Best Business Practices in Light of Potential Product Recalls

Transcription

1 Best Business Practices in Light of Potential Product Recalls Christopher Young Julie Hussey DLA Piper February 21, 2008

2 What we will cover The issue: Current environment rife with recalls and lawsuits Best practices with a focus on the global setting Managing relationships with suppliers and business partners Insurance and indemnity issues Coordinating product recalls and litigation 2

3 Recent developments Recalls in the news Focus on products made in China Actual increase in recalls? Yes, to an extent 3

4 The issue - regulatory Manufacturing has globalized, but subject to differing regulatory standards and varying environments Two-thirds of all recalled products in the US are imported Imported products must meet US standards Some do; some don t and require modification US standards for product design, and for product labels and manuals FDA, NHTSA, CPSC, OSHA 4

5 The issue product quality Standards can be lower, depending on the country Foreign supply chain problems Inadvertent deviance from specifications Intentional deviance from specifications 5

6 The issue recalls and lawsuits Recalls: CPSC, FDA, NHTSA (not OSHA) Stream of commerce: manufacturers, suppliers, importers, distributors, sellers, retailers Jurisdictional issues over foreign defendants For recalls For litigation Plaintiffs consumers and governmental entities 6

7 Best practices inspections and testing Do it or require someone else to do it Of suppliers Of components Of manufacturing facilities Of processes Of finished products, before shipping Get contractual permission to do inspections, and testing, and audits Independent third party testing 7

8 Best practices product design Clear designs Details and specifications Composition of materials Tolerances Coatings and paint Set out parts or processes critical to safety 8

9 Best practices indemnity Shift the risk Contractual indemnification clauses Defense, indemnity, buy-backs of product Comprehensive include all products, other agreements and purchase orders Foreign enforcement of US judgments? Ensure solvency and provide for successor liability Letters of credit? 9

10 Best practices insurance Requiring buyers (US company) to be named as an additional insured Not a panacea, but helpful if no contributing conduct by buyer Provides for immediate defense, not just indemnity Review standard clauses to ensure applicability Requiring particular policies or insurers/markets Requiring product recall coverage In addition to CGL Recently increasing in popularity and availability Covers costs associated with recalls (hard costs and operating losses) Get and review policies and understand scope of coverage 10

11 Best practices contracts and warranties Warranties of quality, with remedies Warranties covering suppliers, and others Certification of parts and materials Consent of foreign manufacturer to jurisdiction for arbitrations or litigation in the US 11

12 Best practices - arbitration clauses Identify the arbitral body New York Convention Difficulties Can be enforced more easily 12

13 Product Recalls Plan ahead Act quickly Get guidance Get the word out Internet Media 13

14 Product Recalls (continued) Have a recall team in place Take charge Apologize Immediately tighten QA Don t blame others Compensate Return instructions Easy and convenient Coupons or replacement Notify retailers, distributors, dealers and regulatory bodies 14

15 Recall Logistics Timely and detailed disclosure to appropriate regulatory body Brand, model, serial number, bar code, and photo Number of products impacted Manufacturing details and dates sold Quantity of production Supply chain Incidents and nature of defect Measures taken to address problem Contact person for all inquiries 15

16 Litigation Keys: Planning, and coordination Plaintiffs are increasingly organized and sophisticated Assess risks at all stages Set goals, set roles, and execute 16

17 Bottom line Act reasonably Be diligent 17