The Role of Public Agencies in Fostering New Technology and Innovation in Building (1992) / Chapter Skim
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Appendix F: Tort Law, Deterrence, and Innovation: Too Much or Too Little?
Appendix F: Tort Law, Deterrence, and Innovation: Too Much or Too Little?
Pages 101-124
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From page 101... ...
The existence of "law" as the glue that holds society together, avoiding anarchy and permitting stable and cooperative relationships to form, is a necessary condition for the modern interdependent society. Patent law, for example, gives inventors a monopoly, thereby enabling them to retain the benefits of their developments and providing financial incentives for research and innovation.
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From page 102... ...
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From page 103... ...
The impact of these behavioral changes on innovation, primarily as the end product of the research and development process, and the international competitiveness of domestic firms frame the inquiry. The pi r focus of this discussion is the subset of tort law known as products liability, which governs Me liability of manufacturers and sellers of products.
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From page 104... ...
Recent work by The Conference Board and the Rand Institute provides some sketchy evidence that bears on the first question, but no systematic data exist on the benefits of tort regulation, especially in the matter of dangerous products, services, or techniques that were prevented from being placed on the market. The claim that American products liability law hinders domestic companies' international competitiveness is often stated but infrequently documented.
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From page 105... ...
Strict liability was largely the rule applied to those harms that the courts recognized as subject to liability, but that was a considerably limited class of harms. As the number of incidents causing injury grew and the scope of injuries that the courts recognized expanded, movement toward a fault-based rule of law developffl.
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From page 106... ...
With MacPherson, the framework for the development of modern products liability law began. Henceforth, manufacturers would owe a duty of due care to all who might foreseeably be harmed by the use of the product.
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From page 107... ...
. The intellectual lineage of strict products liability is quite extensive, but one figure who stands out is a judge on the California Supreme Court, Roger Traynor, who in 1944 began a crusade for imposing strict liability on mmufacturers.55 Twenty years later he persuaded a majority of his colleagues on the California Supreme Court to impose strict liability on the manufacturer of a Shopsmith, which could be used as a variety of power tools.
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From page 108... ...
70, 207 A.2d314 (1965) (holding home builder liable for defect in a water heater installed in homey; see generally Comment, Strict Liability and the Building Irulustry, 33 Emory L.J.
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From page 109... ...
The second category of costs requires recognition of interpersonal comparisons of utility a catastrophic loss to one individual is a greater loss than if it is spread among a larger group. The prevalence of insurance in contemporary society is powerful evidence of the reality of these costs, but whether government should Pose this view through law by building an insurance component into strict products liability law or leave such judgments to the marketplace is a more controversial matter.
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From page 110... ...
Although the contemporary tort system is not modeled perfectly on these economic underpinnings, design defects, by far the largest and most significant class of products liability cases, are generally determined by reference to a cost-benefit analysis of the challenged design.65 Under this scheme, manufacturers have incentives to take all costjustified precautions, but the costs of those accidents not worth avoiding are left with the victims, rather than imposed on manufacturers. DETERRENCE: TOO MUCH OR TOO LITTLE Proponents argue that if the tort system, viewed within this economic framework, is operating optimally, societal resources are maximized.
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From page 111... ...
1988, at 29 (arguing that growth of number, size, and uncertainty of products liability awards has caused increased prices, led to withdrawal of products from the market, and hampered innovation)
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From page 112... ...
The latter bias is possible because of We vague standards governing awards of nonpecuniary damages, thereby leaving substantial discretion with juries as to the appropriate amount of the loss.68 If either of these phenomena occurs, producers should respond either by building more safety into their products than is sound, by raising the price of their goods to reflect a premium for judicial error, or by simply refusing to develop or market these technologies and services. The last of these responses is most likely to occur when substantial uncertainty pervades either future judicial treatment of new goods and services or the extent of risk contained in them.69 A second potential source of excessive deterrence is the availability of punitive damages, which have become much more prevalent and prominent in the past 15 years.
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From page 113... ...
. a product liability lawsuit will not be financially attractive.
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From page 114... ...
If so, is there an impact on ~ovation? A few recent studies have investigated the effect of products liability law on corporate behavior.
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From page 115... ...
The study revealed that among several forces that have combined to focus attention on product safety, Product liability is the most significant influence on product safety efforts. ~ The authors distinguished industne;s based on how heavily regulated they were, concluding that in industries subject to less governmental safety regulation, Products liability probably exerts the overwhelmmg pressures influencing design decisions.?
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From page 116... ...
The response rate to each survey was less than IS percent, which raises concerns about selection bias. In general, the second Conference Board study found greater concern with the product liability system, a higher degree of impact on corporate operations, and primary concern about the uncertainty of ex post liability determinations with He attendant unpredictability in the amount of damages awarded by junes.
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From page 117... ...
impact of products liability on direct costs, which was not explicitly defined, but appears to be in the 10-15 percent of total costs range and higher.82 Only 18 percent of respondents reported a 2 percent or less increase in direct costs. While the Direct cost.
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From page 118... ...
It is not possible to measure the improvement, If any, in the level of safety of consumer goods Hat has resulted Mom changes in regulation and lawyer However, there can be little doubt that significant safety benefits have been realism from the liability system. The first Conference Board study emphasized that effect, and a recent Rand Institute study observed the following: One of the clear implications of the information we have collected, however, is that films have changed their behaviors in some ways that are consonant with the goals of those who advocate expanded liab~li85See, e.g., Broad, Does the Fear of Litigation Dampen the Dnve to Innovate, N.Y.
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From page 119... ...
. 89Much of this section is adapted from Green and Matasar, The Supreme Court and the Products Liability Crisis: Lessors from Boyle's Government Contractor Defense, 63 S
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From page 120... ...
Before Boyle a number of lower federal courts had created a "military contractor defense" that relieved suppliers of goods to the military from liability umder state tort laws. These decisions employed federal law to "preempt" the application of state law, in effect providing immllniO', for government contractors where the defense applied.
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From page 121... ...
The Court rejected reliance on Feres, instead invoking another exception to government liability known as the discretionary function exception.92 The essential purpose of the discretionary function exception is to foster uninhibited political, economic, or social policymaking in the executive or legislative branch by insulating those decisions from judicial review. Although, as with Feres, the discretionary function exception provides immunity only for the federal government, the Supreme Court believed that its concerns were also implicated when a military contractor was sued: We think that the selection of the appropriate design for military equipment to be used by our Armed Forces is assuredly a discretionary Unction....
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From page 122... ...
The court concluded that despite He Boyle Court's switch from Feres to the discretionary function exception as the basis for the government contractor defense, "the policy behind the defense remains rooted in considerations peculiar to the ~litary.n96 Accordingly, the court held that government contractor immunity was unavailable to the manufacturer of the paint, which was produced for use in a civilian, as opposed to a military, project. An earlier decision by a federal district court judge in Hawaii had similarly concluded: The federal interest in Boyle was the procurement of military equipment to be used by the armed forces.
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From page 123... ...
Regardless of the truth of that proposition, it does not explain why the selection of designs for other equipment purchased by the government would not also fall within the discretionary function exception. typhus, a mindless rubber stamping by the government of detailed plans prepared by the contractor would no more fulfill the mandate of the discretionary faction exception than would delegating complete design authority to the supplier.
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From page 124... ...
civilian one. The reasoning of the Supreme Court in Boyle would support immunity, but to date Me post-Boyle lower courts have reached conflicting decisions on this issue.
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