Why Johnson & Johnson plans to pay $5.5 bn after insisting talc was safe
New Delhi, Jul 29, 2026
Johnson & Johnson's proposed talc settlement shows that for large corporations, removing years of legal uncertainty can sometimes matter more than proving they are right in court
For years, Johnson & Johnson (J&J) has maintained that its talc-based baby powder is safe and that there is no reliable scientific evidence linking it to ovarian cancer. Just last week, a US federal judge cast doubt on whether tens of thousands of plaintiffs could prove that talc specifically caused their illness. Yet, on Tuesday, the healthcare giant announced it would pay an estimated $5.5 billion to resolve almost all of the remaining ovarian cancer lawsuits against it.
"..we are confident the company would have ultimately prevailed with further litigation," J&J Vice-President of Litigation Erik Haas said in the statement on the company’s website.
So, if the company believed it was gaining ground in court, why did it agree to one of the largest product-liability settlements in corporate history?
According to S M Algaus, partner, dispute resolution practice at CMS INDUSLAW, a full-service law firm, the answer lies not only in the courtroom but also in boardrooms, balance sheets and investor expectations. For large listed companies, there comes a point when the cost of prolonged uncertainty can outweigh the possibility of eventually winning the legal battle.
Why do companies settle while maintaining they did nothing wrong?
Corporate lawyers have a term for what has happened in J&J's case: litigation overhang.
"Unlike an ordinary lawsuit, a litigation overhang develops when legal claims remain unresolved for years and become large enough to influence a company's financial outlook, reputation and strategic decisions. It is not merely the financial risk of an adverse judgment. Still, the sustained market adverse consequences that affect a company that cannot quantify, contain, or conclude its legal exposure," Algaus told Business Standard.
He explained that the problem extends well beyond the courtroom. Institutional investors struggle to estimate the company's ultimate liability, making it harder to value the business with confidence. Accounting rules often prevent companies from recognising the full potential liability because the amount cannot yet be reliably estimated. At the same time, listed companies are required to keep disclosing significant legal developments, ensuring that the litigation remains in the public spotlight.
In J&J's case, the litigation has persisted for well over a decade. According to Algaus, around 69,000 cases remain consolidated in the federal multidistrict litigation (MDL), making it the largest active MDL in the United States. Every major court ruling, jury verdict, or procedural development has therefore had the potential to influence investor sentiment and public perception.
Why did J&J settle now?
The timing of the settlement is significant because it came after a series of legal developments that appeared to improve J&J's position in court.
On July 22, a US judge questioned whether plaintiffs had enough scientific evidence to prove that talc specifically caused an individual's ovarian cancer, raising the possibility that thousands of claims could be dismissed. The order came after plaintiffs withdrew key expert witnesses in two test cases following challenges to the reliability of their testimony.
Around the same time, J&J also won another case when a prominent plaintiffs' law firm was disqualified from representing thousands of claimants. According to a Reuters report, these developments gave the company greater leverage ahead of future bellwether trials.
Announcing the proposed resolution, Haas asserted that the company remained confident it would ultimately prevail in court because it had already succeeded in the vast majority of ovarian cancer cases that had gone to trial. "While we are confident the company would have ultimately prevailed with further litigation, as it has in the vast majority of cases tried to date, this resolution allows the company to put this matter behind it and remain focused on its mission to develop medicines and devices that save lives," he said.
For plaintiffs, however, the settlement represents an opportunity to secure compensation after years of litigation without waiting through another lengthy cycle of trials and appeals. Reuters reported that the proposed agreement could ultimately exceed $7 billion, depending on participation levels, because it assigns values to qualifying claims rather than imposing an absolute cap on payouts.
Bankruptcy was supposed to end the litigation
Before arriving at a negotiated settlement, J&J spent nearly five years trying to resolve the talc litigation through an unusual bankruptcy strategy, popularly known as the Texas Two-Step. It allowed a company under Texas corporate law to split into two entities through a divisional merger. Valuable operating assets remained with one company, while legacy legal liabilities were transferred to another newly created subsidiary.
That subsidiary would then file for bankruptcy protection. Once bankruptcy proceedings began, litigation against the subsidiary would be automatically paused under US bankruptcy law. J&J hoped to use the bankruptcy court to negotiate a single settlement that would bind both existing and future claimants, replacing thousands of individual lawsuits with a compensation trust funded by the company. In 2021, J&J created a subsidiary called LTL Management and transferred its talc liabilities to it before filing for bankruptcy protection.
The company argued that bankruptcy offered the fastest and fairest way to compensate claimants while avoiding decades of expensive litigation. However, plaintiffs argued that the strategy amounted to an abuse of bankruptcy law because J&J itself remained one of the world's strongest and most profitable healthcare companies.
In January 2023, the US Court of Appeals for the Third Circuit dismissed LTL Management's bankruptcy, holding that the subsidiary was not in genuine financial distress. J&J made a second attempt in 2023 with a revised settlement proposal worth nearly $9 billion, but that too was rejected. In March 2025, US Bankruptcy Judge Christopher Lopez dismissed the third bankruptcy attempt after finding that it lacked sufficient support from claimants. Together, those rulings closed the bankruptcy route for resolving the matter.
Algaus said that with all procedural escape hatches exhausted, an out-of-court settlement became the only realistic path to achieving finality.
Winning in court is not always the cheapest option
At first glance, agreeing to pay billions of dollars despite believing the underlying claims lack scientific merit may seem illogical. However, large corporations assess the total cost of continuing the dispute over many years, which includes legal fees, management time, uncertainty over future liabilities, reputational damage and the impact on investors.
Algaus points out that "a corporation may succeed in the vast majority of individual cases tried to verdict, and still face existential exposure from the fraction it loses. That uncertainty becomes especially difficult to manage when tens of thousands of lawsuits remain pending".
Algaus noted that in India, under Sebi (Listing Obligations and Disclosure Requirements) Regulations, 2015, material litigation must be disclosed to stock exchanges once it crosses specified financial thresholds.
Baby powder was one of J&J's most iconic products for more than a century. Allegations linking it to cancer inevitably affected public trust, even though the company has consistently maintained that extensive scientific research supports the safety of cosmetic talc.
According to Algaus, one of the most important benefits of a settlement is predictability. Instead of facing an open-ended legal exposure with no clear end date, companies can convert uncertain future liabilities into a defined financial obligation. That improves financial planning, provides greater clarity to investors and removes a significant source of uncertainty from the balance sheet.
What to watch next
The settlement is still subject to approval by claimants. Under the proposed agreement, at least 95 per cent of eligible claimants must agree to participate before it becomes effective. According to the company, the settlement would resolve roughly 76,000 remaining ovarian cancer claims, including cases pending in state courts alongside the 69,000 in the federal multidistrict litigation.
J&J expects to pay up to $3 billion during 2027, with the remaining payments scheduled from 2028 onwards.
But the agreement will not resolve every talc-related lawsuit. Mesothelioma cases and other claims outside the settlement are expected to continue. J&J has said it will defend the remaining cases while maintaining that its talc products are safe and do not contain asbestos.
[The Business Standard]
