Koninklijke Philips NA has agreed to provide a minimum of $479 million in resolution for a portion of the extensive litigation linked to the 2021 U.S. recall of numerous devices designed for treating sleep apnea, as reported by attorneys representing the plaintiffs.
Philips, headquartered in Amsterdam and its U.S. subsidiary, have settled a class-action lawsuit initiated by individuals who purchased or leased one of the 16 product lines subject to the recall. This announcement was made in a filing submitted by the attorneys on Thursday within the Pennsylvania federal court, where the various cases had been consolidated. While the company has confirmed the existence of a settlement, the exact amount it will pay remains undisclosed.
The accord addresses numerous economic damage claims. However, Philips executives admit that they may still be subject to legal action from over 50,000 individuals who claim they suffered injuries due to the deteriorating noise-dampening foam in the recalled devices. Lawyers representing these consumers argue that Philips was aware of the foam issues for 13 years, starting in 2008, but did not recall the machines until 2021.
Philips’ shares experienced a 1.6% decline, trading at €19.7 in Amsterdam at 3:57 p.m. local time. Initially, the shares briefly surged by as much as 1.9% following the initial report by Bloomberg News regarding the settlement, based on insights from individuals familiar with the agreement. Since initiating the recall of its faulty sleep therapy devices in June 2021, Philips has seen its stock plummet by over 50%.
In an emailed statement, Philips Respironics, the U.S. unit, expressed, “We have sought to resolve these claims now so that we may dedicate more time and energy to our central focus of transforming patient lives.”
CPAP and BiPAP Settlement Addresses Health Concerns and Legal Compensation
Lawyers representing the affected consumers, in a press release sent via email, asserted that the settlement “provides substantial monetary compensation to those who were sold or paid for defective devices by Philips and is an essential step towards justice.”
As part of the settlement for economic damages, Philips will be required to pay a minimum of $445 million to individuals who have purchased, leased, or rented one of the recalled CPAPs or BiPAPS devices. Additionally, an extra $34 million will be allocated to health plans and companies that have reimbursed users who made payments in any form for these specific machines. Notably, the final settlement amount may increase depending on the number of machine users who opt for the payout, including legal fees paid to consumer lawyers. It is essential to note that under the agreement terms, Philips is not admitting any wrongdoing.
These machines are designed to deliver additional airflow down the throat to treat obstructive apnea, a condition that disrupts proper sleep and can potentially lead to severe heart problems. According to U.S. Food and Drug Administration (FDA) officials, they have received 385 reports of deaths associated with malfunctioning machines.
In 2004, the untimely death of Reggie White, a Hall-of-Fame defensive tackle for the National Football League’s Philadelphia Eagles and Green Bay Packers, was attributed to a heart attack linked to untreated sleep apnea. This tragic event led to an increase in the use of Continuous Positive Airway Pressure (CPAP) machines and Bi-level Positive Airway Pressure (BiPAP) machines in the United States. Philips is the largest manufacturer of such devices worldwide.
Legal and Financial Implications of Philips’ Recall and Litigation
In 2021, Philips issued a recall due to FDA findings of issues related to disintegrating polyurethane foam entering the machine’s forced-air stream. Researchers have connected this problem to various cancers, including bladder, lung, and stomach cancers, as well as other health issues such as respiratory problems and allergic reactions.
In their defense, Philips’ legal team informed Senior U.S. District Judge Joy Conti in May that new tests on the recalled machines indicated that the vast majority of these devices are unlikely to cause significant harm to patients. According to the company, exposure to degraded foam in 95% of the recalled devices is “unlikely to result in appreciable harm to patients,” citing their test results.
Philips allocated approximately €1 billion ($1.1 billion) to handle the recall of roughly 5.5 million devices worldwide. However, lawyers representing U.S. users of the machines argued in court documents that they believe the recall covers 10.8 million devices.
Holly Froum, an analyst at Bloomberg Intelligence who has been closely monitoring the sleep-apnea litigation, suggested that Philips might be compelled to pay between $2 billion and $4.5 billion to settle personal injury claims associated with the recalled devices. She mentioned that some claims against Philips might need to be assessed by juries in test trials before serious settlement negotiations occur.
Veronika Dubajova, an analyst at Citigroup, estimated that Philips could face exposure of around 5 billion euros ($5.3 billion) from the extensive litigation, which includes a US Justice Department investigation into the company’s handling of the devices. In September 2022, one of Philips’ subsidiaries, Philips RS North America, agreed to pay $24 million to resolve separate claims regarding customer kickbacks over four years starting in 2016.
Legal Challenges and Settlement Negotiations in Philips CPAP Recall Case
In a March interview with a Dutch newspaper, Philips CEO Roy Jakobs acknowledged that the company was negotiating to settle economic damage claims. The company set aside 575 million euros ($615 million) in the first quarter of this year to cover the specific costs associated with the settlement, as indicated in its earnings reports.
Judge Conti consolidated The lawsuits into a multi-district litigation (MDL). According to court records from last month, the MDL contained only 698 cases. However, plaintiffs’ attorneys have pointed out that the company has acknowledged the possibility of more than 50,000 claims that may be filed.
Philips initiated an effort to replace the recalled machines, but they encountered issues with some refurbished devices, resulting in an additional recall by the FDA. Federal regulators discovered that when Philips re-programmed specific devices, they received incorrect or duplicate serial numbers. This error could lead to some machines delivering the wrong amount of air to patients with sleep apnea, posing health risks, as stated by the FDA.
In addition to facing personal injury claims, Philips is also confronted with demands that could amount to billions of dollars to cover future medical monitoring of affected CPAP and BiPAP users.
Judge Conti, based in Pittsburgh, will need to provide final approval for the settlement, as she is also overseeing the personal injury and medical monitoring claims. No test trials, commonly called bellwether cases, have been scheduled for trial, as court records indicate. Bellwether case jury verdicts are typically used to guide the potential value of plaintiffs’ claims.
The case is titled “In Re Philips Recalled CPAP, Bi-Level PAP, and Mechanical Ventilator Products Liability Litigation,” with case number 21-MD-3014, in the U.S. District Court for the Western District of Pennsylvania (Pittsburgh).
