‘‘(b) SECTION NOT TO APPLY TO DIVIDENDS FOR
WHICH 100 PERCENT DIVIDENDS RECEIVED DEDUCTION
ALLOWABLE.—Subsection (a) shall not apply to dividends
received by a small business investment company operat-
ing under the Small Business Investment Act of 1958.’’
(C) Subsection (e) of section 246A of such
Code (relating to reduction in dividends received de-
duction not to exceed allowable interest) is amended
by striking ‘‘243, 244, or’’.
(6) Section 596 of such Code (relating to limi-
tation on dividends received deduction) is amended
by striking ‘‘sections 243, 244, and 245’’ and insert-
ing ‘‘section 245’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to distributions made after the
date of the enactment of this Act.
SEC. 207. CHARITABLE DEDUCTION FOR CORPORATE CON-
TRIBUTIONS OF EMPLOYEE SERVICES TO
EDUCATIONAL ORGANIZATIONS.
(a) IN GENERAL.—Section 170 of the Internal Reve-
nue Code of 1986 (relating to deduction for charitable
contributions) is amended by redesignating subsection (m)
as subsection (n) and by inserting after subsection (l) the
following new subsection:
‘‘(m) CORPORATE CONTRIBUTIONS
OF EMPLOYEE
SERVICES TO EDUCATIONAL ORGANIZATIONS.—
‘‘(1) IN GENERAL.—There shall be allowed as a
deduction under this section any charitable contribu-
tion by a corporation of employee volunteer services
to an educational organization (within the meaning
of subsection (b)(1)(A)(ii)).
‘‘(2) VALUATION.—The value of a contribution
under paragraph (1) shall be 50 percent of the
amount paid or incurred by the corporation for sal-
ary, wages, and benefits for the employee for the
time during which the employee provides employee
volunteer services.
‘‘(3) EMPLOYEE
VOLUNTEER
SERVICES.—For
purposes of this subsection, the term ‘employee vol-
unteer services’ means teaching, tutoring, or other
assistance provided without charge or reimburse-
ment by an employee during the regular working
hours of the employer.
‘‘(4) COORDINATION
WITH
DEDUCTION
FOR
BUSINESS EXPENSES.—A deduction allowed under
this subsection for any expense shall be in addition
to any deduction allowed for the same expense under
section 162.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to contributions made after the
date of the enactment of this Act.
SEC. 208. INVESTMENT CREDIT FOR NEW MANUFACTURING
AND OTHER PRODUCTION EQUIPMENT.
(a) ALLOWANCE OF CREDIT.—Section 46 of the In-
ternal Revenue Code of 1986 (relating to amount of in-
vestment credit) is amended by striking ‘‘and’’ at the end
of paragraph (2), by striking the period at the end of para-
graph (3) and inserting ‘‘, and’’, and by adding at the
end thereof the following new paragraph:
‘‘(4) the manufacturing and other productive
equipment credit.’’
(b) AMOUNT OF CREDIT.—Section 48 of such Code
is amended by adding at the end thereof the following new
subsection:
‘‘(c) MANUFACTURING
AND OTHER PRODUCTIVE
EQUIPMENT CREDIT.—
‘‘(1) IN GENERAL.—For purposes of section 46,
the manufacturing and other productive equipment
credit for any taxable year is the applicable percent-
age of the basis of each qualified manufacturing and
productive equipment property placed in service dur-
ing such taxable year.
‘‘(2) QUALIFIED
MANUFACTURING
AND
PRO-
DUCTIVE EQUIPMENT PROPERTY.—For purposes of
this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
manufacturing and productive equipment prop-
erty’ means any property—
‘‘(i) which is used as an integral part
of the manufacture or production of tan-
gible personal property,
‘‘(ii) which is tangible property to
which section 168 applies,
‘‘(iii) which is section 1245 property
(as defined in section 1245(a)(3)), and
‘‘(iv)(I) the construction, reconstruc-
tion, or erection of which is completed by
the taxpayer, or
‘‘(II) which is acquired by the tax-
payer if the original use of such property
commences with the taxpayer.
‘‘(B) TREATMENT
OF
CERTAIN
SOFT-
WARE.—In the case of any computer software
which is used to control or monitor a manufac-
turing or production process and with respect
to which depreciation (or amortization in lieu of
depreciation) is allowable—
‘‘(i) such software shall be treated as
qualified manufacturing and productive
equipment property, and
‘‘(ii) paragraph (3)(C) shall not apply.
‘‘(3) APPLICABLE PERCENTAGE.—For purposes
of this subsection—
‘‘(A) IN GENERAL.—In the case of quali-
fied manufacturing and productive equipment
property, the applicable percentage is the sum
of—
‘‘(i) 10 percent, plus
‘‘(ii) 1/10th of the efficiency improve-
ment percentage (if any) determined with
respect to such property.
In no event shall the applicable percentage ex-
ceed 20 percent.
‘‘(B) EFFICIENCY
IMPROVEMENT
PER-
CENTAGE.—For purposes of subparagraph (A),
the term ‘efficiency improvement percentage’
means, with respect to any property, the per-
centage efficiency increase established by the
taxpayer as resulting from the use of such
property. For purposes of the preceding sen-
tence, percentage efficiency increase shall be de-
termined on the basis of the relationship of the
amount of goods manufactured or produced to
the cost of manufacture or production.
‘‘(C) SPECIAL
RULE
FOR
3-YEAR
PROP-
ERTY.—In the case of any qualified manufac-
turing and productive equipment property
which is 3-year property (within the meaning of
section 168(e)), the applicable percentage shall
be 60 percent of the amount otherwise deter-
mined under this paragraph.
‘‘(4) COORDINATION WITH OTHER CREDITS.—
This subsection shall not apply to any property to
which the energy credit or rehabilitation credit
would apply unless the taxpayer elects to waive the
application of such credits to such property.
‘‘(5) CERTAIN PROGRESS EXPENDITURE RULES
MADE APPLICABLE.—Rules similar to rules of sub-
section (c)(4) and (d) of section 46 (as in effect on
the day before the date of the enactment of the Rev-
enue Reconciliation Act of 1990) shall apply for pur-
poses of this subsection.’’
(c) TECHNICAL AMENDMENTS.—
(1) Clause (ii) of section 49(a)(1)(C) of such
Code is amended by inserting ‘‘or qualified manufac-
turing and productive equipment property’’ after
‘‘energy property’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to—
(1) property acquired by the taxpayer after the
date of the enactment of this Act, and
(2) property the construction, reconstruction, or
erection of which is completed by the taxpayer after
the date of the enactment of this Act, but to the ex-
tent of the basis thereof attributable to construction,
reconstruction, or erection after such date.
SEC. 209. INCREASE IN LIMITATION BASED ON AMOUNT OF
TAX.
(a) IN GENERAL.—Subparagraph (B) of section
38(c)(1) of the Internal Revenue Code of 1986 is amended
by striking ‘‘$25,000’’ and inserting ‘‘$50,000’’.
(b) CONFORMING AMENDMENTS.—Paragraph (2) of
section 38(c) of such Code is amended—
(1) by striking ‘‘$25,000’’ each place it appears
and inserting ‘‘$50,000’’, and
(2) by inserting ‘‘$12,500’’ in subparagraph (A)
and inserting ‘‘$25,000’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 210. SPECIAL TREATMENT FOR LOSSES ON INVEST-
MENT IN MANUFACTURING FACILITIES.
(a) IN GENERAL.—Subsection (a) of section 1244 of
the Internal Revenue Code of 1986 is amended to read
as follows:
‘‘(a) GENERAL RULE.—In the case of an individual,
any loss on—
‘‘(1) section 1244 stock issued to such individ-
ual or to a partnership, or
‘‘(2) qualified manufacturing stock,
which would (but for this section) be treated as a loss from
the sale or exchange of a capital asset shall, to the extent
provided in this section, be treated as an ordinary loss.’’
(b) QUALIFIED
MANUFACTURING
STOCK.—Sub-
section (c) of section 1244 of such Code is amended by
adding at the end thereof the following new paragraph:
‘‘(4) QUALIFIED MANUFACTURING STOCK.—For
purposes of this section, the term ‘qualified manu-
facturing stock’ means stock in any domestic cor-
poration if, as of the time such stock was acquired
by the taxpayer, substantially all of the activities of
such corporation involved the manufacture of tan-
gible personal property in the United States. For
purposes of this paragraph, the term ‘manufacture’
shall not include importation. Rules similar to the
rules of paragraphs (1) and (2) of subsection (d)
shall apply to qualified manufacturing stock.’’
(c) CLERICAL AMENDMENTS.—
(1) The section heading for section 1244 of
such Code is amended by inserting before the period
at the end thereof the following: ‘‘OR STOCK IN
MANUFACTURING COMPANIES’’.
(2) The table of sections for part IV of sub-
chapter P of chapter 1 of such Code is amended by
inserting before the period at the end of the item re-
lating to section 1244 the following: ‘‘or stock in
manufacturing companies’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to stock acquired after the date
of the enactment of this Act.
SEC. 211. EXEMPTION OF CERTAIN INTEREST AND DIVI-
DEND INCOME FROM TAX.
(a) IN GENERAL.—Part III of subchapter B of chap-
ter 1 of the Internal Revenue Code of 1986 (relating to
amounts specifically excluded from gross income) is
amended by inserting after section 115 the following new
section:
‘‘SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTER-
EST RECEIVED BY INDIVIDUALS.
‘‘(a) EXCLUSION FROM GROSS INCOME.—Gross in-
come does not include the sum of the amounts received
during the taxable year by an individual as—
‘‘(1) dividends from domestic corporations, or
‘‘(2) interest.
‘‘(b) LIMITATIONS.—
‘‘(1) 
MAXIMUM
AMOUNT.—The 
aggregate
amount excluded under subsection (a) for any tax-
able year shall not exceed $2,500 ($5,000 in the
case of a joint return under section 6013).
‘‘(2) CERTAIN
DIVIDENDS
EXCLUDED.—Sub-
section (a)(1) shall not apply to any dividend from
a corporation which, for the taxable year of the cor-
poration in which the distribution is made, or for the
next preceding taxable year of the corporation, is a
corporation exempt from tax under section 501 (re-
lating to certain charitable, etc., organizations) or
section 521 (relating to farmers’ cooperative associa-
tions).
‘‘(c) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) DISTRIBUTIONS
FROM
REGULATED
IN-
VESTMENT COMPANIES AND REAL ESTATE INVEST-
MENT TRUSTS.—Subsection (a) shall apply with re-
spect to distributions by—
‘‘(A) regulated investment companies to
the extent provided in section 854(c), and
‘‘(B) real estate investment trusts to the
extent provided in section 857(c).
‘‘(2) DISTRIBUTIONS BY A TRUST.—For pur-
poses of subsection (a), the amount of dividends and
interest properly allocable to a beneficiary under sec-
tion 652 or 662 shall be deemed to have been re-
ceived by the beneficiary ratably on the same date
that the dividends and interest were received by the
estate or trust.
‘‘(3) CERTAIN
NONRESIDENT
ALIENS
INELI-
GIBLE
FOR
EXCLUSION.—In the case of a non-
resident alien individual, subsection (a) shall apply
only—
‘‘(A) in determining the tax imposed for
the taxable year pursuant to section 871(b)(1)
and only in respect of dividends and interest
which are effectively connected with the conduct
of a trade or business within the United States,
or
‘‘(B) in determining the tax imposed for
the taxable year pursuant to section 877(b).’’
(b) CLERICAL AND CONFORMING AMENDMENTS.—
(1) The table of sections for part III of sub-
chapter B of chapter 1 of such Code is amended by
inserting after the item relating to section 115 the
following new item:
‘‘Sec. 116. Partial exclusion of dividends and interest received by
individuals.’’
(2) The first sentence of paragraph (2) of sec-
tion 265(a) of such Code is amended by inserting
before the period at the end thereof the following: ‘‘,
or to purchase or carry obligations or shares, or to
make deposits, to the extent the interest thereon is
excludable from gross income under section 116’’.
(3) Subsection (c) of section 584 of such Code
is amended by adding at the end thereof the follow-
ing new sentence:
‘‘The proportionate share of each participant in the
amount of dividends or interest received by the common
trust fund and to which section 116 applies shall be con-
sidered for purposes of such section as having been re-
ceived by such participant.’’
(4) Subsection (a) of section 643(a) of such
Code is amended by inserting after paragraph (6)
the following new paragraph:
For purposes of the preceding sentence, gross in-
come and aggregate interest received shall each be
reduced by so much of the deduction allowable by
section 163 for the taxable year as does not exceed
aggregate interest received for the taxable year.
‘‘(2) NOTICE TO SHAREHOLDERS.—The amount
of any distribution by a regulated investment com-
pany which may be taken into account as a dividend
for purposes of the exclusion under section 116 shall
not exceed the amount so designated by the com-
pany in a written notice to its shareholders mailed
not later than 45 days after the close of its taxable
year.
‘‘(3) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) The term ‘gross income’ does not in-
clude gain from the sale or other disposition of
stock or securities.
‘‘(B) The term ‘aggregate dividends re-
ceived’ includes only dividends received from do-
mestic corporations other than dividends de-
scribed in section 116(b)(2). In determining the
amount of any dividend for purposes of this
subparagraph, the rules provided in section
116(c)(1) (relating to certain distributions)
shall apply.’’
(6) Subsection (c) of section 857 of such Code
is amended to read as follows:
‘‘(c) LIMITATIONS APPLICABLE TO DIVIDENDS RE-
CEIVED FROM REAL ESTATE INVESTMENT TRUSTS.—
‘‘(1) IN
GENERAL.—For purposes of section
116 (relating to an exclusion for dividends and inter-
est received by individuals) and section 243 (relating
to deductions for dividends received by corpora-
tions), a dividend received from a real estate invest-
ment trust which meets the requirements of this
part shall not be considered as a dividend.
‘‘(2) TREATMENT AS INTEREST.—In the case of
a dividend (other than a capital gain dividend, as de-
fined in subsection (b)(3)(C)) received from a real
estate investment trust which meets the require-
ments of this part for the taxable year in which it
paid the dividend—
‘‘(A) such dividend shall be treated as in-
terest if the aggregate interest received by the
real estate investment trust for the taxable year
equals or exceeds 75 percent of its gross in-
come, or
‘‘(B) if subparagraph (A) does not apply,
the portion of such dividend which bears the
same ratio to the amount of such dividend as
the aggregate interest received bears to gross
income shall be treated as interest.
‘‘(3) ADJUSTMENTS TO GROSS INCOME AND AG-
GREGATE
INTEREST
RECEIVED.—For purposes of
paragraph (2)—
‘‘(A) gross income does not include the net
capital gain,
‘‘(B) gross income and aggregate interest
received shall each be reduced by so much of
the deduction allowable by section 163 for the
taxable year (other than for interest on mort-
gages on real property owned by the real estate
investment trust) as does not exceed aggregate
interest received by the taxable year, and
‘‘(C) gross income shall be reduced by the
sum of the taxes imposed by paragraphs (4),
(5), and (6) of section 857(b).
‘‘(4) NOTICE TO SHAREHOLDERS.—The amount
of any distribution by a real estate investment trust
which may be taken into account as interest for pur-
poses of the exclusion under section 116 shall not
exceed the amount so designated by the trust in a
written notice to its shareholders mailed not later
than 45 days after the close of its taxable year.’’
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply with respect to taxable years begin-
ning after the date of the enactment of this Act.
SEC. 212. ORDINARY-LOSS TREATMENT FOR LOSSES ON IN-
VESTMENTS IN STARTUP COMPANIES.
(a) IN GENERAL.—Subparagraph (A) of section
1244(c)(1) of the Internal Revenue Code of 1986 (defin-
ing section 1244 stock) is amended by inserting before the
comma at the end the following: ‘‘or was a qualified start-
up company’’.
(b) QUALIFIED STARTUP COMPANY.—Subsection (c)
of section 1244 of such Code is amended by adding at
the end the following new paragraph:
‘‘(4) QUALIFIED STARTUP COMPANY.—
‘‘(A) IN GENERAL.—For purposes of this
section, the term ‘qualified startup company’
means any domestic corporation if—
‘‘(i) as of the time of the issuance of
the stock involved, substantially all of the
activities of the corporation involved the
manufacture of tangible personal property
in the United States,
‘‘(ii) as of the time of the issuance of
the stock involved, no substantial part of
the business activities of the corporation
involved a business acquired from another
person, and
‘‘(iii) the corporation had not been in
existence for more than 1 taxable year as
of the time of the issuance of the stock in-
volved.
‘‘(B) IMPORTATION EXCLUDED.—For pur-
poses of subparagraph (A), the term ‘manufac-
ture’ does not include importation.’’
(c) CONFORMING AMENDMENT.—The last sentence
of section 1244(d)(2) of such Code is amended by striking
‘‘paragraphs (1)(C) and (3)(A)’’ and inserting ‘‘para-
graphs (1)(C), (3)(A), and (4)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to stock issued after the date of
the enactment of this Act.
TITLE III—COOPERATIVE
ENTERPRISE
SEC. 301. FINDINGS.
The Congress finds that—
(1) the globalization of the economy makes
antitrust law much less relevant today, and even
counterproductive, than when it was developed;
(2) rapid technological change makes the cre-
ation of monopolies unlikely as the pace of product
and process innovation accelerates;
(3) cooperative efforts in today’s world are pre-
dominantly pro-competitive rather than anticompeti-
tive; and
(4) changing the United States antitrust laws
to mirror the realities of the way in which other
countries enforce anticompetitive statutes would
make United States industries more competitive
internationally.
SEC. 302. MERGER ANALYSIS.
Section 7 of the Clayton Act (15 U.S.C. 18) is
amended—
(1) in the first paragraph by striking ‘‘the ef-
fect of such acquisition may be substantially to less-
en competition, or to tend to create a monopoly’’
and inserting in lieu thereof ‘‘there is a significant
probability that such acquisition will substantially
increase the ability to exercise market power’’;
(2) in the second paragraph—
(A) by striking ‘‘the effect of’’ and insert-
ing in lieu thereof ‘‘there is a significant prob-
ability that’’; and
(B) by striking ‘‘may be substantially to
lessen competition, or to tend to create a mo-
nopoly’’ and inserting in lieu thereof ‘‘will sub-
stantially increase the ability to exercise market
power’’;
(3) in the third paragraph—
(A) by striking ‘‘the substantial lessening
of competition’’ in the first sentence and insert-
ing in lieu thereof ‘‘a substantial increase in the
ability to exercise market power’’; and
(B) by striking ‘‘lessen competition’’ in the
second sentence and inserting in lieu thereof
‘‘increase the ability to exercise market power’’;
and
(4) by inserting after the third paragraph the
following new paragraph:
‘‘For purposes of this section, the ability to exercise
market power is defined as the ability of one or more firms
profitably to maintain prices above competitive levels for
a significant period of time. In determining whether there
is a significant probability that any acquisition will sub-
stantially increase the ability to exercise market power, the
court shall duly consider all economic factors relevant to
the effect of the acquisition in the affected markets, in-
cluding (i) the number and size distribution of firms and
the effect of the acquisition thereon; (ii) ease or difficulty
of entry by foreign or domestic firms; (iii) the ability of
smaller firms in the market to increase production in re-
sponse to an attempt to exercise market power; (iv) the
nature of the product and terms of sale; (v) conduct of
firms in the market; (vi) efficiencies deriving from the ac-
quisition; and (vii) any other evidence indicating whether
the acquisition will or will not substantially increase the
ability, unilaterally or collectively, to exercise market
power.’’.
SEC. 303. JOINT PRODUCTION.
The National Cooperative Research Act of 1984 (15
U.S.C. 4301 et seq.) is amended—
(1) in section 1, by striking ‘‘National Coopera-
tive Research Act of 1984’’ and inserting in lieu
thereof ‘‘National Cooperative Research, Develop-
ment, and Production Act’’;
(2) by striking ‘‘joint research and development
venture’’ each place it appears and inserting in lieu
thereof ‘‘joint research, development, or production
venture’’;
(3) in section 2(a)(6)—
(A) by striking ‘‘or’’ in subparagraph (D);
(B) by striking subparagraph (E) and in-
serting in lieu thereof the following:
‘‘(E) the production of any product, proc-
ess, or service, or
‘‘(F) any combination of the purposes
specified in subparagraphs (A), (B), (C), (D),
and (E),’’; and
(C) by inserting ‘‘development, or produc-
tion,’’ after ‘‘the conducting of research,’’;
(4) in section 2(b)(1), by striking ‘‘conduct the
research and development that is’’ and inserting in
lieu thereof ‘‘carry out’’;
(5) by striking sections 2(b)(2) and 2(b)(3) and
inserting in lieu thereof the following:
‘‘(2) entering into any agreement or engaging
in any other conduct restricting, requiring, or other-
wise involving the marketing by such venture or by
any person who is a party to such venture of any
product, process, or service developed through or
produced by such venture, other than—
‘‘(A) the marketing by such venture of any
product, process, or service to any person who
is a party to such venture; or
‘‘(B) the marketing of proprietary informa-
tion, such as patents, rights in mask works pro-
tected under title 17 of the United States Code,
know-how, and trade secrets; and
‘‘(3) entering into any agreement or engaging
in any other conduct—
‘‘(A) to restrict or require the sale, licens-
ing, or sharing by any person who is a party to
such venture of inventions, developments, prod-
ucts, processes, or services not developed
through or produced by such venture; or
‘‘(B) to restrict or require participation by
such a party in other unilateral or joint re-
search, development, or production activities,
that is not reasonably required to prevent misappro-
priation of proprietary information contributed by
any person who is a party to such venture or of the
results of such venture.’’;
(6) in section 3, by striking ‘‘research and de-
velopment markets’’ and inserting in lieu thereof
‘‘research, development, product, process, or service
markets’’;
(7) in the heading to section 6, by striking
‘‘JOINT RESEARCH AND DEVELOPMENT VENTURE’’
and inserting in lieu thereof ‘‘JOINT RESEARCH, DE-
VELOPMENT, OR PRODUCTION VENTURE’’; and
(8) in section 6(a) by inserting ‘‘(or, with re-
spect to a venture involving the production of any
product, process, or service, not later than 90 days
after the effective date of the Fundamental Competi-
tiveness Act of 1993)’’ after ‘‘enactment of this
Act’’.
TITLE IV—BUSINESS LIABILITY
REFORM
Subtitle A—Findings
SEC. 401. FINDINGS.
The Congress finds that—
(1) the increasing amount of litigation in our
society causes the wasteful use of time, money, and
energy which could be better allocated to research,
development, production, economic growth, and com-
petitiveness;
(2) the multitude of professional and product li-
ability suits has undermined the incentive and ability
of businesses to bring new products to the market
and has led professionals to be overly cautious in
providing services to the community;
(3) the excessive number of law suits and the
plethora of legal standards in the areas of profes-
sional and product liability for each State has led to
exorbitant compliance costs for manufacturers and
service providers;
(4) encouraging alternative dispute mechanisms
to resolve both professional and product liability
suits would reduce inordinate litigation cost and free
capital for more productive enterprises; and
(5) providing uniform legal standards for both
professional and product liability would eliminate
costly litigation, promote professional and product
innovation, reduce regulatory compliance costs, and
make the United States more competitive inter-
nationally.
Subtitle B—Professionals’ Liability
Reform
SEC. 411. SHORT TITLE.
This subtitle may be cited as ‘‘Professionals’ Liability
Reform Act of 1993’’.
SEC. 412. PURPOSE.
The purpose of this subtitle is to establish uniform
standards of liability for professionals who provide profes-
sional service—
(1) to promote greater uniformity and predict-
ability with respect to liability arising out of such
services;
(2) to facilitate the provision of such services
through interstate commerce;
(3) to foster innovation by reducing the uncer-
tainty of risk to professionals who provide profes-
sional services; and
(4) to encourage the States to support alter-
native methods for resolving professional liability
disputes in order to reduce the costs of such dis-
putes to professionals and their clients.
SEC. 413. SCOPE AND PREEMPTION.
(a) IN GENERAL.—(1) This subtitle governs any pro-
fessional liability action brought in any Federal or State
court against a professional.
(2) This subtitle shall preempt and supersede any
State law to the extent that such law is inconsistent with
this subtitle. This subtitle shall not preempt or supersede
any State law that provides to professionals limitations of
liability or defenses which are additional to limitations or
defenses contained in this subtitle.
(b) HARM REQUIRED.—A claimant is not entitled to
recover damages in a professional liability action except
for damages which constitute harm as defined in section
416(4).
(c) CONSTRUCTION OF PROVISIONS.—Nothing in this
subtitle shall be construed—
(1) to waive or affect any defense of sovereign
immunity asserted by any State under any law;
(2) to waive or affect any defense of sovereign
immunity asserted by the United States;
(3) to affect the applicability of the Foreign
Services Immunities Act of 1976 (28 U.S.C. 1602 et
seq.);
(4) to preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation; or
(5) to affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground of inconvenient
forum.
(d) ALTERNATIVE PROCEDURES, STANDARDS, AND
SYSTEMS.—Nothing in this subtitle shall prohibit States
from developing or implementing alternative procedures,
standards, or systems, which are not inconsistent with this
subtitle, for—
(1) expediting the adjudication of professional
liability claims,
(2) resolving professional liability disputes, and
(3) compensating harm caused by professional
services.
(e) LIMITATION OF ACTIONS.—No professional liabil-
ity action shall be maintained unless commenced within
3 years after the claimant discovered, or in the exercise
of reasonable diligence should have discovered, that such
claimant had suffered harm from professional services.
SEC. 414. DESCRIPTION OF PROFESSIONAL LIABILITY
STANDARDS.
(a) LIABILITY IN GENERAL.—A professional shall
not be liable for damages in any professional liability ac-
tion unless the claimant establishes in addition to any
other necessary elements of proof required by law—
(1) except as provided in subsection (b), that
such professional negligently rendered professional
services and such negligence was the proximate
cause of harm to the claimant; or
(2) in the case of a claim for economic injury,
that such professional negligently rendered profes-
sional services to or for the direct and intended ben-
efit of the claimant, and such services were the prox-
imate cause of the harm to the claimant.
(b) EXISTENCE OF CERTAIN SCIENTIFIC, MEDICAL,
LEGAL, OR TECHNICAL INFORMATION.—A professional
shall not be liable in a professional liability action for
harm caused by professional services rendered by such
professional unless the claimant establishes that, at the
time such services were rendered, knowledge of the cir-
cumstances that caused the harm and a practical means
to eliminate such circumstances were reasonably available
in light of scientific, medical, legal, or technical informa-
tion existing at the time the professional services were ren-
dered.
(c) ADDITIONAL LIMITATIONS ON LIABILITY.—(1) A
professional shall not be liable in a professional liability
action in which—
(A) the professional’s services were rendered to
an agency of the Federal Government or of any
State;
(B) the Federal Government or the State estab-
lished or approved reasonably precise contract speci-
fications material to the claim made against the pro-
fessional; and
(C) the services rendered by the professional
conformed to such specifications in all respects ma-
terial to the claim.
(2) A determination by an agency of the Federal Gov-
ernment or the State that the services rendered by the
professional are in compliance with contract specifications
shall serve as conclusive evidence of such conformity.
(d) PERIODIC PAYMENTS.—(1) In any professional li-
ability action in which the award of future damages ex-
ceeds $100,000, no person may be required to pay for fu-
ture loss in a single payment, but such person shall be
permitted to make such payments periodically based on
a projection of when damages are likely to occur.
(2) The court may require such person to purchase
an annuity making such periodic payments, if the court
finds a reasonable basis for concluding that the person
may not make the periodic payments.
(3) The judgment of the court awarding such periodic
payments may not be reopened at any time to contest,
amend, or modify the schedule or amount of the payments
in the absence of fraud.
(4) This subsection shall not be construed to preclude
a settlement providing for a single payment.
(f) COLLATERAL
SOURCE
BENEFITS.—(1) Any
award of damages to a claimant in a professional liability
action shall be reduced by any other past or future pay-
ment or benefit covered by this subsection which the per-
son has received or for which the person is eligible on ac-
count of the harm for which damages are awarded.
(2) As used in this subsection, the term ‘‘payment
or benefit covered by this subsection’’ means—
(A) any payment or benefit by or paid, in whole
or in part, by any agency or instrumentality of the
United States, a State, or local government; and
(B) any payment or benefit by a worker’s com-
pensation system, a health insurance program, or in-
come replacement program.
(3) This subsection shall not preempt or supersede
any State law which provides that damage awards may
be reduced by payments or benefits other than those cov-
ered by this section.
(4) This subsection shall not apply to any payments
or benefits received before judgment if the application of
this subsection would reduce the amount of income that
would otherwise be considered under section 402(a)(17)
of the Social Security Act.
(5) The amount by which an award of damages to
an individual for an injury shall be reduced under para-
graph (1) shall be an amount equal to the difference be-
tween—
(A) the total amount of the payments (other
than such award) which have been made or which
will be made to such individual to compensate such
individual for such injury, minus
(B) the amount paid by such individual (or by
the spouse or parent of such individual) to secure
the payments described in subparagraphs (A) and
(B) of paragraph (2).
(g) LIMITATION ON ATTORNEYS’ FEES.—(1) Except
as provided in paragraph (2), in any professional liability
action in which claimant receives settlement proceeds or
an award of damages, the amount of payments to such
individual’s attorney shall not exceed—
(A) 331⁄3 percent of the first $250,000 recov-
ered,
(B) 25 percent of the next $250,000 recovered,
and
(C) 20 percent of any amount recovered in ex-
cess of $500,000.
(2) In any civil action to which paragraph (1) applies,
the court may, after receiving a petition from the attorney
representing the individual who receives settlement pro-
ceeds or an award of damages, permit such attorney to
be paid an amount of fees in excess of the amount speci-
fied by such paragraph if the court determines that the
petition has adduced evidence justifying such additional
fees.
(h) LIABILITY OF CODEFENDANTS.—(1) Except as
provided in paragraph (2), in a professional liability ac-
tion, the trier of fact shall determine, with respect to each
person responsible for the harm, the percentage of that
person’s responsibility for the harm for which the action
was brought. If damages are awarded to the claimant in
such action, a professional shall be liable, if otherwise lia-
ble to the claimant for damages, only for the percentage
of the damages which equals the percentage of that profes-
sional’s responsibility for the harm for which the action
was brought.
(2) Paragraph (1) shall not apply with respect to per-
sons engaged in concerted action which proximately
caused the harm complained of by the claimant. For pur-
poses of this subsection, the term ‘‘concerted action’’
means the participation in joint conduct by 2 or more per-
sons who consciously and deliberately agreed to jointly
participate in such conduct with actual knowledge of the
wrongfulness of the conduct.
(i) PUNITIVE DAMAGES.—(1) Punitive damages may,
if otherwise permitted by applicable law, be awarded to
any claimant who establishes, by clear and convincing evi-
dence, that the harm suffered was the result of conduct—
(A) manifesting a professional’s malicious and
reckless disregard of those persons who might be
harmed as a result of the performance of profes-
sional service; and
(B) constituting an extreme departure from ac-
cepted standard of conduct.
(2) A failure to exercise reasonable care in choosing
among alternative types of services, designs, formulations,
(iii) disregard for the consequences of any
action taken by the claimant in reliance on pro-
fessional services.
(6) At the request of the professional, the trier of
fact shall consider in a separate proceeding whether puni-
tive damages are to be awarded. If a separate proceeding
is requested, evidence relevant only to the claim of punitive
damages, as determined by applicable State law, shall be
inadmissible in any proceeding to determine whether com-
pensatory damages are to be awarded.
(7) If the trier of fact determines that a professional
has engaged in conduct described under paragraph (1),
the court may award punitive damages. In determining the
amount of such damages, the court shall consider—
(A) the factors described in paragraph (4),
(B) the profitability to the professional of the
conduct for which punitive damages are to be
awarded,
(C) the total effect of other punishment im-
posed or likely to be imposed upon the professional
as a result of the conduct, including punitive damage
awards to persons similarly situated to the claimant
and the severity of civil or criminal penalties to
which the professional has been or may be subjected.
(8)(A) A claimant’s actual recovery of punitive dam-
ages awarded under paragraph (5) may not exceed 3 times
the amount of compensatory damages awarded to such
claimant.
(B) Any punitive damages awarded by the court in
excess of the amount referred to in subparagraph (A) shall
be paid—
(i) to the State in which the case is litigated,
if the case is litigated in State court; or
(ii) to the Federal Government, if the case is
litigated in Federal court.
(C) Notwithstanding subparagraph (B), the court
may award attorneys’ fees from such damages to the
claimant’s attorney as compensation for work attributable
to obtaining an award of such damages.
(j) COUNSEL’S LIABILITY FOR FRIVOLOUS SUITS.—
If the court finds in any professional liability action that
such action was commenced—
(1) without a good faith belief by the attorney
representing the claimant that there was a reason-
able basis in law and in fact for recovery of the relief
requested, or
(2) by such attorney merely for purposes of
achieving a monetary settlement where there was no
reasonable prospect for an award of damages,
the attorney shall be liable for costs, fees, and expenses,
including attorney fees, reasonably incurred by the defend-
ant.
SEC. 415. FORMATION OF RISK MANAGEMENT PROGRAMS.
(a) IN GENERAL.—Each State should encourage pro-
fessional organizations, whose membership includes pro-
fessionals who practice within the State, to put into effect
risk management programs including peer review of pro-
fessional office policies and practices, organization, and
quality of performance.
(b) 
RECORDS
INADMISSIBLE
AS
EVIDENCE.—
Records of the implementation of and conclusions reached
by such risk management programs, including peer review
of professional office policies and practices, organization,
and quality of performance, shall not be admissible in evi-
dence against any professional who is the subject of such
records.
SEC. 416. DEFINITIONS.
For purposes of this subtitle—
(1) the term ‘‘professional’’ means—
(A) any person engaged in work (i) pre-
dominantly intellectual and varied in character
as opposed to routine mental, manual, mechani-
cal, or physical work; (ii) involving the consist-
ent exercise of discretion and judgment in its
performance; (iii) of such a character that the
output produced or the result accomplished can-
not be standardized in relation to a given period
of time; and (iv) requiring knowledge of an ad-
vanced type in a field of science or learning cus-
tomarily acquired by a prolonged course of spe-
cialized intellectual instruction and study in an
institution of higher learning or a hospital, as
distinguished from a general academic edu-
cation or from an apprenticeship or from train-
ing in the performance of routine mental, man-
ual, or physical processes; or
(B) any person, who (i) has completed the
courses of specialized intellectual instruction
and study described in clause (iv) of subpara-
graph (A), and (ii) is performing related work
under the supervision of a professional to qual-
ify himself or herself to become a professional
as defined in subparagraph (A);
(2) the term ‘‘State’’ means any State of the
United States, the District of Columbia, the Com-
monwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, the Virgin Islands,
Guam, American Samoa, and any other territory or
possession of the United States, or any political sub-
division thereof;
(3) the term ‘‘claimant’’ means any person—
(A) who has suffered harm from the provi-
sion of professional services and who brings a
professional liability action, or
(B) who brings such an action on behalf of
any person who has suffered harm from the
provision of professional services or who brings
such an action because a person suffered harm
from such services;
(4) the term ‘‘harm’’ means—
(A) illness, bodily injury, or the death of
the claimant,
(B) mental anguish of, or emotional harm
to, the claimant caused by the claimant’s illness
or bodily injury,
(C) physical damage to property, or
(D) economic injury; and
(5) the term ‘‘professional liability action’’
means a civil action brought against a professional
for personal injury, property damage, or harm suf-
fered by the claimant because of the provision of
professional services.
Subtitle C—Product Liability
Fairness
PART I—GENERAL PROVISIONS
SEC. 421. SHORT TITLE.
This subtitle may be cited as the ‘‘Product Liability
Fairness Act’’.
SEC. 422. DEFINITIONS.
As used in this subtitle, the term—
(1) ‘‘claimant’’ means any person who brings a
civil action pursuant to this subtitle, and any person
on whose behalf such an action is brought; if such
an action is brought through or on behalf of an es-
tate, the term includes the claimant’s decedent, or if
it is brought through or on behalf of a minor or in-
competent, the term includes the claimant’s parent
or guardian;
(2) ‘‘clear and convincing evidence’’ is that
measure or degree of proof that will produce in the
mind of the trier of fact a firm belief or conviction
as to the truth of the allegations sought to be estab-
lished; the level of proof required to satisfy such
standard is more than that required under prepon-
derance of the evidence, but less than that required
for proof beyond a reasonable doubt;
(3) ‘‘collateral benefits’’ means all benefits and
advantages received or entitled to be received (re-
gardless of any right any other person has or is enti-
tled to assert for recoupment through subrogation,
trust agreement, lien, or otherwise) by any claimant
harmed by a product or by any other person as re-
imbursement of loss because of harm to person or
property payable or required to be paid to the claim-
ant, under—
(A) any Federal law or the laws of any
State (other than through a claim for breach of
an obligation or duty); or
(B) any life, health, or accident insurance
or plan, wage or salary continuation plan, or
disability income or replacement service insur-
ance, or any benefit received or to be received
as a result of participation in any pre-paid med-
ical plan or health maintenance organization;
(4) ‘‘commerce’’ means trade, traffic, com-
merce, or transportation (A) between a place in a
State and any place outside of that State; or (B)
which affects trade, traffic, commerce, or transpor-
tation described in clause (A);
(5) ‘‘commercial loss’’ means economic injury,
whether direct, incidental, or consequential, includ-
ing property damage and damage to the product it-
self;
(6) ‘‘economic loss’’ means any pecuniary loss
resulting from harm which is allowed under State
law;
(7) ‘‘exercise of reasonable care’’ means conduct
of a person of ordinary prudence and intelligence
using the attention, precaution, and judgment that
society expects of its members for the protection of
their own interests and the interests of others;
(8) ‘‘harm’’ means any harm recognized under
the law of the State in which the civil action is
maintained, other than—
(A) loss or damage caused to a product it-
self; and
(B) commercial loss;
(9) ‘‘manufacturer’’ means (A) any person who
is engaged in a business to produce, create, make,
or construct any product (or component part of a
product) and who designs or formulates the product
(or component part of the product) or has engaged
another person to design or formulate the product
(or component part of the product); (B) a product
seller with respect to all aspects of a product (or
component part of a product) which are created or
affected when, before placing the product in the
stream of commerce, the product seller produces,
creates, makes, or constructs and designs or formu-
lates, or has engaged another person to design or
formulate, an aspect of a product (or component
part of a product) made by another; or (C) any
product seller not described in clause (B) which
holds itself out as a manufacturer to the user of a
product;
(10) ‘‘noneconomic loss’’ means loss caused by
a product other than economic loss or commercial
loss;
(11) ‘‘person’’ means any individual, corpora-
tion, company, association, firm, partnership, soci-
ety, joint stock company, or any other entity (includ-
ing any governmental entity);
(12) ‘‘preponderance of the evidence’’ is that
measure or degree of proof which, by the weight,
credit, and value of the aggregate evidence on either
side, establishes that it is more probable than not
that a fact occurred or did not occur;
(13) ‘‘product’’ means any object, substance,
mixture, or raw material in a gaseous, liquid, or
solid state (A) which is capable of delivery itself or
as an assembled whole, in a mixed or combined
state, or as a component part or ingredient; (B)
which is produced for introduction into trade or
commerce; (C) which has intrinsic economic value;
and (D) which is intended for sale or lease to per-
sons for commercial or personal use; the term does
not include human tissue, blood and blood products,
or organs unless specifically recognized as a product
pursuant to State law;
(14) ‘‘product seller’’ means a person who, in
the course of a business conducted for that purpose,
sells, distributes, leases, prepares, blends, packages,
labels, or otherwise is involved in placing a product
in the stream of commerce, or who installs, repairs,
or maintains the harm-causing aspect of a product;
the term does not include—
(A) a seller or lessor of real property;
(B) a provider of professional services in
any case in which the sale or use of a product
is incidental to the transaction and the essence
of the transaction is the furnishing of judg-
ment, skill, or services; or
(C) any person who—
(i) acts in only a financial capacity
with respect to the sale of a product; and
(ii) leases a product under a lease ar-
rangement in which the selection, posses-
sion, maintenance, and operation of the
product are controlled by a person other
than the lessor; and
(15) ‘‘State’’ means any State of the United
States, the District of Columbia, the Commonwealth
of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, the Virgin Islands, Guam, Amer-
ican Samoa, and any other territory or possession of
the United States, or any political subdivision
thereof.
SEC. 423. PREEMPTION.
(a) This subtitle governs any civil action brought
against a manufacturer or product seller, on any theory,
for harm caused by a product. A civil action brought
against a manufacturer or product seller for loss or dam-
age to a product itself or for commercial loss is not subject
to this subtitle.
(b) This subtitle supersedes any State law regarding
recovery for harm caused by a product only to the extent
that this subtitle establishes a rule of law applicable to
any such recovery. Any issue arising under this subtitle
that is not governed by any such rule of law shall be gov-
erned by applicable State or Federal law.
(c) Nothing in this subtitle act shall be construed
to—
(1) waive or affect any defense of sovereign im-
munity asserted by any State under any provision of
law;
(2) supersede any Federal law, except the Fed-
eral Employees Compensation Act and the Long-
shoremen’s and Harbor Workers’ Compensation Act;
(3) waive or affect any defense of sovereign im-
munity asserted by the United States;
(4) affect the applicability of any provision of
chapter 97 of title 28, United States Code;
(5) preempt State choice-of-law rules with re-
spect to claims brought by a foreign nation or a citi-
zen of a foreign nation;
(6) affect the right of any court to transfer
venue or to apply the law of a foreign nation or to
dismiss a claim of a foreign nation or of a citizen
of a foreign nation on the ground of inconvenient
forum; or
(7) supersede any statutory or common law, in-
cluding an action to abate a nuisance, that author-
izes a State or person to institute an action for civil
damages or civil penalties, cleanup costs, injunc-
tions, restitution, cost recovery, punitive damages, or