Component Suppliers: Drawing Common Sense Boundaries for Liability
Ms. Faubion assisted Hildy Bowbeer, Esq., Senior Counsel, 3M Corporation, with the preparation of the following, which Ms. Bowbeer presented at the Third Annual Judges and Lawyers Symposium, sponsored by the Law and Organizational Economics Center of the University of Kansas, June 1-3, 2000.
I want to discuss with you my view of Section 5 of the Restatement (Third) of Torts in component supplier liability, which, after going through several titles, I decided to call "Why Should I Send a Present If I Wasn't Invited to the Party."
First, let me tell you a little bit about the structure of Section 5 itself. Basically, it says that one who sells a component - note that a component is defined both as a raw material and as a manufactured component - is subject to liability for harm caused by a product into which the component is integrated if: a) the component is defective in itself, or b) the seller or distributor of the component substantially participates in the integration of the component into the design of the product, and that integration of the component causes the final product to be defective, and, of course, that defect causes harm.1 The component seller may be liable either because the component was defective in itself under Sections 1 - 4 of the Restatement (i.e. design defect, manufacturing defect, or failure to warn) or because the seller substantially participated in integrating the component into the design of the finished product, and that substantial participation integration led to a defect in the finished product.
Section 5 states what was overwhelmingly the law long before the Restatement (Third) was a glimmer in Jim [Henderson's] and Aaron [Twerski's]2 eyes. The courts have, over the years, regularly and consistently granted summary judgment for component suppliers where the component itself was not defective and where the suppliers really had no control over the design, end-use testing, or manufacture of the final product with respect to how that component was going to be incorporated.3 That has been true even where the final product manufacturer was insolvent at the time of the suit, as in the Dupont TMJ litigation.4 In fact, in the Dupont litigation, the courts held that liability would not be imposed upon a component supplier even where the supplier knew what the end use was going to be, and knew of risks associated with that end use, if the supplier knew or had reason to know that the final manufacturer knew of those risks as well.
Comment a to Section 5 describes the rationale for this rule that, as Professor Hager pointed out, the courts have overwhelmingly adopted and relied upon over the years. The courts have recognized that if the component is not itself defective, it would not be fair to impose liability solely on the ground that the manufacturer of the integrated product, i.e., the final product, utilized the component in a manner that rendered that final product defective. Imposing liability on the component supplier under those circumstances would require the supplier to scrutinize a product which that supplier had no role in developing. Comment b goes on to say that "When a sophisticated buyer integrates a component into another product, the component seller owes no duty to warn either the immediate buyer or ultimate consumers of dangers arising because the component is unsuited for the special purpose to which the buyer puts it."
Comment c continues: "To impose a duty to warn would require the seller to develop expertise regarding a multitude of different end-products and to investigate the actual use of raw materials by manufacturers over whom the supplier has no control." Again we get back to that issue of "some measure of control" over the final product. Comment b does, however, point out that there are special circumstances that may give rise to a duty to warn on behalf of the component supplier. Those special circumstances would generally involve a tremendous imbalance between what the supplier knows and what the purchaser knows about the risks associated with that component.
Note that the rule articulated in the Restatement for component supplier liability is not a defense. It is important to understand this, because it has to do with burden of proof. You often hear attorneys, both on the plaintiff and on the defense side, talk about the "component supplier defense," or the "bulk supplier defense." It is not really a defense. It is a description of the scope of liability that sets forth what the plaintiff needs to prove to invite the component supplier to the party, so to speak, i.e., to keep him in the lawsuit. It is not even synonymous with the "sophisticated purchaser defense," or with the "learned intermediary defense," although there are certainly some policy underpinnings in common with all of these. Furthermore, I would argue that it is not even a "no-duty" or a "limited duty" rule. It is instead, a description of the conduct for which a component supplier will be called to account in cases of ultimately defective products. It is a reality check about what is reasonable to expect of component suppliers in the marketplace.
It is easy enough to understand how and why the supplier of a defective component would be held liable. For a non-defective component, however, you have to look at whether there was "substantial participation." "Substantial participation" is a little harder to get your arms around, so there are further elaborations on that in the Restatement. Comment e has illustrations of the kind of "substantial participation" that will bring the component supplier into the lawsuit. Some easy ones are joint participation in the design of the integrated product, or design of a component part especially for use in the integrated product, or assistance in modifying the component or modifying the integrated product to accept the component part. Additionally, substantial assistance in selecting the correct component for use in the product may also serve as a basis for liability. Now, this assistance has to be more than just the manufacturer of the final product coming to the supplier and saying, "I want something that will go through this many cycles. I want it to operate under these particular temperature requirements." In other words, if the manufacturer sets specifications and the component supplier says "Here's something that meets your specifications," that's not enough. It requires a final product manufacturer coming, instead, and saying, "I want a component that will accomplish this purpose for use in this product. Help me develop, or help me choose the component that would be appropriate for this application."
By way of comparison, "substantial participation" is not providing an off-the-shelf product, designing a component to the buyer's specifications, rendering mechanical, technical, or processing advice that is specific to the component itself. Furthermore, participation that did not actually contribute to the defect that ultimately caused the injury doesn't count. In other words, the fact that there may have been "substantial participation" in one arena does not mean that a component supplier has bought liability for the entire product.
Imposing liability in the absence of an actual defect or substantial participation would encourage suppliers to remain ignorant of end uses. That is not a goal we want to foster. The supplier cannot know all the possible end uses or the conditions of those uses, and generally is not able to communicate directly with end users anyway. Finally, the supplier cannot and should not have to hire its own experts, hire its own design engineers, and do its own testing to second-guess the decisions of the final product manufacturer. It is not an efficient approach. It would price the component suppliers right out of the marker, and the courts have overwhelmingly concluded that that approach does not make sense. Since Section 5 was published, every court that has considered it has concluded that it is an appropriate statement of the law with respect to component supplier liability.5 The leading commentators have agreed.6 Section 5 got it right.
1. See RESTATEMENT (THIRD) OF TORTS: PRODUCT LIABILITY § 5 (1998). Return
2. American Law Institute Reporters, Professors Aaron Twerski and James Henderson, - who proposed reforms to Section 402A of the Restatement (Third). Return
3. See, e.g., In re TMJ Implants Product Liability Litigation, 97 F.2d 1050 (8th Cir. 1996); LaMontagne v. DuPont, 41 F.2d 846 (2d Cir. 1994); Crossfield v. Quality Control Equip. Co., 1 F.3d 701, 704 (8th Cir. 1993); Childress v. Gresen Mfg. Co., 888 F.2d 45 (6th Cir. 1989); Davis v. Dresser Industries, 800 S.W.2d 369 (Tex. App. 1990); Bond v. E.I. DuPont De Nemours & Co., 868 P.2d 1114, 1120 (Colo. Ct. App. 1993); Shawver v. Roberts Corp., 280 N.W.2d 226, 232-33 (Wis. 1979). Return
4. See, e.g., In re TMJ Implants Product Liability Litigation, 97 F.2d 1050 (8th Cir. 1996); LaMontagne v. DuPont, 41 F.2d 846 (2d Cir. 1994); Bond v. E.I. DuPont De Nemours & Co., 868 P.2d 1114, 1120 (Colo. Ct. App. 1993). Return
5. See, e.g., Zaza v. Marquess & Nell, 675 A.2d 620 (N.J. 1996)(citing earlier draft); Artiglio v. General Electric, 61 Cal. App. 4th 830, 71 Cal.Rptr.2d 817 (Cal. Ct. App. 1998); In re Silicone Gel Breast Implant Products Liability Litigation, 996 F.Supp. 1110 (N.D. Ala. 1997)(In granting summary judgment in favor of General Electric with regard to sale of silicone gel to manufacturers of breast implants, the MDL judge specifically relied upon Section 5, finding that it did not change but solidified existing law, which was of special importance given the MDL setting. The court held that although General Electric provided technical and processing advice about the gel, it did not constitute substantial participation.); Cimino v. Raymark Industries, Inc. 151 F.3d 297 (5th Cir. 1998); Buonanno v. Colmar Belting Co., Inc. 733 A.2d 712 (R.I. 1999)(court followed Section 5 in reversing summary judgment for distributor of component parts for a conveyor belt system where the distributor not only selected the parts for the system but guided the contractor retained to assemble it, but the court upheld dismissal of the component parts manufacturer which did not participate in design or construction of system); Cipollone v. Yale Industrial Products, Inc., 202 F.3d 376 (1st Cir. 2000). Return
6. See M. Stuart Madden, Component Parts and Raw Material Sellers: From the Titanic to the New Restatement, 26 N. Ky. L.R. 535, 542 ("Omnibus component or raw material seller liability would be unjust as it would impose an irrational burden upon sellers to superintend, which is to say, to be hall monitors, regarding myriad potential downstream applications of their otherwise non-defective products"); William E. Westerbeke, The Sources of Controversy in the New Restatement of Products Liability: Strict Liability v. Products Liability, 8-Fall Kan. J.L. & Pub. Pol'y at 14 ("Knowledge without some significant control over or participation in the design of the finished product seems an insufficient basis for imposing liability. The end result might well be the supplier's reluctance to communicate routine information to the manufacturer or refusal to sell to certain manufacturers").