1. Tort Liability for Physical and Economic Harm David Baumer Fall, 2006

2. Tort Liability  Torts are a significant risk for firms and enterprises –Torts can be defined as an unwarranted intrusion on a protected, personal right that causes physical, economic, or psychological injury –Injuries incurred by plaintiffs may be magnified by modern technology  In the 19 th Century, dirty nuclear bombs were not a risk  Products Liability makes use of two concepts: negligence and strict liability

3. Negligence  A plaintiff is entitled to damages from a negligent defendant if –The def. fails to act as a reasonable person would have under the circumstances  Negligence is based on state law  State by state differences  American Law Institute attempts to make uniform through the Restatements  We are currently using Restatement III

4. Negligence  Negligence –Conduct that falls below the standard established by law for the protection of others against unreasonable risk of harm  Reasonable person standard can be adapted to an infinite variety of factual circumstances –Reasonable person standard for a doctor is not the same conduct as for a lay person –For liability the plaintiff must also show  The negligent conduct caused the harm  Social policy must make the person responsible, and  There are no defenses available to the def.

5. Legal Causation  Two criteria for legal causation –But for test and –Reasonable foreseeability  Provides a limit to the scope of liability for negligent acts  Defenses –Assumption of risk  Known risk, voluntarily assumed –Contributory negligence –Comparative negligence  Jury allocates total damages based on percentage of blame attributable to pl. and def.

6. Negligence  Standards of behavior –In most instances it is based on industry standards  What would most doctors or engineers do under the circumstances? –Industry standards are not always conclusive  Learned Hand formula:  Negligence is defined as B<PL, where B is the burden of cost of safety and P is the probability of an accident and L is the liability associated with each accident

7. Negligence and Computer Programs  The principles of negligence generally apply to computer programs –For trading partners, most liability can be contracted away through disclaimers –Still there are third parties who are not in a contractual relationship with the software developers –Note that to date computer programs are not subject to strict liability

8. Strict Liability  The seller is liable for selling an unreasonably dangerous product –Regardless of whether there was a showing of negligence –As long as the pl.’s injuries are the result of a product defect  Strict liability—liability without blame –Section 402A of the Restatement Second

9. Strict Liability  Under Section 402A of the Restatement Second –Liability is placed on sellers,  Seller must be in the business of selling such products, and  It is expected to reach consumers without substantial change –Privity of contract not required –Harm could be physical or to the property of the pl.

10. Strict Liability  Liability is based on selling a defective product –Liability is borne by the seller who may not be a manufacturer –Any business in the distribution chain is potentially liable –Firms that sell products that are altered after sale are not liable for harm that occurs –Note that buyers, users, and bystanders can sue seller of defective products

11. Product Defects  There are three types of product defects: –Manufacturing defects  Actual product does not conform to the product design  Cannot claim superior quality control as a defense –Design defect  Can be based on failure to adhere to govt. standards  Below industry standards for safety  Fails the Learned Hand test –Again the factors include probability of injury, liability associated with the injury, and the costs of an alternative design –Alternatively, some courts have employed a consumer expectation test—much more prone to emotional appeals

12. Product Defect  Failure to adequately warn –Could be a failure to warn or –Failure to adequately warn –Adequacy of warnings is a much litigated issue  No duty to warn about obvious dangers  Sellers are entitled to assume that users will heed warnings  There should be warnings for foreseeable misuse of products

13. Product Defects  Restatement Third (1998) –No change in manu. Defects –Risk/benefit test adopted, consumer expectations is part of the risk/benefit criteria –A seller is liable when foreseeable risks could have been reduced by a warning  Warnings do not relieve the seller of making the product safer

14. Consumer Product Safety Commission  CPSC is a federal agency –Supposed to protect consumers from unreasonable risks posed by products –Establishes numerous regulations for consumer products  Authority of the CPSC extends to consumer products that are not regulated by other agencies, such as the FDA  Firms are supposed to report adverse events to the CPSC  In extreme cases, the CPSC can issue product recalls

15. Consumer Product Safety Commission  A firm must notify the CPSC when –A product does not adhere to CPSC regs. or an industry standard enacted in lieu of a CPSC reg. –A product contains a defect that could be a substantial product hazard –A product creates an unreasonable risk of serious injury or death, or –A product is subject to 3 or more lawsuits within two calendar years  Reporting adverse events is confidential and is not an admission of liability

16. Tort Reform  Many businesses contend that products liability law is too consumer oriented –Some states have eliminated joint and several liability for sellers of defective products –Since product liability law is state law, forum shopping is common –Comprehensive reform has been blocked by consumer groups and trial lawyers –Current system is rife with exceptions for non- profits, small airplane manufacturers etc. –Other reforms have been attempted by reducing punitive damage multiples and making the loser pay atty. fees

17. Other Countries  Other countries (Japan) have resisted strict liability –Place more emphasis on placing responsibility for safety on consumers –Have limited discovery  Makes is more difficult to prove a product defect  EU has been much more in line with U.S. product liability law –Make use of the consumer expectations test –Make all sellers and importers liable for defective products

18. Computer Programs  In the past, computer programs have been viewed as a service –Also guide books etc. have never been subject to strict liability  Expert systems and medical treatment –Treatments are recommended based on huge databases –Are doctors liability if they rely on an expert system?  What if they exercise their own judgment and go against the recommendations of the expert system?  Software developers may also be liable under rules of negligence or even strict liabililty

19. Intentional Torts Involving Computer Systems  Among the intentional torts involving computer systems are –Hackers, spammers, embezzlement, viruses, electronic trespass –Trespass to chattel  Electronic trespass via software robots  Normally damages are equal to the difference between the value of the property before and after the trespass  In order to obtain an injunction there is a question as to whether the pl. has to show a risk of interference in service or merely a trespass

20. Intentional Torts Involving Computer Systems  Spam—electronic junk mail  A number of states passed anti-spam laws, but were hampered by jurisdictional limitations  In 2003 Congress passed the CAN SPAM Act –Email marketers can send unsolicited email as long as there is an opt-out –A valid subject line –A legitimate physical address of the mailer –A label if the content is adult [Sexually explicit]

21. CAN SPAM  If a recipient opts out, the sender has 10 days to comply  There are exceptions for –religious messages, messages required by law, and national security messages  Pre-empts existing anti-spam laws that do not deal with fraud  There are substantial fines for firms that do not comply with this law

22. Viruses, Trojan Horses, Worms  Of course it is well know n that some people do some bad things with computers –Computer Viruses  Often ignited by opening email attachments –Trojan horses may do womething deestructive but cannot replcated themselves –Worms

23. Viruses, Trojan Horses, Worms  Deliberately sending viruses and other malicious codes could be viewed as electronic trespass –Email companies ancould be liable as well  In 1986 Congress passed the –Computer Fraud and Abuse Act –Makes it a crime to access or cause damage to any computer used for govt. purposes or be financial institutions –Has been augmented by the USA-Patriot Act –Deliberately transmitting viruses is a criminal act

24. Electronic Coercion  Courts do not like these kind of measures