The J&J Opioid Verdict Is Just How the U.S. Does Regulation

(Bloomberg Opinion) -- The news that an Oklahoma court is ordering Johnson & Johnson to pay $572 million for its part in feeding the opioid crisis probably comes as a surprise to no one familiar with the weird way the United States deals with crises. From IUDs to tobacco and beyond, Americans rely on self-interested plaintiffs’ lawyers to sue deep-pocketed manufacturers – and on state courts to impose big verdicts that are meant to redistribute wealth from companies and their shareholders to state taxpayers and (sometimes) victims.

It’s worth pausing to notice the extremely bizarre structure of this uniquely American practice – and to wonder whether it achieves the social goal of creating incentives to avoid the next public health crisis. The court’s opinion in the Oklahoma lawsuit strongly suggests that plaintiffs, defendants, and judges here are all playing a prescribed role in a highly ritualized form of Kabuki theater, one where the outcome is not public health or safety but merely assigning “blame” before doing it all over again the next time.

Start with the legal theory of the lawsuit, which was creative to the point of being outrageous. Johnson & Johnson had roughly only 1% share in the opioid market, so the state of Oklahoma’s claim as plaintiff could not be that the company had caused a crisis by manufacturing opioids. Instead, the state argued that Johnson & Johnson misleadingly marketed and promoted opioids. Unfortunately, Oklahoma State law did not provide a clear path to make this claim. So the state alleged that Johnson & Johnson had contributed to the creation of a “public nuisance” under Oklahoma law.

If that sounds strange to you, it should. A public nuisance is normally something like a smokestack belching pollution onto your land, or maybe loud music. State law defines nuisance as something that:

annoys, injures or endangers the comfort, repose, health, or safety of others; or … offends decency; or … unlawfully interferes with, obstructs or tends to obstruct, or renders dangerous for passage, any lake or navigable river, stream, canal or basin, or any public park, square, street or highway; or … in any way renders other persons insecure in life, or in the use of property.

That’s pretty broad language. But ordinarily you would expect a judge to interpret it in light of how it’s been interpreted in the past.

When we’re talking about assigning responsibility for a major public health crisis, however, ordinary principles of legal interpretation tend to expand almost by magic. The judge found that Johnson & Johnson’s misleading marketing of opioids did amount to a public nuisance -- and therefore provided a basis for liability.

The legal reasoning could conceivably be reversed on appeal, and Johnson & Johnson will certainly try. But the appeals court judges are likely to understand, just like the trial judge did, that this lawsuit is a familiar instance of forcing corporations – in this case, Big Pharma -- to fork over money to the states to help cover the costs of trying to manage a public health crisis which the industry as a whole helped create. The script is so familiar that the courts can feel as though they are simply playing their part.

Suppose that more verdicts like this come in elsewhere. The result will be that Big Pharma will have no choice but to cave on an industry-wide basis, and to reach a comprehensive settlement in which the companies will have to make massive payments to the states. The tobacco litigation provides the precedent.

And of course, many companies already expect this to happen, and are reaching their own settlements. (Johnson & Johnson was sued because it wasn’t willing to settle.)

It’s not very efficient to redistribute shareholder wealth to the states this way, via lawsuits and settlements, as opposed to a straightforward tax. Nevertheless, the system might be justifiable if it produced some sort of justice. Sadly, it doesn’t seem to be doing a very good job at this, either. The states are definitely not just as well-off as they would have been absent the opioid crisis – especially not if you consider the experiences suffered by the victims as part of the state’s interest.

Nor does it seem very likely that lawsuits and settlements will stop the next industry faced with the need to balance potentially huge revenues against the risk of future corporate liability.  The tobacco industry paid a great price, but not enough to make a long-term investor in tobacco companies think that the investment should never have been made in the first place. As for gun manufacturers, they have so far managed to escape the kind of lawsuit-based redistribution that Big Pharma must now contemplate. If you are investing in an industry that faces potential risks for massive redistributive litigation (fossil fuels, anyone?), the most logical thing to do is try to price that risk and build it into your valuations. The same goes for the corporations themselves.

It would seem that post-hoc litigation isn’t a very good tool for addressing or preventing major public health crises largely created by multiple private actors. No wonder almost no other country on earth thinks it’s a sensible system. 

Yet we seem to love it, as much as we love other distinctively American and increasingly hard to justify customs, like the National Football League. Maybe it’s precisely the predictability that we like so much.

To contact the editor responsible for this story: Sarah Green Carmichael at sgreencarmic@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Feldman is a Bloomberg Opinion columnist. He is a professor of law at Harvard University and was a clerk to U.S. Supreme Court Justice David Souter. His books include “The Three Lives of James Madison: Genius, Partisan, President.”

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