November 12, 2007

News accounts to date suggest that Merck may have found a way to contain the damage from its Vioxx litigation, particularly by insisting on strict standards for claimants eligible for monetary awards. From the Wall Street Journal:

Under the settlement plan, plaintiffs will have to show that Vioxx was taken for at least 30 days. The person on Vioxx must have suffered a heart attack or ischemic stroke -- one that involves blockage of arteries to the brain -- within 14 days of using the drug. Payouts will be lowered if the person had cardiovascular risk factors such as obesity or diabetes. Merck will set up two funds, a $4 billion one for heart-attack claims and a $850 million one for stroke claims.

Another key element of the settlement: paying off the plaintiffs lawyers.

The deal will only go ahead if 85% of eligible claims are enrolled. Plaintiffs' lawyers can only participate if they recommend the program to all their clients.

There could be a big payday for some plaintiffs' lawyers who led the litigation. Lawyers whose clients receive money from the settlement will pay an agreed-upon percentage to a legal-fees fund. A court-appointed committee will then disburse fees to lawyers who did the legwork on the litigation, with an individual firm's take depending on its efforts.

If 85% of the cases do, in fact, sign up for the settlment, Merck will have limited its liability to a fraction of some original estimates ($40-50 billion), allowing it to get back to the business of making medicines.

Are there any lessons to be learned here? It's too early to say for sure, but state (think: Texas) and federal tort reform efforts over the last 10-15 years (particularly Daubert standards on the admission of scientific evidence) may have helped, as well as efforts to prevent plaintiffs lawyers from bundling many dubious cases together in hand-picked state venues so as to bludgeon companies into early settlement talks.

Mostly however, Merck benefitted from the fact that the science was basically on its side and that its management elected to stand and fight, rather than just write a big check. By litigating many high profile cases to jury verdicts - that it won - Merck reduced the value of any eventual settlements and put the plaintiffs bar on notice that it was in for a fight.

Posted by Paul Howard at November 12, 2007 11:48 AM

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