The U.S. Supreme Courts recent ruling in Wyeth v. Levineholding that drug manufacturers are not free of liability under state law, even when the drug in question has secured federal regulatory approvalhas worried pharmaceutical manufacturers, who can now face crippling state tort lawsuits despite being in regulatory compliance. A less-noticed ruling, late last year, in a different case involving Wyeth PharmaceuticalsConte v. Wyethis good news for personal-injury lawyers but bad news for everybody else, especially those in need of innovative new medicines. In Conte, a California appellate court ruled that those harmed by a drug dont have to settle for suing just the manufacturer: now they can sue the inventor as well. This wacky decision overturns decades of established product-liability law and will harm drug innovation going forward.
The case involved plaintiff Elizabeth Conte, who claims to have suffered severe neurological problems after taking a generic version of the antacid drug Reglan. Conte first sued the generic drugs manufacturer, alleging that the company was liable for the injuries caused by its product. But then she filed suit in California state court against Wyeth, the inventor of Reglan, though she had never taken Wyeths product. Incredibly, the appellate court ruled that Wyeth was legally liable for any adverse effects caused by the generic version of its drug. The makers of the generic product got off scot-free.
Wyeths warning for Reglan, the court asserted, extends not only to consumers of its own product, but also to those whose doctors foreseeably rely on the brand-name manufacturers product information when prescribing a medication. Critics noted the courts use of the word foreseeably, which requires no proof that the doctor actually relied on the original product information. In January 2009, the California Supreme Court decided not to review the decision, so its now Golden State law. Wyeths warning labels, and those of other drug inventors, will now apply not just to their own products, but also to those of other companies, which they do not control.
The Conte ruling carries extremely harmful implications for drug innovation. The typical pharmaceutical company spends more than $1 billion developing a new drug and bringing it to market through a complicated approval process. Given current patent law, the company has just a few years to recoup its investment before generic drugmakers can enter the marketplace and churn out copies sold at a fraction of the originals price. Making drug inventors responsible for problems with generics makes drug development that much more expensiveso much so that many companies will likely no longer be able to afford it. Theyll pull out of the market, and pharmaceutical innovation will decline. Conte also guarantees that pharmaceutical-company resources that would have been used for R&D will now be spent on legal defense. Again, thats good for personal-injury lawyers but bad for people counting on new life-saving medicines.
Americas lawsuit-happy culture exacts a heavy cost. From 1996 through 2005, more than 135 million civil lawsuits were filed in U.S. state courtsan average of 52,000 incoming cases every business day. About 15 percent of these civil cases were torts. Payouts in tort cases increased an astounding 60 percent in inflation-adjusted dollars during this decade. Each year, excessive lawsuits cost every American about $2,000 in a tort tax. And its not as if injured parties receive the lions share of these costs. Less than 15 cents of every tort-cost dollar goes to plaintiffs. Much of the money flying through the tort system simply ends up in the pockets of personal-injury lawyers. Ordinary consumers pay higher prices to fund this carnival of litigation. Conte will only make matters worseand taxpayers will pay, too, as California courtrooms become magnets for meritless litigation.
Lawrence J. McQuillan is director of business and economic studies at the Pacific Research Institute and coauthor of the 2008 U.S. Economic Freedom Index.