Product Liability and Innovation: Managing Risk in an Uncertain Environment

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incidents involved circumstances that most people would agree fall far outside of the normal operating range of cars or light trucks. Fourth, and most important, all of these cases pitted very sympathetic plaintiffs who had suffered horrible personal tragedies against what were seen as large, faceless, uncaring, "deep-pocket" corporations. In each case, the jury found that the vehicles involved were somehow deficient in their design, and large cash settlements were awarded to the plaintiffs.

The purpose of this paper is not to discuss whether justice was served in the aforementioned cases. Instead, this paper argues that these cases illustrate characteristics of today's product liability environment that have unintended and deleterious effects on the automotive engineering process.

PRODUCT LIABILITY IMPACTS ON AUTOMOTIVE ENGINEERING PRACTICE

The proliferation of product litigation cases in the United States raises an important question for those who design and engineer cars and trucks. In fact, it is a question that was asked in the title of an article written by automotive business writer Paul Eisenstein (1993) in Investor's Business Daily. The question is this: "Will your next car be designed by the courts?" The answer is, in part, yes.

Fortunately, we have yet to come to the point where American juries take a designer's pen and a computer in hand to execute a structural design or to develop automotive electronics. (Although in the past this engineer has had to listen to many lawyers claiming to know enough about automotive engineering disciplines to "teach" a lay jury what they need to know to adjudicate a product liability case.) Unfortunately, however, we have long since crossed the line where the threat of product liability litigation influences the design of cars and trucks—including those that are driven today. Ultimately, that threat of litigation includes three elements that have a big impact on the competitiveness of the American auto industry itself.

First, the threat of product liability suits inhibits the incentive to innovate. Ironically, it inhibits most dramatically the incentive to innovate safety features. Because automotive manufacturers are frequently called on to defend past product designs in the courtroom, American engineers are understandably hesitant to explore anything but evolutionary product designs. Revolutionary or radical new designs are nearly out of the question because they are simply too risky.

Second, the threat of product liability also creates a huge disincentive for the honest and critical evaluation of the features on current and past vehicles. Imagine, if automotive engineers had not been critical of their past work, everyone would still be driving Model Ts! In fact, no one should be

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