WEBVTT

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Prof: Okay,
so heretofore in this course we

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have treated government as one
of two things:

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either,
as in de Soto's frame of

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reference,
a guarantor of property rights;

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or as just background material,
as with Smith,

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where the gravamen of Wealth
of Nations and the invisible

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hand story is to encourage
governments to allow free

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markets and free trade.

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There's not much talk about
governments and how they behave.

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And today I wanted to correct
that deficiency a little by

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talking about government,
and in particular,

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about the government of the
United States.

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Then turning to the Vioxx,
the Merck-Vioxx case,

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and looking at a little bit of
video of Mark Lanier who is the

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main trial lawyer litigant
nationally in the Merck matter.

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Now the United States is a very
unusual political system.

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It is a so-called presidential
system often copied.

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There are probably--I haven't
counted them,

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there are probably twenty,
perhaps twenty-five countries

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with regimes that look on the
surface like the American one,

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and they have in common that
almost every one of them has

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failed.

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Almost every one of them is
wildly unstable.

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The organic growth of the very
complex American Constitutional

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order is essentially unique,
and it begins with what I think

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of as the genius of the founding
fathers expressed particularly

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in Federalist 10 and Federalist
51,

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where the object is to create a
complex system;

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system which makes it hard for
people to put together winning

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coalitions in favor of new
policies;

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which gives enormous advantage
to those defending existing

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policies;
which, by the scale and

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complexity of so large a system,
and they thought,

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when they began,
of the thirteen colonies as a

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huge republic,
and it was a huge republic.

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What came after is the largest
complex republic the world has

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known, and probably it is as
large as is feasible with a

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republican form of government.

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The combination of
federalism--so there are two

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major layers of government,
and the expected diversity of

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so large a country make it hard
to form majority coalitions.

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Even when you form majority
coalitions,

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the system of checks and
balances in the Constitution,

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augmented by the later
emergence of the committee

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system in the House and Senate
at the federal level,

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make putting together a winning
majority very difficult.

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Arguably the last presidential
and congressional elections

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created a winning coalition for
some form of healthcare reform.

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Though one would have to admit
that listening to the election

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wasn't much specificity about
what that might be.

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If you watch what's happened
since, the powerful resistance

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to change which is built into
the system has manifested

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itself.

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Now from the point of view of
capitalism, it is generally

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supposed that this is a plus.

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That the stability of economic
policy and the endurance of laws

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relating to property patents,
commerce, that the relative

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stability of all that owes
something to the fact that no

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mere short-lived majority can
transform the American political

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system and its policies.

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I think that's broadly true.

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The only contingency in which
one would fear for the American

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republic,
and there are people--New

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York Times columnist Frank
Rich,

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for example,
New York Times columnist

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David Brooks for another
example,

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who fear that we've come to
that difficult position,

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and that position is this:
if the existing status quo is

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unsustainable,
as one might have thought the

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status quo on the regulation of
banking and mortgages was six

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months or a year ago,
and as some argue the

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healthcare system is now,
then all the checks and

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balances which make change
difficult may make it impossible

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to escape from that very
difficult status quo.

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Now I am personally an optimist
about the ingenuity and

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resilience of the American and
political and economic order,

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but it's important right now to
begin what we're doing today,

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understanding that changing
public policy is a heroic

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undertaking.

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The change of public policy,
which will be in the background

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in the Vioxx case,
is tort reform.

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Part--which plays a huge role
in the Vioxx case,

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tort law does,
and is in the background as a

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major factor in the healthcare
reform story because the risk to

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medical practitioners from
surgeons to nurses that is

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presented by tort law is very
great and we'll try to cover

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some of that using Vioxx as our
case.

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When Vioxx was in the testing
stage I went to my internist and

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tried to talk him into getting
me into the trial because I was

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still playing tennis then,
and Vioxx allowed me to--Vioxx

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seemed like a miracle drug.

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The merit of it,
a Cox-2 inhibitor,

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was that it seemed to reduce
inflammation in your joints and

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therefore reduced pain without
creating inflammation and

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erosion in the intestine.

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Aspirin and other similar drugs
reduce inflammation in the

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joints, but, as a byproduct,
tear at the intestine.

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He was wise enough to say,
"You know,

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not every innovation is what it
appears to be,

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and I would urge you not to be
in the trials."

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Being a compliant fellow I took
his advice, and in retrospect,

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I guess I'm glad.

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The American system,
and this is not part of the

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original design,
has built up an enormous

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practice in lobbying and high
powered lawyering at the federal

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level,
and K Street is to lobbying

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what Wall Street is to finance.

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The existence of trade
associations for every

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imaginable thing is a leading
factor in American politics,

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and whomsoever would seek to
control or create some new

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efficiency or new form of
justice in public policy has to

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fight her or his way through K
Street.

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The--I'm about to give you a
series of generalizations which

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are broadly true,
each admits of exceptions,

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but they are about what are the
advantages if we want to play

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the K Street game?

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One is concentrated interests,
where a particular class of

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individuals or companies have a
lot at stake,

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is a huge advantage.

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Why is it a huge advantage?

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Because it will provoke them to
spend money on lobbying and

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influence, and they will have
the money.

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Whereas, as disbursed
interests, where there are

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perhaps tens of thousands or
even millions of people who have

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small stake in an outcome will
not readily form a well financed

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interest association,
and will therefore be less

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strong than a concentrated set
of interests which form a well

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financed coalition.

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It goes with the second point
as a truism.

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Well-financed causes trump
poorly financed ones.

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There are exceptions to that
but not a lot.

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Remember that it is a market
society, and money talks.

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It is a market society in which
the first amendment gives money

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rights;
that is, if I want to spend

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money putting forth a point of
view and you want to regulate my

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right to do that,
my first recourse of defense

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for the right will be to go to
the courts and say that you're

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infringing my right of self
expression.

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And the courts have often,
not unambiguously,

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but often, ruled in favor of
that view.

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Defending the status quo is a
hell of lot easier then changing

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it.

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The legislative process is full
of veto points.

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The commonest result for
legislation introduced in the

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House of Representatives is that
it is assigned to a committee

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and nothing else happens.

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It's assigned to a committee
and nobody brings it to the

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floor for a vote.

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The committee may not even hold
hearings.

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If the chair of the committee
is hostile to it,

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he probably--hostile to it and
he thinks it might have support,

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he will refuse to hold hearings
in a way that's not really the

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subject of this course,
the succession of ways in which

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you can kill new legislation is
spectacular.

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Another issue,
the one about agency--agency

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capture is a big advantage.

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By this we mean that if you are
in the airline business,

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let us say, and there is a
Civil Aeronautics Bureau,

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which is assigned the task of
regulating your industry,

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if your industry can make an
alliance with that agency

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itself,
can capture the agency,

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that can be worth an enormous
economic sum because it will

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allow you to structure public
policy in a way which suits the

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combined interests of your
industry.

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Something of the same is said
to be at play,

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and almost certainly is at
play, in the relationship

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between the pharmaceutical
interest and the FDA.

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I've just said that and that at
the same time.

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The CAB, Civil Aeronautics
Bureau, ruled the airline

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industry from its inception
until the late 1970s.

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In the late 1970s it was
repealed.

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The regime it created assigned
routes to particular companies,

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so you would apply to the
government for the right to fly

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from LaGuardia in Chicago to--
LaGuardia, New York to Midway

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in Chicago,
or from Midway in Chicago to

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LAX.

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The agency would assign routes
to make sure that there was not

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undue price competition.

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It would protect oligarchical
pricing, and that is to say

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highly profitable pricing.

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It would work the Porter
Forces, if you will,

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to the advantage of the
incumbent airlines.

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New entrants could be frozen
out, price competition was

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minimal,
most of the competition had to

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do with amenities,
most famously with airline

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attendants averaging twenty-five
years of age,

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and all women and none married.

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The air travel business was
restricted and wildly

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inefficient.

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What killed this arrangement
was the observation made by some

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law and economics people that
the airlines which were not

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subject to it,
and the only airlines that

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weren't subject to this
regulation were ones which flew

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entirely in one state,
and the most famous case was

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the flight between the San
Francisco/Oakland area and the

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LA/San Diego area,
where fares were low,

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they were less than half
comparable fares on interstate

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flights.

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A similar story in Texas from
Love Field,

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Dallas in a hub pattern around
the state of Texas,

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fares were lower,
safety was just as good,

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service wasn't quite as good,
but there was genuine price

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competition.

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This group came to the fore and
created a national coalition to

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deregulate the airlines.

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The effect was well let's take
somebody at random.

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Who's had--how many of you look
forward to air travel?

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Somebody want to give us a
thirty second essay on why it's

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hard to--why it's not a lot of
fun to travel by air?

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I'll save us time.

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It's because flights are by and
large full and the

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Transportation Safety
Administration provides an

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initial indignity on each trip,
and because service is totally

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minimal.

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You have to buy your own graham
crackers for lunch.

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It's not--unless you fly first
class or business class,

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which Yale does not allow
except for the very highest

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ranking officers at the
university right now,

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and then only on very long
flights.

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Air travel isn't fun at all,
but what it is is efficient and

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it is in real terms vastly
cheaper than it was under the

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regulatory regime.

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And I bring it up just to point
out the advantage of regulation

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under the old CAB regime from
the point of view of the

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airlines and not from the point
of view of the passengers.

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The effect of deregulation was
a long series of bankruptcies in

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which the legacy carriers went
broke.

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Those which have survived,
they had gotten so fat under

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the old regime,
that they were wildly

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inefficient.

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And most of them died off and
those which survived had to go

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through convulsive change to get
their operating costs low enough

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to compete with the new wave
carriers such as Southwest or

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JetBlue.

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Well the FDA is,
from a strategic point of view,

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broadly analogous to the CAB.

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The FDA is a huge regulatory
jungle which creates powerful

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obstacles to new entrants,
and which requires drug

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companies to be extremely well
financed in order to get new

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products through the mill.

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The impact of that has been to
create a relatively small number

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of gigantic pharmaceutical
companies,

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many of them very well run,
and to induce those

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pharmaceutical companies to aim
at blockbuster drugs.

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Merck is one of those companies.

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It's--I've shown you this
diagram about combining know-how

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with capital and motivation to
get something done.

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In a highly regulated
environment you've also got to

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worry about the regulatory and
legal apparatus in a big way,

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and these companies are really
good at that.

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They have adapted to the regime
of the Food and Drug

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Administration,
and are terrifically good at

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that, and they are able to put
up pretty high barriers to

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competition from new entrants.

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The typical outcome for
somebody--for a small firm which

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has a drug candidate,
is that they get to a certain

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stage in the preliminary phases
of testing and then sell or

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license the drug to one of the
major pharmaceuticals.

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I'll post this slide.

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It's the history of Merck's
interaction with government and

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government's road toward the
FDA.

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The interesting thing,
it's in the case about Merck,

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is that it's property was
seized during World War I,

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and for the American government
to seize the property of a

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corporation is a very rare
event,

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but the problem was of course
World War I,

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the Germans were the bad guys.

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They ended up having to buy
their property back on loans

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from Wall Street.

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The reason they got the loans
is that Merck was a great

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company, a great company with
centuries of history.

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The two legislative acts which
are perhaps important to the

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background of this case are the
Prescription Drug User Fee Act

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of 1992 and the FDA
Modernization Act of 1997,

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both of which gave--put the
drug companies in the position

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of funding the FDA's
investigation of their

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proposals.

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Now in looking for a
blockbuster drug,

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think of the green square as a
space representing all the

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possible diseases that drugs
could fix.

21:14.509 --> 21:18.779
They range on the vertical
scale from acute at the bottom

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to chronic on the top,
from rare on the bottom to

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common on the right.

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I said chronic up here,
or I meant chronic up here.

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It is obvious to you where the
money is to be made in the

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pharmaceuticals business?

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Yes back left.

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Student:  Common and
chronic.

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Prof: Pardon.

21:39.588 --> 21:39.708
Student:  Common and
chronic.

21:39.710 --> 21:43.320
Prof: Common and
chronic, because if acute,

21:43.318 --> 21:46.808
the customer may not stay alive
long enough to be truly

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profitable,
and common is--has its obvious

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benefit.

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The idea of a Cox-2 inhibitor,
the business plan behind the

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Cox-2 inhibitor was to advertise
the hell out of it and to

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capture a huge generation of
people forty and older with bad

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knees,
tennis elbow,

22:16.981 --> 22:21.241
all those stiff necks,
all those things which go on

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for decades,
during the seventeen year

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patent to make billions upon
billions of dollars.

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Blockbuster drugs,
in fact, do make billions upon

22:33.167 --> 22:37.767
billions of dollars,
and there is a market failure

22:37.772 --> 22:42.502
problem with this model,
which has to do with less

22:42.497 --> 22:45.577
common and more acute diseases.

22:45.578 --> 22:50.298
Many, many small disease
populations get

22:50.297 --> 22:56.467
disproportionately small
investment in drug research

22:56.465 --> 23:02.025
because of the logic of
blockbuster drugs.

23:02.028 --> 23:10.708
Merck has had two really famous
CEOs in recent time.

23:10.710 --> 23:15.490
This is Roy--I've had both
these guys in my classroom to

23:15.491 --> 23:20.711
teach this case at one time or
another, Roy Vagelos was a--is

23:20.710 --> 23:23.580
an M.D., and a brilliant M.D.

23:23.579 --> 23:25.039
and an idealist.

23:25.038 --> 23:29.158
He at one point--I don't know
if this--is river blindness drug

23:29.164 --> 23:30.184
in this case?

23:30.180 --> 23:33.010
Yeah, the river blindness drug
is one where he--

23:33.009 --> 23:37.499
the government wouldn't pay to
distribute the drug in Africa,

23:37.500 --> 23:41.410
but he just had Merck pay,
and thinks he got his money

23:41.411 --> 23:44.881
back in the motivation of his
research staff.

23:44.880 --> 23:47.290
Ray Gilmartin,
who succeeded him,

23:47.292 --> 23:52.052
and comes in for great abuse in
the Mark Lanier video we'll look

23:52.046 --> 23:55.866
at,
Ray Gilmartin is an MBA,

23:55.869 --> 24:02.619
worse yet a Harvard MBA,
and was hell for leather

24:02.621 --> 24:03.981
marketer.

24:03.980 --> 24:08.840
He looked at the Cox-2
inhibitor market as the best

24:08.837 --> 24:14.567
single market available in the
generation to Merck and put a

24:14.569 --> 24:19.269
huge sales force out there,
and went full stop,

24:19.271 --> 24:22.541
and sometimes a little over the
line,

24:22.538 --> 24:28.548
with the ethics of inducing
doctors to prescribe the drug.

24:28.548 --> 24:33.308
Sometimes by straightforward
favor giving,

24:33.308 --> 24:39.398
sometimes by invitation to
so-called research conferences,

24:39.400 --> 24:44.510
which were in actual fact
golfing holidays of the kind--

24:44.509 --> 24:48.279
now what's wrong with a golfing
holiday aimed at M.D.'s,

24:48.279 --> 24:49.569
if we remember Sharon Oster?

24:49.569 --> 24:51.949
Do we remember?

24:51.950 --> 24:57.910
Yes.

24:57.910 --> 25:05.590


25:05.588 --> 25:06.538
Student:  If I remember
correctly,

25:06.538 --> 25:08.538
she said it was that if the
doctor was willing to go on

25:08.544 --> 25:10.834
golfing holiday,
that means the opportunity cost

25:10.825 --> 25:14.845
he's losing is not that high,
so it's probably not a doctor

25:14.852 --> 25:16.292
that sees a lot.

25:16.288 --> 25:18.858
Prof: Okay,
so the doctors with the lowest

25:18.859 --> 25:21.109
opportunity costs were going to
Hawaii,

25:21.108 --> 25:23.318
go to Hawaii,
and they're not the people

25:23.315 --> 25:24.725
you're trying to reach.

25:24.730 --> 25:29.950
That's certainly true of the
heart technology,

25:29.950 --> 25:34.670
maybe a little less true of
Vioxx, where a very low key

25:34.666 --> 25:40.166
practice where you just casually
advise people to take this drug

25:40.171 --> 25:42.531
would be very valuable.

25:42.529 --> 25:48.839
The common law tradition,
the English common law is

25:48.838 --> 25:54.768
derived not from legislation but
from cases,

25:54.769 --> 26:01.599
and builds up through precedent
where each new case is analyzed

26:01.602 --> 26:08.102
by its analogy or lack thereof
to earlier cases which raised

26:08.104 --> 26:10.974
the same legal issues.

26:10.970 --> 26:18.050
This tradition goes back a
thousand years,

26:18.048 --> 26:23.228
or nearly a thousand years,
and came to the United States

26:23.232 --> 26:28.882
with the immigrants who came to
New England in the seventeenth

26:28.877 --> 26:34.707
century and is a dominant part
of the American Legal Code,

26:34.710 --> 26:39.280
which is largely separable from
Congress and the Legislative

26:39.284 --> 26:40.064
process.

26:40.058 --> 26:47.588
And central to it is the idea
that courts should make the

26:47.590 --> 26:53.370
victims of careless,
reckless, or fraudulent

26:53.374 --> 26:58.104
products whole;
should make them--should bring

26:58.097 --> 27:02.507
them back to a situation as good
as they would have been in if

27:02.506 --> 27:05.466
they had not received the bad
product.

27:05.470 --> 27:10.490
Beyond that,
often punitive damages,

27:10.490 --> 27:14.680
where if we say this person was
harmed to the extent of $100,000

27:14.681 --> 27:18.741
so we'd pay him the $100,000 at
the expense of the company.

27:18.740 --> 27:21.820
We then say,
this is a huge company,

27:21.817 --> 27:26.647
$100,000 means nothing to this
company so let's say $100

27:26.653 --> 27:27.713
million.

27:27.710 --> 27:31.570
Most of the $100 million is
punitive damage,

27:31.566 --> 27:36.766
which nonetheless goes to the
victim, but is meant to teach

27:36.767 --> 27:39.007
the company a lesson.

27:39.009 --> 27:43.649
Well from the point of view of
business, punitive damages are

27:43.653 --> 27:44.663
very scary.

27:44.660 --> 27:49.480
And the American legal
landscape is a particularly

27:49.480 --> 27:54.500
complex one for that reason
because with federalism,

27:54.497 --> 27:55.477
Ghen v.

27:55.480 --> 27:59.020
Rich, you remember it,
Ghen v.

27:59.022 --> 28:04.732
Rich is about tort law,
and about setting incentives in

28:04.729 --> 28:10.139
a way that works well for
society as a whole,

28:10.140 --> 28:14.230
and the problem with Merck
Vioxx is similarly that.

28:14.230 --> 28:20.240
I'll give you one more common
law case to get the feel of

28:20.238 --> 28:20.988
this.

28:20.990 --> 28:26.610
At the close of World War II,
the guy who owned this property

28:26.606 --> 28:32.316
near an airport sued the airport
for the noise of planes going

28:32.318 --> 28:34.658
through his airspace.

28:34.660 --> 28:39.440
He said I own the airspace;
they can only come through if

28:39.443 --> 28:43.343
they have my permission or pay
me rent on the use of my

28:43.343 --> 28:44.213
airspace.

28:44.210 --> 28:52.200
The plaintiff had a very strong
common law precedent.

28:52.200 --> 28:58.160
The common law theory of
airspace was that you make a

28:58.162 --> 29:02.412
projection from the--
after people were sure the

29:02.406 --> 29:06.456
world was round,
it's a spherical projection,

29:06.463 --> 29:11.853
to the ends of the universe,
you owned everything that is in

29:11.848 --> 29:14.868
that spherical projection over
your land.

29:14.868 --> 29:23.578
Now you were--you're a judge,
its 1947, the airline industry

29:23.583 --> 29:31.413
is just getting strong,
and you're presented with this

29:31.410 --> 29:32.740
case.

29:32.740 --> 29:42.780
Tal, how would you decide it?

29:42.779 --> 29:46.299
Student:  Well,
since the airline industry is

29:46.297 --> 29:50.367
just getting strong I might want
to incentivize them to keep

29:50.365 --> 29:53.465
flying and keep
>

29:53.470 --> 29:56.450
which would obviously be very
difficult if I let every single

29:56.452 --> 29:58.852
person--
it would obviously be very

29:58.853 --> 30:02.953
difficult to let the airline
industry form if I let every

30:02.951 --> 30:07.491
single person who owns property
control the airspace over their

30:07.489 --> 30:10.929
property because then they would
have to--

30:10.930 --> 30:14.280
the transaction costs would be
huge to negotiate with each and

30:14.280 --> 30:15.490
every single person.

30:15.490 --> 30:16.740
Prof: Absolutely.

30:16.740 --> 30:18.430
That nails the question.

30:18.430 --> 30:21.850
A flight--a little flight from
Chicago to Milwaukee or from

30:21.846 --> 30:24.506
Milwaukee to Madison,
Wisconsin or from Madison,

30:24.506 --> 30:27.416
Wisconsin to Minneapolis,
would involve thousands of

30:27.421 --> 30:31.161
transactions and license fees
with the owners of all the land

30:31.161 --> 30:35.731
you're going to traverse,
and the airline industry would

30:35.730 --> 30:38.490
be stillborn for that reason.

30:38.490 --> 30:44.690
In the background of this case,
just as in the background of

30:44.689 --> 30:45.949
Ghen v.

30:45.950 --> 30:50.630
Rich, is creating
incentives for those who are

30:50.628 --> 30:55.208
prepared to invest in the
generation of value and

30:55.212 --> 31:00.182
ultimately of wealth for the
society as a whole.

31:00.180 --> 31:04.090
Mr. Justice Douglas,
in May of 1946,

31:04.094 --> 31:07.234
wrote the opinion in U.S.

31:07.226 --> 31:07.446
v.

31:07.450 --> 31:13.830
Cosby, which decided the
case in favor of the airlines

31:13.825 --> 31:17.735
and against the landowners.

31:17.740 --> 31:24.300
Now the plaintiff bar--let's
not do the summaries.

31:24.298 --> 31:26.448
Let's see if I can remember how
we're going to do this.

31:26.450 --> 31:34.940
DVD stage, play,
this is a set of interviews we

31:34.942 --> 31:37.502
sent a--
this is Mark Lanier:

31:37.500 --> 31:39.170
"I think Merck ultimately
has to settle,

31:39.170 --> 31:42.760
maybe not all of the cases,
but Merck certainly needs to

31:42.761 --> 31:44.331
settle the good cases.

31:44.328 --> 31:50.858
What Merck needs to do is wait
until the statute of limitations

31:50.862 --> 31:51.602
runs.

31:51.598 --> 31:54.908
What that means is that there's
a time period after you're

31:54.910 --> 31:57.640
damaged where you have to file
your lawsuit,

31:57.640 --> 32:01.210
and if you don't file within
that time period your rights are

32:01.212 --> 32:01.632
gone.

32:01.630 --> 32:05.370
Merck needs to go ahead and
wait and let that time period

32:05.372 --> 32:08.232
run,
so that there is a fixed

32:08.227 --> 32:11.467
denominator,
how many cases are out there,

32:11.467 --> 32:13.987
and then the numerator,
how many of those is Merck

32:13.992 --> 32:15.752
going to settle,
can be determined.

32:15.750 --> 32:18.280
I'm not sure that Merck needs
to settle every case out there.

32:18.278 --> 32:21.578
These cases are expensive to
fight and they're hard to fight,

32:21.578 --> 32:27.778
and so Merck can satisfactorily
settle the difficult cases of

32:27.778 --> 32:31.798
serious injury,
where really I think all of us

32:31.795 --> 32:34.665
ultimately agree Merck owes the
money,

32:34.670 --> 32:38.630
and then Merck can take those
cases of lesser liability and

32:38.632 --> 32:42.382
ultimately tell the lawyers,
'You want us, come get us.'

32:42.380 --> 32:45.330
That's where this has got to
end up I think."

32:45.328 --> 32:51.088
I think there are probably
about 25,000 to 30,000 cases

32:51.086 --> 32:55.986
that ultimately will be filed
against Merck.

32:55.990 --> 32:59.480
Out of those 25,000 to 30,000
how many of them are good cases?

32:59.480 --> 33:04.190
I would guess probably--you've
got different degradations of

33:04.191 --> 33:04.751
good.

33:04.750 --> 33:07.260
It's like students,
there's A good and there's B

33:07.259 --> 33:10.359
good, then there's C not so
good, and then there's D and F,

33:10.356 --> 33:11.796
really not good at all.

33:11.798 --> 33:15.548
How many A/B cases in that
grouping?

33:15.548 --> 33:18.778
Over half of them I think are
probably A/B cases.

33:18.779 --> 33:21.189
How many of those are C's?

33:21.190 --> 33:24.360
Maybe a third;
how many of them are D and F?

33:24.358 --> 33:26.658
Maybe about 25%,
I don't know,

33:26.661 --> 33:31.191
my percentages may not add up,
but it's something in those

33:31.185 --> 33:33.245
ranges at least."

33:33.250 --> 33:42.300
My guess is $12 to $15 billion
dollars for liability for Merck.

33:42.298 --> 33:46.878
I think if Ken Frazier,
the general counsel for Merck,

33:46.880 --> 33:49.430
came to me and said,
'Lanier here's $12.5 billion

33:49.425 --> 33:51.495
dollars,
make my headache go away,' I

33:51.502 --> 33:53.962
could come pretty close to
resolving all of his

33:53.955 --> 33:54.805
issues."

33:54.808 --> 34:00.878
"There's a great deal of
difficulty in trying to set up a

34:00.878 --> 34:04.758
jurisdiction for hearing these
cases.

34:04.759 --> 34:09.409
The way the law is set up,
philosophically the plaintiff

34:09.407 --> 34:12.977
who has a burden of proof,
the plaintiff has to prove

34:12.980 --> 34:15.280
their case,
and a tie goes to the defendant

34:15.280 --> 34:16.010
if you will.

34:16.010 --> 34:19.900
The plaintiff with a burden of
proof is supposed to get a pick

34:19.898 --> 34:20.598
of forum.

34:20.599 --> 34:24.439
By that it means if you've got
to prove your case you should be

34:24.443 --> 34:27.733
allowed to choose in which court
you want to do it.

34:27.730 --> 34:29.840
Realistically,
in America, all of our courts

34:29.835 --> 34:32.295
are supposed to be fair,
but practically,

34:32.300 --> 34:36.080
we recognize that some are more
plaintiff friendly,

34:36.079 --> 34:38.409
and some are more defense
friendly,

34:38.409 --> 34:42.279
and so the plaintiffs naturally
try to find those courts that

34:42.277 --> 34:43.887
are plaintiff friendly.

34:43.889 --> 34:48.019
The defendants want defense
friendly courts.

34:48.018 --> 34:50.588
We tried the first case in
Texas.

34:50.590 --> 34:53.510
Texas has a reputation for
being plaintiff friendly,

34:53.512 --> 34:55.982
realistically I think at this
point in time,

34:55.978 --> 34:57.238
it's probably not.

34:57.239 --> 35:01.019
Our judge was appointed to the
bench by George Bush when he was

35:01.019 --> 35:02.239
Governor of Texas.

35:02.239 --> 35:04.089
George Bush,
President Bush,

35:04.090 --> 35:06.970
is certainly no friend to trial
lawyers.

35:06.969 --> 35:11.979
We have an appellate court
system in Texas that is entirely

35:11.976 --> 35:13.096
Republican.

35:13.099 --> 35:16.909
There will not be a Democratic
judge that will ever see the

35:16.911 --> 35:19.341
Vioxx case we have,
we tried in Texas,

35:19.342 --> 35:22.632
or the ones pending right now
to my knowledge.

35:22.630 --> 35:26.110
In New Jersey you've got a
different scenario.

35:26.110 --> 35:29.930
You've got a court system
that's very friendly,

35:29.931 --> 35:33.421
ideologically at least,
with big pharma.

35:33.420 --> 35:36.890
Pharma has a home in New
Jersey, has great tort reform in

35:36.891 --> 35:39.601
New Jersey,
and until we got the punitive

35:39.596 --> 35:43.116
damage finding against Merck,
had never been held responsible

35:43.117 --> 35:45.977
for punitive damages in New
Jersey under the current state

35:45.983 --> 35:46.993
of the law."

35:46.989 --> 35:52.119
Prof: If you Google
"judicial hell-hole"

35:52.123 --> 35:57.073
you will find a map showing the
most plaintiff friendly

35:57.074 --> 36:00.104
jurisdictions in the country.

36:00.099 --> 36:06.509
The huge ideological battle and
political battle which is in

36:06.509 --> 36:12.589
progress, about federalizing and
capping tort law awards,

36:12.592 --> 36:14.442
is out there.

36:14.440 --> 36:16.800
Just go "tort reform"
or "judicial

36:16.795 --> 36:18.955
hell-holes"
and you'll get the flavor of

36:18.956 --> 36:19.296
it.

36:19.300 --> 36:22.290
Mark Lanier:
"So New Jersey is

36:22.289 --> 36:26.069
somewhere that I think Merck
would like--

36:26.070 --> 36:46.650


36:46.650 --> 36:49.720
" "The Harvard
Business School slide that I've

36:49.724 --> 36:51.964
put was not the first slide I
showed,

36:51.960 --> 36:54.580
but it certainly was in my
opening statement.

36:54.579 --> 36:59.179
I wanted the jury to understand
that when--

36:59.179 --> 37:01.399
before Ray Gilmartin came on
board,

37:01.400 --> 37:06.830
Merck--which was 1994,
Merck was run basically by a

37:06.833 --> 37:10.533
CEO named Dr. Vagelos and Dr.

37:10.530 --> 37:15.130
Vagelos is a world-renowned
doctor, phenomenal doctor.

37:15.130 --> 37:19.360
When Ray Gilmartin came on
board Merck didn't hire a

37:19.356 --> 37:22.916
world-renowned doctor to run the
company.

37:22.920 --> 37:26.640
Merck didn't hire a
world-renowned chemist,

37:26.635 --> 37:29.905
or even a nationally known
chemist.

37:29.909 --> 37:31.609
Heck, I'd have taken a local
chemist.

37:31.610 --> 37:36.390
They didn't hire a pharmacist,
someone who had experience with

37:36.389 --> 37:40.539
pills and medicines on even a
local level, much less a

37:40.541 --> 37:42.031
national level.

37:42.030 --> 37:46.210
What Merck did is they took a
different direction.

37:46.210 --> 37:49.110
They changed directions from
the Vagelos days,

37:49.110 --> 37:52.600
Dr. Vagelos days,
and they hired an MBA which I

37:52.596 --> 37:57.326
have a lot of respect for MBA's,
but I think we need to put into

37:57.333 --> 38:00.953
context what it was speaking to
within the Merck culture.

38:00.949 --> 38:04.489
It was saying no longer is
science running our company,

38:04.489 --> 38:07.979
we're now going to run this
company along economic terms as

38:07.978 --> 38:10.738
a business,
and Ray Gilmartin came in,

38:10.742 --> 38:15.352
as a Harvard trained MBA,
who had really no science

38:15.353 --> 38:17.763
background whatsoever.

38:17.760 --> 38:24.760
It was an--I put the Harvard
Business School slide up to put

38:24.762 --> 38:31.882
a visual image to go with the
intellectual concept that Merck

38:31.882 --> 38:39.362
was choosing to be a business
first company not a patient--

38:39.360 --> 38:43.240
When we tried the Ernst case,
I was stunned at the opening

38:43.242 --> 38:44.472
that Merck gave.

38:44.469 --> 38:48.779
Understand Bob Ernst died from
what's called sudden cardiac

38:48.775 --> 38:49.365
death.

38:49.369 --> 38:53.819
Sudden cardiac death means you
are dead by the time you're in

38:53.815 --> 38:58.105
the hospital and the cause is
not something they can easily

38:58.114 --> 39:00.364
trace,
but it's clearly a heart

39:00.355 --> 39:00.885
problem.

39:00.889 --> 39:05.379
The sudden cardiac death was
attributed to an arrhythmia,

39:05.380 --> 39:07.930
which is a ventricular
fibrillation for him,

39:07.929 --> 39:11.199
his heart was quivering,
and the question ultimately

39:11.202 --> 39:13.432
becomes,
what caused that heart

39:13.434 --> 39:14.964
quivering arrhythmia?

39:14.960 --> 39:17.020
Most typically,
according to the Merck

39:17.018 --> 39:20.058
Manual,
it's caused by a heart attack,

39:20.056 --> 39:23.376
but it can be caused by an
electrocution,

39:23.380 --> 39:28.980
it can be caused by inhaling a
lot of salt water in a drowning,

39:28.980 --> 39:33.800
and it can be caused by being
exposed to hypothermia.

39:33.800 --> 39:38.370
Clearly none of those is what
had happened to Bob Ernst.

39:38.369 --> 39:40.319
Bob Ernst had had a heart
attack.

39:40.320 --> 39:45.120
I was stunned in opening when
the Merck lawyer stood up and

39:45.121 --> 39:48.161
told the jury,
disingenuously I believe,

39:48.159 --> 39:52.139
that if the jury looked at the
coroner's report they would see

39:52.137 --> 39:56.307
that they coroner said Bob Ernst
had not had a heart attack,

39:56.309 --> 39:59.739
Bob Ernst had died from
arrhythmia secondary to

39:59.744 --> 40:01.094
arthrosclerosis.

40:01.090 --> 40:05.660
Well, those are both caused by
a heart attack.

40:05.659 --> 40:13.049
Someone may have died from a
loss of blood okay,

40:13.050 --> 40:15.760
but if someone was shot,
and it was the gunshot that

40:15.759 --> 40:18.149
caused the bleeding and the loss
of blood,

40:18.150 --> 40:20.180
it's disingenuous to stand up
and tell a jury,

40:20.179 --> 40:22.079
well they didn't die from the
bullet,

40:22.079 --> 40:24.269
they died from loss of
blood."

40:24.268 --> 40:27.318
I was shocked by that because I
thought it was a

40:27.324 --> 40:29.824
misrepresentation,
and I think Merck did it

40:29.822 --> 40:32.612
thinking they could get away
with it because no one had ever

40:32.608 --> 40:35.488
been able to find the coroner
and ask her what she meant,

40:35.489 --> 40:39.169
and so I don't have any
testimony to the contrary,

40:39.170 --> 40:40.510
we just have a report.

40:40.510 --> 40:43.280
I went back to my office and I
said, 'I want the coroner.'

40:43.280 --> 40:44.840
And they said 'We can't find
the coroner.'

40:44.840 --> 40:48.360
I said 'We can find anybody
except Bin Laden,

40:48.360 --> 40:49.960
find the coroner.'

40:49.960 --> 40:53.780
We hired a couple of PI's,
we found the coroner doing

40:53.779 --> 40:57.819
pathology work in the United
Arab Emirates Abu Dhabi.

40:57.820 --> 41:01.400
I shot her an email asking her
if she would mind if I spoke

41:01.400 --> 41:02.080
with her.

41:02.079 --> 41:05.729
She emailed back and said she'd
be glad to speak with me.

41:05.730 --> 41:09.090
I called her on the phone and I
said, here is what was said

41:09.094 --> 41:12.464
about this case in opening,
here is what your autopsy said,

41:12.460 --> 41:13.680
tell me about it.

41:13.679 --> 41:17.149
She said 'Well he died,
under an autopsy I have to put

41:17.148 --> 41:20.118
the physical cause,
physical cause it was a sudden

41:20.121 --> 41:21.911
cardiac death with an
arrhythmia,

41:21.909 --> 41:23.699
secondary to arthrosclerosis.'

41:23.699 --> 41:25.059
I said 'Well how does that kill
you'?

41:25.059 --> 41:26.699
She said 'Easy,
you have a heart attack.'

41:26.699 --> 41:28.419
I said 'Really?'

41:28.420 --> 41:30.530
She said 'Of course,
that's the only thing that

41:30.528 --> 41:31.078
causes it.

41:31.079 --> 41:33.789
Arthrosclerosis causes a heart
attack;

41:33.789 --> 41:35.889
the heart attack causes an
arrhythmia.'

41:35.889 --> 41:37.999
She said 'Unless he was
electrocuted,"

41:38.001 --> 41:39.661
she said 'Was he electrocuted?'

41:39.659 --> 41:40.869
I said 'No.'

41:40.869 --> 41:42.279
She said 'Okay.'

41:42.280 --> 41:44.250
I said 'Would you come over and
explain that to the jury?'

41:44.250 --> 41:46.880
She said 'I would be glad too,'
so she came over.

41:46.880 --> 41:50.390
Well Merck threw a fit because
Merck says we never would have

41:50.393 --> 41:53.793
told the jury what we did if
we'd known Lanier was going to

41:53.789 --> 41:56.599
be allowed to tell the truth
about it."

41:56.599 --> 42:03.469
Prof: That film is
almost an hour long.

42:03.469 --> 42:07.639
We had it made for the MBA's a
couple of years ago.

42:07.639 --> 42:20.489
Mary Pat, you're not the
coroner but if I asked you,

42:20.489 --> 42:24.529
is there--is another set of
relationships that involve

42:24.532 --> 42:28.122
Merck,
that were behind the scenes in

42:28.117 --> 42:31.647
all this,
and what you know about it,

42:31.650 --> 42:32.840
help me out.

42:32.840 --> 42:34.150
Student:  Sure.

42:34.150 --> 42:37.910
Well in addition to all the
plaintiffs who brought cases

42:37.907 --> 42:40.807
against Merck,
Merck also had taken out

42:40.811 --> 42:45.311
insurance policies for product
liability and liability exposure

42:45.313 --> 42:48.153
insurance,
and they took them from a bunch

42:48.148 --> 42:51.428
of companies like Munich
Reinsurance and at the same time

42:51.431 --> 42:53.721
that all these cases were going
on,

42:53.719 --> 42:55.969
Merck was trying to collect on
those policies.

42:55.969 --> 42:59.949
Basically they wanted money
because they had to pull Vioxx

42:59.951 --> 43:03.581
and all the exposure,
they were losing a lot of money

43:03.583 --> 43:05.263
in profits that way.

43:05.260 --> 43:08.410
These insurance companies were
saying,

43:08.409 --> 43:11.789
"Well you are exercising a
breach of warranty,

43:11.789 --> 43:15.609
because when you took out these
policies you basically told us

43:15.605 --> 43:18.415
that this sort of a thing
wouldn't happen,

43:18.420 --> 43:20.640
but we're saying that you knew
something like this would

43:20.635 --> 43:21.235
happen."

43:21.239 --> 43:26.899
Prof: Did the company
your close relative represented

43:26.902 --> 43:29.112
end up paying or not?

43:29.110 --> 43:32.790
Student:  They paid some
of the damages but not all.

43:32.789 --> 43:36.209
Prof: Some sort of a
negotiated settlement?

43:36.210 --> 43:41.620
Student:  Yeah.

43:41.619 --> 43:44.299
Prof: Let me finish this.

43:44.300 --> 43:50.910
The ultimate outcome was a
negotiated settlement amounting

43:50.911 --> 43:57.991
not to $12.5 billion dollars as
Mark Lanier thought or claimed

43:57.987 --> 44:01.697
to think, but $4.85 billion.

44:01.699 --> 44:06.379
What happens is the Court
system creates a class action

44:06.384 --> 44:11.334
suit and then settles the class
action suit in a way which

44:11.329 --> 44:15.579
creates a scoring system for the
plaintiffs,

44:15.579 --> 44:17.659
the tens of thousands of
plaintiffs.

44:17.659 --> 44:24.399
The score you get depends on
how long you used the drug,

44:24.400 --> 44:29.870
and how severely you suffered,
and how plausible the causal

44:29.869 --> 44:35.339
connection between what happened
to you and the drug is.

44:35.340 --> 44:40.240
For example,
if you took Vioxx for a short

44:40.235 --> 44:45.965
period of time but were a 280
pound diabetic,

44:45.969 --> 44:51.319
with a major smoking problem,
and a quart a day bourbon

44:51.320 --> 44:54.150
problem,
the odds were that you weren't

44:54.150 --> 44:57.170
going to get a lot of money out
of the settlement,

44:57.170 --> 44:58.900
so it's a mechanical system.

44:58.900 --> 45:04.760
And I personally believe that
when used within reasonable

45:04.759 --> 45:10.619
limits common law is a way of
protecting relatively small

45:10.617 --> 45:14.277
people against large companies.

45:14.280 --> 45:18.450
The adjudication of that
boundary, which is now in

45:18.447 --> 45:20.997
progress, is very important.

45:21.000 --> 45:27.160
The killer for large companies
is the transaction costs of

45:27.163 --> 45:33.113
settling so many cases can
themselves be prohibitive.

45:33.110 --> 45:38.400
Okay, exam on Wednesday and
back to work on Monday.

45:38.400 --> 45:43.000