Business law assignment
feras81
jennings_bleg10e_ch14.pptxChapter 14 Product Advertising
and Liability
Its Legal, Ethical, and Global Environment
Marianne M. Jennings
Business
10th Ed.
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14-1
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
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14-2
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
Contract Basis for Product Liability
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14-3
Fact vs. Opinion
| FACT | OPINION | |
| This car gets 20 miles per gallon. | X | |
| This car gets great gas mileage. | X | |
| These goods are 100% wool. | X | |
| This is the finest wool around. | X | |
| This truck has never been in an accident. | X | |
| This truck is solid. | X | |
| This mace stops assailants in their tracks. | X | |
| This mace is very effective. | X |
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
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14-4
Fact vs. Opinion
| FACT | OPINION | |
| This makeup is hypoallergenic. | X | |
| This makeup is good for your skin. | X | |
| This ink will not stain clothes. | X | |
| This ink is safe to use. | X | |
| This computer is IBM-compatible. | X | |
| This computer is as good as any IBM. | X | |
| This watch is waterproof. | X | |
| This watch is durable. | X |
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14-5
Case 14.1 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?
Contract Basis for Product Liability
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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”
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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
Federal Regulations
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14-8
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
Federal Regulations
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14-9
Case 14.2 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?
Performance Claims
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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
Federal Regulations
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Federal Regulations
Celebrity Tweet Guidelines
To thine own self be true – whatever the celebrity says must be a honest opinion
Time will tell – endorsement can be used only as long as the celebrity uses the product and believes in the product
Celebrity cannot ignore obvious facts that indicate claims about the product are not true
Companies must disclose that the celebrity is being paid for the Tweets –Tweets must contain information about celebrity compensation
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14-12
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
Federal Regulations
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14-13
Case 14.3 McNeil-PPC, Inc. v. Pfizer, Inc. (2005)
What concerns were there about the ad representations about the studies in flossing vs. use of Listerine?
How did experts feel about flossing vs. Listerine?
Are floss companies and mouthwash companies really competitors?
Product Comparisons
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14-14
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
Federal Regulations
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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
Implied Warranties
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Case 14.4 Mitchell v. T.G.I. Friday’s (2000)
What is the foreign-natural test?
What is the reasonable expectation test?
Which test is better?
Merchantability
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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
Implied Warranties
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Contract Product Liability
| Type Express Implied Warranty of Merchantability | Creation Affirmation of fact or promise of performance (samples, model, descriptions) Given in every sale of goods by a merchant (“fit for ordinary purposes”) | Restriction Must be part of the basis of the bargain Only given by merchants | Disclaimer Cannot make a disclaimer inconsistent with an express warranty Must use disclaimer of quality or use “merchantability” or general disclaimer “as is” or “with all faults”; (2) If written – (record) must be conspicuous |
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Contract Product Liability
| Type Implied Warranty of Fitness for a Particular Purpose Title | Creation Seller knows of buyer’s reliance for a particular use (buyer is ignorant) Given in every sale | Restriction Seller must have knowledge; buyer must rely Does not apply in circumstances where apparent warranty is not given | Disclaimer Must be in writing (record); (2) Must be conspicuous; (3) Must be clear there are no warranties (using specific language) or (4) Also disclaimed with “as is” or “with all faults” Must state “There is no warranty of title” |
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14-20
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
Implied Warranties
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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
Implied Warranties
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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
Strict Product Liability
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Unreasonably Dangerous Defective Condition
Design defect
Improper warnings or insufficient instructions
Negligent packaging, manufacturing, or handling
Strict Product Liability
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Case 14.5 Smith v. Coleman Co. (2010)
Was the product defective because the warnings were not adequate?
Did the buyer ignore the warnings?
Where does privity fit in the case?
Unreasonably Dangerous
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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
Strict Product Liability
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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
Strict Product Liability
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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
Negligence
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Comparison of Product Liability Theories
| TYPE | PRIVITY REQUIRED | KNOWLEDGE OF PROBLEM REQUIRED? | WARANTY PROMISE REQUIRED? |
| Negligence | No | Yes | No |
| Section 402A/strict liability | No | No | No |
| Express warranty | Yes | No | Yes |
| Implied warranty of merchantability | Yes | No | No |
| Implied warranty of fitness for a particular purpose | Yes | No | Yes |
Click to edit Master text styles
Second level
Third level
Fourth level
Fifth level
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14-29
Legal Basis for Product Liability
CONTRACT
Express warranty
Implied warranty of merchantability
Implied warranty of fitness for particular purpose
TORT
402A – Strict Tort Liability
Elements
(1) Defective condition unreasonably dangerous: design; manufacturing defect; or inadequate warning
(2) Defendant in business of using, selling, or manufacturing product
(3) Condition of product is the same
(4) Knowledge of defect
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14-30
Does Not Require Privity of Contract
Was Injury to That Party Foreseeable
Should Anticipate Household Use, Presence of Children, and So On
Negligence: Privity
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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
Defenses
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Case 14.6 Patch v. Hillerich & Bradsby Co. (2011)
Was it difficult to “warn” consumers?
Assumption of risk in baseball?
“User” or “Consumer”?
Assumption of Risk
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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
Product Liability Reform
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Consumer Product Safety Commission
Federal Penalties of $2,000/violation
Up to $500,000 maximum (willful violations carry $50,000 and/or 1 year)
Consumer Product Safety Improvements Act– covers secondary sales (lead toys)
Uniform Product Liability Law
The Department of Commerce has tried to get states to adopt uniform product liability laws
Federal Standards
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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
International Issues
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