An Insane Theory of Product Liability

Via the WSJ today:

Can a drug company be held liable for damages caused by generic drugs it didn't produce? That's the expansive new theory of "innovator liability" on parade in Alabama, where a recent ruling by the state Supreme Court could do damage throughout the U.S. economy.

In Wyeth Inc. et al., v. Danny Weeks et al., Mr. Weeks says he suffered from side effects from taking the generic version of an acid-reflux drug called Reglan. He sued Wyeth for fraud and misrepresentation, though the company didn't make the drug he took and had exited the Reglan market in 2002, five years before he took it. The court ruled 8-1 that Wyeth could be held liable for injuries because the generic manufacturer couldn't change the warnings on the product it copied.

First, this is nuts -- being held liable for problems with a product you did not make, simply because you invented it years before.   Are we going to start suing the estate of Thomas Edison every time someone buys a bad lightbulb?

But second, note how helpless Wyeth is now.  Drug makers are used to insane law suits that drain all the profit from helping millions of people to pay off a few folks who had adverse side effects (this same process literally destroyed the vaccination business until the government gave them special liability protection).

But let's accept the court victory - perhaps the drug really has a problem that has been discovered.  If the maker was being sued, he could just pull the drug from the market (as has happened any number of times after adverse suits) either forever or until the FDA will approve new warning language.

But in this case, Wyeth can't do this.  The generic drug makers will keep on selling the product - after all, they are not getting sued, and Wyeth will keep paying.  Wyeth does not even have standing to try to get the FDA to change the warnings on the drug.  If Wyeth tries to buy out the generic maker and shut it down, and new seller will simply takes its place.    If this case stands, Wyeth can be steadily bled to death and there is nothing they can do to stop it.

Finally, I don't want to get away without a mention of just how broken the FDA drug regulation regime is.  The original Supreme Court decision that led to the generic maker being immune to suits really turned on the impossibility of getting the FDA to change even one word on a drug's warning label.

  • pjcamp

    Seriously? Leaving aside the merits of the argument, you expect people to believe that the pharmaceutical industry is unprofitable? Perhaps you need to read this: http://www.time.com/time/magazine/article/0,9171,2136864,00.html

  • nehemiah

    Ah, that bastion of financial and economic analysis, Time Magazine. Probably very fair and even reporting. I'm sure all the facts and factors were taken into account.

  • herdgadfly

    Product liability has contained this faulty reasoning for many years. I know a agriculture machinery company that acquired another such company for the benefit of using their brand name and a couple of patents. The acquired company produced some machinery during or shortly after WWII that eventually broke and injured a farmer.

    Despite the fact that the farmer had no business using such old equipment and despite the fact that the acquiring company did not even exist when the machinery was manufactured - the company was saddled with paying a relatively large claim.

  • http://matthewjudebrown.com/ Morven

    The pharmaceutical industry is profitable, but the return on capital is pretty average and the risks high. It's not like they're rolling in profits.

    Healthcare in the US, in my opinion, is the most expensive in the world for a bunch of reasons. Part of it is simply that the US is a rich country and those of us who are doing reasonably well choose to spend a lot of money obsessing about our health, rather than taking cheaper options. A good deal of it is that, if one were to try and think of the worst way to run a healthcare system, the US model manages to combine all the bad features of all of the ideas and then add a heck of a lot of new bad ideas all its own.

    Where does the money go? Hospital groups do well. A good proportion of doctors do well, although they go into way more debt than most paying for med school. Our roulette-wheel medical malpractice system doesn't help, either directly The sheer inefficiency of the bureaucracy eats up a good chunk of it; the US employs way more people in healthcare than most places, and especially in administrative and overhead.

  • http://matthewjudebrown.com/ Morven

    It's getting to the point that a smart business should have only a fixed lifespan -- perhaps not quite that bad, but getting there.

  • MingoV

    The worst part is that it is highly unlikely that the generic Reglan caused any harm unless the "victim" was using far more than the recommended dose. The drug had been prescribed for years with few side effects, which is why a lower dose version was approved for over-the-counter sale.

  • http://www.facebook.com/people/Dunrobin-Macdhai/100002749406695 Dunrobin Macdhai

    Maybe it's just me, but this "logic" sounds like something straight out of "Atlas Shrugged." These judges should be hounded from the bench and disbarred for sheer stupidity.

  • LarryGross

    property rights is property right - right? If someone damages your property - if you listen to the Libertarian types - you are entitled to be compensated by the folks who harmed you - right?

    seriously - I'm betting that most every drug company sits down and talks with their lawyers about how much "exposure" each new drug might have and surely some have significant exposure and likely it plays a role in why some are so expensive. Folks may also notice just how extensive the label warnings are these days - overt warnings to those that would prescribe them... "off label". ..

    what's the solution? Should the govt step in and put a cap on all drugs for damages or worse, form a "death panel" to look at each case and determine damages? Oh wait... we do have courts for that, right?

    all in all .. this really goes to the heart of property rights ... in my view... should each case be decided by a jury of "peers" or an appointed judge or govt fiat?

  • LarryGross

    we have "no fault" and "uninsured" auto insurance these days, right? Is it time for a drug version of it?

  • http://myindigolives.wordpress.com/ Ellie K

    I was thinking something similar. This is an acid-reflux drug, after all, and the generic manufacturer is still selling it, and people are buying it, and we haven't had a rash of consumer complaints about it. Or any at all? Also, why did the Alabama Supreme Court rule against Wyeth re the warnings, but not involve the FDA in order to investigate whether the generic drug manufacturer should be required to pull the drug off the market if it is that terrible? This is a really awful precedent. Acid-reflux drugs have done more good for humanity than, well, enough said. And Wyeth is a good company, or was (I think it was merged or such awhile ago).

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Dumbass, you cannot be held liable for something you do not own, or do not have any interest in.

    Completely asinine.

    Shut up, Larry.

  • LarryGross

    hey mesa... have you ever head of generic royalties ? might want to google it fool.

  • Rick Herbst

    In the 80s, Ozzie Osbourne was sued when a troubled teenager committed suicide after listening to one of his albums. The suit was eventually dismissed. But suppose it had prevailed. Under this new ruling, Ozzie would be liable any time a suicide happens after a tribute band plays "Suicide is Painless".

  • http://devilish-details.blogspot.com/ mesaeconoguy

    Shut up Larry.

  • irandom

    Who cares? Like medical malpractice, I don't care that even in California the insurance costs $5k/year for some doctors. I don't like the idea that someone can cost you thousands and if they lose they don't incur upto 2x their prosecution costs like England. I wish drug makers can ban sales of their drugs in states that have unfair lawsuit enabling laws. For instance stricter labelling laws that cannot override the FDA, but make it easy to sue.

  • Rick Caird

    I think you misunderstand "generic royalties". They appear to only effect drugs on which the patent has not expired, but the patent owner wishes to have generic drug companies produce. The roalties epire when the patent expires.

  • LarryGross

    more reading tends to make some think it's more complex than it appears. " With few exceptions, it also required generic manufacturers to use the same labels — the lengthy list of a drug’s uses, dosages and risks — used by the brand names."

    http://www.nytimes.com/2012/03/21/business/drug-lawsuits-hinge-on-the-detail-of-a-label.html?pagewanted=all&_r=0

    that makes it sound like if the original manufacturer gets new info that is adverse that they have a responsibility to communicate that to the generic makers and if they do not - and someone is hurt - they may well name both the generic and the original manufacturer and let judge (in this case the SCOTUS on a split vote) ..sort it out as to who knew about the problem and when did they inform others.

    it's a little more complicated than it appears on the face of it.