Product Liability and Innovation Managing Risk in an Uncertain Environment (1994) / Chapter Skim
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Overview and Perpectives
Overview and Perpectives
Pages 1-20
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From page 1... ...
HUNZIKER An engineer in the general aviation industry notes that in some cases 20 percent of engineering stafftime is spent producing documentsfor variousforms of legal discovery and preparing informationfor defense against product liability suits. Engineers in the automotive industry, knowing that a design change can be misconstrued in a product liability suit to mean that theformer design was deficient, feel constrained about discussing and implementing design changes, including safety improvements.
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Yet, because the product liability system deals with the consequences of personal injury and suffering caused by the use of familiar, everyday products, it is a body of law that touches on universal experiences of human existence. Thus, people know in general terms why product liability law exists, namely, that it is intended to deter the manufacture and distribution of defective products, and when that fails, to compensate those who are injured by such products.
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, citing the low percentage that tort cases, and even more so, product liability, make up of the total state court caseload. On the specific issue of product liability impacts on innovation and competitiveness, he notes that the 1987 Conference Board survey of risk managers found product liability issues hardly affected larger economic issues, such as revenues, market share, or employee retention.
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That is indeed a difficult issue to resolve. Parties at interest include numerous stakeholders-consumers, the legal community, engineers, insurers, corporate decision makers involved in a debate over a range of products, which are used either out of desire or out of necessity and for whatever reasons are "targets" of product liability suits.
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It also implies risk, trade-offs, and making judgments about problems that could arise from product design changes. Engineers accept this because they know zero risk cannot be achieved.
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Nevertheless, making it easier to bring lawsuits has meant that a manufacturer, whether in the right or not, has had to spend more of its resources, including those that would have been devoted to innovation, in defending itself, even if a case is settled.3 As product liability rules were changing in the 1970s and early- to mid-1980s, it also became more difficult for a company to know what to do to prevent involvement in such suits. Victor Schwartz notes at the beginning of his paper that a certain amount of stability has returned to product liability law, making product liability risk more manageable.
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These cultural differences have created far different legal systems for dealing with product liability cases. Another Perspective The final background paper, that by William Ide, is strongly supportive of the American justice system, while noting the peculiar challenges of product liability law.
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IMPACT ON ENGINEERING PRACTICES, INNOVATION, AND CORPORATE STRATEGIES Not all industries have been affected to the same degree by trends in product liability law. Authors in this volume look at five industries perceived as being heavily affected by product liability-chemical, general aviation, automotive, pharmaceutical, and commercial aviation.
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General Aviation If MacLachlan and Citron paint a bleak picture of how the product liability environment is affecting companies in the materials and medical device industries, the picture from the segment of the general aviation industry that produces piston engine-driven planes is even bleaker. Among the five industries represented in this volume, general aviation has been most affected by the product liability environment.
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Nevertheless, it is instructive to look at the unintended effects of a set of laws that were enacted to deter the manufacture of unsafe products and compensate victims of those products: restricted consumer choice in products and services, narrowed financing options, diversion of personnel and financial resources from productive activities, and higher product prices. Automotive Industry The impacts of the product liability system on the automotive industry, and the way that industry deals with product liability, are described in the papers by Franc,ois Castaing and Charles Babcock.
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One factor may be a contrast between the popular wisdom that underpins this body of law, namely, that tort liability is an incentive for safer products, and the "reality" of the automotive industry, namely, that manufacturers make safer cars because the market demands it. Babcock also touches on doctrinal difficulties with product liability law, including whether it efficiently performs its functions of compensation and deterrence.
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These include negative impacts on pricing, orphan drug development, and patent protection, and constraints on innovation once compounds enter the regulatory pipeline. Product liability suits, while meant to keep harmful drugs and medical devices off the market, have also affected the availability and cost of particular critical pharmaceuticals, such as vaccines.
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MacLachlan and Citron write about major suppliers of materials used in critical medical device applications withdrawing from the market because of product liability. Here one sees substantial social and economic costs resulting from the product liability system.
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These and other problems that inject unpredictability into the system, Connolly notes, make it difficult for the insurer either to provide useful messages about risk to manufacturers, which would act as an incentive to improve loss experience, or to provide affordable insurance at all. Peter Huber reiterates Connolly's points about how trends in product liability law have decreased the availability of intelligent, rational insurance.
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Manufacturers could then improve warnings about potential risks as well as improve product design and the use of existing products. Unfortunately, Fischhoff and Merz note, the product liability system does not always provide incentives for manufacturers to consider behavioral issues.
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Babcock proposes a study of ways that legal systems of other countries treat "malpractice" by professional engineers, particularly ways that legal rules affecting engineering practice are communicated to the engineer. Although such research would be useful from a public policy perspective, the authors also suggest numerous strategies to help engineers manage the risk of product liability on a day-to-day basis.
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Huber and Citron urge the establishment of programs, similar to the national vaccine injury compensation program, for some niche products and services that have become "uninsurable." Several authors suggest that the inconsistency between laws concerning state of the art and the reality of the courtroom, where past engineering decisions are indeed judged by current standards, must be corrected. The costly and time-consuming nature of the discovery process was noted as one of the most onerous aspects of the current product liability system.
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From page 18... ...
product liability laws: Are foreign businesses beating us at our own game? The Journal of Law and Commerce 9(2)
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From page 19... ...
Overview and Perspectives /19 Russakoff, Dale.
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