Law Department Management Blog
Merck, battered by its withdrawal last September of Vioxx, faces possibly tens of thousands of lawsuits. According to the New York Times (July 23, 2005 at C6) “analysts say the current [Merck share] price factors in $10 billion to $18 billion in costs related to Vioxx.” By way of comparison, the pharmaceutical Wyeth, maker of the diet aid fen-phen, took charges against earnings – I think that does not mean Wyeth paid out, but reserved against – of more than $20 billion.
Some titanic companies smash into adverse legal icebergs, and the costs of representation, settlement and damages can sink them, as was true with more than 70 companies that used asbestos. Share value immediately reflects the disclosure of major legal liabilities.
If total legal spending of law departments included such catastrophic costs as drops in market capitalization, metrics on total legal spending would skew upwards. (See my posts on May 4, 2005 regarding event studies and patent litigation, May 30, 2005 on including settlements and judgments in total legal spending, and on July 20 regarding internal litigation costs.)