Chinese Takeaway -- Protection From Bad Product
Just read a clear and informative article on how to protect yourself from dangerous Chinese product. The article is by Hillel Parness and Derek Craig from the Lovells firm and it is entitled, "Chinese Takeaway."
The article starts out talking about the high costs of recalls and litigation and notes that in "most US jurisdictions, retailers, wholesalers, distributors, private labelers and manufacturers are all fair game." It notes that suing and collecting from the Chinese manufacture typically ranges from difficult to impossible.
Most importantly, it suggests US distributers do the following to minimize or avoid liability:
1. "Carefully investigate and continually re-evaluate Chinese suppliers. Unannounced visits and independent product testing should be conducted at multiple points in the production process."
2. "Require manufacturers to purchase product liability coverage from reputable insurance providers and insist that they be listed as additional insured parties. Distributors should be wary of fraudulent insurance certificates and manufacturers that cancel policies as soon as performance commences."
3. "Because of the difficulties of litigating against Chinese companies, agreements should require arbitration of any and all disputes arising out of the relationship."
4. "Conduct regular reviews of product instructions with their counsel and issue warnings to ensure that consumers are properly advised how to use, and are warned of any dangers associated with, products."
5. Know the "regulatory and reporting obligations to the US Food and Drug Administration, Consumer Product Safety Commission and other government agencies."
6. "Implement procedures and prepare a response plan to make sure that ... regulatory obligations are handled timely and efficiently, and that, in the event of recalls or litigation ... resources can be marshalled to retrieve products or respond to lawsuits in an organised and cost-effective way."
The article concludes by stating that "as with most things, a modest amount of preparation can result in great savings in the long run."
All good advice.
Comments
Nice point about surprise visits to factories. However, when I represent Chinese factories in such matters, I absolutely refuse to let them agree to this point. Those unannounced visits, especially if made by ubiquitous Taiwanese/HK/Chinese-speaking intermediaries who insist on being left alone so they can wander the factory floors unaccompanied by factory bosses, often results in the factories' trade secrets being misappropriated, and the unhealthy connivance with disgruntled factory workers to cook up situations, which the intermediaries then use to convince their foreign retainers to demand more price reductions from the factories and unfairly convey misappropriated trade secrets to competing/captive factories.
Q#1: The big winners? A#1: The Taiwanese/HK/Chinese-speaking intermediaries, the foreign corporations (if price is gouged), and the foreign consuming public (maybe, though doubtful).
Q#2: The losers? A#2: Ask the attorneys at Lovells how many of their clients walk in unannounced and demand to sit down to review the files and see what is in them, at any given moment, just to keep an eye on the state of the "product." Ask the attorneys at Lovells whether they even accept matters from clients who insist on the right to walk in unannounced to examine the "product." I don't know the answer, since I never asked Lovells. Nonetheless, let's be realistic and reasonable on this point, and apply it equitably across the board. Surprise visits are ambushes at worst, and inconveniences at best; in the middle, they tend to be embarrassing.
Protection is an expensive commodity. It is best attained by very close cooperation and a mutual commitment to a specific outcome, i.e. a fair product at a fair price, timely delivered.
Posted by: Law Office of Todd L. Platek | January 8, 2008 6:59 PM
The problem with this article is that it is written by a lawyer (no offense).
Lawyers have a purpose in business, and in protecting clients, however they are not experts in industry, outsourcing, China, etc, etc, etc.
As such, for those who are reading it is important to understand that while your lawyer may help you to reduce your legal exposure liability should you end up importing lead painted Barbie dolls, the advice in this article will do little to actually prevent it from happening.
For that, you should invest in your QC team.
Posted by: Ondaground | January 8, 2008 9:35 PM
Ondaground,
I completely agree with you. The legal aspect of protection is just one part. QC is obviously also a huge part. This is true of most aspects of doing business in China, including those aspects that may, at first, appear strictly legal. For example, one of the most effective ways to protect one's IP while manufacturing in China is to split up the product so nobody in China ever sees it all together. Another effective way to protect one's IP is to maintain a good relationship with your manufacturer and/or your employees. Legal is only a PART of any business.
Posted by: China Law Blog | January 9, 2008 8:32 AM