Chapter 11 Product Advertising and Liability

1. MARIANNE M. JENNINGS Its Legal, Ethical, and Global Environment 7th Ed. Chapter 11 Product Advertisingand 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. 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. Contract Basis for Product Liability • Case 11.1Castro 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 Regulations • 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 Regulations • 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 Regulations • 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. Performance Claims • Case 11.2Warner-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 Regulations • 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 Regulations • 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. Product Comparisons • Case 11.3Verizon Directories Corp. v. Yellow Book USA, Inc. (2004). • What is the Lanham Act? • Are YB USA’s ads ‘puffery’? • What must Verizon prove to recover damages?

12. Federal Regulations • FTC remedies: Consent decree is a negotiated settlement. • Ad Regulation by FDA. • FDA is regulating more as more prescription medications are directly advertised. • State regulations: professional ads.

13. 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.

14. Merchantability • Case 11.4Mitchell v. T.G.I. Friday’s (2000). • What is the foreign-natural test? • What is the reasonable expectation test? • Which test is better?

15. 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.

16. 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.

17. 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.

18. Strict Product Liability • 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.

19. Strict Product Liability • Unreasonably Dangerous Defective Condition: • Design defect. • Improper warnings or insufficient instructions. • Negligent packaging, manufacturing, or handling.

20. Unreasonably Dangerous • Case 11.5Greif v. Anheuser-Busch Companies, Inc. (2000). • Was the beer ‘defectively” designed? • Did the beer have appropriate labels? • Is beer inherently dangerous?

21. Strict Product Liability • 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.

22. Strict Liability • Case 11.6Austin v. Will-Burt Company (2004). • Did the bungee cord relieve Wil-Burt from liability? • Was attaching the mast to the van an unintended use? • Was their appropriate warning?

23. Strict Product Liability • Requires for a “Seller”: • 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.

24. Negligence • 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.

25. Negligence: Privity • Does not require privity of contract. • Was injury to that party foreseeable. • Should anticipate household use, presence of children, and so on.

26. Defenses • 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, but does it anyway.

27. Assumption of Risk • Case 11.7Binakonsky 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?

28. 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. • Restatement (Third) of Torts.

29. 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.

30. International Issues • 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.