Chapter 11 Product Advertising and Liability

1. Chapter 11Product Advertising and Liability

2. 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.

3. 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

4. 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?

5. 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”

6. 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

7. 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.

8. 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?

9. 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

10. 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

11. 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?

12. 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

13. State Regulation of Advertising • Professional Ads • Most states have limitations on the types of ads used by professionals

14. Types of Product Related Accidents

15. 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

16. 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?

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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.

25. 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

26. 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

27. 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

28. Defenses to Product Liability Torts • Case 11.6 Binakonsky v. Ford Motor Co.(1998) • What role does Binakonsky’s blood-alcohol level play in the case? • If Binakonsky would have died regardless of the design, should there be recovered under product liability?

29. 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

30. 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

31. 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