, Services for Provision of State and Municipal Needs" (hereinafter, "The Contract System Law"). This law establishes special requirements for both the description of the subject of procurement and procurement documentation, as well as for the bidding procedure.

In accordance with Article 105 of The Contract System Law, when conducting competitive methods, when purchasing goods from a sole supplier in electronic form, the bidder has the right to appeal in court or to the control body in the sphere of procurement the actions (inaction) of the customer, commission members, the operator of the electronic platform, if such actions (inaction) violate the rights and legitimate interests of the bidder. According to established law enforcement practice, as a rule, bidders initially file a complaint with the control body (the Federal Antimonopoly Service and its territorial administrations, hereinafter – "FAS").

In accordance with Part 9 of Article 106 of The Contract System Law, a decision adopted by FAS based on the results of considering a complaint on the merits may be appealed in court within 3 (three) months from the date of its adoption. Like other non-normative acts, the decision and order of the antimonopoly authority are subject to challenge in the arbitration court according to the rules of Chapter 24 of the Arbitration Procedure Code of the Russian Federation. Both bidders and the customer have the right to appeal.

The most common reasons for challenging are refusal of admission to participate in tenders or illegal admission to participation, as well as provisions of procurement documentation that limit the number of potential bidders. Let us consider Case No. A79-993/2018 as an example. A Limited Liability Company applied to the arbitration court with a statement to invalidate the decision and order of the OFAS (Regional Office of the Federal Antimonopoly Service). In the challenged decision, FAS recognized the admission of the company to participate in the auction for the supply of a digital fluorograph as illegal. As revealed by the control body during the consideration of a complaint from another bidder, the Company indicated in the bid the characteristics of the fluorograph that fully satisfied the documentation requirements. However, according to the materials of the registration dossier for this product and the manufacturer's Technical Specifications (TS) submitted by Roszdravnadzor, some characteristics did not correspond to those indicated in the bid. Thus, according to the company's bid, the device ensures examinations of patients in standing and sitting positions in frontal and lateral projections. According to the TS for the device, it is intended for examination in a standing patient position; these technical specifications do not contain information on the possibility of examination in a sitting patient position in frontal and lateral projections. Regarding the power indicator of the X-ray power supply device, the bid stated that it has a power of 70 kW, which satisfied the customer's requirements. The TS determined that the minimum output power of the X-ray power supply device is at least 16 kW. The court supported the position of FAS, indicating that the manufacturer of a medical device is not entitled to deviate from the normative indicators defined in the TS during production; otherwise, the MD must be recognized as not registered in the established manner. By virtue of Part 1 of Article 67 of The Contract System Law effective on the date of consideration, an application for participation in an electronic auction must be recognized as non-compliant in the event of non-compliance of documents and information in the application with the requirements established in the documentation [3].

Regarding the challenging of procurement documentation provisions, courts recognize the customer's right to independently determine the object of procurement and the characteristics of goods that would meet their needs. This position was set out in the Review of Judicial Practice on the Application of Legislation of the Russian Federation on the Contract System [4].

Thus, in Case No. A21-6250/2021, SBHI "Regional Hospital of the Kaliningrad Region" challenged the decision of the antimonopoly authority issued based on the results of considering a complaint from one of the bidders. When considering the complaint, FAS concluded that only goods of one manufacturer correspond to the requirements of the auction documentation for the purchase of balloon catheters for angiography. The participant's complaint was recognized as justified. The customer did not agree with the FAS decision and appealed to the court. The institution submitted explanations to the court, in which the customer's need for goods with these specific characteristics was justified in detail with references to scientific articles and research protocols, as well as the necessity of their acquisition to achieve the maximum therapeutic effect and exclude adverse consequences for patients. The court concluded that special characteristics of the goods, which meet the needs and are necessary for medical institutions taking into account the specifics of using such goods, cannot be considered as a limitation of the circle of potential bidders. The OFAS decision was recognized as invalid [5].

At the same time, we note that the unjustified establishment of specific requirements aimed solely at restricting competition is recognized by courts as illegal. For example, in Case No. A27-26913/2020, it was established that the customer, when purchasing wearable monitors, established a requirement for their compatibility with existing equipment – complexes of software and hardware daily monitoring of BP "BPLab" manufactured by LLC "Petr Telegin". The courts reviewing the challenged decision of the control body indicated that since the purchased equipment includes software, there is no need to ensure the interaction of the acquired equipment with the already existing software. The courts refused to invalidate the FAS decision [6].

Disputes Regarding Improper Quality of Medical Devices

In accordance with Part 17 of Article 38 of the Law on Health Protection, the sale of falsified, substandard, and counterfeit medical devices is prohibited. Let us recall that:

• Falsified is a medical device accompanied by false information about its characteristics and (or) manufacturer (maker);
• Substandard is a medical device that does not meet the requirements for safety and efficacy of medical devices, requirements for their labeling, normative, technical, and operational documentation, and which cannot be safely used for its intended purpose established by the manufacturer (maker);
• Counterfeit is a medical device circulating in violation of civil legislation.

Such facts are revealed during the implementation of state control over the circulation of medical devices, during acceptance by the buyer, as well as by the owner of registered trademarks. In view of the above, the methods of protecting the right differ depending on whose right was violated. Let us examine the most common categories of disputes in more detail.

1. If the improper quality of the goods is identified by the buyer.

In accordance with Part 2 of Article 475 of the Civil Code of the Russian Federation, in the event of a substantial violation of requirements for the quality of goods (detection of fatal defects, defects that cannot be eliminated without disproportionate expenses or expenditure of time, or are detected repeatedly, or reappear after their elimination, and other similar defects), the buyer has the right to refuse to perform the sale and purchase agreement and demand the return of the sum of money paid for the goods.

As an example, let us consider Case No. A72-15012/2020. The State Healthcare Institution "Central Clinical Medico-Sanitary Unit named after the Honored Doctor of Russia V.A. Egorov" appealed to the arbitration court with a claim against LLC "MEDOS" (supplier of medical devices) for the termination of contracts, recovery of payment for goods in the amount of more than 7 million rubles, as well as interest for the use of other people's funds. The company filed a counterclaim to compel acceptance of the goods. As established by the court, a contract for the supply of portable X-ray machines was concluded between the institution and the company. During the acceptance of the goods, the following defects were identified: the goods have no packaging, documents provided for by the contract (registration certificate, operational and technical documentation) were not submitted. Acceptance was refused, and a claim for the return of funds paid for the goods was sent. During the consideration of the case, discrepancies were revealed in the registration certificates submitted by the supplier with the data indicated directly on the X-ray machines, namely: information about the place of production in the registration certificate did not correspond to the information placed on the nameplates of the X-ray machines. The official distributor of the equipment reported that an error was made on the nameplates, and corrected nameplates were transferred to the supplier. According to the company, to resolve the dispute, it is sufficient to re-glue the nameplates on the supplied equipment.

The court did not support the defendant's position. According to the Rules for State Registration of Medical Devices, the registration certificate indicates, among other things, the place of production of the medical device; any change in the place of production requires making changes to the registration dossier for the equipment. Thus, the courts concluded that a substandard medical device was supplied, as a result of which it is impossible to use the supplied medical equipment for its intended purpose. Under such circumstances, the plaintiff's claims for termination of contracts due to a significant violation by the defendant of the conditions for the supply of goods regarding quality and recovery of payment for the goods were lawfully satisfied. Interest for the use of other people's funds was recovered from the date of receipt of the claim for the return of the prepayment [7].

Note that in some cases, goods that have all the necessary permits and are formally of high quality may be recognized as goods of improper quality. We are talking about disputes regarding the compatibility of medical devices that are not counterfeit. Let us cite Case No. A68-12751/2019 as an example. A contract for the supply of reagents for a hematology analyzer was concluded between SHI "Tula Regional Clinical Dermatovenerologic Dispensary" and an individual entrepreneur. The contract provided for the compatibility of reagents with the DxH 800 hematology analyzer. The supplier transferred reagents manufactured by the company "Diagon Kft", Hungary. Believing that the supplied reagents were incompatible with the existing analyzer, the institution unilaterally refused to perform the contract and appealed to the court with a demand to recover a fine. The supplier filed a counterclaim to compel the acceptance of goods of proper quality.

During the consideration of the case, it was established that the supplied goods were registered in the established manner. However, the registration certificate confirms only the fact of admission to circulation in the territory of the Russian Federation of the medical device, and not the possibility of using the reagent on the Beckman Coulter Unicel DxH800 hematology analyzer.

By virtue of Part 3 of Article 38 of the Law on Health Protection, the possibility of operating medical equipment of one manufacturer together with accessories of another manufacturer must be determined exclusively by the manufacturer of the medical equipment, since the joint use of such products without compatibility studies conducted by the manufacturer may lead to harm to the life and health of citizens. According to the manufacturer's response, they do not possess information regarding the possibility of using reagents manufactured by "Diagon Kft", Hungary, on their hematology analyzer.

Based on the foregoing, the court decided to dismiss the individual entrepreneur's claim and recover a fine from them for the supply of low-quality goods [8].

2. If the violation is identified by the owner of registered trademarks.

Clause 3 of Article 1484 of the Civil Code of the Russian Federation provides that no one has the right to use, without the permission of the copyright holder, designations similar to their trademark in relation to goods for the individualization of which the trademark is registered, or similar goods, if as a result of such use there is a likelihood of confusion. In accordance with Clause 1 of Article 1515 of the Civil Code of the Russian Federation, goods, labels, packaging of goods on which a trademark or a designation similar to it to the degree of confusion is illegally placed are counterfeit. At the same time, the copyright holder has the right to demand from the violator, at their choice, instead of compensation for losses, payment of compensation:

• in the amount of 10,000 to 5,000,000 rubles, determined at the discretion of the court based on the nature of the violation;
• in the amount of 2 times the cost of the goods on which the trademark is illegally placed, or in the amount of 2 times the cost of the right to use the trademark, determined based on the price that is usually charged for the lawful use of the trademark under comparable circumstances.

Guided by the above norms, copyright holders appeal to the court with demands to recognize actions on the use of trademarks as illegal, recognize the supplied goods as counterfeit and remove them from circulation, and pay compensation for the violation of the right to a trademark.

As an example, let us cite Case No. A76-11990/2018. Limited Liability Company "Roche Diagnostics Rus", a representative of the copyright holder of the "COBAS" trademark, appealed to the arbitration court with a claim against Limited Liability Company "Belaya Pesochnitsa" to ban the introduction into circulation in the territory of the Russian Federation of reagents for an immunochemical analyzer with the "COBAS" trademark, to compel the removal from circulation and destruction at its expense of all goods supplied by the defendant to the regional clinical hospital, and to recover compensation for the violation of the exclusive right to the trademark in the amount of 860 thousand rubles.

It followed from the case materials that Roche Diagnostics GmbH is the copyright holder of exclusive rights regarding the "COBAS" trademark, which was not disputed by the parties. The defendant indicated that the goods supplied to the medical institution were purchased by them from an individual entrepreneur, who, in turn, purchased the goods from Dialog Diagnostik GmbH with proper customs clearance. The court was also presented with a response from the copyright holder regarding the non-provision of rights to dispose of trademarks to Dialog Diagnostik GmbH, as well as the absence of information on the availability of proper logistics infrastructure for maintaining mandatory storage conditions for temperature-sensitive medical devices from this person.

Taking into account the above, the court concluded that the disputed medical devices were illegally introduced into civil circulation and recognized them as counterfeit. The claim was satisfied in full [9].

3. If the violation is identified during state control over the circulation of medical devices.

Article 95 of the Law on Health Protection entrusts Roszdravnadzor with control over compliance with requirements for the quality, safety, and efficacy of medical devices. At the same time, according to Clause 121 of the Regulation on Federal State Control (Supervision) over the Circulation of Medical Devices [10], based on the results of consideration, analysis, and assessment of information, protocols, or conclusions of conducted studies, tests, and expertise, Roszdravnadzor brings information about the identification of an unregistered, falsified, substandard medical device to the attention of entities involved in the circulation of medical devices by posting information letters on its official website for the purpose of suspending their use and (or) withdrawing them from circulation.

Market participants do not always agree with such decisions and try to challenge them in court under the procedure of Chapter 124 of the Arbitration Procedure Code of the Russian Federation. Let us analyze the prospects of such disputes, for example, Case No. A40-182593/2020. A Limited Liability Company appealed to the arbitration court with a statement to recognize as illegal the actions of Roszdravnadzor on the actual withdrawal of goods from circulation, expressed in the issuance of information letters. The letters reported the identification in circulation of an oxygen station and ventilators with an expired shelf life, and proposed that entities involved in the circulation of medical devices conduct a check of availability and carry out measures to prevent circulation. The applicant believed that by issuing the letters, Roszdravnadzor undertook actions to withdraw the goods from circulation.

The court refused to satisfy the requirements, justifying it as follows. The specified letters of Roszdravnadzor are informational. They were issued within the powers granted to the control body, based on the results of expertise of quality, efficacy, and safety, formalized by the conclusions of FSBI "VNIIIMT" of Roszdravnadzor. At the same time, Roszdravnadzor did not make decisions on withdrawing the disputed medical devices from circulation, in connection with which the actions of issuing information letters cannot be qualified as an action to withdraw medical devices from circulation. In addition, during the expertise, discrepancies with the requirements of operational documentation were indeed revealed, such as loss of elastic properties, traces of corrosion, and deformation of shape. We believe the court reasonably pointed out the incorrectly chosen method of protection by the company, which does not lead to the restoration of its subjective rights [11].

For the sake of fairness, we note that in another case, the attempt to challenge Roszdravnadzor's information letters as a non-normative act was also unsuccessful. According to the court, the letter does not possess the signs of a normative legal act, since it does not contain authoritative prescriptions mandatory for execution, does not establish obligations for the applicant, does not affect their interests in the sphere of entrepreneurial and other economic activity, since it is of an informational nature, and therefore does not give rise to an economic dispute [12].

Summarizing, we note that the grounds for legal disputes related to the circulation of medical devices, the circle of participants in the dispute, and the chosen methods of protecting rights are very diverse. Legal disputes are complex, and the success of a legal dispute directly depends on properly selected evidence and a competently formulated legal position.

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References

[1] Ruling of the Supreme Court of the Russian Federation dated November 7, 2019, No. 305-ES19-17064 in case No. A40-172170/2018.

[2] Ruling of the Supreme Court of the Russian Federation dated November 9, 2021, No. 305-ES21-20126 in case No. A40-114345/2020.

[3] Resolution of the Arbitration Court of the Volga-Vyatka District dated May 29, 2019, No. F01-1503/19 in case No. A79-993/2018.

[4] Review of judicial practice on the application of legislation of the Russian Federation on the contract system in the sphere of procurement of goods, works, services for provision of state and municipal needs, approved by the Presidium of the Supreme Court of the Russian Federation on June 28, 2017.

[5] Resolution of the Arbitration Court of the North-Western District dated May 19, 2022, No. F07-3513/22 in case No. A21-6250/2021.

6] Resolution of the Seventh Arbitration Appeal Court dated July 19, 2021, No. 07AP-5580/21 in case No. A27-26913/2020.

[7] Resolution of the Arbitration Court of the Volga District dated February 22, 2022, No. F06-14803/22 in case No. A72-15012/2020.

[8] Resolution of the Arbitration Court of the Central District dated April 19, 2021, No. F10-1128/21 in case No. A68-12751/2019.

[9] Ruling of the Supreme Court of the Russian Federation dated December 21, 2021, No. 309-ES21-24852 in case No. A76-35494/2017.

[10] Decree of the Government of the Russian Federation No. 1066 dated June 30, 2021, "On Federal State Control (Supervision) over the Circulation of Medical Devices".

[11] Ruling of the Supreme Court of the Russian Federation dated December 21, 2021, No. 309-ES21-24852 in case No. A76-35494/2017.

[12] Ruling of the Supreme Court of the Russian Federation dated May 17, 2022, No. 305-ES22-8241 in case No. A40-46962/2021.