Smith & Nephew Settles “Country of Origin” Whistleblower Case

In what is believed to be the first settlement of its kind, Smith & Nephew plc has agreed to pay $11.3 million to settle a whistleblower lawsuit that accused the company of violating the Trade Agreements Act (TAA).

Made in Malaysia

Sam Cox, a former Smith & Nephew information technology manager filed a qui tam suit in 2008, claiming that the company had sold the Department of Veterans Affairs orthopedic devices in 2007 and 2008 that it had bought from Malaysia-based Straits Orthopaedics, Inc. while claiming they were made in the U.S.

The TAA requires government contractors to certify that they will only sell products to the government that originate in the U.S. or a country that has signed a trade agreement with the U.S. The law gives a preference to companies that sell products manufactured in the U.S. or in a country that is a trading partner. In this case, Smith & Nephew violated the TAA by selling products that were manufactured in Malaysia, which is a country that has not executed a trade agreement with the U.S.

Straits Orthopaedics

According to FDA documents, the Straits Orthopaedics manufacturing plant in Penang, Malaysia, is owned by Straits Orthopaedics in Vancouver, Washington.

A November 16, 2012 article on the website Economic Transformation Programme (ETP) said Straits Orthopaedics is a medical devices manufacturer and has been in operations for nine years. Its core business is the production, cleaning and packaging of orthopedic devices and accessories such as trauma, reconstructive and wound care products. Over 90% of the company’s products are exported, mainly to the U.S.

$11.3 Million Settlement

The settlement was announced on September 4, 2014. Cox will receive $2.3 million, the government $6 million and $3 million will go to the lawyers of the whistleblower law firm of Sanford Heisler.

H. Vincent McKnight, Jr., Co-Chair of Sanford Heisler’s whistleblower practice, said, “Today’s settlement sends a clear message to those medical device companies that routinely violate the Trade Agreements Act by misrepresenting the ‘Country of Origin’ of goods sold under contract to U.S. Government agencies.” McKnight continued: “This inaugural settlement will create a ripple effect for other medical device companies that choose to turn a blind eye to their obligations under the Trade Agreement Act. The Government has turned its attention to these flagrant violations and is stepping up enforcement.”

The government declined to intervene in the case, although Cox’s attorneys said the government team was essential in securing the settlement.