"Not only is a government lawyer's neutrality essential to a fair outcome for the litigants in the case in which he is involved, it is essential to the proper function of the judicial process as a whole."

These words by Justice Stanley Mosk in his 1985 People ex rel. Clancy v. Superior Court decision have been a beacon for public attorneys. They know, as he also wrote, that "without a belief by the people that the system is just and impartial, the concept of the rule of law cannot survive."

Last week, the 6th District Court of Appeal, in County of Santa Clara v. Superior Court , dismissed most of his decision as dicta. Mosk's opinion has long protected impartiality by prohibiting public prosecutors from hiring lawyers on a contingency fee basis. It is a powerful unanimous statement, joined by then Chief Justice Rose Bird and future Chief Justice Malcolm Lucas. When Mosk wrote of "the heightened ethical requirements of one who performs governmental functions," it was not as a theoretical observer. He served six years as attorney general before a remarkable 37-year career on the California Supreme Court.

The 6th District, in approving government lawyer contingency fee hiring of private lawyers in lead paint nuisance actions, distinguished Clancy from the Santa Clara case. It saw a lack of control by the city of Corona over private attorney James Clancy in a quaint contingency fee contract ($60 an hour for wins, $30 an hour for losses) to hassle adult bookstores. In Santa Clara, the justices found a different contingency fee situation where private counsel are "merely assisting" government attorneys and "lack any decision-making authority or control."

We don't know much about the Corona's control of Clancy because there's little discussion of that in the Mosk decision. But we don't know much for certain either about the various city attorneys' and county counsels' control over the private attorneys in Santa Clara - even though the Court of Appeal gives the topic lots of attention. The seven contingency fee agreements involving each city or county and its private lawyers evidently were control deficient. Most of the cities, counties and private lawyers submitted post-litigation declarations saying the government lawyers were in charge. The city of San Mateo never produced an agreement but wrote to the court that its in-house lawyers retained "complete control ... final authority," etc.

Oakland, which declared that "notwithstanding any documents suggesting the contrary," its city attorney retained complete control and is in the process of revising the contingency fee agreement "so that it reflects the reality of the relationship."

Pity a judge having to determine what's really going on, as Justice Patricia Bamattre-Manoukian in her concurring opinion proposes be done. She would have the agreements plus "the factual circumstances" and "the conduct of the plaintiff's counsel" be among the "many important factors in each case" that courts should henceforth analyze when approval of contingency fee agreements come before them. And come before them they will - in droves, once the contingency fee bar seizes the financial opportunities that lay in a new block of government clients.

Santa Clara focuses on nuisance actions. These will be a springboard. The lead paint cases originally included causes of action for fraud, strict liability, negligence and unfair business practices. If Santa Clara stands, we will soon hear why there's no reason to distinguish between nuisance actions and the others in contingency fee deals.

How these "public-private" cases are managed matters less than who chooses the case in the first place.

In Santa Clara we are not told how the governments and private firms hooked up. Were bids solicited? Or did the firms solicit the cities and counties?

For a dire example of where the latter can lead, look at Mississippi. There, plaintiff lawyer icon Dickie Scruggs brought his Katrina litigation plan to state Attorney General Jim Hood. Their joint contingency fee effort won $80 million in private lawyer profits from State Farm. Scruggs and his firm contributed more than $50,000 to Hood in the 2007 election cycle, according to Wall Street Journal research. The Journal found that over the past five years, Hood and 27 law firms jointly pursued state lawsuits against companies. Those firms gave Hood $543,000 in campaign contributions. Now Mississippi is looking at requiring competitive bidding for private lawyer hiring and limiting contingency fee deals to $1 million.

What might securities lawyers Bill Lerach, Melvin Weiss, et al., have tried, given their willingness to illegally pay clients, if California had not been protected by the Clancy decision?

South Carolina-based Motley Rice, a private firm in the Santa Clara case, boasts that its attorneys have "gained global recognition for their work on behalf of the State Attorneys General."

Our association's amicus brief in Santa Clara noted, without any inference of wrongdoing, that two other law firms hired by the cities and counties in the lead paint litigation made campaign contributions to San Francisco's city attorney, one of the Santa Clara parties. San Francisco's unique city/county status makes its city attorney an elected official, as are all district attorneys in the state. Everywhere else, city attorneys and county counsels are hired by city councils or boards of supervisors. The Civil Justice Association of California's review of contribution records turned up no Santa Clara case private attorney contributions to local elected officials in the jurisdictions involved.

Some county counsels and city attorneys argue they can't afford expensive litigation, that small counties are especially handicapped. But a major product or financial transgression is not going to occur just in Mariposa County. It will be discovered statewide. City and county counsel can combine and coordinate their efforts across jurisdiction lines - just as district attorneys do. Maybe district attorneys and the attorney general should handle these matters.

Our amicus brief recalls how California's attorney general joined with 49 other states in a tobacco public nuisance lawsuit but rejected offers from outside contingency fee lawyers seeking a piece of the action.

Following the 2004 passage of CJAC-sponsored Proposition 64 barring Unfair Competition Law claims by private lawyers without injured clients, the Daily Journal reported that "the plaintiffs' bar has been looking to team up with public prosecutors since the [initiative] limited private attorney general suits." It didn't happen. A Lockyer spokesman told the paper that "it's not a good idea having private lawyers running around with a badge."

This philosophy, flowing directly from Clancy and Mosk, runs strong in district attorneys' offices around the state. Note that neither the attorney general's office nor a single district attorney filed an appellate court amicus brief in the Santa Clara case.

During the plague of private lawyer shakedown lawsuits leading up to Proposition 64, district attorneys called attention to the important distinction between public and private enforcement of civil laws. This distinction, the Los Angeles district attorney's office pointed out in a brief in one of the auto repair shop B&P Code Section 17200 extortion cases, "is especially important in that the systemic checks and balances - including special ethical norms and the democratic electoral process - applicable to public enforcement officials do not apply to 'private attorneys general' litigating representative causes of action."

Mosk died in 2001 at the age of 88, on the very day he was planning to submit his retirement resignation to the governor. In a tribute to him before Congress, it was observed that "while his life has ended, his legacy shines brightly for all Californians and for our great Nation." The Santa Clara ruling has dimmed his legacy. The Supreme Court should restore it.

John H. Sullivan is president of the Civil Justice Association of California in Sacramento, a nonprofit association representing businesses, professionals, and local governments. Information on the association and civil justice issues is at www.cjac.org.

(This article originally appeared on RealClearMarkets.com, 06-11-08)

Last week, the dean of securities litigation in the United States, the venerable Melvyn Weiss, was sentenced to 30 months in prison for his role in what a judge described as a decades-old "nationwide conspiracy" in which lawyers used illegal kickbacks to recruit plaintiffs for lawsuits against corporations. Given the magnitude of the cases in which Weiss' firm has been involved, including Enron, his sentencing, which marked the end of his career, might have seemed like a slam dunk front-page item for most newspapers, but the news was largely downplayed or ignored, much like his indictment eight months earlier, which gained only slightly more attention. Just a few dozen newspapers carried mostly brief stories of Weiss' sentencing, and the paper of record, the New York Times, dumped their version on page 3 of its business section, even thought the paper once called Weiss' firm the King of Torts.

This has been a pretty bad half-year for plaintiffs' attorneys, but you wouldn't know it from press coverage or our political campaigns. As presidential candidates like Barack Obama have railed against a "corporate culture rife with inside dealing, questionable accounting practices and short-term greed," the biggest misdeeds seem to be piling up in front of the trial bar, although they barely elicit outrage or calls for reform. Weiss' former partner, William Lerach, is in jail for obstruction of justice, and Richard "Dickie" Scruggs, the Mississippi plaintiffs' attorney who wrestled with the tobacco industry in the 1990s and was portrayed heroically in the movie The Insider, pled guilty in March to trying to bribe a local judge.

Meanwhile, a few tenacious judges and prosecutors continue to work hard to unravel the offenses of the trial bar in the decades-long asbestos litigation frenzy, in which lawyers have ginned up phony diagnoses using compliant doctors, and paid kickbacks to union officials to recruit workers as plaintiffs. A few law firms have been fined for their misdeeds and one prominent lawyer has gone to jail. But that's only after defendants have already paid out a staggering $70 billion in claims that wrecked dozens of businesses, cost thousands of workers their jobs, and enriched plaintiffs (many with no demonstrable health problems and no medical bills) and their lawyers--who've claimed more than half the awards in fees and expenses. As federal judge Denis Jacobs noted without a hint of irony, many of the claims in asbestos litigation are based on "fraud, corrupt experts, perjury, and other things that would be deplored and persecuted by the legal profession if done within other commercial fields."

Critics of the trial bar, like Cardozo School of Law School Professor Lester Brickman, have been warning for years that the methods employed in asbestos litigation are too typical of a cadre of lawyers that has relentlessly pursued and dealt devastating financial blows to a series of industries, from construction firms to vaccine makers, to manufacturers of scientifically-proven safe products like silicon breast implants, to publicly held firms whose only offense was a sharp drop in share price. Still, you have to look pretty hard to find editorial outrage about the trial bar's often dubious methods, or find calls for reform of our civil justice system from Washington that result in quick action.

Contrast that with the massive coverage and indignation over corporate misdeeds. When federal prosecutors indicted Enron CEO Kenneth Lay in 2004, newspapers responded with more than 1,000 stories in just a few days. When then-New York Attorney General Eliot Spitzer sued the New York Stock Exchange's Richard Grasso over his rich pay and severance package, the New York Times alone reacted with 10 stories in less than a week—including a profile of Grasso's attorney, an approving editorial encouraging Spitzer, an analysis of Spitzer's legal strategy, and an op-ed column. Judging by the coverage, we Americans must particularly love a story of rich corporate guys getting hammered.

But the Grasso pay-package dispute, which is ongoing, mostly affected owners of the New York Stock Exchange, and even the collapse of Enron, which vaporized shareholder equity and cost thousands of employees their jobs, seems like small potatoes compared with the cost and consequences of illicit asbestos claims, which have helped to sink nearly 80 companies, including many which never used asbestos products.

But whereas Enron quickly produced the Sarbanes-Oxley Act, all the trial bar's shenanigans seem to have shaped in Washington is more friendly legislation on their behalf. In the hopper now is the Energy and Tax Extenders Act of 2008, which includes a provision to allow plaintiffs' attorneys to deduct upfront from their tax bill the expenses of pursuing a case on a contingency-fee basis. The effect will be to help free up more up-front money for trial lawyers to pursue contingency fee cases in what is already one of the world's most litigious society.

It would be tempting to explain all of this simply by noting that trial lawyers use the deep pockets they've acquired through our litigation system to spread around massive amounts of campaign contributions, buying friends and influence across the political spectrum, especially among Democrats (it was former San Francisco Mayor Willie Brown who once referred to the plaintiffs' bar as one of the 'anchor tenants' of the Democratic Party).

But the causes go deeper. The direct victims of the trial bar are mostly deep-pocketed institutions like companies, governments and big nonprofits (hospitals, for instance) that hardly elicit much sympathy from the press, even when they collapse from the weight of litigation. The trial bar has also been skillful in building alliances with (and often funding) consumer advocacy groups that often lead the publicity charge about some new and dubious woe that the lawyers will eventually target for lawsuits, like "toxic" mold in buildings.

And trial lawyers have been skillful at cultivating the press, often providing them with scoops in advance of their lawsuits. It was a trial firm, for instance, that originally provided the New York Times with transcripts of a tape of a meeting of Texaco managers which purported to show them using racial epithets. Publication of the story eventually prompted a firestorm of publicity and led to lawsuits against the company. Only later did audio experts, analyzing the garbled tapes, determine that the transcripts provided by the trial firm were inaccurate and the managers had uttered no such racial slurs. By then, a worried Texaco had already settled out of court and most of the press had forgotten the case.

Facing an industry this skillful at public relations, the real reform of our civil justice system is happening slowly, on a case-by-case basis, prompted by a few judges and prosecutors outraged at the practices of the trial bar. Since judges started looking more carefully at the claims in asbestos mass tort cases, in which thousands of plaintiffs are linked together and their medical records merged into one vast presentation, the waves of claims have magically begun disappearing, plunging by 95 percent. Now, the cases going forward are largely those of people who have actually suffered harm. We once though this was the way our civil justice system was supposed to work, before we let the trial bar turn it into their personal piggy bank.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute.

As Federal District Court Judge Loretta A. Preska wrote last summer in Kensington Int'l Ltd. v. Republic of Congo, 2007 U.S. Dist. LEXIS 63115, *1 (S.D.N.Y. Aug. 23, 2007), "Civil litigation is not always civil." The high stakes and cost of much litigation today, and the commercialization of the legal profession, have created greater pressure on lawyers to, in the words of lawyers' Model Rules of Professional Conduct, "zealously assert[] the client's position under the rules of the adversary system." When that pressure leads attorneys astray, judges possess the authority under federal statutes, civil procedure rules, and courts' inherent powers, to impose sanctions. Over the past year, federal judges in high-profile litigation have invoked these powers to take action against lawyer misconduct, either imposing sanctions or using their bully pulpit to put the legal profession on notice that judges will protect the public and legal consumers from abuse.

In the Kensington case, Kensington, a "financial institution which invests in debt and equity instruments issued by domestic and foreign entities," id. at *3, sought to collect on a nearly $57 million judgment against Congo. Kensington subpoenaed a Congolese citizen, Medard Mbemba, who Kensington believed would assist it in locating the whereabouts of the nation's assets. Difficulties in scheduling the time and place of the deposition ensued, and it came to light that an attorney from Congo's counsel of record, Cleary Gottlieb Steen & Hamilton, had contacted Mr. Mbemba directly. As the court noted, this partner had "extensive connections with Congo's political leadership." Id. at *5. Mr. Mbemba testified when asked if he felt the Cleary Gottlieb attorney was pressuring him to avoid the deposition, he replied that he was aware of the attorney's connections in Congo and that, "It is not an impression, he told me as such not to go." Id.

Judge Preska noted the court's inherent authority to sanction attorneys for bad faith acts. She found that "a mass of evidence" existed that Cleary Gottlieb's actions "were taken with the purpose of preventing Mbemba's deposition," id. at *16, and that "Cleary feared Mbemba might reveal damaging information or offer evidence of illegal conduct and thus attempted, in bad faith, to influence Mbemba's testimony or, better still, to avoid the deposition altogether," id. at *32. Because Cleary "show[ed] a willingness to operate in the murky area between zealous advocacy and improper conduct, and here it crossed the line," id. at *33, Judge Preska imposed monetary sanctions on the firm.

Another recent example where "aggressive representation [gave] way to misconduct," arose from trade secret litigation between rival financial software makers. Wolters Kluwer v. Scivantage, 2007 U.S. Dist. LEXIS 88052 (S.D.N.Y. Nov. 29, 2007). Judge Harold Baer issued a 129-page ruling peppered with regret that the standards of civility and professionalism in law have declined as legal representation has been transformed from a profession into a business. Much of the dispute focused on documents submitted under a protective order by the defendant to plaintiffs' counsel Dorsey & Whitney; the use of those documents in a nearly identical suit in a Massachusetts federal court; and the refusal of a now-former Dorsey lawyer to return the documents on order of the court once Wolters Kluwer had voluntarily dismissed the New York-based action. Judge Baer's opinion relates the dispute's particulars in exhaustive detail, after which he concludes that the lead plaintiffs' counsel or Dorsey & Whitney engaged in twenty-two instances of bad faith, sanctionable conduct. Judge Baer declined to financially punish the lead lawyer or Dorsey & Whitney, choosing instead to "impose a public reprimand" and forwarding a copy of his decision to "the Grievance Committee for the Southern District of New York" and to the state court's attorney disciplinary committee. Id. at *292.

A third instance in 2007 of a judge invoking his inherent powers involved insurance coverage litigation in the wake of Hurricane Katrina and noted plaintiffs' attorney Richard Scruggs. In an employment contract dispute arising out of a Katrina coverage issue, Federal District Court Judge William Acker ordered that Mr. Scruggs return covertly copied insurance documents he obtained from former employees of the insurance services company plaintiff. Scruggs instead sent them to Mississippi Attorney General Jim Hood. Judge Acker wrote in response that such behavior "is precisely the type of conduct that criminal contempt sanctions were designed to address." E.A. Renfroe & Co. v. Moran, Civ. Action No. 06-AR-1752-S (N.D. Ala. June 15, 2007), slip op. at 20. Judge Acker referred the matter to federal prosecutors, and when they declined to bring charges against Scruggs, Judge Acker invoked his authority under Federal Rule of Criminal Procedure 42(a) and appointed two private attorneys as special counsel to prosecute the case. E.A. Renfroe & Co. v. Moran, Civ. Action No. 06-AR-1752-S (N.D. Ala. July 26, 2007). In addition to having to defend against this criminal action, Mr. Scruggs was indicted last November on charges that he conspired to bribe a Mississippi state judge. A trial is scheduled for February 25. Donna Leinwand, Bribery case stemming from Katrina lawsuits makes waves, USA TODAY at http://www.usatoday.com/news/nation/2007-12-25-Scruggs_N.htm?csp=N009.

One further 2007 decision of note did not directly involve attorney misconduct or the application of sanctions, but the tone and force of the ruling displays how judges can use their bully pulpit to express their disdain with some lawyers' actions. In In Re Chiron Corp., 2007 U.S. Dist. LEXIS 91140 (N.D. Calif. Nov. 30, 2007), Judge Vaughn Walker rejected a class action settlement in a case involving a vaccine company's alleged market misrepresentations. In addition to rejecting the proposed $7.5 million attorneys' fees in a case which "appears to have proceeded almost directly form pleading to settlement with no ruling on the pleading," id. at *6, Judge Walker ruled that the settlement was "inconsistent with the interests of absent class members and the class action process itself." Id. at *38. The court strongly questioned the adequacy of the lead plaintiff, finding it to be a "serial plaintiff" whose involvement "seems to have been confined to an endorsement of lead counsel's proposed fee." Id. at *31.

Because of the "serial" nature of the lead plaintiff and the law firm representing it - Milberg Weiss - Judge Walker reluctantly found it "necessary to address criminal charges pending against lead counsel." Id. at *38. The judge noted that the case before him is not directly implicated in the criminal case, which involves alleged payment of kickbacks to lead plaintiffs. "But given the temporal proximity of this settlement and the criminal proceeding against lead counsel," he wrote, "whether the charges bear on this case is a determination best left to the class following full disclosure." Id.

Whether it is imposing monetary sanctions, issuing a public "censure", or appointing special counsel to enforce a criminal contempt ruling, judges possess the authority to regulate lawyers and the litigation process. As Judge Baer stated in Wolters Kluwer, not only is attorney misconduct and incivility "a drain on valuable judicial resources," supra at *7, it also "undermine[s] public confidence in the legal system" and works "to the serious detriment of the very individuals that have sought counsel." Id. at *8. Reasons abound for judges to use their considerable statutory and inherent police powers. With these recent decisions, the momentum to do so will hopefully continue to grow.

* Chambers v. Nasco, Inc., 501 U.S. 32 (1991). See also Thomas E. Baker, The Inherent Power to Impose Sanctions: How a Federal Judge Is Like an 800-Pound Gorilla, 4 LGL. OPINION LTR. 6 (WASH. LGL. FNDT.), Mar. 25, 1994.

This piece was originally published by the The Washington Post, 3-15-08.

To preempt or not to preempt: that is the question with which the U.S. Supreme Court is wrestling in 2008. In a series of cases—two recently decided and one scheduled for argument this fall—the court has been looking at whether state lawsuits, filed on behalf of individuals allegedly injured by pharmaceutical drugs and medical devices, interfere with the Food and Drug Administration's federal regulatory scheme. To the extent the answer is "yes," many tort claims against drugs and devices could be preempted, since federal law is supreme over that of that states.

The court's first FDA preemption decision of 2008, last month's Riegel v. Medtronic, was called "the most momentous Supreme Court product liability decision in some time" by law professor Michael Krauss of George Mason University. Charles Riegel and his wife had sued medical manufacturer Medtronic, claiming that a Medtronic-made catheter that ruptured during Mr. Riegel's heart surgery was defectively designed and labeled under New York law.

Medtronic argued that whatever the law of New York, the FDA had approved the device's design and labeling—the very question at issue—under its extensive premarket approval process. And the Medical Device Amendments of 1976 specifically states that once a device has gone through that approval process, states may not "establish or continue in effect ... any requirement ... which is different from, or in addition to, any requirement applicable under [federal law] to the device."

With such explicit preemption language, the Supreme Court found it easy to determine, by a viote of 8 to 1, that the Riegels' state tort claim was barred by federal law. The decision will not apply to all medical devices but rather only those that, like the catheter, are "Class III" devices subject to the FDA's most rigorous testing procedures. Also, individuals can still sue if they can show that the device was manufactured in noncompliance with the design approved by the FDA, or if the FDA determines that the company committed fraud in the application process.

In its second major preemption case, Warner Lambert v. Kent, the Supreme Court last week deadlocked 4 to 4 (Chief Justice John Roberts had recused himself). The court simply let the lower court decision stand without any written decision or even an indication of where each justice stood.

Court watchers interested in preemption are therefore anxiously awaiting a case scheduled for this fall, Wyeth v. Levine, which promises to define the scope of preemption doctrine for FDA-approved products apart from the medical devices covered in Riegel. Levine involves a state "failure-to-warn" claim: Wyeth's FDA-approved label noted the risk of Levine's injury, but the plaintiff argues that the label could have been stronger or more specific and that the FDA's label was merely a "floor."

Thus, the court must decide whether Levine's claim is preempted by the FDA's extensive review and approval of pharmaceutical labeling. The case is more difficult than Riegel in part because the Food, Drug and Cosmetic Act contains no express preemption provision, so the court can reject Levine's failure-to-warn claim only if it determines that the federal regulatory scheme preempts such lawsuits. How the justices will rule in Levine is anyone's guess.

The so-called "presumption against preemption" is rooted in concerns over federalism, but in this context, such concerns are misplaced. The marketing and sale of pharmaceuticals and medical devices clearly is a part of interstate commerce, the core object of the federal regulatory power, and Congress has established an exhaustive regulatory process through the FDA. It's hardly news that state courts could interfere with such a scheme: In the 81st Federalist Paper, Alexander Hamilton observed that "the prevalency of a local spirit" could bias state courts in national commercial cases, a prediction since amply confirmed by academic empirical research.

The Supreme Court should also resist the temptation to follow the lead of Justice Ruth Bader Ginsburg, who in her dissent in Riegel argued that Congress never intended to override state tort law, the Medical Device Amendments' preemption language notwithstanding. Ginsburg may actually be right, but a focus on "legislative history" misses the point, as NYU law professor Catherine Sharkey noted at an American Enterprise Institute forum last month: Congress is intentionally vague in passing such laws, as a necessary precondition for logrolling the votes needed for the statutes' passage. The statute's language and structure should govern, and if Congress truly has an interest in weakening the FDA's regime by permitting state-level tort lawsuits, it can still do so by changing the law—as trial-lawyer-allied Democrats like Sen. Edward M. Kennedy (D-Mass.) and Rep. Henry A. Waxman (D-Calif.) are, alarmingly, threatening.

However the court rules in Levine, the implications for business, the lawsuit industry and the American consumer are huge. Consider that Merck spent upwards of $1 billion defending against Vioxx claims before recently reaching a partial settlement agreement for more than $5 billion, while the estimated tab for Wyeth over its recalled diet drug combination Fen-Phen is $21 billion. Although business's gain in Levine would obviously be the lawyers' loss, it should be the average consumer's gain as well, since eliminating massive tort exposure would encourage companies to develop more life-saving products. The FDA carefully weighs not only the costs and benefits of new drugs, but also overwarning vs. underwarning in its label approval process, since overwarning about drug dangers can obfuscate the most significant risks and deter life-saving pharmaceutical uses.

As Justice Stephen Breyer suggested during oral argument in Kent, it makes little sense that a jury of 12 lay people, looking only at the costs to an injured individual, could override the FDA's considered judgment. Any sensible federalist would agree.

James Copland is the director of the Center for Legal Policy at the Manhattan Institute. He owns shares in pharmaceutical companies.

Tort law is traditionally labeled a species of "private" law, a sibling of such things as the law governing contracts and corporations. To be sure, much of tort law, such as the everyday automobile accident case, retains much of this private dimension in practice. Mass torts diverge from this familiar pattern, however. In a new book, Mass Torts in a World of Settlement (University of Chicago Press), I trace how mass tort litigation has given rise to an uneasy combination of private and public institutions; and I discuss what the law should do about it.

The evolved response of the civil justice system to mass torts has been to shift from litigation on the private-law model of tort law to something much more like public administration. Simply put, the endgame of mass tort litigation today is not trial but some form of comprehensive settlement—what lawyers on both sides describe, with only a smidgen of exaggeration, as "global peace." Whatever the vehicle chosen, the peace terms are broadly similar. Instead of continued costly litigation, peace in the mass tort world substitutes a miniaturized, privatized version of workers' compensation for the affected claimants. Debates over matters of pretrial procedure—say, over whether a class action will be certified or whether the plaintiffs' expert scientific evidence will be deemed admissible—comprise crucial sparring points, precisely because they affect dramatically the ultimate price of peace. The interesting questions for the law are: Who are the peacemakers, and what means may they wield to make peace?

The peacemakers here consist of private lawyers—in practice, an elite segment of well-capitalized plaintiffs' lawyers with nationwide practices and an equally elite segment of the "big firm" defense bar. No one seriously believes that Congress can or should step in to set the peace terms for every mass tort of the future. Peace for mass torts thus necessarily means relying primarily on private lawyers as peacemakers.

This is not an ignoble or unimportant enterprise for the private bar. Structuring the kinds of business transactions to make peace in mass torts—and transactions they most certainly are—involves just as much savvy and creativity as the most complex corporate mergers. And the transactional dimension of peace here has the potential to advance the same social objective: to create wealth by bringing into being resources that would not otherwise exist through the reduction of litigation uncertainty. This is why the means chosen for peace take on such critical importance. Only by offering closure—only by exercising a considerable measure of coercive authority—can the dealmakers unlock the value-creating potential of peace. Yet the need for coercion is also what nudges private dealmaking into a matter of public concern.

Since the Supreme Court's 1997 decision in Amchem Products, Inc. v. Windsor, the law has witnessed a halting search for some legitimate means to make peace in mass tort litigation. The means employed have ranged broadly, from the poles of private contract (legitimized by notions of individual client consent, as in conventional civil settlements) and of public legislation (of the sort seen in the federal 9/11 victim compensation fund). Between these two poles rest a variety of means that are problematic precisely because of their hybrid, private-and-public nature—things like aggregate settlements in consolidated litigation, class action settlements (as in Amchem itself), and corporate reorganizations under the Bankruptcy Code.

Moves to tighten to the point of unviability things like class action settlements—as Amchem quite arguably does—cannot slay the mass tort monster. They merely force peacemaking efforts over to surrounding territory—to bankruptcy and to private contracts. In the asbestos area, the Amchem Court's clampdown on class settlements unleashed a deluge of asbestos-related bankruptcies in which both courts and the business press have documented even more problematic self-dealing and conflicts of interest than were voiced against the Amchem deal. On the opposite side of the spectrum, the recent $4.85 billion deal in the Vioxx litigation seeks to reinvigorate private contracts—there, a contract not as one might expect between the defendant Merck and plaintiffs, but literally between Merck and the key plaintiffs' lawyers whose client inventories include the bulk of extant Vioxx claims.

The law would benefit from seeing each of these means not in terms of traditional procedural categories but, rather, as much more contiguous and overlapping in character. Whatever the means chosen, what the peacemaking plaintiffs' lawyers seek to do is to exercise a form of leverage: to use mass inventories of existing claims to assert a broader power to bargain with the defendant to set the peace terms for the future. What is needed for mass torts is a corresponding legal response that would turn this leveraging into its own source of constraint—that would bestow the coercive authority needed to make peace, but only coupled with measures to link the interests of the peacemakers to the long-term viability of the arrangements they create. Such measures might include the overriding of existing lawyer-client retention agreements so as to link the fees to be obtained from clients by plaintiffs' lawyers to the peace terms that they fashion for non-clients who are otherwise similarly situated.

This is a good deal less sweeping or radical than it might sound. Lawyer-client retention agreements grounded in conventional notions of the autonomous individual client and a lawyer loyal to her alone are strikingly out of line with the reality of aggregate representation in the mass tort setting. Overriding the fee terms in such contracts precisely when plaintiffs' lawyers seek to move beyond individual client representation and into the realm of peacemaking would merely expose to the clear light of day the leveraging that undergirds the dynamics of peace negotiations. It would bring the law into closer alignment with the practical reality of peacemaking in the aggregate, rather than rail against it in the manner of Amchem. And, not incidentally, it would be grounded in notions of public governance.

It is not easy to let go of the profession's old ideal of individualized client autonomy, or its old ethical strictures against attorney control of litigation. Yet new times call for new measures. If legal institutions are to advance the aggregate good, they need to develop new ways to tie the interests of the real decision-makers in litigation to the interests of those whom they purport to govern. No less is needed for peacemaking as a form of governance in mass tort litigation.

Richard Nagareda is Professor of Law and Director of the Cecil D. Branstetter Litigation & Dispute Resolution Program at Vanderbilt University Law School.

PointOfLaw.com, 01-03-07

Amid the proud and shiny signs of New York’s continuing prosperity, it is hard to recall that in 1975, not much more than three decades ago, this great city could not meet its weekly payroll and seemed destined to go broke. A few collective memories linger from those dark days, especially the classic New York Daily News headline "Ford to City: 'Drop Dead'", and the city's gratitude to investment banker Felix Rohatyn, who helped establish a financing vehicle called the Municipal Assistance Corporation to sell its own "Big MAC" bonds when the markets were having none of the City’s paper. But the behind-the-scenes story of New York City's close brush with financial ruin is one that has never been fully told. The purpose of this little memoir is to get one portion of it in print for the first time, a portion that may be of special interest to those interested in the uses of the law.

The time was late Fall of ‘75. By that point the City had exhausted all its available credit facilities; the banks refused to lend another cent; the lead underwriter of the City’s bonds pulled back a contemplated offering when it began to doubt their repayment. Appeal was made to Washington, D.C., but the Republican administration of Gerald ("Drop Dead") Ford, and its allies in Congress, still aggrieved over the Democrat-led driving of Richard Nixon from office, refused to give any aid to the Democrat-run city except on terms even the conservative business leadership in the City deemed unacceptable, including federal loan guaranties that would have enabled the City to borrow from conventional sources.

As for me, I had left my New York practice a little over a year before to take a job at the Internal Revenue Service as assistant commissioner in charge of pensions and exempt organizations. There, at my office at the Service's national headquarters in Washington, I received a call late on a Wednesday afternoon from a well-known lawyer representing the City, Carr Ferguson, who later went on to become Assistant Attorney General for taxes. Ferguson told me that the City had a payroll to meet that Friday and lacked the funds to do so fully. He wanted to meet at once to explore the possibility of the City's borrowing from its municipal pension funds for police, firefighters and teachers. The request was directed to me because it was my job to apply the regulations meant to uphold the interests of pension beneficiaries like those in the municipal plans.

The only thing that surprised me about the call was that it hadn't come sooner. As a New Yorker temporarily in Washington, I had followed the newspaper accounts of the City's deepening plight, and I had half suspected for months that the City would end by turning to its own pension funds as lenders of last resort. This put me in a difficult position as the IRS official with authority to sign off on such a loan. Naturally I wanted to help save the city I loved, but at the same time I was sworn to uphold, rather than to compromise, the best interests of the workers enrolled in the plans. I could not allow any personal feelings towards the City to color my actions. With all this in mind, I had half hoped the City wouldn’t come knocking on my door. But it had.

I agreed at once to a meeting in my office 8 a.m. the following morning with whomever from the City Carr deemed useful to be present. He speculated his contingent would include the Mayor, Abe Beame, City Comptroller Harrison Goldin, and labor leader Victor Gotbaum, who headed the City employees’ union. I told him I would assemble a team to meet with his group.

Approval for such a loan was going to be no easy or automatic matter. Federal pension law -- then much as now -- barred employers, including cities and states, from borrowing from their employee pension plans except under strict constraints affecting security, interest and repayment, that would adequately protect the workers' pensions; and it was first necessary to get the acquiescence of the IRS, as the federal government's sole regulator of municipal pensions. Although the best-known federal pension law, ERISA, had no application to government employers, the IRS had developed rules on loans from pension plans to "interested parties" and similar transactions years previously; and a quick search of those rules following the phone call disclosed that what slight authority there was neither prohibited nor authorized loans to a government in extremity by its own employees' pension plans. Any misstep would be very likely to come under scrutiny in the national press, which was headquartered in New York.

I recall a very restless night, as I contemplated the forthcoming meeting with the City representatives the next morning, and rehearsed in my own mind the possible options that were open to us. I presumed that we would be faced with a request for a ruling approving the loans without penalty to the plans, its trustees, and possibly the City itself, and of course without adverse impact on the employees (non-repayment of funds was only one of the dangers; another was the possible loss of tax exemption of the trusts and tax qualification of the plans, which might have a heavy impact on the plan participants). The sparse learning on the subject that I and my technical advisers had been able to scan provided no guidance on how such a sanction-free transaction might be crafted. We were essentially steering into an uncharted sea without a compass. The specific federal and state legislation that was later that year enacted specifically as part of the City rescue package to relieve the parties in interest in the NYC matter from the sanctions of the prohibited transaction rules, and to insulate the trustees from recourse for making arguably improvident loans, did not come into place – indeed, was not even in contemplation – until months after that Friday meeting at the IRS. (Permit me to add as an aside at this point that, but for the actions we took that day, the later rescue package would have taken a very different shape, with the City then mired in a doubtless unavoidable bankruptcy.)

So my responsibilities weighed heavily on my head as I entered what was to become a 20-hour non-stop session in my conference room beginning at 8 the following morning and continuing into the early hours Friday morning. There were 15 or 16 of us assembled for our solemn business, roughly equally divided between IRS and City people. It immediately became apparent that the Mayor, a man of short stature but large repute, was not there, nor were either of the other two promised City celebrities. But there was no shortage of experts from among the City’s budget, bond, tax, actuarial and legal ranks. I viewed that as a good augury of our ability to address efficiently the very technical matters to be explored, free of the political, and emotional, and, let me say, other atmospherics that the Mayor et al. could be expected to bring to the discussions.

And so began our deliberations. The usual opening banter quickly gave way to a discussion by the City people of the current state of their borrowing ability (more accurately inability), a run-down of the employee pension plans they hoped to tap, and the amounts of immediate funds they were looking for. Then it was my turn to speak, and, just for the record, I stated most generally the prerequisites we would require as a condition to any action we might take, principally relating to adequate security, a reasonable rate of interest, and a suitably near-term maturity. The immediate cash shortfall required to fully cover that week’s payroll was on the order of $500,000, just chump change for the City, imposing no peril for the pension plans’ abilities to satisfy their liabilities to participants. But no matter; it had to be done right, as god gave us to see the right.

"Let’s start with what is obviously the most problematic issue, the security you are able to deliver," I posited. "What have you got that isn’t already pledged away? Can you dedicate a segment of the tax revenues to repayment of the loans?" It seemed a straightforward enough question, one that could be answered objectively by the fiscal experts in the room. Proving, I guess, that things are seldom what they seem, I did not get anything like an objective answer. There were some musings, speculations, hypotheses –- guesses, to be honest. My people and I were frankly startled at the apparent lack of preparation of the City’s people for such a core inquiry. We probed and prodded for the next three hours, to no avail. It was getting close to noon, and we were farther from a solution than I had thought us to be at the very start of the morning.

In some frustration – perhaps more disappointment at getting ho help from the City in reaching a satisfactory resolution – I said, "Let’s try another tack." I then proposed that we each try to compose in the rest of the day rough drafts of what we in the Service will require and what the City can deliver in the way of security, and then try to mesh our lists on which to predicate the ruling they were seeking. "Of course", I acknowledged, "this doesn’t get the payroll paid tomorrow"; but, I added, "I will give you a letter of intent to issue such a ruling forthwith, if your banks, on the strength of that letter of intent, will agree to give you bridge financing today to cover the Friday payroll."

Not surprisingly, the City folks liked the proposal; and it was agreed they’d immediately put in calls to their bankers, and we would resume our meeting as soon as we had their verdicts. To the readers who are at this moment wondering on what authority I could issue such a "letter of intent", I must admit there is no such authority anywhere in the thick, multi-volume IRS Manual. There are all manner of procedures for the full panoply of issuances by the Service from full-tilt regulations down to press releases; but nowhere will you find reference to a letter of intent. It just blurted out of me. Had I thought about it for more than a nanosecond, I would almost certainly not have proposed it. But the City folks were out the door racing for the phones, and there was no putting it back into the box.

Less than an hour later they were back in the conference room, and the banks had agreed. So we all then bent to our tasks of composing and meshing our lists. Fifteen hours later, by dawn’s very early light (and electrical supplementation), I signed that letter of intent, and our meeting was adjourned. In case you’re wondering, I never had to issue the private letter ruling promised by the letter of intent. The City did come back approximately two weeks later for an authorization to borrow an additional sum, and, with increasing discomfort and a warning that there would be no more such dispensations from us, we did permit that second loan. But by this time, thanks to a softening of some important hearts in Washington (most importantly that of the President), the City got its federal guaranties, and a lot more of the pieces then fell into place, enabling the City to return to more conventional borrowing (including significant purchases of the Big MACs by the very same municipal pension funds!).

Oh yes, there is a little more to the story. A retired City high school teacher, whose pension, if I remember, was about $4000, sued me and the other government officials (even the President, if memory serves), as well as the plan trustees and banks, for putting his pension in jeopardy by our actions. His suit was thrown out of court as to us officials. We were just "doing our duty", opined the court. That’s what I thought too. I imagine the unretired City teachers and other municipal employees whose very jobs, let alone their pensions, were in jeopardy thought so too.

***

Alvin D. Lurie was the first Assistant Commissioner of Internal Revenue charged with administering employee plans and exempt organizations following enactment of ERISA, and is a practicing tax lawyer in New York. He has written frequently on pensions.

This piece originally appeared on National Review Online, 11-6-2007.

For all the attention being showered on the interminably long campaign leading up to next year’s election, a handful of states around the country are holding important elections for statewide office today. The stakes are particularly high in Mississippi, the nation’s poorest state and until recently its most abusively litigious. While Mississippi’s legal climate has recently improved, the Magnolia State’s trial lawyers have this year mounted an aggressive campaign to take control of the government and turn back the clock.

Headlining the trial bar’s ticket is John Arthur Eaves, the Democratic nominee for governor. Eaves is himself a personal injury, mass tort attorney, whose law firm website advertises for clients suing over a range of products from Benzene to Celebrex to Bextra, as well as nursing homes and even terrorism. In his bid to win over a conservative state, Eaves has been trumpeting his born-again Christian beliefs to religious fundamentalists as he challenges popular incumbent governor Haley Barbour, the Republican architect of the state’s comprehensive tort reform legislation of 2004.

While Eaves is one of Mississippi’s most prominent plaintiffs’ lawyers, 34-year-old Democratic lieutenant-governor candidate Jamie Franks, while also educated as an attorney, has made his professional home for over a decade in the state legislature. Yet Franks too is a favorite of the trial bar and has based his campaign in significant part on his support for a “Mississippi Insurance Policyholders Bill of Rights,” which would make it easier to sue insurance companies to collect on less tenable claims.

Indeed, demagoguing against insurance companies in the wake of Hurricane Katrina is a theme that all the Democrat candidates in Mississippi have adopted. While the overwhelming majority of claimants have been paid, some homeowners who lacked flood insurance but whose houses were destroyed by flooding have engaged in litigation against insurers in an effort to collect under their general homeowners’ policies, the flood-exclusion language be damned.

Leading this massive legal charge is none other than Pascagoula lawyer Dickie Scruggs, who led the negotiations for the states when they sued the tobacco companies and netted a cool billion in the process. In his handling of the Katrina cases, Scruggs’s behavior has been so aggressive that it has drawn the ire of federal judges and prosecutors; the feds have accused him of criminal contempt.

Politically, Scruggs is connected to both parties—he’s Republican Senator Trent Lott’s brother-in-law—and his efforts in the current campaign have been brazen. When the state’s eight-term incumbent insurance commissioner George Dale, a Democrat, refused to scapegoat the insurance companies, Scruggs gave $250,000 to a political action committee to support his favored candidate, Gary Anderson, who defeated Dale in the Democratic primary.

But Scruggs has certainly had no beef with the Democratic nominee for attorney general, his close friend Jim Hood, who launched civil suits and criminal investigations against State Farm, which was at the time of the hurricane Mississippi’s largest home insurer (and now, in response, has decided against writing any more homeowners’ policies in the state). In his time in office, Hood has not only worked closely with Scruggs; his AG office has been so solicitous of hiring outside contingency fee counsel that it has often appeared to be on auction to the highest trial lawyer bidder.

For example, in November 2005, Hood received a campaign contribution of $15,000 from the New York law firm Bernstein Liebhard & Lifshitz; the firm received a state contract on February 16, 2006—and sent Hood another $15,000 one week later. Other out-of-state firms that have received Mississippi contracts for legal work and donated heavily to Hood’s campaign are the New York firm Bernstein Litowitz Berger & Grossman, which gave Hood over $30,000 in the last two years, and the Texas firm Baron & Budd, which gave him almost $20,000 in 2005.

The trial lawyers’ efforts to take Mississippi reflect their weakened power in what was once their favorite jurisdiction: In the U.S. Chamber of Commerce’s annual survey of business attorneys conducted by the Harris Group, Mississippi was perennially ranked the “worst state” for overall legal climate, through 2004. Tiny Jefferson County—home to fewer than 10,000 residents—hosted over 600 lawsuits in 2000, involving over 3,000 plaintiffs, almost three-fourths of whom were from out of state. The owner of the only drugstore in town, Hilda Bankston, found herself dragged into every mass action pharmaceutical lawsuit in the county, since the out-of-town lawyers needed her as a defendant to keep the case in Mississippi courts.

In 2004, Governor Barbour led the charge to clean up this situation, and the state passed comprehensive tort reform. The results of this legislation, and improvements to the state’s judiciary, have been profound: the state’s largest medical malpractice insurer lowered rates each of the following three years, and businesses have begun to look at Mississippi as a attractive site for investment. But the improvement has been limited by fears that the state could revert to what the American Tort Reform Association calls a "judicial hellhole"—an outcome that will be largely determined by what the state’s voters do at the polls.

— Jim Copland is the director of the Center for Legal Policy at the Manhattan Institute.

This piece was originally published by the London Times Online, 4-20-2007.

Ask university officials in the US why their hands are so often tied when they see a student beginning to spiral into disruptive madness and some will cite federal laws that prohibit discrimination against the mentally ill. Others will mention procedural obstacles that can make it hard to expel a youngster over anything short of a serious crime. But nearly all will circle around at some point to the extraordinary set of laws we have enacted in the name of privacy, prohibiting the sharing of personal information about individuals.

One of these laws—FERPA, otherwise known as the Buckley Amendment—is unique to students and universities. But perhaps equally far-reaching in its implications is HIPAA, the four-year-old health-privacy law, which covers the medical records not just of students but of Americans generally.

Under HIPAA, it would have been unlawful for the psychiatric hospital that treated student Cho Seung-Hui, who shot 32 people at Virginia Tech university this week, to compare notes on his therapeutic progress, or lack thereof, with his counselors or dean. So effectively did the various privacy laws bottle up information that even a Virginia Tech official tasked with the monitoring of problem students is said to have known little or nothing about Cho’s lurid history of psychotic symptoms until after the fact.

Under HIPAA's terms, doctors and other covered persons who improperly release information about identifiable persons' health care are subject to fines and even prison terms of up to ten years. That a disclosure is well-meaning rather than malicious is no defence: disclosures to patients’ own parents or roommates, as well as disclosures to other medical or custodial institutions, can very much trigger liability; and the exact scope of what is deemed proper disclosure is by no means precisely defined.

Unintended consequences soon blossomed, in large quantity. Frantic family members dialed emergency rooms in vain seeking confirmation that their unconscious loved ones were there. Preferring to play it safe, some hospitals removed patients' names from doors. Clergy were ordered not to drop in on ill parishioners unless on specific request. Wider areas within clinics were closed off to unescorted visitors; Santa Claus could drop by only with a proper release form on hand for each ailing child.

Infringement of medical privacy is a lamentable thing, but experience soon suggested that other things can be even worse. After a Washington, D. C. pedestrian was fatally struck by a car, his family learned nothing of it for two weeks until a $17,000 hospital bill arrived in the mail. In rural Colorado, where ambulance dispatchers had been casually accustomed to naming the family whose home needed a run (get over to the Wilson ranch, Vern is having chest pains) it was thought advisable to rely on unfamiliar street addresses instead, leaving drivers to fumble.

Much social collaboration with the aim of better care has become legally hazardous. Doctors have been reported hesitant to draw relatives aside with advice that elderly parents need help with pill-taking or ought to stop driving. Opinions differ on whether a doctor can safely ring up other practitioners to check whether a new patient reporting unverifiable pain is known for a pattern of narcotic-seeking.

Some common sense was restored after Washington issued directives making clear that a wide range of "incidental" disclosures, as well as those given in the course of care, are okay: thus attendants need have no fear of calling patients' names aloud in waiting rooms, family members can pick up each other's prescriptions at the pharmacist, and nurses can give each other quick run-downs on a transferred patient' situation (at least on a "eed to know" basis).

Above all, medical professionals are now trained to shove release forms into patients' trembling hands on first contact—the nickname Huge Increase in Paperwork and Aggravation Act. But of course some patients refuse to sign any consent form, and the law provides that they cannot be denied care on that account. And while the right to conceal one's medical adventures from scrutiny can be of value to many of us, it has particular value to the problem or antisocial patient.

HIPAA also deprives researchers and the general public of much information of legitimate interest. When flu epidemics hit, state officials now sometimes refuse to divulge which localities have been affected, whether fatal cases were infants or elderly or had taken their shots, and so forth. Research into the history of medicine has hit a block because so many source materials, such as top physicians’ private papers, are laced with references to individually identifiable patients (there is no time limit on protected privacy). "To strictly follow HIPAA we'd have to close our photograph collection entirely," frets Columbia University's head of medical archiving.

Even after Tuesday's massacre, institutions have declined to make Cho's medical records public, because his HIPAA rights do not end with death. Kafkaesque indeed.

Walter Olson edits Overlawyered.com and PointOfLaw.com and is a senior fellow at the Manhattan Institute.

This piece originally appeared in the Washington Examiner, 09-19-07.

This summer, government-sponsored lawsuits alleging that paint manufacturers created a "public nuisance" by making paint with lead pigment in or before 1978 met stinging courtroom defeats in major decisions by the Missouri, New Jersey and Ohio supreme courts, as well as a jury verdict in Wisconsin.

These adverse rulings marked a major reversal of fortune for the litigation industry, which viewed such suits as a potential heir to the litigation industry's multibillion-dollar asbestos and tobacco business lines after a Rhode Island jury had ruled in 2006 that paint companies had to shoulder that state's lead paint "abatement costs," estimated to be as much as $3 billion.

While nominally filed on behalf of states and municipalities, the lead paint suits are the fruit of deals trial lawyers cut with government officials, who gave the private lawyers control of state litigation for a share of any proceeds. The lawyers' strategy has mirrored what they used in extracting billions from the tobacco suits to recoup states' health care expenses—unsurprisingly, since the lead paint litigation involves the same lawyers...

Enriching big political donors with the state's multibillion-dollar contingency-fee litigation clearly has the potential for corruption...

But the problems with public lead paint litigation run far deeper. Although lead poisoning is undoubtedly harmful, lead paint litigation has been burgeoning even as the risk has been approaching the nonexistent. Lead paint has been banned since 1978, and paint companies voluntarily limited lead for indoor paint as early as 1955.

That fact, in addition to reductions of lead in drinking water and the elimination of leaded gasoline, has caused a sharp drop in lead-exposure levels. Only 1.6 percent of young children are today exposed to lead levels above the Centers for Disease Control's current threshold, down from 7.6 percent in 1997 and a 98 percent reduction from the late 1970s.

Read the full report, "Judicial Lead-ership," on triallawyersinc.com.

Jim Copland is the director of the Center for Legal Policy at the Manhattan Institute.

This piece was originally published in the Wall Street Journal, 9-6-2007.

Privileged, rowdy white jocks at an elite, Southern college, a poor, young black stripper, and an alleged rape: It was a juicy, made-for-the-media story of race, class and sex, and it was told and retold for months with a ferocious, moralistic intensity. Reporters and pundits ripped into Duke University, the white race and the young lacrosse players at the center of the episode, and the local justice system quickly handed up indictments. But as Stuart Taylor Jr. and KC Johnson show in "Until Proven Innocent"—and as the facts themselves would show when they finally came to light—it was a false story, a toxic controversy built on lies and bad faith.

There was plenty of wrongdoing, of course, but it had very little to do with Duke's lacrosse players. It was perpetrated instead by a rogue district attorney determined to win re-election in a racially divided, town-gown city; ideologically driven reporters and their pseudo-expert sources; censorious faculty members driven by the imperatives of political correctness; a craven university president; and black community leaders seemingly ready to believe any charge of black victimization.

"Until Proven Innocent" is a stunning book. It recounts the Duke lacrosse case in fascinating detail and offers, along the way, a damning portrait of the institutions—legal, educational and journalistic—that do so much to shape contemporary American culture. Messrs. Taylor and Johnson make it clear that the Duke affair—the rabid prosecution, the skewed commentary, the distorted media storyline—was not some odd, outlier incident but the product of an elite culture's most treasured assumptions about American life, not least about America's supposed racial divide.

A bit of college-age stupidity triggered the sequence of events. The co-captains of the Duke lacrosse team held a house party in Durham, N.C., on March 13, 2006, and hired two strippers from an escort service for the occasion. The women who showed up—Crystal Mangum and Kim Roberts—happened to be black.

It turned out that Ms. Mangum—although the public would not learn of such details until very late in the life-span of the scandal—had a serious alcohol and narcotics problem. She had been diagnosed as bipolar and had spent a week in the state mental hospital the previous summer. Having arrived at the party late, she did not start dancing until midnight. Time-stamped photos show that her performance lasted only four minutes. By 12:30 she had passed out, as she often did—it was later discovered—at the Durham night club where she worked as an "exotic dancer." The other dancer, Ms. Roberts, eventually drove her to a grocery store and asked for help, and the security guard there called the police, who assumed that Ms. Mangum was "passed-out drunk."

In the custody of police, Ms. Mangum said nothing about a rape. (Ms. Roberts called the rape charge a "crock" when she first heard of it, until District Attorney Michael Nifong bribed her to say otherwise by reducing a bondsman's fee—from an earlier conviction—by roughly $2,000.) Ms. Mangum, fearing recommitment to a mental hospital, landed on rape as the explanation for her incoherent and generally woeful condition when she was prompted by a nurse-advocate at a mental-health processing facility. There was no medical evidence to substantiate the charge.

In a series of interviews with prosecutors, Ms. Mangum drew wildly different and implausible pictures of the alleged rape. DNA tests from swabs taken the night of the incident revealed that she had had recent sexual contact with as many as four men, none of whom were Duke lacrosse players. Defense lawyers discovered this damning detail only after combing through more than 1,800 pages of documents released by the district attorney months after the testing was done. The DNA cover-up was only one of the procedural travesties that eventually cost Mr. Nifong his job and law license and (last week) earned him a one-day jail sentence.

In two photo-identification lineups, Ms. Mangum couldn't identify anyone as her rapist. On a third try—before which Mr. Nifong announced to her that all the photos that she was about to see were of Duke lacrosse players—she suddenly fingered three: David Evans, Collin Finnerty and Reade Seligmann. It was apparently of no consequence to Mr. Nifong that the lineup violated basic departmental rules and that none of the men she identified bore the slightest resemblance to the descriptions she had given police.

Time-stamped photos—at the party and at an ATM—along with cellphone and taxi records showed indisputably that Mr. Seligmann could not have participated in the 30-minute, three-orifice gang rape and vicious beating of which Ms. Mangum accused the three players. Messrs. Evans and Finnerty did not have such air-tight alibis, but each cooperated fully with the police, even offering to take lie-detector tests, and there was not a shred of evidence against them. The district attorney branded the defendants as "hooligans," but others—like Messrs. Taylor and Johnson here—described them in glowing terms, as earnest, hard-working students.

The state attorney general—after an agonizing yearlong investigation, culminating in Mr. Nifong's removal from the case—determined in April 2007 that Messrs. Evans, Finnerty and Seligmann were innocent of all charges. Nothing—absolutely nothing—had happened at the party. The players' innocence had been apparent to their own attorneys from the outset. It should have been apparent to Mr. Nifong, too, given all the exculpatory details he knew. But he was desperate to win a close primary election and needed black votes, so he proceeded with an unjustified prosecution and publicly vilified innocent young men.

In this fundamental injustice, he was aided and abetted by others in Durham. Richard Brodhead, the president of Duke, condemned the lacrosse players as if they had already been found guilty, demanded the resignation of their coach and studiously ignored the mounting evidence that Ms. Mangum's charge was false. He was clearly terrified of the racial and gender activists on his own faculty. Houston Baker, a noted professor of English, called the lacrosse players "white, violent, drunken men veritably given license to rape," men who could "claim innocence... safe under the cover of silent whiteness." Protesters on campus and in the city itself waved "castrate" banners, put up "wanted" posters and threatened the physical safety of the lacrosse players.

The vitriolic rhetoric of the faculty and Durham's "progressive" community--including the local chapter of the NAACP—helped to intensify the scandal and stoke the media fires. The New York Times' coverage was particularly egregious, as Messrs. Taylor and Johnson vividly show. It ran dozens of prominent stories and "analysis" articles trying to plumb the pathologies of the lacrosse players and of a campus culture that allowed swaggering white males to prey on poor, defenseless young black women. As one shrewd Times alumnus later wrote: "You couldn't invent a story so precisely tuned to the outrage frequency of the modern, metropolitan, bien pensant journalist." Such Nifong allies—unlike the district attorney himself—paid no price for their shocking indifference to the truth.

Abigail Thernstrom is a senior fellow at the Manhattan Institute and the recipient of a 2007 Bradley Award.

This piece was originally published in the Washington Examiner, 7-31-2007. Reprinted with permission.

Washington, D.C. — Let's assume, for the sake of argument, that the climate change phenomenon commonly called "global warming" exists and is being caused, at least in part, by human activity. Who is responsible? The only sensible answer is, everybody. We all contribute to the release of greenhouse gases, as did our ancestors going back at least to the beginning of the Industrial Revolution.

One would therefore think litigation is no more an appropriate response to global warming than litigation would be to any so-called "act of god." One would be wrong.

Earlier this year, Texas trial lawyer Stephen Susman told the Dallas Morning News that "You're going to see some really serious exposure on the part of companies that are emitting CO2." He added, for good measure, that "I can't say for sure it's going to be as big as the tobacco settlements, but then again it may even be bigger."

Indeed, trial lawyers are gearing up to turn global warming into their next pot of gold. A coalition of environmental groups and cities are suing the Overseas Private Investment Corporation and the Export-Import Bank of the United States for making loans to finance oil pipelines, oil drilling, and similar projects that supposedly result in a net emission of billions of tons of carbon dioxide. After Hurricane Katrina, New Orleans trial lawyers Gerald Mapes and Timothy Porter sued dozens of energy companies, claiming they had contributed to global warming.

Last year, Business Week reported that there were 16 pending global warming cases of these sorts pending around the country. More are surely in the pipeline, so to speak.

Indeed, the prospect of a boom in global warming litigation is prompting law firms to begin setting up units specializing in climate change issues. According to the Dallas Morning News, for example, Dallas law firms Vinson & Elkins and Thompson & Knight have set up global warming units with 41 and 26 lawyers, respectively.

If it weren't for the precedents set by tobacco, alcohol, and obesity lawsuits, one might be tempted to dismiss climate change litigation out of hand. After all, the law typically requires a showing of causation. Before you can hold me liable, you must show that but for my conduct you would not have been injured. Typically, you also must show that my conduct was the proximate cause of your injury.

How can one firm—or even one industry—be blamed for a global phenomenon that took decades to arise? Making causality findings and apportioning responsibility in this context is ludicrous. Yet, what might a New Orleans jury still smarting over Katrina do if they got the chance to decide Mapes and Porter's suit?

This is a classic example of why tort reform is a pressing need. The Institute for Legal Reform offers some chilling statistics: "America's civil justice system is the world's most expensive, with a direct cost in 2005 of $261 billion, or 2.09 percent of GDP.

"Tort costs were $880 per U.S. citizen in 2005, meaning the average American family of four paid a 'litigation tax' of more than $3,500 due to increased costs from lawsuits and other liability expenses that force businesses to raise the price of products and services. That cost is equivalent to nearly an 8 percent tax on wages."

These costs are having a dramatic impact on the US economy. A nonpartisan report prepared for New York Senator Charles Schumer and New York City Mayor Michael Bloomberg, found that the "propensity toward litigation" in the United States is "driving growing international concerns about participating in US financial markets."

Along with regulatory excesses like the Sarbanes-Oxley Act, the litigation industry in this country is making our capital markets and our economy as a whole less competitive.

It's time for Congress and the president to step up with legislation that take the question of global warming out of the arena of ad hoc judicial decision making and put it into the hands of our elected officials. Both fairness and efficiency demand it.

UCLA Law Professor Stephen Bainbridge is a member of The Examiner's Blog Board of Contributors and blogs at www.professorbainbridge.com.

In a recent issue of the New Republic, Arnold Relman, a former Editor—in—Chief of the New England Journal of Medicine, offered a most unflattering review of my recent book, Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation (Yale University Press, 2006). The Editors of the New Republic have decided not to publish any reply from me. I am therefore grateful that the Manhattan Institute has stepped forward to publish my reply, with—I should add—an open invitation to Dr. Relman to respond if he so chooses.

In dealing with a longish review, the usual approach of the aggrieved author is to take on only one or two points of the critic, and let the reader draw whatever inferences he or she chooses about those points that were not addressed. The Relman review, however, makes so many instructive errors that a different course seems preferable. Let me first start with a few general observations and then turn to a point by point rebuttal of his argument.

The most obvious difference between us is that we inhabit two different intellectual universes. He dwells from the more liberal and more complacent medical culture of Cambridge, Massachusetts, and I come from the less fashionable and more driven legal precincts of the University of Chicago. Thus two great divides separate Relman from myself.

Start with the professional training. I am a lawyer by training, with an extensive, if informal, background in economics. I have worked extensively and actively in the health field area on a wide range of topics on health care, ethics, law and medicine for the past 30 years, much of it spent in the company of health care professionals with medical training. Relman is a doctor by training who fancies himself an expert in "social medicine," who has as best I can tell no formal training in any of the collateral disciplines that bear on the comprehensive analysis of health care. In his view, mere lawyers are always out of their depth in dealing with the kinds of issues raised by the provision of health care, including of course the development, testing, and marketing of pharmaceutical products. My view is that the technical matters of medical treatment can easily be bracketed in dealing with the larger institutional issues. I do not wish to decide which drugs should be tested in what clinical trials, but, even in the absence of that information, can comment intelligently on the use of these clinical trials in dealing with FDA approvals for new drugs or with their role in litigation. Indeed, in my work as a torts scholar, I am constantly forced to examine detailed medical information that involves such hotly litigated questions as whether Bendectin causes child defects or thimerosal causes autism. In my view, there is nothing whatsoever in Relman's traditional medical background that offers him any comparative advantage in dealing with the full range of property rights, regulatory, marketing, patent, and tort issues that are examined in Overdose, which should be evident to anyone who has worked his or her way through Relman's review.

The second deep cleavage between us has to do with world views. Relman is a generation older than I, being born in 1923, while I was born a generation later in 1943. The difference in age matters, because he takes the New Deal critique of markets as a verity from which all other truths flow. Indeed, for a man so insistent on field expertise, he shows no hesitation to take on Milton Friedman for his heretical views of the role and organization of market institutions. Those sentiments are quite evident in his searing conclusion that insists that markets "do not do a good job of protecting the public interest. If we want a pharmaceutical industry and a health care system that put patients' welfare and society's needs ahead of profits, we will need more regulation, not less."

I of course am very much in the camp of Milton Friedman, which is evidenced by our parallel lives at the University of Chicago and the Hoover Institution. And I was deeply honored to speak at his memorial service held at the Hoover Institution this past January. All that does not mean that I slavishly agree with all that Friedman says-a pose that Friedman himself would have found most distasteful. It does mean, however, that I take strong issue with the simple–minded portrait that Relman paints of my views. The proper question is not whether we put society's interest ahead of profits. That formulation of the question gives no guidance as to what should be done. Clearly if we are to have pharmaceutical companies, then we must allow them to have some profits in order to attract and retain capital. Relman is not subtle enough to distinguish between a risk-adjusted competitive rate or return and monopoly profits, or to recognize that the former advances social welfare and the latter retards it. Indeed, Relman's gripe is not only with Friedman but with every neoclassical economist from Adam Smith to the present

That said, the right question to ask is how we maximize a system of overall social welfare, which cannot be done if the industry is driven out of business. On that structural question I am happy to align myself with both Smith and Friedman on a number of key points: that voluntary transactions are preferable to coerced ones, that subsidies and taxes can easily distort the choices of private actors, that state officials often have private agendas to advance even when in public office, and that the state which concentrates its effort on the control of force and fraud, the provision of public infrastructure and the control of monopoly-which means refusing to create state monopolies-will do better than the big New Deal government that sees in every market a looming imperfection, which only the wise hand of government can correct. The system of government control that Relman proposes is ruinous to the ends of patient welfare and social prosperity that he supports.

His fundamentally unsound world view does create a huge professional and philosophical chasm between us. Worse still, it infects every portion of his New Republic review. Here it is convenient to break down his arguments by into two areas. I will first treat his general critique of the economic issues raised on matters of drug, pricing, patenting and marketing. Thereafter I shall turn to health and safety, with special reference to the FDA, clinical trials and tort liability.

RELMAN'S ECONOMIC CRITIQUE:

Corporate responsibility. Relman begins his attack by quoting Pfizer CEO Jeffrey Kindler, a lawyer by training no less, who says: "We will transform virtually every aspect of how we do business, focusing on actions that create and sustain value for our shareholders." That statement, made by the CEO of a company whose stock has been under constant pressure should be regarded as good news to shareholders, and to anyone else who is concerned with Pfizer's recent lag in performance. But not to Relman, who sees in this benign pronouncement the spread of Friedman's dreaded influence into the sacred precincts of the pharmaceutical industry. Indeed Friedman said, famously, in words that wave a red flag before Relman's eyes: "Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible." Relman hears in these words not "we shall do our best by our shareholders." Rather, to him the words say: "the public be damned."

Now it turns out that Friedman (who was not a lawyer) did overclaim in this sentence. The proper analysis says that the corporation is (or is formed by) an agreement among its shareholders, so that any gifts that it chooses to make should be in accordance with the conditions of its charter, which in some cases may allow for such giving. Indeed, I know of no case where a corporate gift has been successfully attacked in court. Relman can breathe easily on this point. But that is a mere detail. Friedman's central point is that shareholders can agree on any program that maximizes share value. Once that is done then the shareholders as individuals can make whatever charitable gifts they see fit with the dividends and gains that they make from their investment. Friedman's argument, which Relman does not understand, is that private giving at the shareholder level is preferable because avoids the real conflict of interests that arises when corporations make gifts to some charities but not to other. And needless to say, Relman shows no evidence of the major corporate law qualification to this rule, namely, that "gifts" to charitable or other institutions that work to promote the good will of the corporation are consistent with the operation of a profit-making institution, as countless cases have held.

We can ignore the fine points of the analysis, because Relman is after bigger game. His view is that Kindler is engaged in some massive hypocrisy when Pfizer makes all these high-sounding statements that it is "working for a healthier world," or "putting its patients first." Pharmaceutical firms are not unique in making these remarks; Ronald Reagan remarked as the spokesman for General Electric, "Progress is our most important product." But Relman is thoroughly confused about how corporations work. The management owes duties of loyalty and care to the shareholders; after all shareholders have put their money in with the firm, and it would hardly do to allow the management to misappropriate the funds so that the shareholders go home empty-handed. But the customers of the firm are not investors, and they can walk away and buy somewhere else if they do not like what they get. The key challenge to any firm is to figure out how to secure their repeated loyalty and that can only be done by offering them goods and services that they value at more than they pay, which the corporation can produce at a cost lower than the prices they can command. Therein lies the critical concordance of interest between buyer and seller that Kindler grasps. Kindler knows that unless he can preserve the good will of his customer base, Pfizer will have to close up shop. The firm has to walk a tightrope, and in that regard it is no different from any other company in any other industry. Indeed, one major problem for any firm in a large industry is that its reputation really matters, such that a single infraction can produce losses in future sales that far dwarf any direct fine or tort judgment that could be imposed. These are good features, because we now know that large companies bind themselves to good behavior by their brand and reputation. One of the first things that Kindler has to do is to make sure that his firm does not acquire a reputation that matches that of the tobacco industry (for which, years ago, I consulted). It is very hard to do in the face of uninformed critics who see a large target that finds it difficult, even with the money it spends, to mount an effective public relations campaign. Like many corporations, pharmaceutical companies are only omnipotent in the fevered imagination of their most severe critics. In reality, a single bad headline or court ruling can erase billions in shareholder value and leave CEOs like Kindler trembling.

After his initial foray, Relman then turns to my view that regulation has hurt the industry in ways that do not help the public. Relying on the judgment of unnamed experts on the drug industry, he concludes that the industry's greatest enemy is itself, not regulation. But, put the word "greatest" to one side, and there is no either/or there. I made it quite clear in Overdose that the industry blockbuster model has not worked well, and that some of the fault lies in the management of the major companies-a point that Pfizer's Kindler obviously accepts. But one cause does not operate to the exclusion of all others, and Relman must be blind to think that the endless efforts to undermine patent protection, to increase the length of clinical trials, to impose price controls, to allow for multi-billion dollar consumer refunds and tort actions has no impact on the day-to-day operations of any pharmaceutical firm, and its long-term prospects. Any change in costs can produce negative results, and it is just unsupported allegation to say that the drug companies have a deep obsession with "financial ambitions and marketing considerations," so-his italics-"that is the root of their current problems." His argument might have some tenuous credibility if deemed to explain why some firms succeed and others do not. But if there is an industry-wide risk of stagnation, it is just wrong to assume that the management of every firm falls prey to these biases. The more plausible diagnosis for a systemwide failure is the systemwide effects of expanded regulation and liability.

Competition and Monopoly. Relman will have none of this equivocation. So that is where I come in, as an industry "apologist" who can put his lawyerly skills to defend the indefensible, which in this case is acting as handmaiden for the industry's monopolistic ambitions while preaching the virtues of free competition. He notes my consulting connections, fully disclosed, to the pharmaceutical industry, and then attacks my general view on health care, as developed in Mortal Peril: Our Inalienable Right to Health Care?, which is deeply opposed to universal health care. Oddly enough, Relman thinks that it is some kind of indictment of my position to say that excessive health expenditures through Medicare and Medicaid "has had negative, although unintended, consequences." But rather than explaining why I am wrong to his committed New Republic audience he just makes the comfortable leap: the man who cannot be trusted on health care is the man who cannot trust on pharmaceutical issues either. The nub of his argument: "prescription drugs are different from most other commercial products-so different that they warrant government regulation of their development, their manufacture, and their sale." At no point does he stop to ask where the libertarian position might call for regulation, which would surely include cases where impure drugs are sold as real, or where drugs are misrepresented as to their uses or side effects. By implication he confuses the libertarian position of small government and free competition with the anarchist position of no government at all.

Nor does he see any reason to do so because he takes the view that I will abandon my principles at the drop of the hat by arguing "for stronger government support of the industry's monopoly rights and for government protection against price competition from abroad. He wants handouts from the public without public oversight." Here, Relman has lost his intellectual compass. On the first point, "industry monopoly rights" refer to patents, which grant exclusive rights to sell particular products to individual inventors. By putting the proposition in this inflammatory way he makes it appear that I wish to block new entry by other firms to compete with firms that have already received patents on drugs already in the marketplace. In fact, in Overdose I am at pains to attack large claims that would give any firm a patent over entire areas of treatment, including my extensive defense of the judicial decision University of Rochester v. G. D. Searle & Co. 358 F.3d 916 (Fed. Cir. 2004) (a case on which I briefly worked for Searle), which refused to allow the University of Rochester to obtain a patent over all drugs that relied on any Cox-II method of inhibition. The patent system, rightly used, gives people exclusive control over their own products, which is a monopoly of sorts. But so long as there are multiple substitutes subject to different patents, then no firm in the industry exercises monopoly power. There can be, and with sound policies, should be effective competition among holders of different patents of drugs that are in the same class.

Relman's statement about "government protection from price competition from abroad" also reflects either economic ignorance or conscious deceit. The last thing that I favor is allowing any firm to induce the government to place tariff or tax barriers to entry on products from overseas. But the programs to which he refers are not efforts by pharmaceutical companies to block competition by other firms hawking their own products. Rather it has to do with the issue of parallel importation, where goods from the United States are sold to, say, Canadian firms at prices dictated by the Canadian government for internal Canadian use, with the knowledge that they will be reimported into the United States for sale at lower prices than those available domestically.

For Relman, who knows nothing about the fine print of this initiative, to call this program "free trade" is a bad joke. The defenders of parallel importation make it clear that American firms should be under a statutory duty to sell as much of any good as any buyer wants to buy at a price that is determined by the state monopolist (more precisely, monopsonist) on pain of losing their privileges to sell in the United States. Then once these goods are sold, the research pharmaceutical firms are barred from asserting their patent rights against a rival firm that wants to sell the products that it has commandeered courtesy of the United States Congress. This looks more like involuntary servitude than free trade. But then again perhaps Relman is in favor of those provisions that hold that doctors, as a condition for being able to work in the voluntary market, have to devote as much of their time to government service for the poor as the state asks, for fees that it determines.

Later on in his essay, Relman again then criticizes the industry for the "extraordinary steps that a Republican-controlled Congress took to ensure that Medicare would not be permitted to influence market prices by directly purchasing prescription drugs for beneficiaries who enroll in Part D under the so-called Medicare Modernization Act of 2003." I did not discuss this issue in the book, but it is worth noting why Relman is in such error on the point, for which the work of the Manhattan Institute's Ben Zycher is so instructive. See his The Human Cost of Federal Price Negotiations: The Medicare Prescription Drug Benefit and Pharmaceutical Innovation, Medical Progress Report, No. 3, November 2006. The first point here is that letting the government into the market on the buy-side does not advance competition, but creates a huge monopsony position capable of forcing down drug prices, which of course the industry does not like. But on this point its position and the public interest correspond. Just as monopolies set prices too high, so monopsonies set them too low. The huge fraction of the market under Medicare will lower rates of return that will reduce the funds available for funding new drugs, which will impair innovation, just as Overdose claims, and Zycher documents. No matter whether one looks at reduction in funds for research ($10 billion per annum), or new medicines delayed (107 to 220, depending on assumptions), the result is the same. In Relman's world regulation is a free good. In the world we live in, it is not.

Nor should we think that the only adverse consequences of government control lie in the future. It is worth noting that even before Relman wrote the Democratic effort to insert the government into the purchasing process started to falter. It is not that the current plan participants were worried all that much about the future. They were worried about the present. The Veteran's Administration is treated as the ideal for Medicare Part D, for its ability to control costs. But how? By limiting choice. Yet many people will prefer to pay more to get more, and the insertion of government into the purchasing process promises to bring in its wake the same restrictions on formulary that are found, say, in England and Japan, which delay the use of new drugs until it is too late for some people. There are, in a word, all sorts of principled reasons to be opposed to any expansion of the government role on the buy-side of the market.

The Cost of New Drugs. Relman then continues his critique of the industry by noting that I am wrong to make too much of the high costs and risky investments needed to bring pharmaceutical products to market. His first point is that the exact cost is a "mystery" because the company data is not public, even though it was given to a team of researchers led by Joseph DiMasi, director of economic analysis at the Tufts Center for the Study of Drug Development, in forming an estimate of the costs of drug development. See Joseph A. DiMasi et al., The Price of Innovation: New Estimates of Drug Development Costs, 22 J. Health Econ. 151-85 (2003) (available here). But this is not an insuperable obstacle. There are certainly crude measures that are publicly available that point to the high, and ever higher, cost of new drug innovation. If research budgets total around $35 billion for the industry, and we produce about that number of new products, then we have something of a rough first approximation of a billion dollars, which can to be corrected to take into account other factors. But don't count on Relman to make the right adjustments. He first notes the standard figure of $800 million, developed by DiMasi's team several years ago doubled today, only to comment: "Yet both these figures include the so-called time-cost of the money spent, a theoretical and much-disputed quantity that contributed about half of the $800 million figure." So now we have it: the "so-called" cost of capital is not a cost of production because, at least to one untutored physician, a dollar spent today is precisely offset by a dollar earned eleven years from now.

There is still the nasty question of how to recoup these costs, which present a difficult problem in any high-fixed, low-marginal cost business. Relman notes that I assert that high prices are needed "to recoup the high cost of their initial R&D, but that implication is denied by at least some of the leaders in the industry," but notes thereafter that Raymond Gilmartin, past Merck CEO, has "publicly stated that it was the 'value' of the drug to the patient that was the prime determination of price, not what it cost to bring the drug to market."

Relman's brief foray into pharmaceutical pricing reflects his total ignorance of the subject. As I explained in Overdose, high-fixed, low-marginal cost products present special challenges in market settings, because there is little tendency of the price of drugs to fall to the marginal cost of their production, which is all that Gilmartin wanted to say. The argument here depends on a variety of second-best considerations. So long as a company could recoup all its costs and normal profits in the first patented pill produced, marginal-cost pricing would be a great boon for all consumers that purchased the second to nth pills. After all, it is only that first pill that costs $800 million. But there's the rub: Who pays for that first pill? Clearly, no one consumer can cover its full marginal cost, so that if the company is to make back its costs plus a reasonable profit, it has to charge users two through ten million some figure above the marginal cost to make back something of what it lost on that first pill. But how much, and to whom?

Here is where the rubber hits the road. There is no unique algorithm which explains how much gets charged to any customer. The "value" issue arises because you cannot charge anyone more for a drug than it is worth to them, or indeed more than they can afford to pay, taking insurance into account. What makes matters more complicated is that every buyer understands the situation and hopes to negotiate a deal that allows it to pay as little above marginal cost as possible. This leads to price discrimination in these markets, where some customers who can move elsewhere pay less than those who do not. Relman notes that prices remain high at retail pharmacies, but misses the point when he treats that segment of the market as representative of the whole, when in fact they are not. Retail pharmacists and independent drugstores have to carry all lines. HMOs and other provider groups do not and can play off one supplier against another, leading to lower prices for them. Hence, one has to look at the whole market, to see how it all works. It is in this world wholly incomplete to make his observation that "the listed wholesale price of a prescription drug almost never goes down, no matter how much its sales increase." Listed prices are not where the action is. What you have to know is the number of side deals and rebates and special programs that constitute the full market, about whose structure Relman does not have a clue. And through it all, we do know this much: we should expect in general prices to rise as costs for production rise, because companies will not produce goods when they do not think that cost recovery is attainable over its useful life. The distribution of these increases is hard to predict because of the complex dynamics of market pricing, but connection between costs and prices, however hard to measure, is to this extent real.

Relman of course touches none of these issues. He notes that cancer therapies can run $50,000 per annum, but does not examine either the cost or benefit side for these drugs, or how deregulation might lower prices. He notes that the industry runs high profits, but scoffs at the notion of risk-related return, even in the face of the industry's mediocre performance in the stock market. To him the "the industry" (and never the firm) just "dictates" prices. And what does he propose? In his New Republic review, nothing. But his sympathies, like those of Marcia Angell, lie with a system of price controls that is sure to be a disaster, given the number of products, the shifts in prices, the number of different distribution paths and the like. Maybe Relman doesn't think that pharmaceutical companies should behave like ordinary firms. But he surely gives us no inkling here of what pricing regimes follow from his own enlightened view of the industry.

Advertising. Relman is equally uninformed when it comes to advertising, which in his inimitable authoritarian style he would like to limit or ban. But there are two sides to this story as well. Start with the consumer side. On many conditions, people are undermedicated because they are unaware of the risks they face or the conditions that available drugs can treat. Getting this information out is critical and can save lives. And once a patient gets to a physician, he may well take a different drug for the condition than the one for which he saw the ads. The key point is to get patients into the system, which only advertisement can do.

Next Relman does not appear to believe that advertisements lower average costs because of his excessive reliance on list price as evidence of market prices. But of course they do, for why else would a firm advertise if it could not recoup those costs and then some? The increases in total costs are offset by the increase in volume so that greater penetration takes place in the market. Of course, we have to worry about fraud, and he is not the first to observe that the line between truthful and false advertisement is filled with grey, which is what makes this so difficult a field to regulate even for a libertarian who has to balance the risk of too much against the risk of too little regulation. Relman is oblivious to the need for trade-offs at the margin-here and everywhere else.

Next there is drug promotion to the profession. Here it is quite remarkable the number of institutions-like Penn, Yale or Stanford—that have taken the position that any drug sponsorship of a program is so tainted that it should not be allowed in university medical centers. This position is wholly misguided. The question here is: what is the alternative? Let us assume for the sake of argument that there is some bias in each drug company-sponsored program. Funny, the doctors should know this as well. But there are also benefits. The sponsorships are competitive, and overstatements by one sponsor are inevitably caught by another. Nor are these presentations the only source of information. Doctors can generate their own information sources to supplement and correct what the companies say. Unfortunately, the dominant attitude today is that drug company sponsorship is not a cost to be traded off against other costs, but an evil, to be banned.

And what is put in its place? Well, there is the rub. Troyen Brennan and colleagues (see Brennan et al., Health Industry Practices That Create Conflicts of Interest, 295 JAMA 429 (January 2006)), came up with the dreamy proposal of asking drug companies to contribute money to educational funds that anti-drug company doctors could spend on their own spiel. Talk about aiding and abetting your opponents. As fiduciaries to shareholders, no company would sponsor education on fields in which it does not do research. Their proposal is a total nonstarter. So where will the medical schools and learned societies come up with the money? Don't ask such nettlesome questions, for good intentions cures all practical ills. Just assume that the lesser amounts information gathered from these sources will be more reliable. But don't count on it. Individual physicians do not have reputations the size of drug companies, and many will not speak for free anyhow, at least many times. So the likely upshot of the ban is less information with greater bias, albeit in a different direction. This is not progress, but a dangerous cutting of ties between industry and universities and learned societies that should be fostered, with due care and attention to conflicts of interest. Fruitful partnerships should not be bludgeoned to death on the strength of some idle idealistic assumptions.

Patents. Relman is equally fearless when he takes on the patent issues. He references the interesting work of Adam Jaffe and Josh Lerner, Innovation and Its Discontents (2004), who think that the standards for patents are too lax, and thinks that it supports the charges that Marcia Angell makes in her book (which I have reviewed unfavorably) that too many patents are given for me-too drugs that do not represent real product advances. But Jaffe and Lerner are talking about a different problem. Me-too drugs are not double-click patents. No one doubts that the spate of me-too drugs on the marketplace meet whatever patent standards Jaffe and Lerner would propose; and they surely meet the recent Supreme Court standards of nonobviousness in KSR International v.. Teleflex (2006), which dealt with the positioning of sensors in gas pedals. How could these me-too drugs not be nonobvious extensions of existing molecules when the FDA requires that they go through separate testing. Two molecules may look similar but their behaviors could be quite different, so the hard matter never concerns patentability, which is a given, but regulatory approval.

On this point, Relman and Angell are the defenders of the single worst idea of regulatory policy to come along in a long time. Recall that Relman thought that I was too soft on monopolies. So their new suggestion is that the FDA ratchet up its standard so that a new drug should be let into the market only if it outperforms the existing drug. The problems with this proposal are legion. Most obviously, separate companies work on parallel tracks so that the FDA approval of the first now freezes out all the others: talk about the monopolist's best friends, Relman and Arnold? And think about the effect on research expenditures. There are fewer winners in this world, but the lucky winners get much more in the new winner-take-all game, so there will be redoubled research efforts to patent early just to preclude others, and for what? To make sure that consumers pay higher prices, which will happen if there is only a single seller in the market, with its own super high initial cost. Or maybe it is to deny options that arise for patients that do better on one therapy than other? Relman and Angell's repeated defense of their position remains a mystery. Ruinous and foolish, from a social point of view, are apt words to describe so misguided a social policy.

Safety and health issues. Even though Relman makes an utter hash of the economic issues, one might think that he would do a bit better in talking about the health and safety issues, which are more up his alley. But again he misfires on all cylinders.

In dealing with this issue, it is useful to break the topic down into three different questions. The first of these deals with purity and contamination. The second deals with drug safety, i.e., whether the product when properly formulated has adverse side effects that outweigh the benefits of its use, and the third topic is effectiveness: even if a particular drug does not kill, will it at least help?

In my view, the most important of these by far is the contamination and purity issue, which was the exclusive target of the original Pure Food Drug and Cosmetic Act. We now have a clear set of reminders as to why that is so, as we think about the contaminated products that have come in from China, which at great public expense have to be confiscated and destroyed. It is only because of the relative success in dealing with this issue that we tend to forget its dominant importance.

The issue has, regrettably, resurfaced with drugs. The reports of world wide drug counterfeiting with disastrous results are too numerous to count. And yet what is Relman's reaction to one portion of the problem? Simple denial. More concretely, one set of objections to the parallel importation scheme from Canada and elsewhere is that there are real health risks that have to be watched. There is no question that the history of protectionism in the United States and elsewhere is replete with cases where disappointed competitors raise deliberate health scares to keep out superior products with lower price tags. But this is not one of them. Relman, however, dismisses the matter with a wave of the hand, calling the entire concern "spurious," without ever bothering to say why. He does not explain why the huge return from selling bogus goods gives no incentive for unscrupulous people to break into a porous system. He does not explain why long supply lines through foreign territory increase the opportunities to distribute counterfeit drugs into the market. He has no explanation as to why private companies spend small fortunes to label and track goods in an effort to thwart counterfeiting. He gives no explanation as to why every FDA official who has looked at this issue, in both Democratic and Republican administrations, will not give their blessing to parallel importation or why Congress, after its usual bluster, always backs down on the issue. Perhaps he will buy these drugs, but not I, at least if I can figure out which ones they are.

The real front on this issue, however, deals with the role of the FDA as a good government agency that is designed to deal with the safety and efficacy of new drugs. Relman starts by charging me with the "incredible assertion" that pharmaceutical goods are "ordinary products." His refutation: we have the full system of regulation that is now in place to deal with them. Clinical trials, prescription requirements and lots more. And so he is right descriptively. Drugs are not treated as an ordinary good, but neither are lots of things, from wheat, which is subject to all sorts of odd subsidies, to rental units in New York City, to gasoline, telephone lines, to land. And lo, for each, when special restrictions are imposed, rational actors' antisocial behavior in response to such imposed incentives occurs. Medical care is not immune to these dangers. No one over sixty-five will admit to the overconsumption of medical care, but when three-fourths the cost of Medicare comes out of public funds contributed by others, the overconsumption should be taken as a given, as a cost to be taken into account along with the real and supposed benefits of the program.

In response it could, and should, be said that health care raises real problems with information, but so do lots of other goods, including complex financial services and retirement plans, computer programs and the like. There are differences in all these goods, but one mistake that Relman makes is to think that only former editors of the New England Journal of Medicine understand just how difficult it is for ordinary people to understand medical services. But again, that problem is not unique to health care, but arises in other markets as well, like real estate and life insurance. And so in some instances people hire brokers, and in others they hire doctors. It is one thing not to know much about drugs, but it is far more dangerous not to know that you do not know anything about drugs. The point here is that knowledge of deficiency is sufficient to get one to hire professional help, which is an ordinary response in some but not all sorts of markets. There are of course lots of ways to compensate for information deficits without giving the FDA the power to regulate which drugs get on the market and, increasingly, what kinds of warnings they provide.

Relman is dismissive of any critique of FDA policy, in large measure because of the touching faith that he places in clinical trials. "Does Epstein really not understand that properly designed and conducted clinical trials are now universally accepted as the most reliable means of determining the effectiveness of a drug?" Or elsewhere that "clinical trials . . . changed the basis for the use of drugs from something akin to hearsay and witchcraft to something much closer to science." Well, yes I do understand his point, but at the same time wish to place it in perspective. The first rejoinder; "reliable" does not mean "quickest". And for people who do not have the luxury to wait years until a well run clinical trial is done, the rational thing to do is to make the best guess of future treatment on the strength of information that is available to them here and now. And for these people the fetish over clinical trials is a death sentence. In the usual case, as rational agents guided by rational physicians, they will typically try those treatments that do meet the heightened standards of clinical trials. But when those options fail, and the choice is high risk or certain death, people are willing to roll the dice because they have a higher expected utility taking the chance than they have by sitting passively by waiting to die.

The point here is not some nasty pharmaceutical propaganda. Indeed the most vocal attackers against clinical trials, without exception, are not pharmaceutical companies (who fear the liability implications of allowing people to use their drugs), but the ordinary patient who knows how to make the simple expected utility calculations that elude Relman and, more importantly, the FDA. No where in his review did Relman mention the efforts of Abigail Alliance-that's Abigail as in Abigail Borroughs, whose family sought vainly to get her access to Eribtux or Iressa, not on the advice of Richard Epstein, but on the advice of her own Johns Hopkins oncologist. See http://abigail-alliance.org/story.htm. There are no pharmaceutical companies on its board of directors- just ordinary people who wonder why the FDA stands in the path of their last best hope because it knows that clinical trials are the most reliable form of information. And then there is the litigation, as Abigail Alliance tried and failed to assert a constitutional right to obtain treatment of any drug that has made it through Phase I clinical trials, so that its toxicity was within measurable levels. See Abigail Alliance v. von Eschenbach, 2007 U.S. App., Lexis 18688. Perhaps that exotic argument should have lost, but if so it was before a judiciary that takes far too sanguine a view of the Congress and the FDA to protect us from serious danger. Whether correct as a matter of constitutional law or not, the impulse for the attacks on the FDA come from the people who want to take the drugs. And Arnold Relman knows so much about medicine that he is prepared to turn them away at the gate. What a way to put people before profits. For shame!

The beat does not stop there. Relman does not mention at all the pressing issue of off-label uses, because again it does not fit in with the tidy story that makes clinical trials the indispensable gold standard of American medicine. But there is in the United States a peculiar bifurcation of authority over the practice of medicine. The FDA may be able to keep a drug off the market, but it cannot regulate the practice of medicine. So once the drug is out there, then physicians can use it no