MARIANNE M. JENNINGS
7th Ed.
Its Legal, Ethical, and
Global Environment
Chapter 11
Product Advertising
and Liability
Copyright ©2006 by West Legal Studies in Business
A Division of Thomson Learning
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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Contract Basis for Product
Liability
• 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.
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Contract Basis for Product
Liability
• 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?
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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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Federal Regulations
• 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.
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Federal Regulations
• 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.
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Performance Claims
• 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?
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Federal Regulations
• 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
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Federal Regulations
• 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.
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Product Comparisons
• Case 11.3 Verizon Directories Corp.
v. Yellow Book USA, Inc. (2004).
– What is the Lanham Act?
– Are YB USA’s ads ‘puffery’?
– What must Verizon prove to recover
damages?
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Federal Regulations
• 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.
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Implied Warranties
• 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.
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Merchantability
• Case 11.4 Mitchell v. T.G.I. Friday’s
(2000).
– What is the foreign-natural test?
– What is the reasonable expectation test?
– Which test is better?
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Implied Warranties
• 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.
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Implied Warranties
• 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.
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Implied Warranties
• 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.
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Strict Product Liability
• 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.
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Strict Product Liability
• Unreasonably Dangerous Defective
Condition:
– Design defect.
– Improper warnings or insufficient
instructions.
– Negligent packaging, manufacturing, or
handling.
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Unreasonably Dangerous
• Case 11.5 Greif v. Anheuser-Busch
Companies, Inc. (2000).
– Was the beer ‘defectively” designed?
– Did the beer have appropriate labels?
– Is beer inherently dangerous?
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Strict Product Liability
• 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.
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Strict Liability
• Case 11.6 Austin v. Will-Burt
Company (2004).
– Did the bungee cord relieve Wil-Burt
from liability?
– Was attaching the mast to the van an
unintended use?
– Was their appropriate warning?
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Strict Product Liability
• 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.
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Negligence
• 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.
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Negligence: Privity
• Does not require privity of contract.
• Was injury to that party foreseeable.
• Should anticipate household use,
presence of children, and so on.
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Defenses
• 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.
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Assumption of Risk
• Case 11.7 Binakonsky v. Ford
Motor Co. (1998).
– What role does Binakonsky’s bloodalcohol level play in the case?
– If Binakonsky would have died
regardless of the design, should there be
recovered under product liability?
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Product Liability Reform
• 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.
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Federal Standards
• Consumer Product Safety
Commission.
– Federal Penalties of $2,000 per
Violation.
– Up 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.
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International Issues
• 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.
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