AEI | Research Areas | Liability Project

Biotechnology and the Patent System: Balancing Innovation and Property Rights

With the Patent Reform Act of 2007 currently pending in Congress, AEI�s John E. Calfee and Claude Barfield will discuss their forthcoming AEI Press book on the biotech patent process, followed by panels on patent reform issues and the effects of patent law on biotechnology and university research.

Supreme Court Briefing - October 2007
Friday, September 28, 2007
Speakers at this event, including AEI�s Ted Frank and Michael S. Greve, will discuss how cases of the upcoming term and the previous term will affect business.

Stoneridge v. Scientific-Atlanta
Friday, October 5, 2007
Days before the Supreme Court hears oral arguments on Stoneridge v. Scientific-Atlanta, a panel that includes former SEC Chairman Harvey Pitt and AEI Scholar Ted Frank will explore the arguments and implications of the case.

It was expected that the Supreme Court's October Term 2006, which ended in June of this year, would result in decisions of great significance for the prospect of liability reform. And indeed this was so. But the surprise was that the greatest impact came not from the cases that immediately and directly raised issues of importance, but rather from unexpected turns in the Court's decisions in other cases.

At a time when policy specialists in Washington and New York are debating the reasons why the United States seems to be losing financial transactions and public company listings to markets abroad, the arrival of the Stoneridge case at the Supreme Court tells us all we need to know.

On February 18, 2005, President George W. Bush signed into law the Class Action Fairness Act (CAFA) of 2005, the most significant civil justice reform of his administration. Has it succeeded in curbing abusive class actions? Because litigation tactics are dynamic, the long-term answer will depend in part on the plaintiffs bar's response.

Private securities class actions under Rule 10b-5 of the Securities and Exchange Commission (SEC) were created by the courts, not authorized by Congress. For the last thirty years, the Supreme Court and Congress have made strenuous efforts to control and limit these suits, with only limited success. On a cost-benefit basis, a compensation system like this is difficult to justify.

Rollover Economics: Arbitrary and Capricious Product Liability Regimes
by Ted Frank
It went generally unnoticed last November when the California Supreme Court refused to review an intermediate court�s decision in Buell-Wilson v. Ford Motor Co. But then again, it went generally unnoticed when a jury awarded an arbitrary $368 million in damages in that case, when the trial judge reduced that verdict to an arbitrary $150 million judgment, and when an intermediate appellate court reduced that figure to an arbitrary $82.6 million (which, with interest, works out to over $100 million). Products liability verdicts have become so run-of-the-mill that even nine-digit verdicts and their aftermath receive only local or specialty press coverage, with cursory national coverage. But Buell-Wilson demonstrates much that is wrong with the current liability regime, including the fact that the media is so jaded by litigation abuse that a $368 million verdict is barely newsworthy.

The plaintiffs� bar and media have claimed early �success� in obesity and lifestyle litigation; however, several fundamentally different kinds of lawsuits are being grouped under one �obesity litigation� umbrella, and each one has different policy implications for obesity and for the legal system. A closer look shows that the plaintiffs� successes have been thin gruel and that the obesity litigation to date has been much more successful in transferring wealth to attorneys than in advancing legitimate public policy concerns.

The Milberg Weiss Indictment and H.R. 5491
Testimony before the House Committee on Financial Services, Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises

AEI Liability Project Director Ted Frank testified on June 28, 2006 as to how the recent Milberg Weiss indictment illustrates the problems of securities class action litigation. His testimony goes on to explain how Rep. Richard Baker's bill, the Securities Litigation Attorney Accountability and Transparency Act (SLAATA, H.R. 5491) would be a step in the right direction, but only that.

The Sarbanes-Oxley Act of 2002 (SOX) is a colossal failure, poorly conceived and hastily enacted during a regulatory panic. Evidence suggests that the market has estimated that SOX will impose huge indirect costs on top of substantial direct costs. A largely overlooked concern is the act�s potential to turn into a litigation time bomb: the first major market correction will likely become a feast for trial lawyers. SOX�s defenders assert that the business world is better off now than before SOX, but the relevant question is whether it is better because of SOX. Existing institutions could have responded to any problems without a vast one-size-fits-all regulation from the federal government. To see the press release for this AEI Liability Study, click here.

The Vioxx Litigation: Part I and Part II
by Ted Frank
Part I of this AEI Working Paper looks at the history of Vioxx and asks questions about potential over-deterrence from having manufacturers bear the full measure of the social cost of drugs through strict products liability or failure-to-warn claims. Part II goes on to look at the problems that the Vioxx cases present for the litigation system as a whole.

Harm-Less Lawsuits?
by Michael Greve
Consumer class actions often generate billion-dollar verdicts or settlements even when the plaintiffs' class is composed entirely of individuals whose harms are purely hypothetical. Consumers who were injured are explicitly excluded from the class. One example: plaintiffs were awarded $10.1 billion for purchasing Marlboro and Cambridge Lights, not because they were injured by them, but because they were misled to believe that they were safe. In Harm-Less Lawsuits?, Michael Greve describes the origins of consumer class actions and analyzes their theoretical and practical problems.

Medical Malpractice Insurance Studies
Friday, June 29, 2007
Claims of a medical malpractice crisis stem in large part from recent increases in malpractice insurance rates, with premiums for some individual doctors set in the hundreds of thousands of dollars a year. Most doctors, actuaries, and insurance officials attribute these costs to the lack of caps on liability awards. Some trial lawyer organizations and politicians claim that the rise in insurance rates are unrelated to the expenses of defending and paying malpractice claims, and that caps will not affect insurance prices. Many states have instituted various types of liability reform. What effect have these reforms had on medical malpractice insurance premiums? Are rising defense costs for malpractice cases part of the problem, and, if so, how have insurance companies responded? Three recent studies on these questions will be presented at this event. A video, summary, and transcript of the event are available here.

"Expert Witnesses, Adversarial Bias, and the (Partial) Failure of the Daubert Revolution"
Monday, April 23, 2007
In Daubert v. Merrell Dow Pharmaceuticals (1993), the Supreme Court ruled that expert testimony is only admissible in court if it passes a strict reliability test, and assigned the role of evidentiary �gatekeepers� to federal trial judges. This standard, later codified as Rule 702, has undoubtedly provided significant protection against the worst abuses of junk science since its inception. But has it created a better overall environment for sound scientific evidence? Are courts misusing the rule to bar legitimate scientific evidence? Do judges administer Daubert standards effectively? Are there lingering problems caused by experts being chosen and paid by the parties to the case? What are the future opportunities for reforming the use of scientific expert testimony in adversarial litigation?
Audio, video, and a transcript and summary from the event, along with Professor David Bernstein's paper presented, are available here.

Watters v. Wachovia Bank: The Roberts Court Weighs In on Preemption
Tuesday, November 28, 2006
On November 29, 2006, the Supreme Court heard oral argument in the case of Watters v. Wachovia Bank. At issue is the scope of the National Bank Act and federal regulation, with Wachovia Bank successfully arguing in the Sixth Circuit Court of Appeals that federal regulations preempt Michigan laws regarding Wachovia�s lending activities. The Supreme Court�s decision will be important not just because of its effect on banking regulation, but also because it will serve as a Roberts Court precedent on the question of how much authority federal regulatory agencies such as the FDA and the NHTSA have to decide to preempt state law.
Amicus briefs, video of the conference, a summary, and a transcript of the event are available here.

The Senate Medical Malpractice Bill: Is it the Right Reform?
Monday, April 24, 2006
The U.S. Senate has announced that it will be debating new legislation to reform America�s medical malpractice law in early May. Is the Senate likely to pass useful reforms? What types of reform should they consider? What is the appropriate role of the federal government in addressing the issue and what are the potential conflicts between the federal government and the states?
A video, summary, and transcript of the event are available here.

Medical Malpractice Liability and Physician Supply
Wednesday, April 5, 2006
Do doctors really flee certain states, avoid high-risk specialties such as neurosurgery and obstetrics, or even forgo practicing medicine as a result of ever-growing liability concerns? Can liability reforms prevent an exodus? Empirical answers to these questions are vital to informed policymaking but are sometimes lacking from the politically charged debate between doctors and lawyers. At this AEI event, two leading health economists will present new papers on the subject. Professor David Dranove of Northwestern University's Kellogg School of Management presented his new paper, "Has the Malpractice Crisis in Florida Really Affected Access to Care?" co-authored with Anne Gron and Andrew Sfekas. Also presented was AEI adjunct scholar and Florida State University College of Law professor Jonathan Klick's paper, "Medmal Reform and Physicians in High-Risk Specialties."
A video, summary, transcript, and conference materials from the event are available here.

Sarbanes-Oxley: What Have We Learned?
Monday, March 13, 2006
In July 2002, as a reaction to various corporate scandals, Congress passed the Public Company Accounting Reform and Investor Protection Act of 2002, commonly known as the Sarbanes-Oxley Act. In signing the act, President Bush proudly declared that the U.S. government was enacting "the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt." With the implementation of the act, however, the immense costs of compliance have become apparent and business leaders question whether the act's supposed benefits actually represent any real gain over the previous era. At this AEI event, Professor Larry Ribstein, a scholar of corporate and securities law, and Professor Henry N. Butler, an expert on the economic analysis of law, discussed their forthcoming book, The Sarbanes-Oxley Debacle: How to Fix It and What We've Learned (AEI Press, 2006).
A summary, video, transcript, and conference materials from the event are available for viewing here. For information about the book, click here.

The Fairness in Asbestos Injury Recovery (FAIR) Act, S. 852, would establish a $140 billion trust fund to compensate victims of asbestos-related diseases, taking most cases out of the litigation system. Would the establishment of this trust fund solve the threat of unbounded liability for companies that used asbestos, or would it encourage a further multiplication of claims while failing to protect companies from later attacks and overriding state reforms in Texas and Ohio? Does FAIR appropriately distribute the burden of the trust fund across the American economy, or does it formalize previously unjust results or favor large manufacturers to the detriment of smaller enterprises? Is the creation of any sort of trust fund legally, economically, and politically viable? Does FAIR correctly strike the balance between excluding illegitimate claims of injury and meeting the needs of real victims? Are there better alternatives?

A summary, transcript, and video of the event, along with conference materials, can be found here.

Katrina's Liability Implications

Monday, October 3, 2005
Hurricane Katrina was an unprecedented natural disaster on American soil. Even beyond the tragic loss of life, the economic and political fallout has been huge. One little-noticed consequence is the coming battle in the courts over what could be at least $15 billion: will insurance companies find themselves liable under homeowners' policies to cover Katrina losses or will courts enforce the policies' flood exclusion clauses against thousands of people who lost their homes? The Mississippi attorney general has filed suit to retroactively hold these flood exclusion clauses unenforceable; the plaintiffs' bar seeks recovery under interpretations of the "valued policy law." Are these suits tenable? What are the implications for the liability system and the insurance system?

The summary, transcript, and video from the event are available here.

The $253 Million Vioxx Verdict
What Does It Mean?
Wednesday, September 7, 2005

On August 19, 2005, a jury in Angleton, Texas, found Vioxx producer Merck liable for the death of fifty-nine-year-old Robert Ernst. The Brazoria county jury assessed a staggering $253 million ($24 million compensatory, $229 million punitive) in damages against Merck, although Texas law will cap the punitive damages at less than $2 million and thus reduce the total award to about $26 million. What implications does this verdict have for drug development, for the pharmaceutical industry, and for the justice system? What consequences will this verdict have for consumers? Is further liability reform needed, or is the current jury trial system an appropriate means of regulating drug safety?

In 2003, AEI established a project to conduct and publicize research on the ever-expanding liability litigation crisis in the United States and abroad. The AEI Liability Project devotes its energies and resources to examining the institutions, procedures, and political economy of contemporary liability law. The project's output consists principally of short monographs and papers on selected liability problems and reform options.