Avoiding Liability Exposure From Defective Products Made Abroad

Saturday, December 1, 2007 - 01:00
William A. Ruskin

Editor: Bill, please describe your background in dealing with product liability cases?

Ruskin: I have been defending product liability cases for more than 25 years. In the 1980's, I worked in-house at CIBA-GEIGY Corporation, where I had my initiation into the defense of chemical and pharmaceutical products, and chemical intermediates, which may be blended with other chemicals before a finished product reaches the ultimate consumer.

For the most part, I have defended toxic tort and product liability litigation on behalf of clients who market industrial and agricultural chemicals, ethical pharmaceuticals and medical devices. More recently, I have been litigating on behalf of manufacturers of consumer products, food products and food additives. As my clients' business concerns grow more complex, it is my obligation to stay abreast of how their industries are evolving. Today, our world is more inter-connected than ever before and will continue to grow more so - presenting challenges undreamed of as little as 25 years ago.

Editor: What are the challenges facing importers today?

Ruskin: An increasingly common paradigm today is for product manufacturers to rely on a global supply chain where product constituents are made abroad and may be shipped in bulk to a manufacturer in the U.S., which then incorporates those products into a finished product. Many of those manufacturers are now discovering that the links in that global supply chain may not be as reliable as they had hoped or had been in the past. My firm represents distributors, including those of consumer electronic products made in China. Those products are manufactured for our clients in Chinese factories, which are, by and large, reliable and trustworthy, but those factories outsource to other Chinese companies for component parts, such as batteries or circuitry, for example. Sometimes, when there is a product recall or report of a product defect in the U.S., the Chinese factory is just as surprised as the U.S. company, because the factory relied upon the bona fides of their domestic Chinese component supplier to their detriment. The global supply chain is only as strong as its weakest link. This can just as easily be the case where products are imported from Europe. However, we are seeing an increase in Chinese recalls because of the preeminent place Chinese imports have assumed in the American market. A key difference between Chinese and European exporters is that Chinese regulatory agencies are just getting started and are not as sophisticated as their European counterparts. To the extent that American consumers cannot rely on a particular country's regulatory framework, our Consumer Products Safety Commission must exercise increased diligence.

Editor: What measures should U.S. importers employ to assure that no tainted products slip through the net?

Ruskin: Knowing your exporter is very important. If a U.S. company imports products from unknown manufacturing entities merely on the basis of price, there may be unfortunate consequences. Companies that have close relationships with well-established, responsible manufacturers are less likely to have a problem. The overwhelming majority of Chinese exporters are trustworthy and reliable. Notwithstanding the recent recalls of lead-containing toys by a leading American toymaker, a key precaution for American companies importing products is to work with reliable manufacturers. It is also important to provide any foreign manufacturer with detailed manufacturing specifications to avoid misunderstandings.

Another precautionary step a U.S. importer or manufacturer should take is to be especially diligent in testing imported products or component parts. Ingredients of products that may be shipped in bulk, such as for use in cosmetics or OTC preparations, for example, may be accompanied by lists of ingredients and chemical specifications. It may be prudent for an importer to independently test and verify that the component product contains exactly what it is supposed to before incorporating it in the finished product. It is also important to attach appropriate warnings to products where the American distributor identifies a risk, for example, that a child might swallow small parts. Better still, redesign the product to avoid this risk. Do not assume that the foreign manufacturer has considered every potential safety concern.

Editor: How do you test every tube of toothpaste to make sure that it contains the proper ingredient, an example being the case of the substitution of ethylene glycol for glycerin?

Ruskin: You cannot test every tube of toothpaste. Often, these products arrive in bulk in 55-gallon drums of toothpaste, which may allow an importer to at least test representative batches. Companies can do a better job of tracking batch numbers of lots and serial numbers of products. Often the culprit may lie in one batch. If the manufacturer cannot identify the defective batch, the CPSC may require that the entire product be recalled. Therefore, keeping good records and tracking serial numbers and batch numbers of lots is one simple thing that can be done to limit recall exposure and product liability risk.

Editor: What impact does a product recall have on a U.S. importer and its suppliers both financially and reputationally?

Ruskin: Reputationally - both your distributors and your customers may become reluctant to buy a product if the company's name has become associated in the public psyche with a lack of safety. So the public relations impact of a recall can be devastating, particularly if you do not have an established brand. Companies with established brands often do better in a recall situation. Financially - the effects of a recall also can be devastating, because recalls are not covered by most insurance policies. When a manufacturer or distributor has to undergo the expense of issuing a press release and ensuring that all of the company's retailers notify their customers that products have to be recalled, the cost of mailings and refund payments to customers and distributors for returned products can be quite significant. A recall is a double-edged sword from a product liability perspective. On the one hand, you are sending the message that you, as the manufacturer, suspect that there is a safety-related defect and are acting in good faith to protect the customer; on the other hand, such publicity may give rise to litigation. By recalling the product quickly and responsibly and getting the word out that you are taking steps to correct a potential product defect, a company generally can mitigate damages and may dissuade a court from awarding punitive damages. Recalls can be litigation wildcards; it is better that you take pro-active steps to avoid recalls in the first instance.

Editor: Are there claims that can be brought under Chinese liability law?

Ruskin: Unfortunately, the Chinese legal system has not developed to the point where American consumers can seek redress for personal injuries in Chinese courts. I think that American courts will remain the most likely venues for these cases. American distributors and product sellers may take the brunt of product liability exposure for these recalls. Often the Chinese manufacturer does not have a presence in the United States and may not be subject to jurisdiction here.

Editor: What enforcement procedures are used in the U.S. to demand a recall?

Ruskin: The CPSC is the agency with the primary responsibility for ensuring product safety. However, the enforcement power of the states should not be ignored. In a number of states we have aggressive attorney generals. If there was enough evidence to support a claim of reckless disregard of public safety, a state attorney general may consider bringing criminal charges in a particularly egregious situation, such as where the attorney general could show that the company had actual notice of a potential safety defect and willfully suppressed that information.

Editor: What types of products coming into the U.S. are regulated by the Consumers Products Safety Commission and other government agencies?

Ruskin: Basically, any consumer product - everything from baby seats to children's toys to electronic consumer goods - come under the jurisdiction of the Consumer Product Safety Commission. A food or drug product may be covered by the Food and Drug Administration, which has broad enforcement power to remove tainted or misbranded products from the market. Sometimes there are overlapping agency jurisdictions; for example, you might have a defective automobile tire, which would involve both the CPSC and the National Highway Traffic Safety Administration. China has also been responsive to motor vehicle safety concerns and recently signed a Memorandum of Cooperation with that agency to enhance motor vehicle safety and improve enforcement standards.

Editor : I suppose there are regulatory agencies in the states as well.

Ruskin: That's correct. Some states exercise more diligence than others. However, the CPSC is the agency charged with the responsibility of keeping unsafe products off store shelves.

Editor: What measures is China taking to impose standards on food and other consumables that will obviate the need to have such strict oversight?

Ruskin: Besides such newsworthy events as the recent conviction of a former Chinese food and drug official for taking bribes, I have recently seen encouraging signs from China. Some Chinese regional authorities have apparently begun monitoring CPSC recall notifications on the CPSC website. I have a client currently involved in an electronic consumer product recall. The CPSC press release prompted the Chinese regional authority to demand an explanation from the factory why its product was the subject of a CPSC recall and threatened to withdraw the factory's manufacturing license if it was not forthright in responding. This is a direct reflection of the Chinese government's decision to better police domestic manufacturers. I believe that we are going to see increasing cooperation from Chinese governmental authorities and manufacturing companies in addressing product safety concerns, which has not always been the case.

Editor: What attitudes do you anticipate U.S. consumers will adopt this year in terms of buying Chinese products for this Christmas season?

Ruskin: I believe that these issues will not affect consumers in the slightest. American consumers still have enormous faith in the retailers from whom they purchase their products. If nothing else, the spate of recent recalls may serve to reassure consumers that products that should not be on the market have been taken off store shelves. For better or worse, America has come to rely on China as America's factory floor. We are well beyond the point of thinking that American consumers are going to stop buying Chinese manufactured goods. The Chinese have a huge economic interest in ensuring that their products are viewed as safe and reliable by American consumers, so I'm optimistic that the holiday season will be a prosperous one for all concerned.

Please email the interviewee at wruskin@ebglaw.com with questions about this interview.