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Product Liability and Innovation: Managing Risk in an Uncertain Environment Technology Issues and Product Liability RICHARD M. MORROW Since earliest times mankind has created and used implements and devices to carry out the tasks of daily life. Hand tools, horsedrawn plows, ladders, printing presses, and steam engines laid the foundation of today's world—a world that has not been particularly benign. For example, in the ten-year period beginning in 1928 when reliable data first became available, there were over 800,000 accidental deaths in the workplace, around the home, or on the highways (National Safety Council, 1992). Added to the fatalities were countless millions of injuries. It is generally accepted that there has always been some degree of trade off between the use of implements, machinery, or new technologies and the personal risks inherent in their use. At various times accidents happened and people were injured because the devices were unsafe. Either safe technology was not available or they were poorly designed, improperly manufactured, or became worn out and dangerous to use. On other occasions accidents and injuries occurred because people used poor judgment or behaved in ways that are not always rational, such as drinking alcohol and then driving a car, removing a safety guard from a piece of industrial equipment, or knowingly diving into a shallow swimming pool. Accidents also happen when products are improperly used beyond their design limitation. Attitudes about the amount of risk people should have to assume in using products and where to place the responsibility or blame when something goes wrong have changed over the past several decades. Years ago, the social costs associated with physical injury were borne primarily by the individual. Today, determining responsibility and seeking redress for
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Product Liability and Innovation: Managing Risk in an Uncertain Environment accidental injury or death have increasingly become contentious issues and are frequently resolved only through the litigation process. This is costly. Over the past 40 to 50 years, U.S. tort costs have risen significantly, reaching an estimated $132 billion in 1991 (Tillinghast, 1992). Such high costs are borne by everyone in one form or another, and often have consequences that are not planned or obvious. This is becoming an issue of growing national concern. As providers of the goods and services we use in our daily lives, companies are viewed as both the cause of the problem and the answer to the question, "Who will pay for the physical and societal costs when an accident occurs?" Product liability requires that companies critically examine the possible risks associated with their products or services. It also forces us, as a society, to look at the very personal nature of pain and suffering. Most of the time, companies go about their business of providing goods and services that the public wants. Usually when people get injured there is no connection between the two. This volume is about those times when there is an actual or alleged connection, the system of laws for dealing with it, and most important, the ramifications of that system. DEFINING THE TERMS Product liability and innovation. By themselves, these terms signal different disciplines. But in the following context they are frequently linked: Does product liability plus innovation equal a problem? Product liability law has its roots in providing a means for those injured by defective products to seek redress. It aims not only to compensate victims but also to act as an incentive to providers of goods to make their products safe. The body of tort law that guides us today is of fairly recent development, having matured within the past 40 years. It is fair to say that the legal theorists who had much to do with the formation of modern tort law were well-intentioned and felt that society's best interests would be properly served by this framework for resolving disputes involving personal injury and accidents. Innovation is the introduction of new methods or devices. By implication, one views these changes as improvements. Innovation can include a spectrum of change—from breakthrough discoveries in product and process to incremental improvements in design, materials, production methods, and quality control. Technological innovation has been an important contributor to the competitiveness of the U.S. manufacturing sector, to safer and more effective products, to job creation, and to the growth of this country's standard of living. By definition, innovation involves risk. Change always does. No matter
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Product Liability and Innovation: Managing Risk in an Uncertain Environment how much something is analyzed, tested, and evaluated, there is always the element of the experimental with an innovation. It is impossible to know exactly what the outcome will be. There are never any guarantees that an innovation will work, let alone work perfectly. And what part does the engineer play in the innovation process? Engineers are "the practitioners of innovation." Although all of us, regardless of our professions, are practitioners of innovation in some form or other, it is those doing research and development, the engineers, who are at the cutting edge of technological innovation. THE PRODUCT LIABILITY-INNOVATION LINK We all know that laws are not static. As they change, there is a ripple effect on institutions and people that may not have been expressly anticipated or predicted. As mentioned earlier, it was anticipated, even intended, that changes in tort law, and product liability law in particular, would act as an incentive to bring better and safer products to market. However, we then must ask these questions: along with the good that product liability law has accomplished, have there been unintended deleterious effects? If so, what are they? How pervasive are they? Do they affect companies in any meaningful way? An engineer working on a new product or process development, and his or her employer, cannot help but observe the following increasingly commonplace occurrences: Professional judgments concerning everything from design to end use can be introduced as evidence in product liability suits. Defendants can be held liable for products that were built according to accepted industry standards at the time; the plaintiff need only prove that it was possible to produce a safer product, even if the vastly higher production costs would have made the product virtually unmarketable. Manufacturers are increasingly being held responsible for human error and poor judgment in the use of their products. Largely nonscientific juries are being asked to make decisions on highly complex technical issues. Often the technology itself goes on trial, and the more unfamiliar the technology is, the more harshly it is judged. The engineer may begin to feel that it is the courts that have the final say in what makes a good design or a good product. The message our product liability system conveys to engineers is that they must design and produce safe products. What it does not tell them is how to be safe or how safe to be (Eads and Reuter, 1983). Although there
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Product Liability and Innovation: Managing Risk in an Uncertain Environment has always been uncertainty in the introduction of new products and processes, many would contend that the impacts of product liability have added even greater uncertainty into every phase of planning for, and management of, the product cycle. This may be particularly true at the front end of the cycle, when decisions are made about whether to pursue development of a particular product and, if so, how it should be designed. When innovation is stymied, products are less competitive, both here and in world markets where they must compete against products from countries, primarily Japan and the European Community, that do not bear the costs of a similar liability system. Moreover, the high costs of insuring against liability losses and defending suits funnels resources from productive activities and results in higher product prices. If indeed U.S. firms, in attempting to avoid exposure to liability lawsuits, are taking fewer risks and become less innovative, the ultimate loser is the consumer, the very one product liability was designed to protect. This view of the issues is contradicted by those who say that there is a paucity of empirical evidence to support the contention that product liability deters innovation. While it may be true that the numbers—whether they be for punitive damages verdicts, award amounts, how many people actually bring lawsuits, or transaction costs—do not support the product liability–innovation link, it may also be true that numbers alone do not tell the whole story. This is a complex problem where perceptions of the legal environment, opportunities forgone, and innovations not pursued are a very real, albeit difficult-to-measure effect. Other intangibles that play a role in the experience a firm has with product liability are the degree of hazard inherent in the product, the ubiquitousness of the technology, and the number of people at risk. These variables affect both the degree of uncertainty in developing, manufacturing, and marketing a product, as well as the manner in which firms seek to lower their risk of exposure to liability. SPECIFIC TECHNOLOGY ISSUES The intersection of product liability and innovation raises a host of intriguing technology-related issues. The impact on design practice, the cornerstone of innovation, is perhaps the most salient. A recent National Research Council study (1991), noting the primacy of design, has stated that ''quality cannot be manufactured or tested into a product, it must be designed into it." Since manufacturers can be held liable for a product design that exposes consumers to undue risk, it is incumbent on them to incorporate quality and safety measures into their product designs. This is no small task. Not only must industry and government standards be considered in the design, but today's products are increasingly complex, consisting
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Product Liability and Innovation: Managing Risk in an Uncertain Environment of many different components and subsystems, often from different suppliers. These individual parts, as well as their interfaces, must be designed against failure and misuse. This practice of "defensive design" incorporates a rigorous and careful application of engineering methods. It includes formal engineering analysis, testing, and anticipating problems through fault-mode and worst-case analysis methods. The objective is to explore not only where failures may occur but the implications of those failures. Design review, where a team of specialists examines every aspect of the design throughout the product life cycle, is crucial. Written communication is an important part of this design process. Keeping records of data, processes, and the reasons particular decisions were made is common engineering practice. In the context of product liability, however, this written communication becomes problematic. Could this material, prepared with good intent and according to accepted practice, be subject to examination, and possibly used against the manufacturer in a court of law? If so, what is the solution? Any engineer would agree that even with the most thorough testing and analysis of design, the most complete documentation, and the most carefully worded warnings and instructions, it is impossible to achieve zero risk. Moreover, there will always be people who misuse products, either accidentally or intentionally. There will always be trade-offs between the utility of the product and the danger that product may pose to the user. To cite an extreme illustration, knives, saws, and other cutting tools could be made with dull edges so that people would not injure themselves, but that would render them useless for their intended purpose. In the real world, engineers are constantly making similar kinds of trade offs. A drug may successfully treat a life-threatening disease but also cause an allergic reaction in some patients. Stiffening the metal in auto bodies so that it absorbs more of the destructive force of a crash could actually shift more of the crash energy to the interior and the occupants of the car. Using environmentally safe chemicals in the manufacturing process may render mechanical components less safe if the chemicals do not provide an adequate level of corrosion resistance or structural integrity. Clearly, expecting manufacturing institutions to insure against all risk is an untenable solution. The costs to our society—both financially through increased product costs and morally through the erasure of individual responsibility—would be too great to bear. What is needed is more dialogue about risk. This does not mean a one-sided communication from the "experts" about the nature of technological risk and its costs and benefits. Rather, it is necessary to create opportunities for all parties—individuals, groups, and institutions—to convey their values and concerns about products and their attendant risks (National Research Council, 1989).
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Product Liability and Innovation: Managing Risk in an Uncertain Environment Nowhere is this gulf between technical or scientific experts and the layperson more evident than in the courtroom. One of the strengths of the U.S. legal system is the guarantee of a trial by jury. But as products incorporate more complex technologies, it is imperative that both judges and juries be well-informed about the technological aspects of products and processes on which they are being asked to pass judgment. Moreover, there is now such a breadth of knowledge relevant to modern technological decisions that even members of the same technical or scientific disciplines disagree. This has given rise to the debate over the admissibility of scientific evidence, and the discretion judges have over what testimony is allowed at trial. Finally, a discussion of product liability's impacts on innovation raises some basic questions about engineering and the law, and the way practitioners of those disciplines are trained to solve problems and view the world. Although facts dominate the worlds of both lawyers and engineers, the facts of lawyers are concrete, objective, and precise. The facts of engineers are data, signs, observations, and referents, meaningful only in relation to some organizing scheme (Nyhart and Carrow, 1983). In a study of the cognitive styles of lawyers and scientists, it was concluded that the structured, fact-based thinking of lawyers often conflicted with the structured, concept-based style of scientists and engineers. The study further points out that differences in cognitive style will influence "the effectiveness of communication, the degree of cooperation, understanding of questions, perception of truth, expertise and clarity of explanation" (Nyhart and Carrow, 1983, p. 236). It should be acknowledged that within each discipline there is a range of cognitive style. However, these generalized differences make it more difficult not only to establish trust and understanding across professional lines but also to translate scientific and technical information into a legal framework. CONCLUSION Although the topic of product liability impacts on innovation is one on which opinion tends to be extremely polarized, the one thing that most people would agree on is that there is a lot at stake. Some contend that the future of entire companies and classes of products, even the competitiveness of all U.S. industry, is at stake. Others insist that it is the well-being and safety of every American that is most at stake. The resolution of this debate will not be easy, for it involves technological complexity, financial incentives, personal and corporate responsibility, risk, and other such issues that are often flashpoints for broader questions about what it means to live in America in the late twentieth century. Few of us would like to go back to the past when times were supposedly simpler,
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Product Liability and Innovation: Managing Risk in an Uncertain Environment for they certainly were not any safer. What is needed is a critical examination of where the path we are on is taking us, and whether we will want to be at that destination once we arrive there. The papers in this volume, by providing the engineering view and identifying important technological considerations concerning product liability and its impact on innovation, should add a new perspective to that assessment. Moreover, it is hoped that these papers will stimulate further analysis and study of this important topic. REFERENCES Eads, G., and P. Reuter. 1983. Designing Safer Products: Corporate Responses to Product Liability Law & Regulation. Santa Monica, Calif.: RAND Institute for Civil Justice. National Research Council. 1989. Improving Risk Communication. Report of the Committee on Risk Perception and Communication, Commission on Behavioral and Social Sciences and Education and Commission on Physical Sciences, Mathematics, and Resources. Washington, D.C.: National Academy Press. National Research Council. 1991. Improving Engineering Design: Designing for Competitive Advantage. Report of the Committee on Engineering Design Theory and Methodology, Manufacturing Studies Board. Washington, D.C.: National Academy Press. National Safety Council. 1992. Accident Facts. Chicago: National Safety Council. Nyhart, J. D., and M. Carrow. 1983. Law and Science in Collaboration: Resolving Regulatory Issues of Science-Technology. Lexington, Mass.: Lexington Books. Tillinghast. 1992. Tort Cost Trends: An International Perspective. New York: Tillinghast.
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