In this episode…
Renaud Anjoran is joined by two guests in this episode, Clive Greenwood and Andrew Wilson of WWMG associates, and they’re going to get to the bottom of who is liable for product safety issues. Some importers work with manufacturers in China and make certain assumptions about their level of liability, especially if the manufacturer has been involved in product design and development. It depends on a number of things, such as who has the design authority and who issues the design specifications, etc. The panel will dispel some assumptions and show you how, if you’re an importer, you really need to focus on product testing, compliance, and safety as the penalties can be very stiff indeed!
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00:00 – Introduction.
01:26 – When an American company, for example, works with a Chinese manufacturer to develop a new product, what do they expect the manufacturer to tell them? Andrew: Many US SMEs and tech startups who work with Chinese manufacturers expect and rely upon them to have a good understanding of the market they’re exporting to, such as its regulations and the types of certifications that the product requires to be imported. However, that’s very often not the case. Especially with FDA regulations. It’s not uncommon to receive mass-produced products that don’t reach the same standards of their ‘golden sample.’
05:00 – Product liability laws in the US & EU. Clive: When it comes to product liability in the USA there is no single code, each state has its own liability laws. There are 3 categories: Strict liability, breach of warranty, and negligence. Sub-clauses include: Manufacturing standards, design, and failure to warn (which catches a lot of people out). Lawyers often tell manufacturers not to offer advice as it opens up a route for liability. General advice is to tell people what it says on the box as long as that’s correct.
In the EU, the person/s who bring the product to market are liable with no limitations. This could be the importer, as well as the manufacturer. But they tend to focus on whomever it’s easier to prosecute (likely to be the local party rather than a Chinese manufacturer).
07:53 – How ‘design authority’ can be used to attribute liability. Clive: Usually the liability for problems is given to whoever holds the design authority.
Renaud: 2 basic cases to explain the concept of who has design authority:
- The buyer designs the product and gives them to the manufacturer. The manufacturer only does further product engineering work upon the buyer’s direction = buyer has design authority.
- The manufacturer owns the product IP (they probably developed it themselves) and the customer only purchases and distributes it = manufacturer has design authority.
Clive: The key distinction is who approves the design and specifications. If the buyer approves any of the designs, they are liable, but if not then the manufacturer is liable.
Renaud: This includes more than just design files, it also includes the quality standard, specifications, and testing plan, too.
12:09 – Post-DFMEA liability. Clive: The manufacturer is deemed to have general professional knowledge of the product they make, but it doesn’t alleviate the failure to warn or comply with compulsory standards. If a buyer tells the manufacturer to ignore certain standards to cust costs, for example, they’d be doubly liable and could be classed as reckless endangerment which comes under Federal law. Breach of warranty is used when a product has a reliability issue where to fails to last the warranty period or expected number of uses.
Renaud: It may also be a quality issue, too.
Clive: Components and their design are also in play here. If upstream component suppliers are used by a manufacturer they should have done a documented QMS on them, otherwise, they cannot claim that the suppliers had general professional knowledge of the components they were producing for use in a certain product that later caused problems.
15:43 – Why letting your Chinese manufacturer ‘help’ develop a product could be a big mistake. Renaud: Buyers often rely on Chinese manufacturers to help develop some or all of the product. Manufacturers often don’t charge for this service because they do it with the assumption that they then own product designs they’ve worked on and don’t share the IP with the buyer. This could be a big problem for the buyer who’s then blocked from doing a proper risk analysis or auditing the upstream suppliers and won’t easily be able to be certain that everything is compliant.
Clive: This is non-compliant. Technical files that are incomplete with no BOM, etc, wouldn’t be accepted.
Renaud: The reality is that many companies work in this way, where they don’t have all of the information before importing products.
Clive: Yes, and they can’t comply with stature laws, so if something goes wrong they have no defence. It could be argued to be negligent, depending on how severe the problem is. In case of consumer injury, a negligence charge would be likely. They can’t prove that they conducted all and necessary due diligence and risk assessment on the product because they never got them from their supplier.
Renaud: There are many small companies that find products on Alibaba, perhaps change the color and add a logo, and then sell on Amazon, for example. These products may even be for kids, electrical, or used for cosmetic or medical purposes so might be considered a medical device. If they are just distributing these products and have very little technical information about them, what’s their risk?
Clive: They risk jail time.
21:13 – Compliance for medical devices/products. Clive: For medical products in particular the regulations, take the new EU MDR or older MDD (for Europe), require extensive design files. You have to prove that you have done the tests. Startup companies trying to move into the space will incur huge costs to do the testing and become compliant.
Renaud: Anything that can be defined as a medical product has a very long and costly process to get onto the market in a compliant way. Similar for automotive parts.
24:01 – Action items for companies who’re designing a general consumer product to be manufactured in China. Clive: The first action should be a pre-market surveillance report. This initial planning will tell you what standards, regulations, or directives the product needs to comply with. Also includes customer requirements. Then conceptual design can be done. Then a supplier can be involved. The product needs to be well-defined in terms of laws and standards before you can get pricing.
Renaud: This also helps you focus on sourcing manufacturers who have the certifications you need.
Andrew: Any certifications should always be verified as being real, too. It’s worth spending the money to save you a lot in the long run.
Clive: If a product goes wrong and the investigation shows that you worked with a supplier who provided false certification, you would be liable. So due diligence on suppliers is critical.
Renaud: Do as much of the initial design as possible yourself, maybe with an industrial designer, as this forces you to clarify details and specifications. Manufacturers generally aren’t experts in this. Use legal tools to protect your IP and tooling as well.
31:58 – Product safety. What do we need to consider? Renaud: You need a plan for the verifications and validations and different types of approvals the product design has to go through before you go into manufacturing.
Clive: If a product is going into the EU it will have a directive. Sub-components will also need to meet a certain performance standard. The buyer should give manufacturers individual component performance requirements.
The contract must very clearly state which standards are expected. If it’s not to that standard, the manufacturer is still liable under US and EU law if they own the design. Clear specification of standards is your only defence against product liability.
38:29 – Conclusion. Renaud: If you want safe products and reduce liability risks, you have to make sure that the requirements in terms of applicable standards, product usage performance, etc, needs to be defined in advance and have a very strong plan. If you follow the plan and you assure that what you receive is what you have requested, you will greatly reduce your liability.
Andrew: Correctly selecting a supplier who has the capability to manufacture your product to the applicable standards and can test the functional requirements is critical, too, to avoid subcontracting to other suppliers over who you may not have visibility.
Renaud: If a manufacturer does in-house testing, cross-check and validate using external sources, too.
40:49 – Wrapping up.
- Product Design Reliability Drives User Safety
- Why Product Safety, Quality, and Reliability Are Tightly Linked
- Buyers of Masks and other PPE: Are You Exposed to Serious Liability?
- Would Liability Insurance Protect You when Buying Product from China?
- If The EU MDR Is Product Compliance’s Future – Be Afraid, Be Very Afraid! [Podcast]
- What Is Compliance Testing? [Podcast]
- 11 Common Electronic Product Certification And Compliance Requirements
- IP Protection in China when Developing Your New Product [Importer’s Guide]
- EU MDR Compliance When Developing A New Medical Device: High-Level Steps [Guide]
- Guide to vetting Chinese suppliers [Podcast series]
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