Business Tort Liability And The Pharmaceutical Industry

Assignment Instructions

Scenario: In the midst of the ongoing rhetoric and movement to achieve Tort Reform, business tort liability must be acknowledged and planned for as a reality. As the manager of legal risk and corporate governance for a major multi-national pharmaceutical corporation, the board of directors has commissioned you to work alongside your CEO and General Counsel to prepare a report regarding this liability and the exposure it creates for the organization.

Create a maximum 1,050-word report, excluding title and reference pages.

Address the following in the report:

  • Evaluate the impact of business tort liability on the pharmaceutical industry in general.
  • Determine the growth of business tort liability in the pharmaceutical industry and discuss where and why tort reform is needed.
  • Assess the impact of business tort liability on corporate liability under the Alien Tort Statute.
  • Explain how business tort liability can be reduced through the implementation of the risk management process.
  • Analyze how business tort liability can escalate to criminal liability.

Cite a minimum of two references for the five content areas taken from a business or legal resource. One reference must be from the University Library.

Sample Solution


Tort refers to a legal phrase defining a violation where an individual causes harm, injury or damage to another. This violation might result from duty breach an in negligence intentional action, failure to warn, or due to statutes violation. Pharmaceutical companies are normally impacted by tort of product liability. Product liability is among the most economically important and fastest growing tort law application.  Product liability actions over pharmaceutical firms are among the most extensively publicized suits classes in the Europe ad United States, pressuring pharmaceutical firms to vigorously lobby for tort reforms. This paper evaluates the impact of business tort of liability in pharmaceutical industry and aspect that may need to be changed.

Impact of Business Tort Liability on the Pharmaceutical Industry

Based on product liability law, the manufacturer and/or the seller or retailer of a product is held liable for any damage caused by their products to the consumer. Responsibility of defect of a product which results to damage lies with all product sellers who are in the chain of distribution including retailer stores, wholesalers, products component manufacturers and the product manufacture. Just like all other manufactured products, pharmaceutical products require to meet a certain standard failure to which they are regarded to have defects.  This is irrespective of whether the defects were out of negligence or not.  The company and those in the distribution chain are held liable even when the defect was unanticipated. The strict liability application in pharmaceutical industry imply that the pharmaceutical firms must pay for damages when they happen, even when they had invested too much and had followed all the necessary legal procedures to ensure impeccable drugs research (Choi & Lee, 2011).

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In case, product is unavoidably unsafe, the pharmaceutical companies must put a warning to ensure that buyers are informed of the unavoidable unsafe products. In case there is no warning or the warning is misleading, then those in the distribution chain must be liable. This has resulted to increase in pharmaceutical companies’ liability burden, despite of investing a lot in drugs development.The pharmaceutical firms’ liability burden has been defined as grossly disproportionate to their sale when compared to other manufacturing industries. In most cases, these companies tend to spend even more in compensation and litigation regarding liabilities. Moreover, sometimes those in the lower parts of distribution chain, including the retailers and wholesalers are forced to be liable for defects that were caused by manufacturers. Thus, the liability tort seems to be discouraging most companies from investing in drug production and also it increases fear of release of products in the market, since there is always a chance there will be unavoidable defect which was not noted during the research. This includes allergic reaction which can happen to some people selectively based on some biological factors. This has highly contributed to high cost of drugs in the market (Choi & Lee, 2011).

Growth of Business Tort Liability in the Pharmaceutical Industry and Need for Reform

Litigation of pharmaceutical product liability has been historically treated differently compared to the standard strict liability established in the Restatement of Torts section 402A.  Comment (k) gives exclusion to strict liability where a product   is considered to be unavoidably unsafe. Some judges adopt comment (k) while others adhere to strict liability immunity where pharmaceutical products are involved. Others deliberate strict liability immunity only where adequate warning is given. The recent restatement of torts adoption gave another framework to be applied by the courts. Requirements for pharmaceutical manufacture to adhere to FDA regulation would be admissible and relevant regarding proper care standard to be met though not dispositive.

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Based on comment e, section 7 courts might selectively treat specific regulation compliance in an action of products liability as conclusive in case it is salient, protective, current and the untainted product regulatory expertise. Based on liability action drug might be regarded defective in manufacture, design or in failure to warn. However, after complying with FDA regulation, it is unlikely for a drug to have manufacturing and design defects since FDA always ensure that the right procedures have been followed. Following this history, it is important to make reforms to relieve pharmaceutical companies from liability over manufacturing defects and designs.  Companies are forced to mold their designs and manufacturing process to adhere to FDA requirements. Thus, it is not necessary to hold them liable for manufacturing and design defects. This should only be ruled based on FDA requirements. Thus, the reforms should focus on eliminating strict liability on pharmaceutical industry with regard to manufacturing and design and only leave the warning liability (Jacobi, 2005).

Business Tort Liability Impact on Corporate Liability under the Alien Tort Statute

Under Alien Tort Statute foreign citizens are given power to seek justice for injuries initiated by the privacy act. In most cases, the injury happens outside the company’s local operation, and mostly involves international countries. This means that any corporation is liable of any harm caused by its pharmaceutical products even at international level; either created by the company and exported or created by its affiliate. Those harmed by the products at any part of the world have the ability to initiate a case against a company via the alien tort statute. Corporate liability under the alien tort statute increases the company cost and litigation over harm or injuries caused by its operations or those of its subsidiaries, franchisers, or joint venture in a foreign country (Dabforth, 2011).

Reduction of Business Tort Liability via Risk Management Process Implementation

Risk management is the treatment, measurement, and identification of exposure to design and manufacturing defects. Risk management assists in the identification of possible loopholes or risks that can result to serious liability case in the future. With risk identification, the company can manage to measure the risk level to determine its possibility of resulting to severe or serious harm. Those demonstrating possibility of serious harm are eliminated while others are either eliminated or suppressed. Risk management reduces the chances of future liability due to damage or injuries. Thus, any company can manage to employ cheaper measures to curb those risks, before it cost the company a lot through liability compensation (Datta, n.d.).

How Business Tort Liability can escalate to Criminal Liability

Business tort liability can turn into a criminal liability in extreme cases. This normally happens when the break of law of tort result to fatal outcome that include death. In pharmaceutical industry, manufacturer or design defect may result to massive death the drug consumers or result to total disability among the users. In this case, the case cannot be regarded just as a business liability, but a criminal liability with irreversible harm or destruction.

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