Friday, November 09, 2007

The Settlement

Merck is settling with a bulk of the Vioxx plaintiffs for five billion dollars. Now, on the face of it might seem like a lot of money. After all Citibank got hammered for reporting a write down of 8 billion dollars the other day. But when you consider that the amount being talked about four years ago was fifty billion, the new number sounds a lot better.

The clincher however is the way they went around getting to this settlement. When the Vioxx warning came out and Merck pulled the drug off the shelf and everybody who had anything to do with the drug sued the company. There were thousands of plaintiffs and everyone clamored to consolidate it into a class action lawsuit. People dreamt of the days when Altria was slapped with a 250 billion dollar fine. They could all see the millions.

So Merck did the honorable capitalistic thing to do. They started working on a divide and rule strategy. First they made sure that the lawsuit did not get a class action status. They then began defending each case individually. The high paid lawyers at Merck started picking off one plaintiff after another. Four years later they have won two thirds of the cases that saw the day in court.

Now you have worried plaintiff lawyers who think that they might be the next to lose the case. Wolla! Settlement on the table. The fifty billion comes down by one zero and we are back down to five billion. A lot more palatable for the investors and true to the idea the stock is up once again.

So what about the poor customer? What about Merck's accountability? Who cares right? Capitalism YEAH!!

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