Creighton Magid, The Daily Record Newswire
Imagine yourself as in-house counsel for a manufacturer of small home appliances. You receive a call from your customer service department reporting that three customers in the past week have called in to complain that a particular model of gadget manufactured by your company one of tens of thousands distributed nationwide had spontaneously erupted in flames. Or imagine yourself as counsel to a distributor of food products who learns that one of your company's products has been linked to a large-scale salmonella outbreak. What you and your company do or don't do in response can have a huge impact on your firm's reputation and on its bottom line.
Before doing anything else, it's important to gain at least a preliminary understanding of the nature of the problem. Can the cause of the problem be identified? Does it pose a health risk? Is the problem attributable to your product or to someone else in the distribution chain? Is the problem widespread, or limited to a single lot or a single production run? How dangerous is the problem? What can be done to remedy the problem? All of these questions need to be answered quickly even if all of the relevant facts aren't readily available.
In the case of food-borne illness, state and local health agencies usually are the first to identify the source of an outbreak. Once that happens, a company needs to be able to work with the agencies to pinpoint the outbreak's source, identify how many products and shipments are affected, and to trace the distribution of the product fast. This is necessary, first and foremost, to limit the public's risk of illness, but also to get out ahead of news reports and social media commentary with prompt, accurate information.
In the case of non-food consumer products, the Consumer Product Safety Commission the federal agency with jurisdiction over most consumer products requires that it be notified "immediately" once a manufacturer, distributor or retailer becomes aware of information that "reasonably supports the conclusion" that the product poses a risk of serious injury. (Lately, the CPSC has become less forgiving of companies claiming to have lacked sufficient information to trigger a reporting a requirement, and has begun doling out multi-million dollar penalties for non-reporting or belated reporting.) This reporting obligation along with risks of reputational damage, negative publicity, alienated customers and potential lawsuits that come with dilatory action and inaccurate or belated public comment underscores the need to size up the problem quickly.
Understanding the nature and extent of a problem potentially warranting a recall particularly under time pressure is not an easy task. Customer reports may be fragmentary or facially erroneous. The engineering team may be unable to replicate the reported problem or to identify the cause of the problem. It may be difficult to determine how many products are affected, or where they currently reside. This is where preparation pays off. A company that has an effective system in place to trace products by lot or production run has a decided advantage in defining the scope of the problem and in communicating to regulators, consumers and the media which products are and are not affected. (Particularly if the company eventually has to repair or replace products or to refund the purchase price scope becomes an important financial issue.) Likewise, being able to trace products through the distribution chain and to identify end-users makes any recall much more targeted and efficient.
If a company's product poses a threat of sickness or injury, it likely will need to be recalled. The key to any recall is removing as many units of the affected product as possible, as quickly as possible, while at the same time communicating responsibly to customers and the public, preserving the company's business and consumer relationships, and maintaining its reputation for quality and for conscientiousness.
The first step is removing the recalled product from consumers' homes and workplaces, from store shelves, and from distributors' warehouses. In the case of a food product, this typically involves press releases and social media announcements usually coordinated with governmental entities to reach a broad public audience, as well as direct communications with distributors and retail outlets concerning the return or disposal of the product and, if pertinent, procedures for handling customer returns. In the case of non-food products, manufacturers need to contact all known distributors and retailers of the affected product, explaining the issue, and asking that they return the product in exchange for a refund, a credit, or replacement products. (Being able to determine whether a problem is limited to a single lot or to the entire product line is, of course, critical to offering replacement products.) Reaching end-users is typically more difficult, absent sales records or product registration. In this case, regulators such as the CPSC generally will require that a manufacturer provide retailers with in-store posters notifying customers of the recall, as well as various measures including press releases, social media announcements, and web-page notifications intended to reach a broad audience. (Recalls often involve a fair amount of back-and-forth with the relevant regulatory agency over the timing, scope, and nature of the recall, as well as the content of communications.)
All recall communications whether Facebook posts, distributor alerts, customer letters, in-store posters, or press releases need to be carefully crafted to meet a number of important objectives. First, the communications need to clear about their purpose: the product in question presents a risk of illness or injury and therefore needs to be returned or disposed of without further use or consumption. A company need not flog itself or its product, but neither can it obscure the risk or minimize the need for action. Second, the communications need to be clear about what the consumer, retailer or distributor is to do. Is the product to be returned? To whom? What arrangements need to be made for company-paid shipping? Will the company refund the product's purchase price, repair the product, or provide a replacement? Third, the communication needs to indicate sources for additional information. Fourth, the communication must strike the right balance between compelling action and avoiding panic, and between highlighting the reason for the recall and reinforcing the company's commitment to product quality. Finally, and most importantly, statements of fact must be verifiable; it is far better to acknowledge what remains unknown that to make an assertion that later proves untrue.
A company initiating a recall also needs to determine how the problem leading to the recall will be resolved. Here again, a solid grasp of the nature and extent of the problem necessitating the recall is important. If the problem can be easily remedied, sending consumers a repair kit or offering walk-in repairs may be all that is necessary. If the number of products involved is small, a refund or replacement offer will hardly break the bank. But if the product cannot easily be repaired (or is not repairable at all), and the manufacturer is unable to ascertain whether the issue is limited to a particular production run or a particular facility, an extremely costly replacement or refund program is likely in order.
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Chip Magid is co-chair of Dorsey & Whitney's Product Liability Practice Group. He practices in the Washington, D.C. office.
Published: Tue, Oct 06, 2015
