Will a brilliant legal strategy damn Merck's reputation forever?

Merck has made a decision to implement a bold legal strategy on the Vioxx front that is clearly paying business dividends. The company’s management has decided to unconditionally fight every individual Vioxx law suit on a case by case basis. This means that plaintiffs will face years of waiting, inconvenience and ongoing legal battles as they are tied up in court.

To date, none of the 45,000 people who have sued Merck, contending that they or their loved ones suffered heart attacks or strokes after taking Vioxx, have received payments from the company. In fact, Merck's largest failure to date (2005 verdict in Texas court rewarding plaintiff $253.5 million) was automatically struck down to $26.1 million and is now stuck in the red tape of a higher appeals court. It could remain in limbo for years.

Merck's legal strategy is very savvy and copies one followed by Big Tobacco for years. The company is betting the farm that many plaintiffs won't have the stomach to continue their law suits as they face years of endless trials and appeals. Merck hopes that by forcing them to play a prolonged waiting game, many of these plaintiffs will die before their cases ever come to fruition. Of course, the company also understands that if it settles with any plaintiffs, it blows open the flood gates to thousands upon thousands of new law suits.

An estimated cost of $1 billion in litigation fees seems like a bargain to Merck based on how the company's stock has rebounded since the initial plunge three years ago. And, many plaintiffs have backed off and dropped their cases because of this legal approach.

But, the impact to the company's long term reputation as a result of this strategy could be seriously jeopardized. Based on the public facts, it's hard to believe that Vioxx isn't responsible for some of these disastrous health outcomes. And, the medical community, as well as educated consumers who read or listen to the news and search the Internet, understands that this is all about business for Merck. Much like Big Tobacco, it shows that integrity and doing what's right for customers are actually the last priority for this company.

The numbers speak to how bad this could become. Conservatively, if 45,000 plaintiffs communicate their disgust for Merck to just 20 people each, then almost 1 million people will think negatively about this company. Exponentially multiply that by the amount of times this issue is blogged about, written in the news and discussed by the medical community, and eventually this company could be vilified by millions and millions of constituents from the core base that has made Merck a sustainable leader in the pharmaceutical industry.

I would imagine that many heated discussions have and continue to take place between Merck's legal, communications counsel and senior management as to whether this is the right course of action to take. It's surely not an easy decision. But, losing what we communicators call brand loyalty (or trust) with customers can ultimately kill a company as well. It seems to me that this is where Merck is heading.

Comments

[Steven Zweig]

I wonder though if the negative press will really hurt Merck...after all, consumers, doctors, hospitals, etc. have to buy their medicines from someone, right? Medicine is not something you can forgo out of moral disgust, no matter how justified.

If it's a medicine that only Merck offers, people will still get it from them.

If it's a medicine that people can get from other sources, they *may* choose to not patronize Merck--except that to a large extent, reputation is relative, not absolute. If the whole pharma industry is seen as putting profit ahead of human life and being untrustworthy, then consumers and physicians may not have a more trusted or liked alternative. As long as Merck doesn't stand out as massively worse than its peers, then it will "benefit" from general disgust with its industry.

That's what's helped politicians for many years, after all--very few of them are truly trusted, but as long as most candidates and office holders are viewed as self-interested and manipulative, then voters don't really have alternatives. The absence of alternatives washes out the impact of a bad reputation in that regard (again, at least until the reputation gets so bad as to be noticeably worse than the peer group).

[ed]

That's an interesting point.

I wonder if Merck will become the worst of the worst because of many factors (top among them this legal strategy).

The competition for drug delivery is so intense. If a pharma doesn't have a steady pipeline it is vulnerable to major earnings set backs, being acquired, etc. I think that having a terrible reputation as well, can push one in this industry closer to the abyss.