Sindell v. Abbott Labs: a Market Share Approach to DES Causation

In Sindell v. Abbott Laboratories, the California Supreme Court allowed a cause of action against a group of manufacturers of the drug diethylstilbestrol (DES) even though the plaintiff was unable to identify which manufacturer had supplied the drugs that plaintiff’s mother had taken to prevent a miscarriage. The decision is an attempt by the court to provide victims of latent product defects a means of recovery where they would otherwise be unable to establish causation because of prolonged delay in injury manifestation. In doing so, Sindell departs from traditional common law recovery requirements and raises numerous problems in its application.

Part I of this Note briefly describes the case. Part II discusses existing tort theories which the Sindell court could have adopted to allow a cause of action for DES induced injuries and explains why these theories were not suitable. Part III analyzes the market share cause of action created by the court, examining problems in defining the essential requirements of the theory and potentially faulty factual assumptions upon which the action is based. Part IV examines the market share action from a broader perspective and considers its impact on conflicting social policies that the court failed to expressly consider. It concludes that Sindell’s market share approach to liability may produce significant undesirable social costs.

THE CASE

Sindell v. Abbott Laboratories: A Market Share Approach to DES Causation, California Law Review, Volume 69 | Issue 4 Article 12, July 1981.

Plaintiff Judith Sindell brought a class action suit against eleven drug manufacturers for personal injuries sustained as a result of prenatal exposure to DES marketed by the defendants. The complaint alleged that the manufacturers had negligently manufactured, marketed, and promoted DES as a safe drug without adequate testing or monitoring and that they had collaborated in marketing DES, relied upon each other’s tests, and adhered to an industrywide safety standard. Additionally, the complaint predicated liability on theories of strict liability, violation of express and implied warranties, fraud, misbranding, conspiracy, and lack of consent. The trial court sustained the defendants’ demurrers and dismissed the action on the basis that the plaintiff could not identify which DES manufacturer had produced the drug to which she had been exposed.

The supreme court reversed the trial court’s dismissal of plaintiff’s action. Justice Mosk, writing for the majority, announced a new cause of action which dispensed with any requirement that plaintiff identify the particular manufacturer that supplied DES to plaintiff’s mother. Rather, each defendant would be liable for the portion of plaintiff’s damages equal to that defendant’s percentage share of the DES market. The court reasoned that when the producers of a substantial share of the market are joined as defendants in all such cases, each defendant’s total liability will be roughly equal to what would be the case if perfect identification were possible in all cases.

In reaching the conclusion that a new approach was necessary, the court examined three other possible theories of liability: “alternative liability” based on Summers v. Tice, “concert of action” liability, and “enterprise liability” based on Hall v. E.Z Du Pont de Nemours & Co. Although the court drew inspiration in part from all three theories, which shared an underlying policy goal of protecting plaintiffs in the face of unidentifiable tortfeasors, and described the market share approach as a modification of the rule of Summers, it concluded that none of them alone was adequate for a fair judicial treatment of the DES problem.

ANALYSIS OF EXISTING THEORIES

One of the basic rules of American tort law is that a plaintiff cannot recover absent a showing that injury resulted from some act or omission of the defendant. 6 Over the years,, however, courts have recognized the potential inequity in leaving a plaintiff uncompensated simply because fortuitous circumstances render identification of the tortfeasor impossible. As a result, a number of exceptions have emerged.

Alternative Liability

In the landmark case of Summers v. Tice, the California Supreme Court established the principle of alternative liability. Summers was injured when two hunters negligently shot in his direction. Although it was impossible to determine whose shot actually caused the injury, the court held both defendants jointly and severally liable for all the damages. The court observed that if Summers were required to establish identity, both defendants would likely escape liability since it was equally probable that either one was responsible. In order to put the loss on the culpable shooters rather than on the innocent plaintiff, the court shifted the burden of proof of identifying the wrongdoer to the defendants, “each to absolve himself if he can.

The Sindell court held, however, that liability could not properly be imposed in the DES context solely on the basis of Summers. Unlike Summers, the Sindell defendants come from a large ill-defined class of as many as two hundred companies which produced DES for a variety of uses under at least seventy different trade names. If the probability that any one of the defendants supplied the injury-causing drug is measured by taking the reciprocal of the number of possible tortfeasors, then the possibility that the actual supplier of DES to Sindell’s mother was before the court is quite small. The court concluded that it would be unfair to require each defendant to exonerate itself when there was a substantial likelihood that none of the defendants joined in the action actually made the DES that caused the injury. The court asserted that there was “no rational basis on which to infer” that any of the manufacturer-defendants supplied the drug to plaintiff’s mother. Yet if the plaintiff actually joined producers of more than ninety percent of the DES market as she alleged, then there was a ninety percent chance that one of the defendants was the actual supplier. In this instance, the court’s rejection of alternative liability based on the great number of DES manufacturers is not convincing.

There is, however, another reason for avoiding a blind acceptance of alternative liability for DES litigation. Summers imposed joint and several liability, holding each of the hunters liable for the full amount of damages, since the two were equally likely to have caused the injury. In a DES case there are often many defendants who supplied widely varying amounts of the drug. To treat large and small producers as equal contributors to the harm suffered by plaintiff seems manifestly unfair.

Concert of Action

A second theory advanced by Sindell and by other DES plaintiffs is known as concert of action. The classic concert of action case is the illegal drag race in which a bystander is injured by one of the participants. The person may sue any or all of the participants and they are jointly and severally liable for her injuries. All the plaintiff need allege is that each defendant acted pursuant to a common design or gave substantial assistance or encouragement to an actor whose conduct caused the harm. An express agreement is not necessary; a tacit understanding will suffice, and this may be shown by the parallel actions of the defendants.

Although concert of action is not expressly designed to eliminate the identification problem, it can apply to situations in which the immediate injury-causing agent is unknown. If the tortious event is the group activity itself, then any participant will be liable regardless of whether plaintiff can point to the immediate wrongdoer. For example, if plaintiff is not sure which driver in the illegal drag race caused the injury, she may still proceed to sue some or all of the participants. The action, however, is limited by the requirement of showing some sort of understanding by which all the defendants are implicated in the tortious act.

The Sindell court rejected the use of a concert of action theory to impose liability. While the court recognized considerable parallel acts among industry members, it held that application of concerted action to the DES context would represent too great an expansion in the doctrine. Some of the parallel acts among industry members were dictated by Food and Drug Administration (FDA) regulations. The court refused to imply a tacit understanding from the defendants’ compliance with federal regulations controlling the manufacture of DES or from conformity to industry marketing practices. Moreover, there was no basis for finding that each defendant knew other defendants were acting tortiously toward the plaintiff, nor that they assisted or encouraged one another to inadequately test DES.

Enterprise Liability

The federal district court case of Hall v. E.1 du Pont de Nemours & Co. is the basis of a third theory called enterprise liability. Thirteen children injured by exploding blasting caps in separate accidents brought suit against six blasting cap manufacturers and their trade association. The evidence showed that the defendants, constituting virtually the entire industry, had adhered to an industrywide safety standard, had delegated safety design and investigation to the association, and had cooperated on an industrywide basis in the design and manufacture of blasting caps. These facts showed that the defendants contributed to the risks in a manner akin to concerted action. Therefore, if the plaintiffs could establish that the caps were produced by any of the defendants, then the burden of proof to identify which defendant caused the injury would shift to the defendants.

The supreme court rejected the enterprise liability theory suggested by Hall. That case had specifically recognized that its holding should be limited to an industry comprising only a small number of units, all or most of which were joined in the suit. In Sindell, the court was faced with approximately two hundred manufacturers of DES, of whom only eleven were joined, in contrast with the six blasting cap defendants who made up nearly the entire industry in Hall. Moreover, the defendants in Hall had delegated safety standards to their trade association whereas the DES manufacturers had not. The Sindell court also observed that the federal government plays a pervasive role in formulating criteria for the testing and marketing of new drugs, and that it would be unfair to impose liability on a manufacturer who did not supply the drug to plaintiff simply because it had followed FDA standards. But while this unfairness was sufficient to prevent the application of enterprise liability theory, the court noted that adherence to those FDA standards would not absolve a manufacturer of any liability to which it would otherwise be subject.

ANALYSIS OF THE MARKET SHARE LIABILITY THEORY

The Theory

Having concluded that existing tort mechanisms were not suited to providing recovery in the DES context, the Sindell court fashioned a new theory to allow DES daughters a cause of action for their injuries. Stressing the gravity of the injury and the ability of the common law to adapt to the changing structure of society, the court pointed to several broad policy arguments favoring imposition of liability. Assuming for purposes of appeal that all DES defendants were negligent, the court adopted the Summers rationale that as between culpable defendants and an innocent plaintiff, defendants should bear the loss caused by their own conduct. Furthermore, defendant manufacturers were better able to guard against defects, to warn the public of side effects, and to insure against losses resulting from introducing defective products into the stream of commerce. The court believed that this was particularly true with respect to drugs since the consumer is virtually incapable of recognizing and protecting against any defects. Additionally, although less clearly articulated, the court felt that the mere fortuity that a defect does not manifest itself for a prolonged period, thus making it difficult or impossible for plaintiffs to identify the supplier, was not a principled reason for shielding the defendant from liability.

Under the new theory each manufacturer is liable for a percentage of plaintiff’s damages based on its market share of the DES production used for prevention of miscarriages. To take advantage of this new approach to causation, plaintiff must join the producers of a substantial share of the DES market. If the defective drug caused plaintiffs injuries and if all defendants produced the drug from an identical formula, then plaintiffs suit will not be barred for failure to identify the particular manufacturer of DES in her case. A manufacturer can escape liability, however, by demonstrating that it could not have made the product that caused plaintiffs injuries.

The court argued that market share liability would produce the same result as would occur if every DES plaintiff could identify a particular manufacturer. In a world of perfect identification, a producer of twenty percent of DES sold would be a sole defendant in approximately twenty percent of all cases. Under the market share approach, the same supplier would now be a defendant in all DES cases but would be liable only for twenty percent of the damages. The process of matching percentages serves as a fairness justification for the decision because liability is limited to what would hypothetically occur if identification were possible. Total costs, including all administrative costs, under Sindell could potentially be much greater than costs in identification suits, because each manufacturer will be a party to more suits under the market share approach than in a perfect identification world. The court, however, focused only on matching liabilities, rather than total costs, and concluded that although in practice the correlation would not be perfect because market shares were probably impossible to determine exactly, any variation was within the limits commonly tolerated by the law.

Although the Sindell approach has superficial appeal, it leaves many unresolved questions. The court ignored the extreme practical difficulties in actually defining market shares empirically by dismissing them as “largely matters of proof.” In making joinder of a substantial share of the market a condition of bringing suit, the court provided little guidance for determining when the requirement would be met. The extent of liability under the market share theory is equally unclear: the joined defendants may be liable for one hundred percent of plaintiff s damages or merely for the aggregate amount of their respective market shares.

How is a Market Share Defined?

In order to calculate market shares, the scope of the market itself must be defined in terms of the time period, the geographical area covered, and the range of identifiable product forms included. The only market factor mentioned by the court was time-if a manufacturer could prove that it did not sell DES during the period of time that plaintiff’s mother purchased the drug, then that manufacturer could be dismissed from the suit. The reason for considering this factor is that market share is used as a theoretical proxy for the likelihood that a defendant supplied the product which allegedly injured plaintiff.

A similar analysis can be made with respect to geographical area. Theoretically, each DES plaintiff should sue only those producers who supplied the drug to an area in which plaintiff’s mother lived when plaintiff was in utero. Whether the appropriate area is local, state, regional, or national in scope depends on the structure of the DES market and the methods of distribution of DES. For producers who supplied only limited areas, a decision as to relevant market size will determine who is a proper defendant in many cases. For example, a supplier only to Detroit would not be liable to any plaintiffs exposed outside of the Detroit area. However, such a producer would have large liability for suits brought by plaintiffs exposed to DES in Detroit.

Use of a nationwide market has several advantages over other market sizes. First, calculation of market shares will be less complicated for a national market than for a state or local market because geographical data is very scarce . Second, national shares will be less likely to generate inconsistent case by case determinations of the relevant market size and the associated percentage breakdown of damages. Third, the DES market is dominated by a few very large producers who sold DES throughout the country-it has been suggested that five or six suppliers made ninety percent of the total DES production. Thus, percentage market shares for the industry leaders may not vary greatly with respect to market size.

However, when small local producers are included, the national market approach may result in unfair distributions of damages. Suppose defendant D is a small local producer of DES who supplied sixty percent of the Detroit market and that the national giants furnished the remaining forty percent. If plaintiff uses national shares, the D’s maximum liability will be very small because the sixty percent share of the Detroit market will be a very small share of the national market. At the same time, the large companies will pay the bulk of the damages even though the odds are low that plaintiff’s mother used their products in Detroit. The goal of having market share liability mimic what would occur in the hypothetical world of perfect identification suggests that the Detroit case be resolved on a Detroit area market.

A California resident who was exposed to DES in Detroit, however, may not be able to obtain jurisdiction over the Detroit-only supplier. By failing to join a sixty percent supplier in her California suit, plaintiff will not meet the requirement that she sue makers of a substantial share of the relevant market. Even if she could proceed, she would only get forty percent of her damages if each company is only liable for its relevant market share percentage of the award. If the joined defendants are forced to pay all of the damages, however, they will not be able to compel contribution by supplier D in Detroit unless Michigan also recognizes the market share theory of liability; having failed to get contribution from defendant D, the suppliers of forty percent of the Detroit market would pay much more than their share of liability.

There is nothing in Sindell, however, that requires courts to follow any specific definition of market size. Each court can define the scope of the market to fit the needs of a particular case. A court could start with a national market and put the burden on each defendant to show that it could not have made the DES which injured the plaintiff. A local supplier would be dismissed from cases if it could show that none of its product reached outlets in the area in which the plaintiff’s mother lived.6 The hypothetical plaintiff from Detroit may recover much less than her entire damages under this approach if she cannot obtain jurisdiction over the local supplier, but this will occur only if the large companies can succeed in proving the domination by a local producer. This is hightly unlikely because of the strong market position held by the leading drug companies.

Another potential market factor is the identifiable physical characteristics of the product. Plaintiffs mother may be able to remember taking a pill of a certain size, shape, or color. Where this is true the relevant submarket could be defined to include only those manufacturers who produced pills with that particular physical characteristic. Use of such submarkets, however, will cause defendant manufacturers of pills with unique and memorable physical characteristics to be sued more often than other producers. They will be liable for one hundred percent of plaintiffs damages in all cases where the feature is remembered, and also for their market share in cases where no identifying features are recalled. Thus, the goal of matching actual liability with the results expected in a world of perfect identification will not be met if suits based on special submarkets are permitted.

The same possibility of double exposure exists when some plaintiffs can identify the manufacturer of DES that supplied the drug to their mothers. If identification results from one supplier having more detailed records or having used a more direct distribution system to pharmacies, then that supplier will be a defendant more often, assuming that both market share and traditional theories of liability coexist. Only if identification suits are randomly distributed over all manufacturers will the distortion not occur. Because it is likely that identification will be predicated on market behavior unique to specific producers, the existence of both market share suits and traditional suits poses the threat of double liability for some defendants.

There are two ways to avoid this double liability. The first is by adjusting damages among producers after all suits have reached final resolution-a complicated and unlikely event since no court would have authority to make post hoe readjustments of liability. The other solution is to use market share apportionment exclusively and therefore preclude DES suits tied to identification of product characteristics. Even plaintiffs who could identify a particular manufacturer as sole defendant would be forced to rely on the market share approach otherwise a few easily identifiable producers will pay more than their share. Precluding suits based on traditional theories, however, creates several problems. Plaintiffs who fail to obtain jurisdiction over a substantial share of the relevant market may go remediless even though they can identify and obtain jurisdiction over the specific DES producer that supplied the drug. Any other reason for a court’s dismissal of a market share based action will result in the same unfairness to all plaintiffs who could have proceeded on traditional theories of liability.

The Sindell decision does not hold, however, that market share liability is the exclusive remedy for DES plaintiffs. It allows the new approach where defendants “produced a drug from an identical formula and the manufacturer of the DES which caused plaintiff’s injuries cannot be identified.” Where identification is possible the plaintiff may proceed against the identified producer. The tone of the decision suggests that the court would be more willing to tolerate the possibility of imposing excess liability on some suppliers than to deny plaintiffs a cause of action. Furthermore, in breaking new ground in tort causes of action the court should be reluctant to preclude old approaches without more information about whether there will be any significant overlap of market share suits and identification suits.

The Measure of Damages

The court did not clearly specify how each defendant manufacturer’s damages would be measured. One possible approach would make each defendant jointly and severally liable for all of plaintiffs damages. Thus a plaintiff would be compensated for all her injuries regardless of how many manufacturers are joined as defendants because plaintiff could collect her entire judgment from any defendant. A second approach would impose liability solely on the basis of each defendant’s share of the DES market. This pro rata distribution of liability has two consequences:

  1. a plaintiff will recover only that percentage of her total damages which is equal to the sum of the market shares of the defendants joined in her suit,
  2. and a plaintiff will bear the risk of a defendant’s insolvency because other defendants will not be forced to pay more than their respective market share percentages of damages.

For example, if a plaintiff joined eighty percent of the market and one defendant with a ten percent market share was insolvent, plaintiff’s recovery would be seventy percent of her total damages. In contrast, the joint and several approach would yield a recovery of one hundred percent of the damages, which could be collected from any of the remaining solvent defendants. Although there is language in the Sindell opinion supporting both approaches to liability, this Note concludes that pro rata liability is more consistent with the logic underlying the market share cause of action than is joint and several liability.

There are several indications in the opinion that the court would impose joint and several liability on DES suppliers.

  1. First, the Sindell pleadings allege that defendants are jointly and severally liable under each of the several theories offered in the complaint. Since the majority does not unambiguously delete this feature from its new theory, one might infer that joint and several liability is required by the decision.
  2. Second, the dissent draws that inference; presumably the majority would have forthrightly dispelled this implication if it were not true.
  3. Third, the Sindell decision is based on an expansion of Summers v. Tice, which imposed joint and several liability on the defendant hunters.

The court’s reference to the availability of third party impleader also implies that joint and several liability was intended. If each defendant can be held liable for plaintiff’s total damages, or some variable portion thereof, then defendants will have a strong incentive to join other producers to share the liability. On the other hand, if each defendant is liable only to the extent of its market share percentage of the damages, then it will have little incentive to join other producers since its dollar amount of liability will be the same regardless of the number of defendants.

Moreover, joint and several liability is consistent with the substantial share joinder requirement. The rule that plaintiff must sue producers of a substantial share of the DES market avoids the possibility that a lone defendant might shoulder an entire judgment for lack of success in obtaining contribution from other producers. Both third party impleader and the joinder requirement serve to spread liability among as many defendants as are solvent and amenable to jurisdiction in California.

In describing the market share cause of action, however, the court several times said that damages were to be apportioned in relation to their market share. In answer to the Sindell defendants’ arguments contesting the fairness of the decision to impose liability, Justice Mosk stated:

Most of their arguments, .. are based upon the assumption that one manufacturer would be held responsible for the products of another or for those of all other manufacturers if plaintiff ultimately prevails. But under the rule we adopt, each manufacturer’s liability for an injury would be approximately equivalent to the damages caused by the DES it manufactured.

Since the measure of each defendant’s liability would be its percentage market share of plaintiffs damages and since no defendant is to be responsible for another producer’s product, the Sindell decision requires that market share function as an absolute limit to each defendant’s liability. In contrast, joint and several liability could result in some defendants paying a greater percentage than their market share would dictate. Therefore, the most direct language in the decision concerning liability points to the pro rata market share approach as the appropriate measure of each defendant’s share of the successful plaintiff’s damage recovery.

Moreover, pro rata market share liability is more consistent with the goal of the Sindell decision to reproduce what would occur if identification were possible in all cases. The producer of twenty percent of the market held liable for twenty percent of the damages in all DES suits should pay the same amount as would be paid if twenty percent of plaintiffs could identify that same supplier and recover one hundred percent of their damages. To hold that same supplier jointly and severally liable for one hundred percent of the damages in one hundred percent of all DES suits could increase liability above the total amount that would be imposed in the hypothetical world of perfect identification. Although joint and several liability could generate a result similar to pro rata market share liability when all defendants are solvent and before the court, the court should have held that each supplier’s maximum liability is fixed by its market share in order to ensure that no producers incur excess liability.

The rejection of joint and several liability requires that the court’s remarks about third party crossclaims be re-evaluated. If each defendant is liable only for its market share percentage, then defendants will have little incentive to join other producers except in the rare case in which a defendant will be able to prove that another producer in fact supplied a plaintiffs mother with DES. Thus, third party complaints seeking indemnification are not essential for the Sindell theory. However, since the court very much wanted to ensure that as many DES suppliers as possible would be defendants, its mention of crosscomplaints against additional producers probably reflected the goal of holding the entire industry liable for DES injuries. That goal is more directly served by the substantial share joinder requirement.

The Substantial Share Requirement

Under Sindell, plaintiffs must sue manufacturers of a substantial share of the DES market in order to state a cause of action. The court declined to give a numerical definition to “substantial,” despite the dissent’s criticism that lack of a precise definition left the issue openended. Perhaps the court simply wished to avoid making the new approach too inflexible by specifying a fixed percentage. A more critical issue is why the court imposed the requirement at all.

The court mentioned several reasons for the substantial joinder requirement. First, it noted that joining producers of a large aggregate market share would reduce the likelihood that “the offending producer would escape liability.” This argument reflects the court’s desire to keep the Sindell theory similar to older, well-established notions about tort liability. In Summers v. Tice, for example, the court knew that one of the two hunters fired the shot that hurt the plaintiffs and hence the actual offender would not escape liability.

The court’s second reason for the joinder requirement is that it diminishes the “injustice of shifting the burden of proof to defendants.” Having the major producers in court will facilitate the determination of the dimensions of the relevant market. The greater availability of market information in court will presumably yield a more thorough and accurate picture of DES distribution. The composition of the relevant market may thus indicate which defendants were less likely to have caused the plaintiffs injuries. If a supplier can prove that it did not sell any DES within the relevant market, then it will not be held liable. Furthermore, if a supplier can prove that another defendant in fact made the DES which injured the plaintiff, it will again be relieved of any liability. Thus, the presence of many manufacturers in court will give each one a better opportunity to show that it did not supply the drug to the plaintiff’s mother.

Third, the court argued that the presence of a substantial share of the market “provides a ready means to apportion damages among the defendants.” Although the court again did not elaborate on its underlying reasoning on this point, the argument suggests that having the main suppliers together will simplify the calculation of the market shares that form the basis for each defendant’s liability and will avoid inconsistent determinations which could result from separate actions. Furthermore, dividing the damages in one action will involve lower costs for the parties and the courts than would occur if each producer were sued in a separate case.

The substantial joinder requirement serves other functions which the court did not discuss. It will prevent plaintiffs from forcing settlements against companies with high name recognition, yet small DES production. Because such a company produces very little DES, its market share and hence its ultimate liability would be small, but its litigation expenses as the sole defendant would be substantial. Plaintiffs might be able to force settlements on these defendants if there were no joinder requirement. The potential for forced settlements is much less when there are many defendants because small market share producers can expect the major suppliers to handle much of the defense.

The requirement also serves as a substitute for the element of causation which the plaintiff must show in traditional tort actions. The court has excused DES plaintiffs from identifying the particular supplier whose drug caused her injury, and in effect has apportioned responsibility for all DES injuries to all suppliers. Thus the joinder rule ensures that most of the causal elements are accounted for in court.

Analogizing substantial share joinder to causation raises the issue of how much the plaintiff must prove to satisfy her burden of proof. In order to show that she has joined a substantial share of the market, plaintiff will have to produce some evidence concerning DES production at the time her mother took the drug. If the showing of substantial market share requires plaintiffs to identify approximate market shares for each defendant, Sindell actions may be extremely difficult to maintain. At this time the data is extremely scarce and defendants are likely to be the only ones possessing production and sales figures. Plaintiffs therefore will have to conduct extensive and costly discovery, and if market share data is wholly nonexistent, plaintiffs’ causes of action would be precluded.

The court did not explore how accurate the market share apportionment must be for plaintiffs to recover under this theory. It did say that “the difficulty of apportioning damages among the defendant producers in exact relation to their market share does not seriously militate against the rule we adopt.” Further, it noted that where the data is scarce the jury is to divide the liability “the best it can.” Although these statements indicate that the court will not insist on precise accuracy in determining market shares, the plaintiff must still provide some reasonably good figures on DES production and its ultimate uses in order for the trier of fact to make an estimate. Furthermore, because the logic of the decision depends on market share liability reproducing what would occur in a world of perfect identification, a minimum standard of accuracy is necessary for this goal to be achieved. Otherwise, liability will be arbitrarily divided among defendants and there will be no correlation with what would happen if producers could be identified.

POTENTIAL SOCIAL COSTS OF THE DECISION

The thrust of the analysis in Part III has focused on the court’s failure to define the central elements of market share, substantial share, and the nature of liability and has noted the dependence of the approach on the existence of adequate market data and of the availability of sufficient insurance coverage. This Note has suggested solutions to some of these issues with respect to the DES problem. If the decision is subsequently applied to defective products in other industries in which, unlike the drug industry, market control is not centralized in a few large firms subject to nationwide jurisdiction, precise definition of market share and substantial share will become crucial to the decision’s fairness. Whether market share liability should be applied in other contexts, therefore, cannot be answered solely on the basis of whether the theory operates fairly in the DES context. Before applying Sindell to other industries, this Note cautions that the market structure of those industries must be evaluated to determine if special obstacles to fairness might exist.

Sindell’s potentially enormous reach may both inspire positive developments in the product safety area and pose significant social policy problems that the court might not have considered carefully. On the one hand, the decision promotes several broad policies underlying all of tort law. It will result in loss spreading by imposing liability on companies that can insure against such losses and that can pass along losses to those who use the product by increasing prices. In addition, the decision will encourage investment by manufacturers in product safety. Finally, the decision marks a commendable attempt at prohibiting fortuitous circumstances from shielding a negligent defendant from liability which in fairness it should bear.

On the other hand, however, Sindell’s impact on the drug industry and specifically on consumers of pharmaceutical products may not be consistent with other competing social policies. Sindell may have two types of impact on the drug industry and consumers. First, and most importantly, imposing liability for DES injuries nearly a decade after the FDA banned use of DES as a miscarriage preventive will require drug companies to spread their losses over other product lines. This means that drug prices in general will rise, including those for safe, beneficial drugs. Moreover, since part of this increase will result from increased insurance costs, and since insurance rates are set on a nation-wide basis, drug prices will be adversely affected throughout the country. Sindell therefore will conflict with the social policy of minimizing increases in health care costs, especially if market share liability results in higher administrative costs than would traditional forms of recovery in a world of perfect identification.

Not only might drug prices in general rise, but actual consumption may be curtailed as consumers respond to price increases by purchasing less. This price response of consumers is one of the justifications for imposing liability on producers because use of dangerous products is discouraged. Price increases, however, cannot be confined to DES because it is no longer used as a miscarriage preventive. To the extent manufacturers spread DES liability costs to other drugs, consumption in general may be discouraged. Sindell therefore may have a socially undesirable effect on consumption of safe, beneficial pharmaceuticals which by definition are socially useful.

The second adverse impact Sindell may have is to deter the rapid development and marketing of new drugs. The decision will encourage longer periods of testing than was customary when DES was first marketed because manufacturers will have more economic incentives to eliminate unsafe drugs. Longer testing, however, is not beneficial in and of itself. The cost from delay in marketing due to extra testing, in terms of continued suffering and lives lost, must be weighed against the likelihood that adverse side effects of the drug will be discovered through longer testing. A negligence standard theoretically forces manufacturers to strike the proper balance. Sindell, therefore, to the extent it simply avoids the identification problem and imposes liability for negligent behavior should encourage striking the proper balance. The problem that Sindell poses, however, is that manufacturers may tend to overvalue liability risks and engage in excessive testing if market share liability results in greater liability than what liability would be if perfect identification were possible. As the Sindell court itself recognized, long run matching will not be perfect. How imperfect it will be depends upon a number of factors, including whether joint and several liability is imposed and how the industry market is actually found to be structured within an area. Under the best possible scenario long run matching may be quite good. However, one may also envision scenarios in which lower court interpretations of the ambiguities left by Sindell, in combination with real world facts different from those assumed by the Sindell court, create major distortions in matching.

This problem of overtesting may be avoided by the incentive Sindell supplies for manufacturers to keep better records and thus avoid market share liability altogether. Whether this actually happens, however, will depend on whether it costs more to test than it does to keep records. Large producers may have to keep extremely detailed records if they are to escape market share liability. This is because small producers may have an incentive to not keep any records or differentiate their product in any way from those of large producers, in the hope that in market share actions they would not even be sued since their small market share would not make joining them worthwhile. Keeping detailed records, however, may be both complicated and exceedingly costly given the present structure of the drug distribution system with its thousands of physicians, pharmacies, and middlemen. This could be especially true with respect to nonprescription drugs since there is presently no control over who purchases them. However, since nonprescription drugs tend to have less medical value, marketing delay due to prolonged testing may not be particularly socially detrimental. With respect to prescription drugs, though, Sindell may result in an undesirable deterrent to marketing and development.

CONCLUSION

The Sindell case constitutes a major development in tort law. To the extent its market share approach to liability results in manufacturers bearing the cost of their negligent conduct, the decision should be applauded. At present, however, it is difficult to determine what the outcome will be. Unless market shares are properly defined and reliable market share data found to exist, the decision could result in wholly arbitrary assignment of liability. Moreover, there appears to be a basic conflict, which is not likely to be resolved, between liability based on market share, and traditional identification liability. Furthermore, unless damages are measured on the basis of pro rata liability rather than joint and several, serious distortions in long run matching between market share liability and what liability would be in a world of perfect identifiation may result. Since the existence of long run matching goes to the very heart of the decision’s fairness, proper resolution of the measure of damages issue is extremely important.

Depending on how these questions are resolved, Sindell may prove to have serious negative effects both on consumption of safe, beneficial pharmaceuticals and on the lag time between such medications’ development and ultimate marketing. The Sindell decision, therefore, while potentially a vital and commendable step forward in the protection of consumer interests, could conceivably prove under a “worst case” scenario to be a nightmare for both consumers and the pharmaceutical industry. At the very least, the California Supreme Court should hasten to explicate the difficult issues surrounding practical application of market share liability.

Richard P. Murray, 1981

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