Deterring Inefficient Pharmaceutical Litigation: An Economic Rationale for the FDA Regulatory Compliance Defense

Abstract

This Article examines the interaction between direct regulation of pharmaceuticals under the Federal Food Drug and Cosmetic Act (FDCA) and the indirect regulation of pharmaceuticals provided by common law tort incentives. The Article concludes that tort liability is generally inappropriate in cases where manufacturers have complied with the FDCA. The Article begins with a description of the FDCA's operation, and provides an overview of the Food and Drug Administration's (FDA) role in the drug approval process and drug labeling. This overview will demonstrate the need for centralized control over drug labeling. Moreover, we will provide an explanation of the costs and benefits of the drug approval process. Next, we will focus on the regulatory effects of tort law from an economics perspective. The role of tort law in deterring inefficient accidents depends on the extent and stringency of government regulation. We will examine the sufficiency of regulatory deterrence under various regulatory schemes, including the FDCA. This economic analysis will demonstrate that tort law's applicability should be limited to those regulatory schemes that inadequately deter risks. Since the FDCA adequately deters risk, the proper role for tort law should be to provide incentives for ensuring regulatory compliance. We then provide a critical review of the legal rules applied to pharmaceutical litigation in American courts. The uncertainty present in current pharmaceutical litigation stems largely from the failure to adopt regulatory compliance in a strict liability world.Examination of labeling litigation suggests that courts have yet to establish meaningful standards. In addition, design defect litigation, by protecting only those drugs without side-effects, leads to untoward consequences. Furthermore, the tort system has a propensity for error. Our current litigation system generates perverse incentives, which we document. Finally, we conclude that because of the strict nature of the FDCA, the role of tort liability should be limited through federal legislation.