Legal News

FASB: Give Us Your Proposed Litigation Costs. Companies: Say What?

By Dan Slater

Remember the long and torturous road of the Vioxx litigation? A $4.85 billion settlement. Then multi-million dollar jury verdicts in Texas and New Jersey, some of which were reduced under state damage caps before being tossed aside completely on appeal in the spring.

The point we’re trying to make here is that, for Merck, the Vioxx litigation took the company down several unpredictable roads. So it’s perhaps somewhat understandable that Merck, along with five of its drug industry competitors, are a bit peeved over a proposed accounting rule that would require companies to disclose estimated costs of all continuing litigation. The Financial Accounting Standards Board — or FASB (pronounced “fasbee” by accounting insiders), says that such a rule would give investors important information. As it stands, companies have to disclose only the estimated costs when they believe it is probable they will lose a case. Here’s a WSJ story, and here’s a blog post from the Journal’s Health Blog.

In a joint letter from Merck, Pfizer, Eli Lilly, J&J, Novartis and Wyeth, the companies told FASB that that estimating the costs of continuing litigation is “highly subjective, subject to huge swings as underlying assumptions change, and unlikely to provide financial statement users with meaningful or reliable information.” Others, including GE, DuPont, Boeing and McDonalds, have also objected to the rule. Click here for a WSJ editorial from last week on the proposed rule.

In a separate letter to the accounting board, the Chamber of Commerce wrote: “Also, juries are bodies that defy prediction. They are capable of awarding $2.9 million for a spilled cup of coffee.”`

Full post as published by Law Blog - WSJ.com on August 12, 2008 (boomark / email).