January 30, 2007
Do Product Recalls Increase Mass Tort Exposure?
In a news account of yesterday's verdict for a plaintiff in the Prempro litigation, an analyst was quoted as saying that Wyeth's exposure is smaller than it would be if the FDA had recalled the product:
Linda Bannister, an analyst at Edward Jones, said Prempro is a minor cloud hanging over the company, with Wyeth's risk limited by the fact that the drug remained on sale. "It's not a situation like Vioxx or fen-phen," she said, referring to the 2004 withdrawal of Merck's arthritis drug Vioxx, and the 1997 recall of two Wyeth drugs used in the fen-phen diet cocktail. ... "If the U.S. Food and Drug Administration advises that a product be removed from the market, a company's (financial) risk is significant," Bannister said, because the product is deemed very defective or potentially harmful.
This raises the interesting question of the relationship between product recalls and liability. The comparison of Merck and Wyeth resonates on a day when Merck is reporting 4th quarter profits down 58% due in part to Vioxx litigation while Wyeth reports 4th quarter profits up 17% due in part to Prempro hormone replacement therapy (HRT) sales. Bannister's point is that if product recalls are triggered by strong scientific evidence of a link between the product and the alleged harm, then they can be expected to correlate with a greater likelihood of liability. Evidence of general causation, after all, bears on both the causation and liability elements of tort claims. She could have added (and perhaps she did; we have only the reporter's snippet of the quote) that a product recall itself is a triggering event for mass litigation, as a recall generates publicity that attracts the attention of lawyers and potential plaintiffs. Thus, it's fair to say that as a general matter, really massive liability tends to accompany products that have been removed from the market. Think asbestos, Dalkon Shield, and fen-phen.
But there's another side to recalls that cuts the other way. To whatever extent the product is causing harm or increasing risk, the longer the product stays on the market, the more potential liability it creates. When the product remains on the market, it's also harder for a defendant to anticipate the future stream of claims and to quantify the remaining risk. In this sense, Prempro resembles other litigation-generating products such as Zyprexa, Oxycontin and tobacco.
If a manufacturer knows that its product creates an unreasonable risk of harm, then most would agree that regardless of regulatory action, the company itself faces a moral, legal, and business imperative to remove the product from the market. But sometimes the evidence is debatable and the moral duty unclear, although the risk of litigation remains high. In those situations, the company faces the difficult decision of how to balance the upsides and downsides -- as to both business and litigation risks -- of keeping a product on the market.
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Tracked on Jan 31, 2007 5:28:20 AM