This is the first of a six-part series on liability defenses that every inside counsel should know. Based on more than 30 years of litigation practice, I am going to discuss in this series the six liability defenses that I have found to most often result in summary judgment or dismissal for the defendant. They are the liability defenses with the most potential to end expensive and time-consuming litigation.
The first of these six defenses is the “component supplier doctrine.” I used this defense recently to obtain a summary judgment in a $23 million property damage claim against my client, a Fortune 100 product manufacturer. Litigation against manufacturers of complex, integrated products often includes claims by the plaintiff against the individual manufacturers of the many component parts. This is usually inappropriate. The component supplier doctrine narrowly defines the liability of manufacturers of component parts and can be used to obtain summary judgment or dismissal of claims that fall outside of its boundaries.
The component supplier doctrine is established by the Restatement (Third) of Torts: Product Liability, Section 5 (1998) (hereinafter “Restatement, Section 5”). That section provides:
Liability of Commercial Seller or Distributor of Product Components for Harm Caused by Products Into Which Components Are Integrated
One Engaged in the business of selling or otherwise distributing product components who sells or distributes a component is subject to liability for harm to persons or property caused by a product into which the component is integrated if:
(a) the component is defective in itself, as defined in this Chapter, and the defect causes the harm; or
(b) (1) the seller or distributor of the component substantially participates in the integration of the component into the design of the product; and
(2) the integration of the component causes the product to be defective, as defined in this Chapter; and
(3) the defect in the product causes the harm.
Under this doctrine, component suppliers should not be subject to strict liability unless the component itself is defective. If the component is not itself defective, then it is unjust and inefficient to impose strict liability on a component part manufacturer solely on the ground that the manufacturer of the integrated or finished product utilized the component in a manner that rendered the integrated, finished product defective. Imposing strict liability on the manufacturer of a component part simply because of how it was used in the final product would unfairly require a component manufacturer to analyze another manufacturer’s product, which the component seller has no role in developing. The Restatement, Section 5 subjects component sellers to liability only when the components themselves are defective or when the component seller substantially participates in the integration of the component into the design of the finished product, and that integration actually causes the finished product to be defective.
The question sometimes arises about what it means for the component supplier to have “substantial participation” in the integration of the component into the finished product. Comment “e” to the Restatement notes that substantial participation can take various forms. The manufacturer or assembler of the integrated product may invite the component seller to design a component that will perform specifically as part of the integrated product or to assist in modifying the design of the integrated product to accept the seller’s component. Or the component seller may play a substantial role in deciding which component best serves the requirements of the integrated product. Comment “e” explains that, under such circumstances, it is fair and reasonable to hold the component seller responsible for harm caused by the defective, integrated product. Accordingly, counsel for product manufacturers should be aware that substantial participation in the process of integration of a component into a finished product may ultimately result in liability for defects in the finished product.
However, a component seller that simply designs a component to its buyer’s specifications, and does not substantially participate in the integration of the component into the design of the finished product, should not be liable for defects in the finished product. Simply providing mechanical or technical services or advice concerning a component part should not, by itself, constitute substantial participation that would subject the component supplier to liability.
These same principles also potentially may bar claims for failure-to-warn. A component seller is required to provide instructions and warnings regarding risks associated with the use of the component product. However, when a sophisticated buyer integrates a component into another product, the component seller can argue that it owes no duty to warn either the immediate buyer or ultimate consumer of dangers arising because the component is unsuited for the special purpose used by the buyer. “To impose a duty to warn in such a circumstance would require that component sellers monitor the development of products and systems into which their components are to be integrated,” according to Comment “b” in Restatement, Section 5.
The component supplier doctrine is well-recognized in jurisdictions throughout the United States. In fact, courts in 17 states have adopted or cited with approval to the Restatement, Section 5 or the substance of the component supplier doctrine. Product manufacturers should be aware of its restrictions on liability. If it can be proved that a component itself was not defective, and that the manufacturer or seller of the component did not substantially participate in the integration of the component into the design of the finished product, then dismissal or summary judgment of the plaintiff’s claims against the component manufacturer should be sought.