Download Product Safety, Legal Dimensions, and Consumer Conduct

Product Safety, Legal
Dimensions, and Consumer
Conduct
Jennifer Sawayda
Program Specialist
Anderson School of Management
University of New Mexico
Albuquerque, NM
Before We Begin….
Some Points to Consider
It is a mistake to think that product safety is only
a concern in manufacturing. In fact, advertisers,
salespeople, suppliers, manufacturers, and
anyone else who occupies a marketing function
should make product safety a high priority.
Who Determines Whether a Product is Unsafe?
• You might be tempted to say the courts, but
actually it is the consumer! In litigation cases,
consumer surveys are often administered to
determine the extent of the defendant’s
liability.
• This is important because community
awareness or the behavior of a reasonable
person in a product safety situation will
determine the extent of the company’s liability
for the injury.
Negligence
• A violation of the responsibility to protect others
from unreasonable risk. In determining whether
an act was negligent, courts look at whether an
ordinary person would have committed the same
act.
• A manufacturer has three main duties:
– Inspect and test
– Anticipate the target market
– Provide adequate warning labels
• The Ford Pinto case
Strict Liability
• This occurs when a company sells a product
considered to be unreasonably dangerous even
though the seller took all possible care in selling
and preparing the product (Restatement (Second)
of Torts 1965).
• Focused on the product rather than the behavior
• Forseeability and adequate warning labels
• Note: In both negligence and strict liability cases,
the users must have been harmed by the
defective product.
Is the Company Always at Fault?
• No! There are four defenses that have been
used in product liability cases:
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Contributory Negligence
Assumption of Risk
Misuse
Comparative Fault
• While proving that the consumer was at fault
does not always exonerate the company, it
often reduces the damages awarded to
plaintiffs.
Revisiting the Importance of Consumer Research
• Research to understand how consumers use or perceive
products is important because, among other things, it
allows courts to determine:
– how an ordinary person might use a product, helping to
determine the reasonableness dimension
– community awareness about the risks of certain products,
helping to determine overall consumer awareness of risks
– how consumers perceive elements of warning labels,
helping to determine the effectiveness of warning labels
• Companies can use consumer feedback to develop
product defect prevention programs. Firms can also
more effectively manage damage control and correct
defects discovered after the sale.
Advertising’s Role in Product Safety
• A company may be held liable if its advertising
misrepresented a product to the extent that it
caused consumer injury.
– The consumer must rely upon the information
gleaned from the advertisement.
• Again, the concept of reasonableness is
important.
– If the advertisement made such an exaggerated claim
that a reasonable person would not take it seriously,
then the company might not be held liable.
Advertising’s Role in Product Safety
• Another requirement is that there must be a
causal relationship between the
advertisement and the action resulting in
injury.
– In other words, the advertisement must have
directly caused the subsequent injury.
• Determining liability as a result of product
advertising can fall under four legal categories:
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Warranties
Misrepresentation
Negligence
Strict liability
Warranties
• Express Warranties: Statements that cause
consumers to form expectations about a
product’s function, safety, and/or quality.
– When ads convey promises about a product that
becomes the basis of a bargain between buyer and
seller, it is an express warranty.
• Implied Warranties: Presumed expectations
about a product’s function, safety, and/or quality.
– For example, because consumers tend to associate
high-quality with safety, ads touting a high-quality
product might be implying that the product is safe.
Misrepresentation
• When an advertisement convinces a consumer to
act (or refrain from acting) based upon incorrect
information in the advertisement.
• There are different types of misrepresentation:
– Inadvertent (non-intentional and non-negligent)
– Negligent (careless but not intentional)
– Intentional (knowingly deceptive)
• A good example is deceptive advertising
concerning mortgages
Negligence and Strict Liability
• When injury occurs because a consumer relied on
an advertisement, and the content of the
advertisement violates the company’s
responsibilities for consumer safety, the
company’s advertising is deemed to be negligent.
• Strict liability applies when an advertisement’s
content leads to unreasonable risks, even if the
company takes pains to exercise due care in its
advertising and product quality.
Guarding Against Advertising Product Liability Issues
• Proactively work to make sure that marketers are
not misrepresenting products in order to
convince consumers to purchase
• Check copy to determine the different meanings
the content might convey, and see how these
meanings differ from what is intended.
• Make sure claims about the product can be
substantiated. Keep claims that cannot be
substantiated general.
Liability of Salespeople Statements
• Too often sales managers evaluate a salesperson
based on performance. However, this can be
problematic if the salesperson made statements
or used techniques that misrepresented the
product.
• Common ways that salespeople might mislead
customers about the product’s quality or
performance include exaggerated statements,
misleading promotional materials, and even not
answering the client’s questions.
Five Potential Legal Issues
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Creation of unintended warranties
Dilution of warning effectiveness
Disparagement of competitive offerings
Misrepresentation of own offerings
Tortious interference with business
relationships
Unintended Warranty Issues
• Occurs when a salesperson’s statements or presentation
leads the customer to form certain expectations of the
product
• Usually an inadvertent form of misrepresentation
• A casual salesperson statement or even photos in a
brochure can create an express or implied warranty
• Even if sales materials or contracts contradict statements
by the salesperson, the company can still be held liable if
the client relied on the salesperson’s information
• Implied warranties are assumed if the salesperson does
not inform the client about the potential risks of the
product
• Puffery, or exaggerated claims, is not as tolerated when it
comes to personal selling
Dilution of Warning Effectiveness
• A firm can be held liable for injuries resulting
from products with sufficient warning labels if the
salesperson diluted these warnings during
presentations
• Common ways of diluting warning effectiveness
include:
– Verbally downplaying the risks of the product
– Telling the client he or she does not have to read the
warnings
– Failing to warn an industry (such as the medical
profession) about the dangers of product misuse
Disparagement of Competitive Offerings
• This could lead to liability if the salesperson knowingly
makes a false statement about a competitor’s product
• Intended to dissuade the client not to do business with
the competitor
• While it is acceptable to present an opinion about a
competing product, an untrue statement posing as fact
can be considered trade libel
– Opinion: saying that your product is better than a
competitor’s would likely be seen as an opinion.
– Fact: saying that independent studies have confirmed that
your product performs 20% better than your competitor’s
Misrepresentation of Own Offerings
• Innocent misrepresentations or fraud
• A salesperson who believes a claim he or she makes
is true can still create product liability for the
company
– Customer must only prove that he relied on the false
claim
• Intentionally making untruthful claims about a
product can not only create product liability, but
can also lead to claims of actionable fraud
– Scott v. Mid-Carolina Homes (1987)
– Intentional misrepresentation that causes injury often
results in punitive as well as compensatory damages to
punish the firm
Tortious Interference
• “Dirty tricks” the salesperson uses to obtain
business unfairly in a way that damages other
firms
• Leigh Furniture v. Isom (1982)
– Sales representatives from Leigh harassed Isom with
false accusations, contributing to the firm’s
bankruptcy
• Because these actions are intentional, companies
found guilty of tortious interference pay both
compensatory and punitive damages
How Should Managers Guard Against Sales
Force Product Liability Issues?
• Training
– Training programs and tools such as role-play programs can help
salespeople better understand the consequences of behavior as well as
ways that clients may interpret their statements or actions.
• Compensation
– Rather than rewarding simply for making the numbers, managers should
also look at other behavior-based performance indicators, such as
positive customer feedback or lower complaints.
• Feedback from customers
– Feedback can help managers assess salesperson behavior as well as make
the salesperson aware of areas for improvement.
• Model appropriate behavior
– Sales managers should be sure to model appropriate behavior for
subordinates.
• Codes of Ethics
– Codes of ethics can be used to provide guidelines on appropriate and
inappropriate conduct.
Cautionary Guidelines for Teaching Salespeople
Be sure all specific product claims can be accomplished.
Be certain that all positive product claims can be verified. Any positive claim that
cannot be verified should be very general.
Remind customers to read all warnings.
Caution customers who appear willing to use the product improperly. Keep these
cautionary statements specific to the customer’s situation.
Assess each customer’s level of sophistication to determine whether you have
the legal obligation to deal with the customer more cautiously.
Be able to verify all negative statements about competitors’ product offerings,
business conduct, etc. Try to avoid saying anything negative about competitors,
especially if they can be viewed as rumors.
Adapted from Karl A. Boedecker, Fred W. Morgan, & Jeffery J. Stoltman (1991). “Legal
Dimensions of Salespersons’ Statements: A Review and Managerial Suggestions.” Journal of
Marketing 55, pp. 70-80.
Product Liability of Component Part Suppliers
• The precedent has been to hold the marketers of
finished goods responsible for injuries rather than
component parts suppliers.
– Wetz v. Zapata Off-Shore (1970)
• Component part suppliers not generally found liable if:
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Component is a standardized item that is usually safe
Components were not designed for that specific use
Components were adapted later on down the supply chain
Harm came from the specialized end use of the
component, but not the component itself
Arguments for No or Limited Liability
• Component parts suppliers cannot anticipate
all the uses their components will be used for.
• Finished parts suppliers are generally
considered to have the best chance in the
marketing supply chain to control for potential
dangers of the product.
When Liability Does Occur
• The component parts supplier supplies all the
parts of a product.
• The supplier has prior knowledge that the parts
will be used in an unsafe way.
• The component parts supplier is involved in the
design of the finished product.
• The component parts supplied are frequently
linked with injury.
• The component itself is defective and causes
harm or renders the product unsafe.
Vertical Enterprise Liability
• The exemptions that component parts suppliers have
for product liability might change under vertical
enterprise liability.
• This holds the entire supply chain potentially liable,
which could make component parts suppliers more
responsible for the safety of their components.
• Vertical enterprise liability has been applied to
franchisors, independent contractors, and used goods
sellers.
• Component parts suppliers should therefore take
actions to protect against liability.
How to Protect Against Product Liability Issues?
• While component parts suppliers that provide
parts for a wide variety of uses cannot anticipate
all of the ways they might be used, this defense is
harder for suppliers with few uses of their
components.
– Therefore, these suppliers must carefully monitor the
safety risks of the components they provide.
• Duty to Warn! Providing warnings about potential
risks can significantly reduce the likelihood that a
component parts supplier will be held liable for
product defects or harm.
Conclusions
• To protect from product liability issues,
marketers, manufacturers, and suppliers should:
– Inspect and test products and product parts
– Anticipate how the product will be used
– Provide adequate warning labels about potential
dangers
– Exert caution when providing statements or
promotions that might provide express or implied
warranties
– Check advertising copy for misleading or confusing
claims that could cause people to rely on erroneous
product information
Conclusions
• Train salespeople to avoid making statements or
presentations that could mislead consumers
about a product’s quality or functionality
• Train salespeople to provide adequate warnings,
especially if they realize the client is planning to
use the product in ways not intended
• Avoid making claims that cannot be verified or
substantiated
• Monitor the safety record and safety risks of the
products being supplied to customers