Walter Olson at Overlawyered writes that Purdue Pharma has spent more than $250 million successfully defending itself against lawsuits related to its product, Oxycontin. Every legal attack so far over the "often-abused painkiller" has failed, but look how much the suits have cost the company anyway! The obvious solution is to institute a "loser pays" rule such that if you sue someone and lose you have to pay their legal costs. Such a rule would clearly reduce the incentive to sue by adding additional risk to the process.
My question is whether or not there is some type of suit that is often doomed to failure and yet beneficial to society at the same time? That is, is there any reason not to burden losers with the whole cost of the legal action? I suppose one could take the argument too far and say, well, why not execute people who initiate a losing lawsuit? That would create a disincentive as well. True, but such a policy would add an externality to the system, whereas merely shifting costs does not. Are there circumstances in which it's a good idea to allow plaintiffs with little hope of victory to impose huge legal costs on defendants?