Who (If Anyone) Should Be Liable for Injuries from Generic Drugs?

39 Pages Posted: 15 Oct 2014 Last revised: 16 Nov 2016

See all articles by Ezra Friedman

Ezra Friedman

Northwestern University - Pritzker School of Law

Abraham L. Wickelgren

University of Texas at Austin - School of Law; University of Texas at Austin - Center for Law, Business, and Economics

Date Written: november 10, 2016

Abstract

Two recent Supreme Court decisions (PLIVA, Inc. v. Mensing (2011), and Mutual Pharmaceutical v. Bartlett (2013)), have essentially removed the threat of liability from generic drug manufacturers. In this paper, we consider three possible liability regimes in two simple models of drug market competition and safety research. Specifically, we compare the Everyone Liable (EL) regime, where generics face the same liability as branded manufacturers, the No Liability for Generics (NLG) regime, resulting from PLIVA and Mutual, where generics face no liability, and a third, Branded Fully Liable (BFL) regime, where a branded developer faces liability from injuries caused by a generic version of a drug it has developed. We find that the BFL regime generally provides the most efficient incentives to identify side effects and develop an efficient warning. However, the BFL regime can lead to overconsumption of the generic drug by patients who should not take the drug at all. For this reason, the EL regime may be preferable for a drug where the danger of side effects may outweigh the clinical value, as was alleged in Mutual Pharmaceutical v. Bartlett. We find that the NLG regime that resulted from the recent Supreme Court decisions is unlikely to be optimal, because it is dominated by BFL when the consumption decision is not important, and inferior to EL when it is very important.

Keywords: PLIVA, Generic Drugs, Product Liability, Failure-to-warn, Pharmaceuticals

JEL Classification: K13, K23, L15

Suggested Citation

Friedman, Ezra and Wickelgren, Abraham L., Who (If Anyone) Should Be Liable for Injuries from Generic Drugs? (november 10, 2016). Northwestern Law & Econ Research Paper No. 14-19. Available at SSRN: https://ssrn.com/abstract=2509524 or http://dx.doi.org/10.2139/ssrn.2509524

Ezra Friedman (Contact Author)

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

Abraham L. Wickelgren

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

University of Texas at Austin - Center for Law, Business, and Economics

Austin, TX 78712
United States

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