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Brian C. Anderson O’Melveny & Myers LLP Washington, D.C. U.S. Food Safety Law and Strategy. U.S. Consumers Are Risk-Averse. Expect no safety risk Expect full-disclosure of all risks. U.S. Consumers Are Suspicious of Manufacturers.

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brian c anderson o melveny myers llp washington d c
Brian C. Anderson

O’Melveny & Myers LLP

Washington, D.C.

U.S. Food Safety Law and Strategy

u s consumers are risk averse
U.S. Consumers Are Risk-Averse
  • Expect no safety risk
  • Expect full-disclosure of all risks
u s consumers are suspicious of manufacturers
U.S. Consumers Are Suspicious of Manufacturers
  • Believe companies sacrifice quality and safety to cut costs and increase profits
  • Believe companies conceal risks, overstate quality to increase sales
  • Assume that most imported products are low quality
    • Especially suspicious of Chinese-made products due to recent controversies
key points
Key Points:
  • Whether or not you believe the controversy over Chinese food safety is justified, it is real
  • Complaining about it will not help
  • Companies that deal in Chinese-made foods (and other products) should realistically acknowledge the controversy, determine how it affects them, and develop an effective response
the good news
The Good News
  • Industry and government in U.S. and China are taking steps to increase consumer confidence in the safety of Chinese products
  • If these efforts are successful, the “Chinese products are unsafe” phenomenon will fade away
  • Companies that act wisely will survive the current controversy and prosper in the long run
two sources of food safety laws
Two Sources of Food Safety Laws
  • US Government
    • Federal laws implemented by agencies through regulations
    • Set safety standards and order/request recalls of unsafe/mislabeled products
  • State Governments
    • State laws allowing consumers to sue manufacturers and sellers of defective or fraudulently marketed food products
    • State laws implemented by state law enforcement officials
    • Generally invoked to sue manufacturers for damages or monetary penalties
food drug administration fda
Food & Drug Administration (FDA)
  • Regulates most foods, drugs and cosmetics
  • FDA can seize unsafe products,
  • FDA can seek court injunction requiring recall
  • FDA can impose civil penalties in some areas
  • FDA can bring criminal action
  • FDA usually cannot order a recall; they are usually “voluntary”
    • Manufacturer discovers defect and voluntarily recalls
    • FDA discovers defect and suggests manufacturer recall
fda seizures
FDA Seizures
  • FDA can seize unsafe or mislabeled foods and drugs
  • FDA has an internal administrative process to decide whether seizure warranted
fda recalls
FDA Recalls
  • Company voluntary proposes recall
  • FDA reviews company’s recall strategy
  • Depending on seriousness of defect, recalls go to:
    • wholesale distributors only
    • retail sellers
    • individual consumers
  • Recalling firm must do “effectiveness checks” on recall success
food safety and inspection service
Food Safety and Inspection Service
  • Inspects meat, poultry, and eggs (including imports) for compliance with safety standards and rejects non-compliant foods
  • Requests recalls of unsafe foods
state laws supporting private lawsuits15
State Laws Supporting Private Lawsuits

Strict Liability

  • Manufacturer/seller automatically liable for any injury caused by unreasonably dangerous product

Negligence

  • Manufacturer/seller did not act with reasonable care to ensure safety of product
    • Negligent design
    • Negligent manufacture
    • Negligent marketing
state laws supporting private lawsuits16
State Laws Supporting Private Lawsuits

Breach of Express Warranty

  • Seller’s explicit representation about characteristic of product

Breach of Implied Warranty

  • Merchantability: Seller implicitly promises that product is fit for its intended purpose
state laws supporting private lawsuits17
State Laws Supporting Private Lawsuits

Common Law Fraud

  • Fraudulent misrepresentation
  • Fraudulent concealment/failure to disclose material fact

Consumer Protection Laws

  • “Deceptive” conduct toward consumers
    • overstating product’s benefits/safety
    • concealing defects
types of private lawsuits
Types of Private Lawsuits

Single plaintiff lawsuit

  • Alleges personal injury, property damage, or economic damage
  • Brought by alleged victims through their lawyer
  • Usually sue in court near where they live
  • Seek compensatory and punitive damages
types of private lawsuits19
Types of Private Lawsuits

Class Action

  • Developed by lawyer, who sues on behalf of token “victim”
  • Filed in court that plaintiffs’ lawyer thinks is most favorable to him
  • Brought on behalf of all purchasers of product
  • Usually seeks “economic damages” – purchase price or diminution in value – or statutory penalties that require no showing of injury
types of private lawsuits20
Types of Private Lawsuits

Aggregated Litigation

  • Product controversies often spawn large numbers of individual personal injury lawsuits (hundreds or thousands), and multiple proposed class actions
  • Federal courts and some state courts allow multiple lawsuits involving the same product defect allegations to be consolidated in one court for litigation
state attorney general lawsuits
State Attorney General Lawsuits
  • Brought by state’s top law enforcement official
  • Sues on behalf of:
    • state/state agencies (as purchasers of product)
    • citizens of state (as their legal protector)
  • Invokes state consumer protection laws
  • Seek damages, penalties, court orders regulating future conduct
how to avoid product controversies23
How to Avoid Product Controversies

Maximize product quality

  • Design to meet and exceed all government standards
  • Establish and implement robust manufacturing processes
  • Choose reputable ingredient suppliers and enforce high standards
  • Establish reliable distribution/retail channels that minimize risk of spoilage
how to avoid product controversies24
How to Avoid Product Controversies

Testing/Quality Control

  • Design and manufacturing testing (possibly by third-parties)
  • Make corrections when products fail tests
  • Preserve all test results and corrective documents
  • Early warning systems/stop-production rules
  • Inspect distribution chain if risk of spoilage
  • Put your people on site to monitor processes
how to avoid product controversies25
How to Avoid Product Controversies

Inter-Company Agreements

  • Indemnification provisions
  • Commitments to share information in litigation/regulatory situations
how to avoid product controversies26
How to Avoid Product Controversies

Early-Warning Systems

  • Customer complaints/warranty claims
  • Legal actions
  • Government inquiries
  • Employee concerns
  • Media reports
customer complaints warranty claims
Customer Complaints/Warranty Claims
  • Have coordinated process for collecting/analyzing customer complaints and warranty claims
  • Look for patterns of complaints, especially involving safety
  • Elevated complaints may signal need to modify design, manufacture, or distribution
  • Elevated complaints may signal emerging high-profile controversy
legal actions
Legal Actions
  • Monitor and analyze litigation activity involving your products
  • Elevated numbers of individual lawsuits may signal a problem
  • Repeat lawsuits brought by the same lawyers, class action lawsuits, and lawyers pursuing media coverage may signal an emerging lawyer-manufactured controversy
government inquiries
Government Inquiries
  • Take government inquiries seriously, both because they are inherently serious, and because they may signal an emerging broader controversy
employee concerns
Employee Concerns
  • Encourage employees to raise concerns about product quality/safety to company management
  • Listen to and carefully evaluate those concerns, taking action if necessary
  • Benefits of obtaining/acting on reports from the front-line usually exceed the later litigation risk of having dismissed employee reports
public information sources
Public Information Sources
  • Monitor industry trends from public source information
  • Consider how those trends may apply to your business practices
how to manage product controversies33
How to “Manage” Product Controversies
  • Assemble a crisis management team
    • Senior executive who will be “voice of the company” (at least internally)
    • Representative of company legal department
    • Human resources representative
    • Public affairs specialist
    • Internal audit representative
    • Compliance officer, if applicable
    • Outside expertise as needed in any of these areas
how to manage product controversies34
How to “Manage” Product Controversies
  • Intensively manage the first 72 hours
    • Step 1: Understand the allegation
    • Step 2: Gather all the facts
    • Step 3: Formulate a corrective action plan
      • If the problem is real, admit it, and devise short-term and long-term solutions
      • If the problem is not real, defend the product
    • Step 4: Execute the plan – and get it right the first time
how to manage product controversies35
How to “Manage” Product Controversies
  • Establish credibility with government agencies
    • Candidly disclose all relevant facts
    • Combine advocacy with conciliation when communicating with government representatives
how to manage product controversies36
How to “Manage” Product Controversies
  • To the media: say it early, say it all, say it often
    • Participate in the first news cycle: don’t cede the airwaves to your adversaries
    • Be truthful: stick to the known facts; don’t speculate
    • Be consistent: if the message is correct, repeat it at every turn
how to manage product controversies37
How to “Manage” Product Controversies
  • If litigation looks likely, start planning litigation defense immediately
    • Preserve and start gathering all relevant evidence
    • Do the “right” thing for the customer, but be aware of how written statements will look in later litigation
    • Include legal defense counsel in all strategy meetings, both for guidance and to create privileged setting
    • Consider ways to resolve “legitimate” customer injuries outside of litigation, reserving litigation for non-meritorious claims
how will food safety issue be solved
How Will Food Safety Issue Be Solved?
  • Market forces
    • Business customers and consumers will not buy from companies with a bad reputation for safety
  • Chinese government
    • Will increase standards and enforcement to improve quality
  • U.S. government
    • Will increase inspections and enforcement against unsafe products
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