Thomson Reuters; February 25, 2013
Pharmaceutical executives play an important, but often unseen role in how their companies react to product liability lawsuits, says a new paper from the RAND Institute for Civil Justice, a centrist research and policy think tank.
The paper, released last week, argues that drug industry executives who evaluate legal liability and choose how to respond to a lawsuit play a large role in determining the economic impact of pharmaceutical product liability litigation.
Dr. Steven Garber, the author of "Economic Effects of Product Liability and Other Litigation Involving the Safety and Effectiveness of Pharmaceuticals," said most people assume that court decisions lead directly to positive or negative outcomes. For example, the business community might conclude that a large payout in a mass tort case would chill innovation in similar product areas, while consumer advocates might believe that such a payout would enhance compliance with regulations.
Litigation itself does not cause those outcomes, howevever; instead, it informs executives' decisions on how the company should proceed, Garber says. Judges might consider how their rulings will affect not just the plaintiff in question, but other pharmaceutical executives at other companies.
In conducting the study, Garber analyzed half a dozen mass tort claims that resulted in large payouts by defendants to try to get inside the heads of company executives.
"If we want to understand how liability affects those outcomes, we need to analyze carefully how we expect company decisionmakers to respond to legal decisions," said Garber.
Hunter Shkolnik, a senior partner at Napoli Bern Ripka Shkolnik, LLP who has represented plaintiffs in mass tort claims against pharmaceutical companies, said litigation was an important tool in keeping pharmaceutical companies compliant with the law.
"Companies are making decisions about drugs through marketing, and how much they can make with it. They are not thinking at all about their risks," Shkolnik said.
John Beisner, co-head of the co-head of the Mass Torts and Insurance Litigation Group at Skadden, Arps, Slate, Meagher & Flom LLP, said litigation by nature is an inefficient way to influence pharmaceutical executives.
"Whoever's making those decisions, if they're simply trying to guess what litigation will arise down the road, that's not very effective regulation because it's so hard to predict, especially when most of the individuals who are bringing the litigation are profit driven," Beisner said. "It's much more efficient to tell someone in advance, 'Here's what you should do or not do,' rather than after the fact."
Shkolnik said few pharmaceutical companies viewed litigatoin as a deterrent.
"It's not the fear of it that changes them, it's the actual lawsuit that changes them. Had they done the right thing with these drugs, they wouldn't have had these billion dollar lawsuits."
Without the threat of product liability suits, Shkolnik said, "There is no one guarding the henhouse."