By Carl O'Donnell and Tom Hals
(Reuters) - A jury award that hit Johnson & Johnson (N:JNJ) with $8 billion in punitive damages for a case involving its anti-psychotic drug Risperdal highlights the risks of the drugmaker's all-or-nothing legal strategy, several legal experts told Reuters on Wednesday.
The jury in a Philadelphia court awarded the $8 billion to a man who previously won $680,000 over his claims that it failed to warn that young men using Risperdal could grow breasts.
J&J called the sum "grossly disproportionate with the initial compensatory award" and said it was confident it would be overturned.
Legal experts agreed that the penalty was likely to be slashed.
But the verdict, which helped drive J&J's shares down 2% on Wednesday, is an example of how public outrage at the pharmaceutical industry for high drug prices has contributed to harsher verdicts against drugmakers accused of wrongdoing in recent years, legal experts said.
Outsized penalties awarded by some juries highlight risks in a longstanding strategy by drugmakers such as J&J of taking their chances at trial rather then settle product liability lawsuits brought by patients.
"Every pharmaceutical company needs to seriously consider if they want to litigate to verdict in the present environment, but with the settlement demands so incredibly high it's not always clear what their alternative is," said Barry Thompson, a partner at Baker McKenzie law firm who was not involved in the case.
Drugmakers often prefer to litigate rather than settle in hopes of protecting their brands and discouraging future patient lawsuits, Thompson said.
Companies also may use a series of early trial verdicts to gauge the size of any settlement it might eventually offer, as Merck & Co (N:MRK) did with its withdrawn Vioxx arthritis pain drug when facing thousands of lawsuits by patients who claimed harm from the drug.
A 2003 U.S. Supreme Court decision suggests that the upper limit of a fair punitive penalty in the Risperdal case would be about $6 million based on the earlier compensatory award.
J&J could still get a favorable ruling on appeal that would give the company leverage in dealing with the remaining cases, said Benjamin McMichael, a professor at the Alabama School of Law who has researched punitive damage awards.
"With such a large punitive damages award at issue, appellate courts may be more willing to come down hard on the plaintiffs," McMichael said.
J&J faces more than 13,000 lawsuits tied to Risperdal alleging that it caused a condition called gynecomastia in boys, in which breast tissue becomes enlarged. The company is also facing lawsuits involving its baby powder, opioids, medical devices and other products.
"We’re operating within a very litigious environment, and we must at times be willing to go to trial when the science, facts and law are on our side," J&J spokesman Ernie Knewitz said in an email.
"We also have to remain open to resolving cases through settlement when and where that’s appropriate to do. We have a proven track record of being able to successfully and appropriately manage this balance," Knewitz added.
The company has had its share of legal wins, losses and settlements.
An Oklahoma judge in August ordered J&J to pay $572.1 million to that state for its part in fueling the opioid crisis by deceptively marketing addictive painkillers, although the sum was substantially less than investors had expected.
Johnson & Johnson has said it plans to appeal the ruling.
Earlier this month, the company agreed to pay $20.4 million to settle claims by two Ohio counties, avoiding a federal opioid trial.
In 2013, J&J paid more than $2.2 billion to resolve civil and criminal investigations by the U.S. Department of Justice into its marketing of Risperdal and other drugs.