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Torts v. Innovation

Torts v. Innovation. Alex Stein (coauthored with Gideon Parchomovsky). MOTIVATING EVENT. New whiplash treatment: fixes 95 out of 100 patients. Conventional treatment: fixes 90 out of 100 patients.

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Torts v. Innovation

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  1. Torts v. Innovation Alex Stein (coauthored with Gideon Parchomovsky)

  2. MOTIVATING EVENT • New whiplash treatment: fixes 95 out of 100 patients. • Conventional treatment: fixes 90 out of 100 patients. • When a doctor applies the conventional treatment, 10 patients do not recover, but they have no cause of action against the doctor / hospital. • When a doctor applies the new treatment, 5 patients who do not recover can successfully sue. • To avoid suit, doctors and hospitals must take a costly “experimental treatment” track.

  3. Positive Claim • Courts’ reliance on custom and conventional technologies as the benchmark for assigning tort liability stifles innovation and distorts its path.

  4. Normative Contribution • We offer two ways to make torts doctrine friendlier to innovation: • (a) Equalize down—abolish the privileged status of customary technologies; or • (b) Equalize up—elevate new technologies to be approved by special rotating panels of industry experts to the same privileged status of custom.

  5. Positive Analysis—Negligence • Restatement (Second) of Torts § 295A: “In determining whether conduct is negligent, [courts ought to consider] the customs of the community, or of others under like circumstances...” • Absent proof to the contrary, evidence of the defendant’s failure to comply with the relevant industrial custom allows the judge to give a directed verdict on the issue of negligence. • Absent proof to the contrary, evidence of the defendant’s compliance with the relevant industrial custom allows the defendant to obtain a direct dismissal of the lawsuit. • Evidence of the defendant’s compliance / noncompliance with the custom affects the jury’s determination of negligence.

  6. Positive Analysis—Negligence (Evidence Rules) • Res Ipsa Loquitur– 3 cumulative conditions: • (a) plaintiff’s damage is caused by an agency or instrumentality over which the defendant exercised exclusive control; • (b) the plaintiff’s conduct does not contribute to the occurrence of that damage; and, • (c) the injury could not ordinarily occur without negligence. • “In its inception the [res ipsa loquitur] principle was … a reasonable conclusion, from the circumstances of an unusualaccident, that it was probably the defendant’s fault.” W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 39, at 243 (5th ed. 1984) • By taking customary precautions, the defendant will not always avoid the plaintiff’s damage, but will always escape the consequences of res ipsa. • By failing to take customary precautions, the defendant might cause an unusual accident that would tag him as negligent even when he is not.

  7. Positive Analysis—Negligence (Evidence Rules con’d) • The Frye Doctrine (293 F. 1013, 1014 (App. D.C. 1923)): testimony of a scientific or technological expert is admissible only when the expert’s methodology and specialized knowledge have gained “standing and scientific” recognition in the relevant community of experts. Frye, too, elevates conventional knowledge over scientific and technological innovations.

  8. Positive Analysis—Product Liability • a manufacturer’s compliance with the relevant industrial custom is admissible as evidence tending to prove that its product was safe. • True under both “risk-utility” and “consumer expectation” criteria, under which a product classifies as defective when it falls far below a reasonable consumer’s expectation or creates a risk of harm that exceeds its benefits.

  9. Positive Analysis—Medical Malpractice • “Customary care” constitutes the decisive default standard. • But: • Sometimes impossible to contract around (trauma patients). • Cost of contracting, ex ante (experimental treatment). • Cost of judicial review, ex post.

  10. Positive Analysis—Effect on Innovation • The three stages of innovation: • Conception • Development • Commercialization • Commercialization is the most important stage. • The design of tort liability impedes commercialization of new products and processes.

  11. Effect on Innovation (con’d) • Ex post analysis (assumes innovation was produced): Heightened risk of liability makes adoption of new technologies less likely. (Not a complete bar but a significant effect). • Ex Ante Analysis: Rate Distortion—some innovations will not be produced, or will be produced but not commercialized. Path Distortion—innovation will focus on improvements of conventional technologies (slowdowns in technological paradigm-shifts).

  12. Normative Analysis • Can we do better? • Abolish custom rules and change to a pure cost-benefit regime (equalize down): Challenges: • “The Life of the Law” • Error costs I believe that the challenges are overstated.

  13. Normative Analysis (con’d) B. Retain custom rules and create independent Review Boards to approve safety of innovative technologies; approved technologies will receive same deference as custom (equalize up). Challenges: • Raises cost of innovation (time and money) • Favoritism

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