PRODUCT LIABILITY AND INNOVATION

Managing Risk in an Uncertain Environment

Janet R. Hunziker and Trevor O. Jones, Editors

NATIONAL ACADEMY OF ENGINEERING

NATIONAL ACADEMY PRESS
Washington, D.C.
1994



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Product Liability and Innovation: Managing Risk in an Uncertain Environment PRODUCT LIABILITY AND INNOVATION Managing Risk in an Uncertain Environment Janet R. Hunziker and Trevor O. Jones, Editors NATIONAL ACADEMY OF ENGINEERING NATIONAL ACADEMY PRESS Washington, D.C. 1994

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Product Liability and Innovation: Managing Risk in an Uncertain Environment NATIONAL ACADEMY PRESS 2101 Constitution Ave., NW Washington, DC 20418 NOTICE: The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievement of engineers. Dr. Robert M. White is president of the National Academy of Engineering. This publication has been reviewed by a group other than the authors according to procedures approved by a National Academy of Engineering report review process. The interpretations and conclusions expressed in this volume are those of the authors and are not presented as the views of the council, officers, or staff of the National Academy of Engineering. Partial funding for the activity that led to this publication was provided by the Alfred P. Sloan Foundation and by Aetna Life and Casualty Company. Primary support was provided by the National Academy of Engineering Fund. Library of Congress Cataloging-in-Publication Data Product liability and innovation: managing risk in an uncertain  environment / Janet R. Hunziker and Trevor O. Jones, editors.  p. cm.  Includes bibliographical references and index.  ISBN 0-309-05130-4 1. Technological innovations. 2. Product liability. 3. Risk management. I. Hunziker, Janet R., 1952– . II. Jones, Trevor O.,  1930– . T173.8.P7253 1994 658.5'6—dc20 94-32031 CIP Copyright 1994 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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Product Liability and Innovation: Managing Risk in an Uncertain Environment Steering Committee on Product Liability and Innovation TREVOR O. JONES (Chair), Chairman of the Board, Retired, Libbey-Owens-Ford Company P. L. THIBAUT BRIAN, Retired Vice President, Engineering, Air Products and Chemicals, Inc. BENJAMIN A. COSGROVE, Retired Senior Vice President, Boeing Commercial Airplane Group JAMES GILLIN, Retired President, MSD Agvet, Division, Merck & Co., Inc. ALEXANDER MACLACHLAN, Retired Senior Vice President, Research and Development, E.I. du Pont de Nemours & Company BRUCE E. PETERMAN, Senior Vice President, Aircraft Development, Cessna Aircraft Company JEROME G. RIVARD, President, Global Technology and Business Development ROBERT J. SCHULTZ, Retired Vice Chairman, General Motors Corporation JANET R. HUNZIKER, NAE Program Officer

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Product Liability and Innovation: Managing Risk in an Uncertain Environment This page in the original is blank.

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Product Liability and Innovation: Managing Risk in an Uncertain Environment Preface At first glance, the realms of product liability law and the corporate research and development process seem worlds apart. Yet since the mid-to late-1980s, we had been hearing from our members, distinguished engineers from various fields, that it would be useful for the National Academy of Engineering (NAE) to explore the issue of product liability impacts on innovation. Product liability law is the realm of attorneys, but the effects of product liability law on the innovation process and especially on engineering development are of significant concern to engineers. The Academy has sought to bring to light the engineering consequences of liability law, by eliciting the views and experiences of engineers and others who have been deeply involved in the issue. Formulating an activity to look at an issue where opinion tends to gather at the ends of the spectrum was not an easy task. On one end are those who point to record expenditures on R&D in some industries, noting that product liability obviously has not had an impact on investments in the process that leads to innovative products. On the other end are those who witness the reallocation of research dollars and the demise of complete product lines, attributing it mainly to the costs of the product liability system. One of the first things the steering committee planning this activity recognized was that in many cases, the unpredictability of the system was a major problem for companies. Thus, the approach the committee decided to take was to look at how companies in some industries manage the risks and uncertainty inherent in designing, producing, and commercializing products and processes, given current trends in product liability law. The

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Product Liability and Innovation: Managing Risk in an Uncertain Environment emphasis would be on best practice, with a particular focus on the perspectives and experiences of engineers. A symposium, "Product Liability and Innovation: Managing Risk in an Uncertain Environment," was organized and held September 20–21, 1993, in Washington, D.C., to examine these issues. This volume is based on that symposium. The authors from industry provide insights into how the product liability system is affecting engineering functions as well as broader corporate practices. As these cases illustrate, just as impacts vary by industry, so too do the strategies for dealing with the product liability environment. The volume also gives perspectives on issues such as the efficiency of the product liability system, whether there is a causal effect between product liability law and safety innovations, what the legal and regulatory systems communicate about safety to product designers, the admission of scientific and technical evidence in the courtroom, and how knowledge of behavioral factors could be incorporated into product design to reduce risk. I would like to thank Trevor Jones, who chaired the symposium and the Steering Committee on Product Liability and Innovation, and Janet Hunziker, the principal staff officer for the project, for their efforts in organizing the symposium and in the publication of this volume. Also, on behalf of the National Academy of Engineering, I would like to thank the committee members (listed on page iii) and the authors who participated in the symposium and submitted papers for this volume. A special note of appreciation goes to Robert Rines, chairman of the board of Franklin Pierce Law Center, for his summary of the proceedings at the symposium. Bruce Guile, director of the NAE Program Office, provided valuable guidance throughout the project. Thanks are also due other members of the NAE staff, including Dale Langford, Penny Gibbs, Maribeth Keitz, and Bette Janson for their able work on the symposium and the publication. Partial funding for this activity has been provided by the Alfred P. Sloan Foundation and Aetna Life and Casualty Company. Primary support was provided by the National Academy of Engineering Fund. Robert M. White President National Academy of Engineering

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Product Liability and Innovation: Managing Risk in an Uncertain Environment Contents Overview and Perspectives Trevor O. Jones and Janet R. Hunziker   1 THE DYNAMICS OF INNOVATION AND PRODUCT LIABILITY         Technology Issues and Product Liability Richard M. Morrow   23     Making Product Liability Work for You: A Path Out of the Product Liability Jungle Victor E. Schwartz   30     The Role of the Justice System in the Product Liability Debate R. William Ide III   37 IMPACT ON ENGINEERING PRACTICE, INNOVATION, AND CORPORATE STRATEGIES         The Chemical Industry: Risk Management in Today's Product Liability Environment Alexander MacLachlan   47

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Product Liability and Innovation: Managing Risk in an Uncertain Environment     Medical Devices, Component Materials, and Product Liability Paul Citron   54     General Aviation Engineering in a Product Liability Environment Bruce E. Peterman   62     Indirect Effects of Product Liability on a Corporation Frederick B. Sontag   68     The Effects of Product Liability on Automotive Engineering Practice François J. Castaing   77     Approaches to Product Liability Risk in the U.S. Automotive Industry Charles W. Babcock, Jr.   82     Innovation, Engineering Practice, and Product Liability in Commercial Aviation Benjamin A. Cosgrove   113     Regulation, Litigation, and Innovation in the Pharmaceutical Industry: An Equation for Safety Marvin E. Jaffe, M.D.   120 THE SOCIAL, LEGAL, AND REGULATORY ENVIRONMENT         Insurance: The Liability Messenger Dennis R. Connolly   131     Junk Science in the Courtroom: The Impact on Innovation Peter W. Huber   138     Product Safety Regulation and the Law of Torts Susan Rose-Ackerman   151     The Inconvenient Public: Behavioral Research Approaches to Reducing Product Liability Risks Baruch Fischhoff and Jon F. Merz   159 Contributors   190 Index   197