Monday, August 22, 2005
According to the Wall Street Journal, jurors were swayed by things that simply shouldn't have been a factor--an irrational belief that the CEO should attend the case (Merck is sued hundreds of times a year; should the CEO stop running the company so the jurors can feel special?), and even more disturbingly, a desire to get on Oprah. You only get on Oprah if you find for the plaintiff.
Every successful big lawsuit against a pharmaceutical company reduces the capital available to the industry, and the willingness of the industry to spend capital on developing new drugs, rather than novel ways to package things already on the market that they haven't been sued for. As Richard Epstein says, it's no good saying you only want to target the bad companies; investors have no way of telling, in advance, which companies jurors will decide are "bad". This case was widely viewed as a slam dunk for Merck, given that the plaintiff's deceased husband had neither the use profile, nor the cause of death, associated with Vioxx's problems. In the case of companies that are misbehaving, that is a cost we have to bear. But there seems to have been little evidence that Merck was misbehaving, and no scientific evidence that the drug caused the death the plaintiff was suing over.
This points up a larger problem, which is that even under the Daubert standard of scientific evidence, lay jurors are disastrously ill-equipped to cope with complex technical arguments. An acquaintance who is a securities litigator told me shortly before 9/11 that they try their damndest to keep cases out of court, because the issues are so complex that even the lawyers have a hard time getting a handle on them, and "if you explain it to the jury, it takes six weeks, and they hate you more with every minute--and at the end, they still don't understand it."
Read the whole thing.
While the problem may be worse in civil suits where the issues are complex, juries in California these days are notorious for setting the facts aside in any case, simple or complex, and voting according to their feelings.
From a corporate perspective, attempting to assess jury trial risk is nearly impossible. The range of potential awards is staggering- making it virtually impossible to assess and settle cases. The SCOTUS has recently held that punitive damage awards must be reasonably related to actual damages- a promising development. I don't know enough about the Vioxx matter to know how large the punitive element was- but suspect it will be severely reduced on appeal.
The whole notion of punitive damages needs to be reconsidered. Punitive action against intentional corporate fraud important. But the current mechanism creates a legal lottery-as well as awarding a single plaintiff (instead of the State or a class of plaintiffs).
News, Resources and Information on Vioxx and its Effectsvioxx recall law suit
vioxx recall law suit
Vioxx health - Merck Earns Fall After Vioxx Withdrawal NEW YORK (Reuters) -
Merck Earns Fall After Vioxx Withdrawal
NEW YORK (Reuters) - Merck & Co. MRK.N on Thursday said first-quarter profit fell 15 percent following the withdrawal of its arthritis drug Vioxx last year. Link to original article
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