Ten days ago, a Texas jury awarded the widow of a Vioxx user more than $250 million for the wrongful death of her husband. Although Merck, the manufacturer of Vioxx, may ultimately pay far less in this case and may even win on appeal, most observers were surprised by the Texas jury decision.

Merck faces nearly 5,000 product liability lawsuits related to Vioxx alone. Even if it were to win 99.9% of these cases, losses in even the remaining one tenth of 1%, or five cases, could leave the company financially weakened. The cost of litigating even a substantial fraction of these cases is large, even for a company of Merck’s size.

The real loss to Merck, and to our economy as a whole, cannot be calculated in terms of Vioxx claims alone. New beneficial drugs might not be developed because businesses and their investors will be more afraid than ever of product liability. Without these drugs, countless lives could be shortened, and for others, life will be unnecessarily less pleasant.

The irony of the Vioxx case is not that Merck was reckless but precisely that it was not. Apparently, Merck violated neither property nor contracts. It followed rules at least to the satisfaction of the government. If careful actions by Merck had product liability exposure, then so too do those of many other pharmaceutical companies. It is not surprising that since the Vioxx decision, the market capitalization of practically all major pharmaceutical companies, not just Merck’s, have declined.

Product liability cases are nothing new. From the flammability of children’s pajamas to the safety of automobiles, and from thalidomide to cyclamates, companies have for decades removed from market products with demonstrably harmful effects. Manufacturers and their insurers have paid for liability, and regulators have refocused their review and screening of new products.

But for two reasons, product liability affects pharmaceutical companies differently from most other products. First, unlike most consumer products, pharmaceuticals are rarely used without some risk to some individuals. Yet for the vast majority of consumers, they are profoundly beneficial. That is partly why drugs undergo years of testing. Distribution and sale are heavily regulated in America and practically every other country in the world.

Second, pharmaceuticals have an unusually high rate of innovation. Each year, new products are introduced, each with substantial benefits to consumers and each with potential new risks. If the perception is that risk of litigation will rise, this innovation will slow or even stop.

Of course, wrongful injury or wrongful death caused by a product should be compensated. No compensation can restore the loss of a loved one. Our legal and insurance systems work in tandem to create incentives for individuals and businesses to take reasonable precautions to avoid accidents while permitting useful activities to go forward. Product liability rules should not disturb this balance. If certain types of pharmaceuticals appear to have substantial litigation risk regardless of precautions taken, those will attract few if any investment dollars.

Halting investment in some areas of pharmaceutical research because of product liability concerns is a tragedy. Biomedical research, including pharmaceutical research, has made enormous strides over the past decade. Drugs that were unimaginable yesterday can be developed today. Much of that research takes place here in America. Many people, both in America and elsewhere, could benefit from new pharmaceutical products.

Manufacturing and distribution of pharmaceuticals are among the largest industries in the nation. America leads the pharmaceutical industry worldwide for good reasons. We have the most advanced medical and pharmaceutical research in the world. We have strong and enforceable intellectual property laws. We have fluid capital markets to invest in pharmaceuticals. And relative to the rest of the world, American consumers are willing to pay more for innovative pharmaceuticals.

We must find a way to insure individuals against rare side effects from pharmaceuticals while permitting research to develop and offer new and beneficial drugs subject to reasonable precautions. If those pharmaceuticals are not developed here, they are unlikely to be developed elsewhere. We will all be worse off.

A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He can be reached at hfr@furchtgott-roth.com.