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Essentials Of Business Law
Chapter 29
Product Liability
McGraw-Hill/Irwin
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Product Liability
The liability of a manufacturer or seller for injury
to purchasers, users, and third parties
Plaintiffs must prove four elements in order to be
successful in a product liability lawsuit
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Duty
Breach
Proximate cause
Damages
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Product Liability
Injury And Claims
Product flaw
 Abnormality or condition in a single unit of the product that was
not intended
 Makes a product more dangerous than it would have been had it
been as intended
Failure to warn
 Dereliction of duty manufacturers and sellers have to advise
purchasers and users of dangers inherent in a product
Design defect
 Fault in a product that creates a hazardous condition that causes
injury
 Exists throughout an entire product line
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Strict Liability
Liability without the necessity of proving
fault
Application from state to state varies
greatly
Fewer new or innovative products are
released due to the fear of liability lawsuits
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Drugs
Food and Drug Administration
 Federal agency responsible for ensuring all drugs sold in the
U.S. be tested to for both safety and effectiveness
Phase I: A small number of people are tested to
determine safety and dosage, and to identify side effects
Phase II: Effectiveness is measured, comparing subjects
who receive the drug to those who receive a placebo
Phase III: Safety and effectiveness of the drug is
evaluated in trials involving a great number of people
Phase IV: Continued testing occurs subsequent to FDA
approval of the drug
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Drugs
Costs a pharmaceutical company approximately
$700 million for each drug approved
Takes about 12 years
One of 5,000 chemicals tested ultimately is
approved for sale as a drug
One-third of approved drugs become profitable
One-fifth of all drugs that are approved have
alleged safety problems
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Consumer Products
Consumer Product Safety Commission
 The federal agency responsible for the safety of
consumer products sold in the U.S
 Tests products to determine dangers
 Order manufacturer’s to recall dangerous products
Wool products, fur products, and textile fiber
products
 Must be properly labeled and identified
Flammable products
 Must incorporate flame retardant materials
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Consumer Products
Hazardous substances, toxic, corrosive, irritant,
or flammable
 Must be properly labeled with appropriate warnings
Children’s toys
 May not contain electrical, thermal, or mechanical
hazards
Paint
 Generally may not contain lead
Radiation emitting products
 Must contain appropriate safeguards
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Tobacco
Federal and state statutes strictly regulate
tobacco products
 Cannot be advertised on television or radio
 Tar and nicotine levels on cigarette packages
must be disclosed
 Cigarettes must contain the Surgeon General
warning regarding the dangers of smoking
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Tobacco
Master Settlement Agreement
 Tobacco companies agreed not to engage in certain
advertising strategies
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•
•
•
•
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Not to advertise using cartoon characters
Not to place advertising on billboards or stadium signs
Not to pay for product inclusion in films and television shows
Not to provide free caps, t-shirts, etc
Not to distribute free samples of cigarettes
Not to target youth markets by sponsoring concerts, athletic
events, etc
 Support a foundation that provides education
regarding the dangers of tobacco products
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Automobiles
National Highway Traffic Safety
Administration
 The federal agency responsible for the safety
of automobiles sold in the U.S.
 Requires that automobiles contain appropriate
safety features
• Airbags, seat belts, antilock brakes
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