Entering the U.S. Market: Legal Hurdles That Manufacturers Must Overcome.

• Author: Del Mauro, Steven

FOR manufacturers interested in selling a product in the United States, there are countless business decisions to make. Important among these are critical legal considerations about how best to comply with the United States' unique legal and regulatory systems. The Unites States regulatory model governs a product at every stage of development, from design to delivery. Government agencies police different industries by promulgating and enforcing regulations. There are federal and state product liability and consumer protection laws. Further, there are industry standards promulgated by various agencies. Ensuring compliance with U.S. laws, regulations and standards can be a daunting endeavor, and one that should be undertaken with the advice of knowledgeable counsel and, in some instances, other experts.

This article tracks the life cycle of a product's development and marketing and provides insight into some of the most common legal hurdles faced by manufacturers entering the U.S. market. Chief among these are consumer protection lawsuits.

Every state in the United States has a consumer protection statute. These statutes are intended to protect consumers from predatory, deceptive, and unscrupulous business practices like advertising goods with the intent not to sell them as advertised, mis-representing certifications of a product, and representing that a product has characteristics, benefits or qualities that it does not possess. While the breadth of consumer protection statutes varies from state to state, many of the statutes create a private right of action, allowing aggrieved citizens to file suit against product manufacturers/suppliers.

Consumer protection lawsuits are often brought as class actions, as opposed to individual lawsuits, making them more of a financial threat to manufacturers. Indeed, even where a consumer protection lawsuit is meritless (as is often the case), the cost to a company to defend itself against such a suit can be substantial, and the potential financial benefit to plaintiffs' attorneys (but not necessarily their clients) can be significant if the case is settled or goes to verdict.

Significantly, many consumer protection statutes permit the recovery of treble damages and attorneys' fees. (1) While others, like New Jersey's Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA), (2) include automatic statutory penalties for each violation. (3) The breadth of available damages, coupled with the use of the class action vehicle, makes consumer protection claims very dangerous for sellers of goods and services, but very attractive to plaintiffs' attorneys.

Certain plaintiffs' attorneys specialize in consumer protection litigation and seek out companies (small and large alike) to sue, with the goal of squeezing a quick settlement from the companies. Even if the named plaintiff/class representative receives little in the way of money damages, the attorneys stand to recover significant fees for the minimal effort it took to file the lawsuit.

The most common type of consumer protection litigation against product manufacturers are claims that allege a manufacturer or seller has either misrepresented or failed to disclose something about a product. These claims are simple to pursue; attorneys review product websites, packaging and labeling, consumer complaint blogs, websites or databases; pick apart the representations made by the manufacturer/seller; and then find a consumer (sometimes acquaintances) to purchase the product and allege "harm." The harm alleged is often nothing more than a claim that the product did not perform as advertised, and therefore, the consumer did not get the benefit of its claimed bargain. There are even attorneys who personally purchase a product that purportedly did not comport with its marketed representations and then file suit under their own name and on behalf of other, unnamed, product users. Such suits are often followed by a telephone call from the "aggrieved" attorney demanding a "reasonable" settlement (usually a six or seven figure amount) to settle the case.

Similarly, attorneys often challenge the "science" behind a product's promised benefit. For example, a complaint might challenge the independence of a manufacturer's study, as a means of undermining the validity of the study's results. Given the threat posed by consumer protection statutes, product manufacturers entering the U.S. market must be aware of those laws and advertise, market and test their products with an eye toward avoiding consumer protection lawsuits.

1. Defining the Product

   The first question a manufacturer should ask is: how will its product be defined? Is it a children's toy? Does it purport to treat a medical condition? Does it contain hazardous materials (or materials that are considered hazardous by virtue of some judicial or state regulation. California law must always be reviewed, if this is a concern)? How a product is defined will determine what agencies are involved and what laws or regulations are applicable.

   The Consumer Product Safety Act ("CPSA") was enacted in 1972 and established the U.S. Consumer Product Safety Commission ("CPSC") as the governing agency to develop standards and bans in the pursuit of ensuring the safety of consumer products--such as toys, power tools and household chemicals. (4) In 2008, the CPSA was amended by the enactment of the Consumer Product Safety Improvement Act ("CPSIA"), which provided the CPSC with new regulatory and enforcement tools. A prospective manufacturer should first determine if the product it wishes to market in the U.S. falls within the purview of the CPSC and, if so, ensure that the product complies with the standards, regulations and testing requirements put forth by that agency.

   For example, all toys sold in the United States must satisfy the safety requirements established by the ASTM International. (5) ASTM F963--"Standard Consumer Safety Specification for Toy Safety" addresses possible hazards associated with toys, including "small objects," and requires specific cautionary labeling. (6) The CPSC made ASTM F963 the mandatory consumer product safety standard, and incorporated its requirements into Section 106 of the CPSIA. (7) Non-compliance with these regulations can carry significant consequences, including civil and criminal penalties and a fine of up to $100,000 per violation. (8) Furthermore, non-compliance can also serve as powerful evidence against a manufacturer in a civil lawsuit where a plaintiff claims to have suffered harm as a result of using or coming into contact with the product. In all, the CPSC promulgates and enforces regulations and standards for a wide array of consumer products, including "highly flammable" clothing and interior furnishings, and toys. (9)

   In addition, the U.S. Food and Drug Administration ("FDA") establishes regulations and policies for, among other things, food, drugs, cosmetics, and medical devices. (10) Prior to entering the U.S. market, all products that fall within the mandate of the FDA must be evaluated and approved by that agency. (11) For medical devices and pharmaceuticals, the FDA approval process is comprehensive and often requires considerable information detailing a device's safety and efficacy, including the results of clinical trials. (12) As technology advances, the FDA is constantly changing its definition of medical devices, and manufacturers should be vigilant in ensuring they are aware of and compliant with the most up-to-date guidance. It may not always be apparent that a product is considered a medical device and addressing this issue directly and early in the product development process can be critical.

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