Vioxx Case Presents Merck With Few Good Legal OptionsPublished: October 05, 2005 in Knowledge@Emory
In chess, the term is zugswang: a situation in which any move you make worsens your position. Merck & Co., the pharmaceutical giant, may be in just such a fix now in its legal liability over the use of Vioxx. Professors at Emory University’s School of Law say Merck’s legal troubles stemming from the use of the pain-killer Vioxx are likely to drag down the company for years, and company strategists face few easy ways out of the mess.
In August, a $253 million judgment was entered in an Angleton,Tex. court against the Whitehouse Station, NJ pharmaceutical giant for damages related to the death of a 59-year-old triathelete whom the court found died from complications that resulted from his intake of Vioxx. Despite this decision, and the prospect of thousands maybe even tens of thousands of similar suits, the $61 billion company is determined to fight the August judgment.
There are a number of reasons for this strategy. For one thing, the size of the judgment is likely to be slashed. Frank Vandall, a professor of law at Emory who specializes in torts and product liability, predicts that the final amount will be much smaller.
For another, it’s not certain that the firm will lose all those cases. In spite of the evidence of a 2003 clinical trial funded by Merck that found that being on the popular painkiller more than 18 months increased the risk of heart attack and stroke by 39% – a study that helped lead to the withdrawal of the drug after five years on the market in September 2004 – Vandall says both those who die and those who become ill will have a difficult time showing cause in fact. “Are they seriously ill because they’re old? Are they seriously ill because the history of their family is such that they get sick about this stage in their life? Is the Vioxx causing the problem or is it something else?” Vandall explains.
Most problematic, Vandall believes, are the cases of plaintiffs who took Vioxx regularly and now fear that they may die earlier. Legally, the question of whether someone can recover [financial compensation] from those anticipated damages raises a still-novel legal issue. “That question has been debated for about 15 years and it usually takes the form of, ‘Can plaintiff recover for the fear of developing cancer, if she lived in an area where there was an illegal dumping of hazardous materials into a landfill. She may have a fear of developing cancer down the road.’”
California has gone furthest in this line of thinking, according to Vandall. “If you can get a physician to testify that there’s a substantial likelihood that you’re going to develop cancer, then you can recover for your fear of getting cancer, but you have to show that substantial likelihood of getting cancer. But you don’t have to have it yet, that’s the surprising part. Now having said that, there aren’t many cases that have been even that liberal. Most courts say, ‘when you get cancer, come and see us. When you get heart damage, come and see us.’”
Finally, Merck may not be settling because the Angleton, Tex. case was the first case to go to trial – an early round in a game that often lasts for years. Typically, Vandall says, most companies fight in the first rounds.
“You know, everyone stonewalls. Nixon wasn’t the first. Everyone takes the stiff upper lip: it’s not us, we didn’t do it, we’re going to litigate until hell freezes over. That’s almost always the early pronouncements,” he says.
Later, economic considerations usually take precedence. “At some point, when Merck sees that they’re going to spend as much money on attorneys, they’re going to lose ill will, they’re not talking about marketing new products anymore, all they’re talking about is law suit, law suit, law suit, then they start to settle,” he says.
Not always, however. Sometimes, stonewalling works, Vandall says. For gun manufacturers, he notes, stonewalling seems to have proven successful. Recently, the Senate passed a bill giving gun manufacturers immunity from the acts of criminals who use their guns, he says, and he expects the House to pass a similar bill. “It looks as though the gun manufacturers have been able to mislead the House and the Senate enough to suggest that they are not involved in the saturation of America with new guns and the shooting of innocent people.”
At the other extreme stands the tobacco industry, which settled a liability suit in 1998 brought by a number of state attorney generals for 25 years of payments that are expected to total $248 billion. “Tobacco had not paid a penny until the settlement. It is still debated as to why they settled and settled for such a gargantuan amount. The general consensus seems to be that tobacco settled so they could get on with their lives, so they could get on with their business. And that so far, from their perspective, seems to be a good idea,” he says – the tobacco companies are still operating businesses.
But even settlement can take a passive-aggressive form. Like the Russian generals who burnt the ground as they retreated from Napoleon and eventually starved his army into defeat, defendants sometimes turn their retreat into a kind of victory.
“In some cases, when companies anticipate that they may be bankrupt down the road, they try to get rid of their assets for the benefit of their shareholders,” says William J. Carney, a professor of corporate law. Carney says that some times companies facing dire legal troubles will either spin off divisions or sell assets and give shareholders large dividends before the settlement – a process akin to an individual being sued putting the house in the spouse’s name. While such largesse could be challenged in court, in practice he says it’s very difficult to collect from thousands of shareholders. Further, the spin-off of divisions creates new public companies that preserve the jobs of at least some of the current managers.
Even bankruptcy can be used as an offensive weapon to cap damages, especially future damages. According to Carney, when Manville Corporation went into bankruptcy reorganization in the 1970s one way it capped future damages was to create a trust fund into which a portion of its stock was placed, to fund payments to plaintiffs who could later prove an injury.
Vandall, however, is skeptical of the use of bankruptcy as a shield, which he says was used by the asbestos companies to settle the huge, long-running liability suits they faced. “Everyone thought that was a great idea, but my own view is that it was not a good idea for asbestos to go into bankruptcy,” he says.
“If you go into bankruptcy, a panel runs it. And the panel is composed in part of your creditors. Well, guess who your creditors are? They are the plaintiffs’ attorneys who brought the suit…not all of whom are charitable,” Vandall says.
Perhaps the best course of action Merck could have taken was to mitigate the alleged damages back when researchers began to realize that Vioxx had potentially harmful side effects.
But that may be asking a lot of human nature. Some pundits have seen Merck’s decision not to pull the drug off the shelves as evidence of a lack of scrupulousness in the executive suite. However, Greg Robbins, a professor of organization and management at Emory’s Goizueta Business School, speculates that decision-makers at Merck may have actually suffered from a cognitive bias that kept them from interpreting the evidence correctly. Instead of interpreting the negative impact Vioxx had on the hearts of some study participants as a problem with Vioxx, he says, they apparently saw it as evidence of a special benefit a rival drug had for helping hearts.
The lesson: Often, Robbins says, “people tend to filter information in a way that supports their previous commitments and prevents them from admitting, even to themselves, that they were wrong.” And when money and reputation are on the line, drawing an unpleasant conclusion becomes that much more difficult.