Could The Vioxx Lawsuits Dry Up?

The New Jersey Supreme Court denied a motion that would have created a class action against Merck last month. Pundits and armchair lawyers who enjoy Boston Legal questioned Merck's strategy for the four plus years the Vioxx issue has been in the courts.

Now the company has won its first case in Florida, and on October 5, another case in New Jersey. Those wins may have pundits singing a different tune. Rolling up the issue into class action and paying a penalty to be distributed may have been conventional wisdom, but Merck fought for reputation, much like Dan Rather is fighting now against CBS, and appears to be winning a consensus.

We won't argue whether Vioxx is a bad medicine with unintended side effects. What we will say is that Merck has won and lost a lot, and interestingly enough, won much more than it has lost. Of the 16 trials concluded as of today, Merck has successfully defended itself eleven times. That is not a function of a powerful corporation beating up a local lawyer because this is not a John Grisham novel. Good firms have taken on Merck and lost.

But what does all this mean for consumers? The issues has certainly brought to light the impact of a steady regimen of NSAIDs (painkillers) over time. That may have changed medical recommendations for years to come. More importantly, Merck's decision may have actually helped consumers in the long run. By refusing to cave and settle, Merck started the dialogue on tort reform.

That helps consumers from rising prices everywhere because of frivolous lawsuits that get rolled into a class action and scare a company into settling. Basic finance theory holds that the profit margin won't typically take a long-term hit so prices rise over time. That ends up costing all consumers.

Victims of corporate wrongdoing must be protected and compensated. But with precious few exceptions, the result of this compensation is typically a higher price or lower quality product passed to the entire consumer market, not a long-term company financial shortfall.

Labels: Merck, prices, Vioxx

posted by George Bounacos at 7:11 AM |