Transcript Document

Chapter 11
Product Advertising
and Liability
MARIANNE M. JENNINGS
B U S I N E S S
Its Legal, Ethical &
Global Environment 6th Ed.
Copyright ©2003 by West Legal Studies in Business,
a division of Thomson Learning. All rights reserved.
Development of
Product Liability
Initially No Liability for the Seller
Courts followed a theory of Caveat
Emptor (‘Let the buyer beware’)
Caveat Emptor Removed in Section
402A of the Restatement of Torts
Law has swung from no liability to
almost per se liability.
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Advertising as a Contract
Basis for Product Liability
Express Warranties
Creation
• Affirmation of fact or promise of
performance (samples, model, descriptions)
Restriction
• Must be part of the basis of the bargain
Disclaimer
• Cannot make a disclaimer inconsistent with
an express warranty
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Advertising as a Contract
Basis for Product Liability
Case 11.1
Castro v. QVC Network,
Inc. (1998)
Was the pan represented as suitable for
roasting a 25 lb. Turkey?
What is the relationship between tort
liability and warranty liability?
Did the pan pass the risk/utility test?
4
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Federal Regulation of
Warranties and Advertising
Federal Trade Commission Act
Authorizes FTC as Enforcement
Agency
Passed in 1914
Federal Trade Commission given broad
authority
Requires regulation of “unfair and
deceptive trade practices”
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Federal Regulation of
Warranties and Advertising
FTC broadened by Wheeler-Lea Act of
1938
“Is public deceived?” standard
Not limited to adverse impact on
competition
FTC Improvements Act of 1980
Put some restrictions on FTC regulation
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Federal Regulation of
Warranties and Advertising
 Types of FTC Regulation
Content control and accuracy
• “No aspirin,” “aspirin free,” all dairy products, and
so on (like express warranties)
Performance claims
• Advertiser must be able to prove claim
Corrective advertising
• FTC has required corrective advertising when
unsubstantiated claims have been made.
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Federal Regulation of
Warranties and Advertising
Case 11.2
Warner-Lambert Co. v.
FTC (1977)
What proposals for corrective advertising
are made in the order?
What modification in the order does the
court make?
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Federal Regulation of
Warranties and Advertising
Types of FTC Regulation
Celebrity endorsements
• Celebrity must have used the product
• If the celebrity has not used the product, the
source of claims must be given
Bait and switch
• Prohibits advertising cheaper product and
then getting customers to buy the more
expensive product
9
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Federal Regulation of
Warranties and Advertising
Types of FTC Regulation
Product comparisons
• FTC took a laissez-faire approach during the
1980s
• It encouraged comparisons
• Congress amended trademark law in 1989 to
allow competitors to bring suit for deceptive
statements about products in competitor’s
ads
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Federal Regulation of
Warranties and Advertising
Case 11.3
S.C. Johnson v. Clorox
Co. (2001)
What was the standard to determine the
truthfulness of the Clorox Glad Lock ad?
What is the Lanham Act?
How were customers being misled about
the ads?
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Federal Regulation of
Warranties and Advertising
Types of FTC Regulation
FTC remedies
• Consent decree is a negotiated settlement
Ad Regulation by FDA
FDA is regulating more as more
prescription medications are directly
advertised
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State Regulation of Advertising
Professional Ads
Most states have limitations on the types
of ads used by professionals
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Types of Product Related Accidents
21%
Toys/Sports/etc.
3%
Household
3%
Industrial Equipment
4%
Heavy Equipment
18%
8%
Knives
Construction Material
Minerals/Chemicals
Building/Mine Structure
9%
Heavy Objects
15%
Other
9%
10%
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Contract Product Liability
Theories: Implied Warranties
Implied Warranty of Merchantability
(§ 2-314)
Given in every sale of goods by a
merchant
Goods are fit for ordinary purposes
Average quality with adequate
packaging
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Contract Product Liability
Theories: Implied Warranties
Case 11.4 Mexicali Rose v. Superior
Court (1992)
What is the foreign-natural test?
What is the reasonable expectation test?
Which test is better?
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Contract Product Liability
Theories: Implied Warranties
Implied Warranty of Fitness for a
Particular Purpose (§ 2-315)
Requirements
• Seller has particular skill or judgment
• Buyer is relying on that skill or judgment
• Seller knows or has reason to know of
reliance
• Seller makes recommendation to buyer
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Contract Product Liability
Theories: Implied Warranties
Eliminating Warranties by Disclaimers
Can disclaims both implied warranties
by using “with all faults,” “as they
stand,” “as is”
Can also disclaim by using the names of
both warranties in clear language
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Contract Product Liability
Theories: Implied Warranties
Privity Standards (§ 2-318)
Privity at buyer level—three code
alternatives
• Alternative A—buyer, members of
household, and guests
• Alternative B—any natural person expected
to use goods
• Alternative C—extends to any person
expected to use the goods
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Tort Liability: Product Liability
Under Section 402A
 Strict Tort Liability (§ 402A)
Defendant had duty to manufacture a
reasonably safe product/was in the business of
selling or manufacturing product
That duty was breached
Breach of duty caused plaintiff’s injury
(product reached plaintiff in same condition)
Foreseeable that defect would cause injury
Plaintiff has property or physical damages
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Tort Liability: Product Liability
Under Section 402A
Unreasonably Dangerous Defective
Condition
Design defect
Improper warnings or insufficient
instructions
Negligent packaging, manufacturing, or
handling
• Example: Drug tampering/food tampering
cases
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Tort Liability: Product Liability
Under Section 402A
Case 11.5
Schoen v. Spotlight Co.,
Inc. (1997)
Did the nightgown meet federal standards
for children’s sleepwear
What liability theories were proposed
again Spotlight and Wal-Mart
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Tort Liability: Product Liability
Under Section 402A
 Manufacturing, Handling, or Processing
Error
Product must be properly manufactured,
handled and packaged to avoid liability
 Reaching the Buyer in the Same Condition
No substantial change in product design that
caused malfunction or injury
Product not tampered with during distribution
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Tort Liability: Product Liability
Under Section 402A
Requirement of a Seller Engaged in a
Business
Need not be a merchant
Need not be “in the business” of selling
that product
• Example: peanuts sold at games by a
baseball club
In some cases recovery has been allowed
against groups of sellers.
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Negligence : A Second Tort
for Product Liability
Suits Based on Negligence
Same elements as strict tort liability plus
prior knowledge of defective condition
Punitive damages if plaintiff can show
manufacturer/seller knew of defect
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Privity Issues Tort Theories
of Product Liability
Does not require privity of contract
Was injury to that party foreseeable
Should anticipate household use,
presence of children, and so on
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Defenses to Product
Liability Torts
 Misuse or abnormal use: Exceeding weight
limitations, using around flames
 Contributory negligence: complete defense
that overlaps with misuse
 Comparative Negligence: reduces the
amount of recovery.
 Assumption of risk
Plaintiff aware of danger
Does it anyway
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Defenses to Product
Liability Torts
Case 11.6
Binakonsky v. Ford
Motor Co. (1998)
What role does Binakonsky’s bloodalcohol level play in the case?
If Binakonsky would have died
regardless of the design, should there be
recovered under product liability?
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Product Liability Reform
Movement Toward Reform
Verdicts and costs affect international
competitiveness
Congress has made efforts to make laws
uniform
Businesses need to focus on prevention
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Federal Standards
Consumer Product Safety Commission
Federal Penalties of $2,000 per Violation
Up to $500,000 Maximum (willful
violations carry $50,000 and/or 1 year)
Uniform Product Liability Law
The Department of Commerce has tried
to get states to adopt uniform product
liability laws
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International Issues
in Product Liability
EU Trying to Gain Uniformity
“State-of-the-Art” Defense
• Product as good as it can be upon release
International Standards Organization’s
9000 guidelines for quality assurance
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