Johnson & Johnson's ($JNJ) new Risperdal fine isn't just a whopping big penalty. It's a big stone tossed into the company's legal problems, setting off a ripple effect that could upset its ongoing negotiations with the Justice Department and roil any settlement discussions in state courts.
Yesterday, an Arkansas judge levied $1.2 billion in fines against J&J and its subsidiary Janssen Pharmaceuticals for violating consumer-protection laws. The state claimed that J&J downplayed Risperdal's risks and marketed it for unapproved uses, misleading its Medicaid program into overspending for the drug.
J&J says it will ask for a new trial, and if that motion is denied, it will appeal the verdict. "During the nearly three-week trial, Janssen presented abundant evidence showing the company acted responsibly and fully complied with all laws and regulations regarding its antipsychotic prescription medication Risperdal," the company said in a statement.
Meanwhile, the size of the fine could embolden other states with outstanding Risperdal lawsuits. "[T]he game has fundamentally changed," Patrick Burns, a spokesman for Taxpayers Against Fraud, told the NYT. "Most attorneys general can do the math, and there's no reason for any state to settle if they can win really big numbers in court."
Carl Tobias, who teaches product-liability law at the University of Richmond law school, gave Bloomberg a similar assessment: "I think this ups the ante quite a bit on the other states' cases targeting J&J's Risperdal marketing. I think the judge was sending a message--either settle these cases or litigate them at your peril."
It could also interfere with ongoing negotiations to settle longstanding probes and whistleblower lawsuits in a blanket deal with the Justice Department and a group of states. The company reportedly reached a tentative deal to settle the civil claims for $1 billion, but Justice officials finally rejected it. The department asked for $1.8 billion, Bloomberg reported at the time.
The Justice settlement news came on the heels of J&J's settlement with the state of Texas; the company agreed to pay $158 million to wrap up its Risperdal lawsuit there. Some suggested that the Justice settlement went awry partly because the states involved felt that they were entitled to more, given the size of the Texas deal.