Too Big to Care: Why Novartis Decided to Fight a Sex Discrimination Case It Knew It Would Lose

Last Updated May 17, 2010 6:09 PM EDT

It was no surprise that a federal jury in New York reached a $3.36 million verdict today in favor of a class-action sex discrimination case against Novartis (NVS) -- one trial witness was a woman who was allegedly raped by one of her customers and then threatened by Novartis' HR department after she reported it to them. What was surprising was Novartis' decision to not settle the case: The same jury sits tomorrow to decide whether they will require punitive damages from Novartis. Expect those to be significant.

Knowing that a Novartis manager would be forced to testify that he failed to tell the police the truth when the rape allegation was investigated, why would the company risk the wrath of a jury? "It's a mystery to me," said attorney David Sanford of Sanford, Wittels & Heisler, one of the plaintiffs' lawyers. "There are no surprises in federal court."

One possible answer is that drug companies have grown so large through their acquisitions that the potential liabilities in discrimination cases are no longer large enough to compel a settlement.

The Novartis verdict will affect 5,600 women at the company. The plaintiffs' attorneys will press for company-wide pay-scale changes and reform of the Novartis's promotion and HR systems. But the ultimate financial damages will likely only be in the tens of millions of dollars: In a similar case at Sanofi-Aventis (SNY) the company only has to pay $15 million. At Home Depot, a case affecting 25,000 women ended in a $104 million payout.

Those sound like large sums of money, but Novartis has revenues of $45 billion a year. A payment even mid-way between the Sanofi and Home Depot cases will barely register on Novartis' financial dashboard, and probably won't move the stock. So Novartis had a choice: Settle the case and definitely lose some money, or roll the dice in court and maybe win. A loss at trial would put the company in the same position as a settlement, and the damages wouldn't be large enough to make a settlement crucial.