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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 l.jpg

Brian C. Anderson

O’Melveny & Myers LLP

Washington, D.C.

U.S. Food Safety Law and Strategy


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U.S. Consumers Are Risk-Averse

  • Expect no safety risk

  • Expect full-disclosure of all risks


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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



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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


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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



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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



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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


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FDA Seizures

  • FDA can seize unsafe or mislabeled foods and drugs

  • FDA has an internal administrative process to decide whether seizure warranted


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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


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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



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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


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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


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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


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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


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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


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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


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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



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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


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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


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How to Avoid Product Controversies

Inter-Company Agreements

  • Indemnification provisions

  • Commitments to share information in litigation/regulatory situations


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How to Avoid Product Controversies

Early-Warning Systems

  • Customer complaints/warranty claims

  • Legal actions

  • Government inquiries

  • Employee concerns

  • Media reports


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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


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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


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Government Inquiries

  • Take government inquiries seriously, both because they are inherently serious, and because they may signal an emerging broader controversy


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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


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Public Information Sources

  • Monitor industry trends from public source information

  • Consider how those trends may apply to your business practices



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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


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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


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How to “Manage” Product Controversies

  • Establish credibility with government agencies

    • Candidly disclose all relevant facts

    • Combine advocacy with conciliation when communicating with government representatives


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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


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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


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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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