Chapter 11 Product Advertising and Liability

Its Legal, Ethical &Global Environment 6th Ed.

Its Legal, Ethical &Global Environment 6th Ed.

B U S I N E S SB U S I N E S S

MARIANNE M. JENNINGS

Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved.

Chapter 11Product Advertising

and Liability

Chapter 11Product Advertising

and Liability

2 Copyright ©2003 by West Legal Studies in Business, a division of Thomson Learning. All rights reserved.

Development of Product LiabilityDevelopment of Product Liability

Initially No Liability for the SellerCourts followed a theory of Caveat

Emptor (‘Let the buyer beware’)

Caveat Emptor Removed in Section 402A of the Restatement of TortsLaw has swung from no liability to

almost per se liability.


Advertising as a Contract Basis for Product LiabilityAdvertising as a Contract Basis for Product Liability

Express WarrantiesCreation

• 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


Case 11.1 Castro 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?

Case 11.1 Castro 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?

Advertising as a Contract Basis for Product LiabilityAdvertising as a Contract Basis for Product Liability


Federal Regulation of Warranties and

Advertising


AdvertisingFederal Trade Commission Act

Authorizes FTC as Enforcement Agency Passed in 1914 Federal Trade Commission given broad

authorityRequires regulation of “unfair and

deceptive trade practices”



Advertising


AdvertisingFTC broadened by Wheeler-Lea Act of

1938 “Is public deceived?” standard Not limited to adverse impact on

competition

FTC Improvements Act of 1980Put some restrictions on FTC regulation


Types of FTC RegulationContent 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.


Advertising


Advertising


Case 11.2 Warner-Lambert Co. v. FTC (1977)What proposals for corrective advertising

are made in the order?What modification in the order does the

court make?


Advertising


Advertising


Types of FTC RegulationCelebrity endorsements

• Celebrity must have used the product• If the celebrity has not used the product, the

source of claims must be givenBait and switch

• Prohibits advertising cheaper product and then getting customers to buy the more expensive product


Advertising


Advertising


Types of FTC RegulationProduct 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


Advertising


Advertising


Case 11.3 S.C. Johnson v. Clorox Co. (2001)What was the standard to determine the

truthfulness of the Clorox Glad Lock ad?What is the Lanham Act?How were customers being misled about

the ads?

Case 11.3 S.C. Johnson v. Clorox Co. (2001)What was the standard to determine the

truthfulness of the Clorox Glad Lock ad?What is the Lanham Act?How were customers being misled about

the ads?


Advertising


Advertising


Types of FTC RegulationFTC remedies

• Consent decree is a negotiated settlement

Ad Regulation by FDAFDA is regulating more as more

prescription medications are directly advertised


Advertising


Advertising


State Regulation of AdvertisingState Regulation of Advertising

Professional AdsMost states have limitations on the types

of ads used by professionals


Types of Product Related Accidents

Types of Product Related Accidents

3%

3%

4%

8%

9%

9%

10%

15%

18%

21%Toys/Sports/etc.

Household

Industrial Equipment

Heavy Equipment

Knives

Construction Material

Minerals/Chemicals

Building/Mine Structure

Heavy Objects

Other


Contract Product Liability Theories: Implied

Warranties


WarrantiesImplied Warranty of Merchantability

(§ 2-314)Given in every sale of goods by a

merchantGoods are fit for ordinary purposes

Average quality with adequate packaging



Warranties


WarrantiesCase 11.4 Mexicali Rose v. Superior

Court (1992)What is the foreign-natural test?What is the reasonable expectation test?Which test is better?



Warranties


WarrantiesImplied 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



Warranties


WarrantiesEliminating 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



Warranties


WarrantiesPrivity 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


Tort Liability: Product Liability Under Section

402A


402AStrict Tort Liability (§ 402A)

Defendant had duty to manufacture a reasonably safe product/was in the business of selling or manufacturing product

That duty was breachedBreach of duty caused plaintiff’s injury

(product reached plaintiff in same condition)Foreseeable that defect would cause injuryPlaintiff has property or physical damages



402A


402AUnreasonably Dangerous Defective

ConditionDesign defectImproper warnings or insufficient

instructionsNegligent packaging, manufacturing, or

handling • Example: Drug tampering/food tampering

cases



402A


402ACase 11.5 Schoen v. Spotlight

Co., Inc. (1997)Did the nightgown meet federal

standards for children’s sleepwearWhat liability theories were proposed

again Spotlight and Wal-Mart



402A


402AManufacturing, Handling, or Processing

ErrorProduct must be properly manufactured,

handled and packaged to avoid liability

Reaching the Buyer in the Same ConditionNo substantial change in product design that

caused malfunction or injuryProduct not tampered with during distribution

Manufacturing, Handling, or Processing ErrorProduct must be properly manufactured,

handled and packaged to avoid liability

Reaching the Buyer in the Same ConditionNo substantial change in product design that

caused malfunction or injuryProduct not tampered with during distribution



402A


402ARequirement of a Seller Engaged in a

BusinessNeed not be a merchantNeed not be “in the business” of selling

that product• Example: peanuts sold at games by a

baseball clubIn some cases recovery has been allowed

against groups of sellers.


Negligence : A Second Tort

for Product Liability

Negligence : A Second Tort

for Product LiabilitySuits 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


Privity Issues Tort Theories

of Product Liability

Privity Issues Tort Theories

of Product LiabilityDoes not require privity of contractWas injury to that party foreseeableShould anticipate household use,

presence of children, and so on


Defenses to Product Liability Torts


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 riskPlaintiff aware of danger Does it anyway




Case 11.6 Binakonsky 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?


Product Liability ReformProduct Liability Reform

Movement Toward ReformVerdicts and costs affect international

competitivenessCongress has made efforts to make laws

uniformBusinesses need to focus on prevention


Federal StandardsFederal Standards

Consumer Product Safety CommissionFederal Penalties of $2,000 per ViolationUp 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


International Issues in Product Liability

International Issues in Product Liability

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

Documents

Chapter 11 Product Advertising and Liability