Tort Liability For China Counterfeit Goods?
Blogger Ryan McLaughlin (and my firm's webmaster) recently posted on media coverage of the death of his beloved Golden Retriever, believed to have been caused by a package of Optima dog food. The post is entitled, "US-made Optima dog food in China may have killed my dog," and in it, Ryan discusses how the US-based Mars company makes Optima dog food, but it does not ship it or sell it in China. Mars does sell Optima to Taiwan, however, and it is not clear if the Optima dog food Ryan purchased in Suzhou, China, came from real Optima dog food sent to Taiwan (which may have been compromised by poor storage or age) or was counterfeit. Ryan wrote again here about the media coverage his dog's death has been receiving.
So here's the question. Might it make sense to bring a claim against a US product manufacturer in a US court based on its failure to monitor its brand worldwide? Can one argue that Mars was negligent in not doing more to prevent its product from being sold in China or in preventing counterfeits from being sold? Has there ever been such a case? Please understand that that I have absolutely NO evidence one way or the other regarding Mars' actions involving Optima, I am merely using it as an example.
What do you think?
Comments (13)
Read through and enter the discussion by using the form at the endmichael webster - January 19, 2009 6:10 AM
No quite on point, but The Chinese government is expected to buy US Treasury Bills, to prop up their current holdings.
The Chinese cannot export goods to the US because nobody wants to buy crap anymore, and the Chinese in response produce even cheaper crap.
The Chinese don't have a regulatory system at their local levels worth crap and to institute such a system would cost a great deal of money, possibly something that could only be bought with US treasury bills.
ipdragon - January 19, 2009 8:40 AM
Dear Dan,
I was thinking along the same lines. I wrote it even down, but then deleted it, because I do not think it is the responsibility of the infringed company, but that of the state where the infringement takes place.
However, in the case of China you could argue that companies might have a moral responsibility.
Cheers,
Danny Friedmann
Jon - January 19, 2009 9:04 AM
I don't think you can assume they are not monitoring their brand internationally. Almost all manufacturers do. However vigilant a manufacturer, counterfeiters are forever a part of our life. One prominent example: when it was recently rumored there would be a nano iPhone 3G, it appears in China days later. How do get in front of that?
Perhaps it would make more sense to sue the people who knowingly purchase counterfeit products - or criminalize the purchase of counterfeits. We do it with drugs!
Carson Block - January 19, 2009 4:02 PM
Assuming it was genuine Optima, but as Ryan speculated, stored improperly in Guangzhou, what liability should Mars have for mishandling by its China distributor, assuming Mars knowingly sold the food in the China market through that distributor?
FOARP - January 19, 2009 4:13 PM
I have to say I am of a similar opinion to IP Dragon. I'd love to see a legal regime in which individuals could sue WTO member states in national courts for non-implementation of TRIPS - something similar to the doctrine of state liability in the EU for non-implementation of EU law. Of course, this is not going to happen as the Chinese government would just hate to grant people the right to sue it just because it had signed a treaty saying that it would protect IP rights.
Hell, if they ever get around to upgrading the WTO, this is what I want to see. It makes way more sense than state-to-state actions where the only remedy is a licence granted to infringe the IP of the citizens of the country found in the wrong. If large developing countries incapable of protecting IP aren't happy about signing up to such a treaty - fine.
In the meantime, no, I just can't see how it could be just, fair, or reasonable, to apply a duty of care to a company in respect of people buying counterfeit goods which were made without its permission.
@Jon - How? Because the iPhone is made in China. All that is necessary is for a few models to go missing from the line, something which is unavoidable. If you go to the Foxconn factory where they are made you will find guards on every gate checking ID cards, as well as outside some of the factory blocks and dormitories - none of this stops stuff going missing. The problem is not the rapidity with which counterfeiting takes place, but the way in which vast profits may be made through free-riding on the work of others. Only a stronger IP protection regime can solve this.
robert - January 19, 2009 8:32 PM
Dan, how would the plaintiff overcome the jurisdictional issues?
Ryan - January 19, 2009 11:42 PM
If it was counterfeit, I don't think there's any argument that Mars had a responsibility to control/monitor this. Fault would, imo, rest completely on the shoulders of the local distributor, the counterfeiters and the government for not stopping it.
It is important to recognize that I wasn't buying this dog food from some cheap pet shop in the seedy end of town. This was all purchased from a large high-end and well-respected pet shop that sells a number of premium-brand dog foods (from legitimate sources - I've since checked at least two of them).
Also, the aflatoxin report came from the Taiwan company, Natural Pet (http://www.naturalpet.com.tw), and they clearly indicate on their Web site they distribute Optima.
This all leads me to believe this wasn't counterfeit. It could have been, however, illegally imported (via Natural Pet and the large mainland distributor that is taking the heat for this).
But, I don't feel it could have been done without Mars being at least peripherally aware of it. We're talking importing large quantities of this brand to a massive country, not slipping a few extra bags into Singapore or Hong Kong.
For Mars to assume that the added bulk to the Taiwanese order was for domestic consumption in the relatively small island nation is just absurd.
It is for this reason I believe that Mars does have responsibility towards this issue.
I, unfortunately, don't have the time, knowledge or resources to pursue the company on such responsibility. I am also eager to put the whole issue behind me, as none of it can bring back my beautiful dog.
Twofish - January 20, 2009 12:13 AM
Are we talking moral-should or legal-should.
If we are talking about legal-should, I don't see under what legal theory a US court would have any jurisdiction at all over this. The tort happened in China which means that its a Chinese issue. There's no point at which the food entered the United States, so you can't make a claim under the Pure Food and Drugs Act. If you are really desperate you might try something under the Alien Tort Claims Act, but you are probably going to get laughed at.
As far as moral-should, I think it is a bad idea to weaken jurisdictional rules, because then every case becomes an exercise in forum shopping. Something bad happens in Shanghai, and EVIL MEGACORP forces the lawsuit take place in the United States in order to practically prevent any injured in Shanghai from doing anything.
Also, in phrasing legal hypotheticals, it's better not to use the name of real corporations least people pick up misinformation via google. Better to talk about the Acme Corporation distributing Bowwow dog food. At this point the answer like most legal questions is probably "it depends" but then the question is "what does it depend on."
I think your first challenge is to figure out which court to file in. Federal? State? Mainland China? Taiwan? Your second challenge is to figure out what to file for.
What it depends on includes:
1) What does the client want? Compensation? Protection of public health? An apology? Publicity?
2) How much in time, money, emotion is the client willing to spend or risk?
3) What the legal relationships are?
4) What exactly happened? Do you know what exactly happened? Is part of the purpose of filing the suit to figure out exactly what happened?
5) What are the attitudes of the people involved? You may find that if BIG EVIL MEGACORP isn't so bad after all, that they really do want to stamp out counterfeit goods, and suing them just makes it harder to do that.
Finally, it's rarely a good idea to start off with a lawsuit, since lawsuits are expensive, and it's probably a very bad idea to set up a legal framework in which everyone is encouraged to sue early and sue often since that clogs up the courts. Lawsuits are only one part (and often the least important part) of an overall legal strategy.
The first thing to do is to have your lawyer talk to their lawyers. The trouble here is figuring out who "they" are.
FOARP - January 20, 2009 9:00 AM
Mars has the ability to prevent export from Taiwan (or wherever) using trademark rights (assuming they have an ROC trademark on Optima). However, your presuming they have a big enough prescence to know what is being shipped out of Taiwan into China - I don't know if Mars has that kind of prescence, or whether they would even be as concerned about goods being shipped out of a relatively high-value market like Taiwan into a market in which they don't operate. The main concern that most of these companies have is the shipping of counterfeit or poor quality products from low-value markets into high value markets thus reducing their profits in their most important markets. The fact that they are powerless to prevent even these - as even a casual glance at the news or a walk through any of the street markets in the city of London would tell you - shows us that it is not likely that they could have prevented the export of dog food from Taiwan into China.
In my experience, what usually happens is they receive a complaint from somebody like Ryan about one of their products and are surprised to find their product on sale in country which they don't sell into. It's only then that they start following up to see how it happened that they find how who is doing what, and, where it is economical to do so, they will take action. companies hate to see their reputation threatenedby smuggling and counterfeiting, but they have to watch the bottom line as well.
opinion - January 20, 2009 10:10 AM
Here's the scoop: In the view of the law, dogs are considered property. Therefore, Ryan's loss would only be for the replacement value of the dog plus the veterinary expense related to the illness. But as long as he still has the Optima bag with the infected food, a lawyer, and time on his hands, he can sue and probably recover the damages mentioned above and probably not have to go to court. Have his lawyer send a letter to Mars requesting reimbursement for his loss and threaten to sue if they don't pay. And don't try to pretend that the dog is worth hundreds of thousands of dollars or that his emotional loss has some value because it won't work when you are talking about property. Just ask for the replacement value of the dog and the veterinary expenses and you'll get it.
Carson Block - January 20, 2009 10:30 PM
In a U.S. domestic product liability matter, is a manufacturer liable for damages caused by its distributor's negligence? (Notwithstanding that the distributor likely contractually indemnifies the manufacturer for such events.)
Ryan - January 21, 2009 10:44 PM
As a follow-up to this - "Opinion" is exactly right. We consulted a lawyer here in the PRC and he basically said the same.
In fact, in the end, we fared better than "property value" and were re-couped for all costs incurred over the life of our dog (she was 1 year old when she died).
I've just posted about the conclusion to this rather tragic tale.
http://www.thehumanaught.com/blog/2009/01/22/optima-dog-food-saga-its-done/
John De Witt - January 22, 2009 7:17 AM
How can a company who has been the VICTIM of counterfeiting of their product/brand be responsible for a crime occuring in a country they are not registered in and a crime for which they had no prior knowledge of? I dont think any lawsuit would be likely to succeed. Even so you would at the very least have to sue the company in a country they are legally registered in but then successfully sue them for actions you claim they have/have not done in a separate juristriction that the first country mentioned has no juristriction over. And thats not even the most difficult thing of all the things you will have to prove. Forget this as a non-starter.