A federal appeals court in Boston ruled for Bartlett, calling her situation "disastrous." It concluded Mutual could have simply taken the drug off the market following scattered reports of dangerous side-effects.
The Obama administration backed the drug company, concerned that if state lawsuits are not pre-empted by federal law, that would reduce the incentive for generic drug makers to provide the most current safety information to the FDA, and affect patient care.
That sentient was echoed by lawyers representing the Philadelphia-based company.
"This is a situation where we had a $21-million-dollar verdict with respect to a drug that hundreds of thousands of people were taking at the time, and while it's true that about one out of a million had a terrible, terrible adverse reaction, hundreds of thousands are benefiting from the drug," Jay Lefkowitz told CNN after the argument.
"The drug was only selling about $6-7 million a year in gross sales. If you have more verdicts like this, they are going to take drugs off the market," he said.
The company also says it should be protected from such lawsuits because by law they are not allowed to change the product or its label.
But David Frederick, Bartlett's attorney, slammed the Obama administration's position that its regulatory judgment supersedes state courts "second-guessing" its expert, science-based authority.
"The federal government took a sweeping and unprecedented position today where it had taken no regulatory action and nonetheless asserted because it had information in its files, that that displaced state law," said Frederick. "I've been arguing cases in this court for a long time. I've never heard such a broad assertion of federal power."
A second separate case over generic drugs will be argued next week at the Supreme Court, dealing with so-called "reverse payment" agreements between competing generic and brand-name manufacturers.
As for Bartlett, she attended the morning arguments, but was reluctant to predict an outcome.
"I want generic drug makers to be held accountable for the harm they did to me and others," she told CNN. "The same as brand-name drugs."
A ruling is due by late spring.
The case is Mutual Pharmaceutical Co. v. Bartlett (12-142).