The Impact of the Internet on Strict Product Liability Law

American product design and marketing processes, long the strictly guarded, private province of manufacturers, are going public. In a range of industries, different forms of participatory design are taking root. Participatory design, also sometimes called “co-creation” or “co-design,” is “an approach to design that attempts to involve the end users actively in the design process to help ensure that the product designed meets their needs and is usable.”

See http://en.wikipedia.org/wiki/Participatory_Design. Fueled by the Internet and intrigued by the innovative shared-design processes of technology companies, more American manufacturing companies are inviting, allowing, or accepting consumer input into product function, design, appearance, packaging, and marketing. See, e.g., Ben McConnell and Jackie Huba, Citizen Marketers: When People Are the Message, 150-153 (2007); www.kraftfoods.com/innovatewithkraft. Some companies limit consumer participation in design to a choice of product colors or other appearance options (e.g., Nike). However, others have organized Web-based communities of consumer-designers who actively participate in the design of new products (see, e.g., Lego's Mindstorms' consumer/designer community).

At the same time, consumers have become vastly more talkative about the products they purchase. Specific products, product lines, and entire companies have been positively or negatively impacted by Web-based consumer reaction. Citizen Marketers at xi-xiv. In one widely circulated negative example, a consumer posted an online videotape of one of Comcast's technicians falling asleep on the consumer's couch “because his own company put him on hold for 90 minutes” during a service call. Id. at 125-26. The Internet allows consumers who used to call a company 1-800 number or write a letter of complaint to bring product and service problems directly to the attention of a much larger consuming public. Web sites like Complaints.com have made a business out of facilitating consumer communications about a wide range of products; a recent search of the term “defective” netted 5,800 hits, while “defective product” and “product defect” on that Web site resulted in more than 1,000 hits, combined. See www.Complaints.com. In some instances, these Internet-borne product “complaints” have cost companies substantially in terms of both consumer goodwill and stock prices. Companies are responding by forming their own blogs in order to capture and address complaints more quickly, as well as to engage consumers with the company's brands and people. See, e.g., “Jonathan's Blog,” at http://blogs.sun.com/jonathan, from Jonathan Schwartz, CEO of Sun Microsystems, Inc.

Products are routinely advertised, marketed, and sold online, as well. In addition to advertising on company Web sites, pop-ups and streamers, companies use non'individually identifiable personal information gleaned from consumers' prior Internet use to target those consumers with hard copy and Internet ads about products and services. Just as magazines used to sell subscriber information to companies for marketing purposes, Web sites now provide certain consumer information to product manufacturers or their advertising agencies. Cell phone and wireless communication technologies fuel viral marketing campaigns.

New Interactivity ' New Risks

These developments, and more like them, create new worlds of opportunity and new worlds of risk for consumer product manufacturers. This article explores some of the product'liability-related risks that company legal departments and outside counsel should consider and find ways to limit, as they explore this “new frontier.” Patent and trademark issues are excluded from this review.

Product Manufacturer Liability

Product manufacturers that engage in participatory design with groups of consumers will be liable for any product defect that results from the process.

A caveat, to begin: Some things about product liability law will not be affected by the changing and increasingly electronic marketplace. Under traditional product liability law, companies or individuals who design products in a collaborative process all owe a non-delegable duty to design a non-defective product. See, e.g., Union Supply Co. v. Pust, 583 P.2d 276, 280-81 (Colo. 1978). A customer's involvement in the design of a product or system, whether in the consumer or industrial context, does not discharge the duty of the manufacturer of that product or system for any injuries caused by its defects. See, e.g., DeSantis v. Parker Feeders, Inc., 547 F.2d 357 (7th Cir. 1976). Where a manufacturer accepts design input from consumers and subsequently manufactures and sells the product, there is no reason to believe that a different rule would apply even if the defect alleged is the product of consumer input.

Post-Sale Duty-to-Warn Claims

Plaintiffs may press post-sale duty-to-warn claims based on informal consumer communication about products.

At least 14 states have adopted the Restatement (Third) of Torts, Section 10, describing the liability of commercial product sellers for harm caused by post-sale failure to warn. Section 10 suggests that a product manufacturer, distributor, or seller may be liable for post-sale failure to warn where, following the sale of a product: 1) the seller knows or should have known that a product poses a substantial risk of harm, 2) to people who can be identified and can reasonably be assumed to be unaware of the risk, 3) to whom a warning can be effectively communicated and acted upon, and 4) where the risk is sufficiently great to justify the burden of making the warning. See, e.g., Burton v. R.J. Reynolds Tobacco Co., 397 F.3d 906 (10th Cir. 2005); Lovick v. Wil-Rich, 588 N.W.2d 688 (Iowa 1999), rehearing denied March 25, 1999.

Even before the rise of the Internet, the first factor ' whether a manufacturer knew or should have known of a substantial risk of harm ' typically required a fact-intensive inquiry into when a manufacturer reasonably could have first learned about a product defect. Often, that inquiry targeted consumer complaints or other reports of injury made directly to the company. Now, e-mail has largely replaced letter complaints, but other avenues for consumer complaints may also be available via the Internet ' blogs, networking sites, and message boards, to name a few. In the age of “citizen marketers,” the question is how far a reasonable manufacturer must go to locate reports of dissatisfaction with its products made not to the company directly, but to other consumers.

No court has yet suggested that manufacturers have a duty to monitor the Internet generally to identify consumers' concerns about products, in order to issue post-sale warnings. However, where a product complaint becomes widespread on the Internet, it could become evidence of what a manufacturer “should have known.” Certainly, where a consumer makes a complaint directly to a company, prudence would suggest that the manufacturer investigate whether other reports of similar problems are circulating on blogs or other Web-based sites.

Impact on Defenses Available

Greater interactivity between companies and consumers in the design and marketing of products may impact the defenses available in product liability cases.

As product manufacturers engage with consumers in designing and marketing their products, some of the traditional defenses to strict product liability suits may be diminished. A case in point is the learned intermediary rule, which bars failure-to-warn claims against prescription pharmaceutical and medical device manufacturers because of the role of the physician in providing warnings to their patients. See, e.g., Stevens v. Parke, Davis & Co., 9 Cal.3d 51, 65, 507 P.2d 653, 661 (1973). For decades, this doctrine has been justified by the manufacturer's lack of direct communication with patients, the patient's reliance on his or her physician's judgment, the physician's independent role in selecting appropriate medications and making appropriate warnings, and a concern that direct warnings would interfere with the doctor/patient relationship. Terhune v. A.H. Robins Co., 90 Wash.2d 9, 14, 577 P.2d 975, 978 (1978).

Recently, however, the Supreme Court of Appeals of West Virginia rejected the learned intermediary doctrine, labeling it outdated. State ex rel. Johnson & Johnson Corp. v. Karl, 647 S.E.2d 899, 906 (2007). Citing both the availability of information over the Internet and manufacturer direct'to-consumer advertising, the court found that the learned intermediary defense could no longer be justified. Id. at 907-910. In rebuffing what has been a highly successful defense, the court pointed to “significant changes in the drug industry ' specifically ' the initiation and intense proliferation of direct'to-consumer advertising, along with its impact on the physician/patient relationship, and the development of the Internet as a common method of dispensing and obtaining prescription drug information.” Id. at 901. The court cited a study showing “that 43% of the 40.6 million adults who regularly use the Internet search for health-related topics,” to demonstrate that traditional justifications for the learned intermediary rule purportedly no longer apply. Id. Other traditional defenses, including unforeseeable misuse, also could be challenged based on the availability on the Internet of consumer-generated information about how products are being used.

Consumer Fraud Claims May Increase

Consumer fraud claims may increase as more direct company'and-consumer communications blur the line between actionable and non-actionable statements.

Shockwaves rippled through the legal community in June 2003, when the U.S. Supreme Court left standing the California Supreme Court's ruling in Kasky v. Nike, Inc., 45 P.3d 243 (Cal. 2002), writ of certiorari dismissed, 539 U.S. 654 (2003). In Kasky, the California court reversed lower court opinions and found that an individual could seek monetary and injunctive relief under California's false advertising and unfair competition laws for a company's statements about its labor practices in press releases, letters to the editor, letters to university presidents and athletic directors, and advertisements. 27 Cal. 4th at 947-48. In doing so, the court concluded that Nike's editorial responses to charges of oppressive labor conditions in its overseas factories constituted commercial speech. It reasoned that Nike's responses made “factual representations about [Nike's] own business operations” to consumers, whose commercial transactions with Nike would be influenced by those representations. Id. at 963.

No other court has adopted such a broad approach to commercial speech, and California's unfair competition law has been amended since Kasky in ways that make such an outcome less likely today. Nonetheless, the case remains a red flag, particularly in light of increased communication and interactivity between companies and consumers. Commercial speech includes both “speech proposing a commercial transaction” (Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 557 (1980)), and factual statements that inform consumers' decisions about whether to enter into a transaction with a particular company. Bolger v. Youngs Drug Products Corp., 463 U.S. 60, 62-66 (1983). Statements need not necessarily concern a specific product or service to be considered commercial speech. Id. at 67 n. 14. In short, the term “commercial speech” contains some ambiguity; a particular statement will be assessed on a case'by-case basis by judging its format, its reference to products and its commercial motivation, among other things. City of Cincinnati v. Discovery Network, Inc., 507 U.S. 410, 419 (1993) (recognizing “the difficulty of drawing bright lines that will clearly cabin commercial speech in a distinct category”).

Company blogs and other forms of interactive communication with consumers over the Internet, therefore, run some significant risk. If a statement is construed as commercial speech, and is found to be false or misleading, the state's consumer fraud statute may expose the statement's maker to liability. This suggests that informal company communications with consumer-designers and “citizen marketers” should be treated in the same way a company would treat any other public statement, with legal safeguards in place.

Defense of Product Liability Trials

Consumer interconnectivity, supported by the Internet, may make product liability trials more difficult to defend.

In addition to creating potential new avenues for liability, a more interactive population of consumers also may have unexpected consequences for the defense of product manufacturers at trial, in at least the following ways:

• Consumer complaints about a product on blogs or networking sites are apt to generate a significant volume of previously uncollected and untested reports of “similar accidents.”
• Companies may find it difficult to authenticate electronic documents, particularly in the face of the passage of time and hardware conversions. See In Re Vee Vinhee, 336 B.R. 437, 447 (9th Cir. 2005) (requiring that records custodians be able to testify about both hardware and software of electronic documents to establish foundation for same).
• In many instances, a complaint articulated on a blog by a single individual has evolved into a firestorm of public criticism, including television coverage, in a matter of days. Given the speed with which consumers coalesce to communicate negative comments about a product, and the news media ' s reliance on these kinds of communications to generate a “story,” it may be difficult to find an unbiased jury pool.
• Counsel should consider the existence and prevalence of Web-based communications about their client ' s products in crafting voir dire, telling the company ' s story, and throughout the trial.

Conclusion

Epic shifts in the marketplace always bring great opportunity and great risk. The shift of the American product manufacturers toward co-design, marketing and sale of products over the Internet, and the substantial increase in company communication with and information made available to consumers by the Internet, are offering product manufacturers both opportunity and risk today. It is imperative for companies and trade associations to monitor these developments as they impact specific industries, and to be prepared to respond to new theories of liability in the courtroom, the statehouse, and with the public, as the changing marketplace impacts the law of strict product liability.

Sarah ('Sally') L. Olson, a member of this newsletter's Board of Editors, is a partner in the Litigation Department of Wildman, Harrold, Allen & Dixon, LLP, in Chicago. Ms. Olson represents manufacturing companies and, through trade associations, industries facing litigation, legislative change, or regulatory action in relation to the design, manufacture, marketing, and distribution of their products.

Following the rise of mass product manufacturing and marketing in the 1940s and 1950s, strict product liability emerged in the 1960s and 1970s as a potent force shaping the way product manufacturers do business in America. Although the relevant common law of each state has been modified from time to time since its inception, the basic parameters of the theory have been settled for some time. Now, however, market conditions are changing dramatically, and the law is likely to change with it.

In just the last few years, the Internet has generated new levels of company-consumer interactivity. Consumers and companies are working together in new ways to design products. Consumers and companies are communicating ' both in terms of advertising and complaints about products ' more directly and frequently than ever. These developments create corresponding new legal issues. Indeed, the changing marketplace may foreshadow unanticipated changes in the traditional law of strict product liability.

Internet-Generated Changes in Product Design and Marketing

American product design and marketing processes, long the strictly guarded, private province of manufacturers, are going public. In a range of industries, different forms of participatory design are taking root. Participatory design, also sometimes called “co-creation” or “co-design,” is “an approach to design that attempts to involve the end users actively in the design process to help ensure that the product designed meets their needs and is usable.”

See http://en.wikipedia.org/wiki/Participatory_Design. Fueled by the Internet and intrigued by the innovative shared-design processes of technology companies, more American manufacturing companies are inviting, allowing, or accepting consumer input into product function, design, appearance, packaging, and marketing. See, e.g., Ben McConnell and Jackie Huba, Citizen Marketers: When People Are the Message, 150-153 (2007); www.kraftfoods.com/innovatewithkraft. Some companies limit consumer participation in design to a choice of product colors or other appearance options (e.g., Nike). However, others have organized Web-based communities of consumer-designers who actively participate in the design of new products (see, e.g., Lego's Mindstorms' consumer/designer community).

At the same time, consumers have become vastly more talkative about the products they purchase. Specific products, product lines, and entire companies have been positively or negatively impacted by Web-based consumer reaction. Citizen Marketers at xi-xiv. In one widely circulated negative example, a consumer posted an online videotape of one of Comcast's technicians falling asleep on the consumer's couch “because his own company put him on hold for 90 minutes” during a service call. Id. at 125-26. The Internet allows consumers who used to call a company 1-800 number or write a letter of complaint to bring product and service problems directly to the attention of a much larger consuming public. Web sites like Complaints.com have made a business out of facilitating consumer communications about a wide range of products; a recent search of the term “defective” netted 5,800 hits, while “defective product” and “product defect” on that Web site resulted in more than 1,000 hits, combined. See www.Complaints.com. In some instances, these Internet-borne product “complaints” have cost companies substantially in terms of both consumer goodwill and stock prices. Companies are responding by forming their own blogs in order to capture and address complaints more quickly, as well as to engage consumers with the company's brands and people. See, e.g., “Jonathan's Blog,” at http://blogs.sun.com/jonathan, from Jonathan Schwartz, CEO of Sun Microsystems, Inc.

Products are routinely advertised, marketed, and sold online, as well. In addition to advertising on company Web sites, pop-ups and streamers, companies use non'individually identifiable personal information gleaned from consumers' prior Internet use to target those consumers with hard copy and Internet ads about products and services. Just as magazines used to sell subscriber information to companies for marketing purposes, Web sites now provide certain consumer information to product manufacturers or their advertising agencies. Cell phone and wireless communication technologies fuel viral marketing campaigns.

New Interactivity ' New Risks

These developments, and more like them, create new worlds of opportunity and new worlds of risk for consumer product manufacturers. This article explores some of the product'liability-related risks that company legal departments and outside counsel should consider and find ways to limit, as they explore this “new frontier.” Patent and trademark issues are excluded from this review.

Product Manufacturer Liability

Product manufacturers that engage in participatory design with groups of consumers will be liable for any product defect that results from the process.

A caveat, to begin: Some things about product liability law will not be affected by the changing and increasingly electronic marketplace. Under traditional product liability law, companies or individuals who design products in a collaborative process all owe a non-delegable duty to design a non-defective product. See, e.g., Union Supply Co. v. Pust , 583 P.2d 276, 280-81 (Colo. 1978). A customer's involvement in the design of a product or system, whether in the consumer or industrial context, does not discharge the duty of the manufacturer of that product or system for any injuries caused by its defects. See, e.g., DeSantis v. Parker Feeders, Inc. , 547 F.2d 357 (7th Cir. 1976). Where a manufacturer accepts design input from consumers and subsequently manufactures and sells the product, there is no reason to believe that a different rule would apply even if the defect alleged is the product of consumer input.

Post-Sale Duty-to-Warn Claims

Plaintiffs may press post-sale duty-to-warn claims based on informal consumer communication about products.

At least 14 states have adopted the Restatement (Third) of Torts, Section 10, describing the liability of commercial product sellers for harm caused by post-sale failure to warn. Section 10 suggests that a product manufacturer, distributor, or seller may be liable for post-sale failure to warn where, following the sale of a product: 1) the seller knows or should have known that a product poses a substantial risk of harm, 2) to people who can be identified and can reasonably be assumed to be unaware of the risk, 3) to whom a warning can be effectively communicated and acted upon, and 4) where the risk is sufficiently great to justify the burden of making the warning. See, e.g., Burton v. R.J. Reynolds Tobacco Co. , 397 F.3d 906 (10th Cir. 2005); Lovick v. Wil-Rich , 588 N.W.2d 688 (Iowa 1999), rehearing denied March 25, 1999.

Even before the rise of the Internet, the first factor ' whether a manufacturer knew or should have known of a substantial risk of harm ' typically required a fact-intensive inquiry into when a manufacturer reasonably could have first learned about a product defect. Often, that inquiry targeted consumer complaints or other reports of injury made directly to the company. Now, e-mail has largely replaced letter complaints, but other avenues for consumer complaints may also be available via the Internet ' blogs, networking sites, and message boards, to name a few. In the age of “citizen marketers,” the question is how far a reasonable manufacturer must go to locate reports of dissatisfaction with its products made not to the company directly, but to other consumers.

No court has yet suggested that manufacturers have a duty to monitor the Internet generally to identify consumers' concerns about products, in order to issue post-sale warnings. However, where a product complaint becomes widespread on the Internet, it could become evidence of what a manufacturer “should have known.” Certainly, where a consumer makes a complaint directly to a company, prudence would suggest that the manufacturer investigate whether other reports of similar problems are circulating on blogs or other Web-based sites.

Impact on Defenses Available

Greater interactivity between companies and consumers in the design and marketing of products may impact the defenses available in product liability cases.

As product manufacturers engage with consumers in designing and marketing their products, some of the traditional defenses to strict product liability suits may be diminished. A case in point is the learned intermediary rule, which bars failure-to-warn claims against prescription pharmaceutical and medical device manufacturers because of the role of the physician in providing warnings to their patients. See, e.g., Stevens v. Parke, Davis & Co. , 9 Cal.3d 51, 65, 507 P.2d 653, 661 (1973). For decades, this doctrine has been justified by the manufacturer's lack of direct communication with patients, the patient's reliance on his or her physician's judgment, the physician's independent role in selecting appropriate medications and making appropriate warnings, and a concern that direct warnings would interfere with the doctor/patient relationship. Terhune v. A.H. Robins Co. , 90 Wash.2d 9, 14, 577 P.2d 975, 978 (1978).

Recently, however, the Supreme Court of Appeals of West Virginia rejected the learned intermediary doctrine, labeling it outdated. State ex rel. Johnson & Johnson Corp. v. Karl , 647 S.E.2d 899, 906 (2007). Citing both the availability of information over the Internet and manufacturer direct'to-consumer advertising, the court found that the learned intermediary defense could no longer be justified. Id. at 907-910. In rebuffing what has been a highly successful defense, the court pointed to “significant changes in the drug industry ' specifically ' the initiation and intense proliferation of direct'to-consumer advertising, along with its impact on the physician/patient relationship, and the development of the Internet as a common method of dispensing and obtaining prescription drug information.” Id. at 901. The court cited a study showing “that 43% of the 40.6 million adults who regularly use the Internet search for health-related topics,” to demonstrate that traditional justifications for the learned intermediary rule purportedly no longer apply. Id. Other traditional defenses, including unforeseeable misuse, also could be challenged based on the availability on the Internet of consumer-generated information about how products are being used.

Consumer Fraud Claims May Increase

Consumer fraud claims may increase as more direct company'and-consumer communications blur the line between actionable and non-actionable statements.

Shockwaves rippled through the legal community in June 2003, when the U.S. Supreme Court left standing the California Supreme Court ' s ruling in Kasky v. Nike, Inc. , 45 P.3d 243 (Cal. 2002), writ of certiorari dismissed , 539 U.S. 654 (2003). In Kasky, the California court reversed lower court opinions and found that an individual could seek monetary and injunctive relief under California's false advertising and unfair competition laws for a company's statements about its labor practices in press releases, letters to the editor, letters to university presidents and athletic directors, and advertisements. 27 Cal. 4th at 947-48. In doing so, the court concluded that Nike's editorial responses to charges of oppressive labor conditions in its overseas factories constituted commercial speech. It reasoned that Nike's responses made “factual representations about [Nike's] own business operations” to consumers, whose commercial transactions with Nike would be influenced by those representations. Id. at 963.

No other court has adopted such a broad approach to commercial speech, and California's unfair competition law has been amended since Kasky in ways that make such an outcome less likely today. Nonetheless, the case remains a red flag, particularly in light of increased communication and interactivity between companies and consumers. Commercial speech includes both “speech proposing a commercial transaction” ( Central Hudson Gas & Elec. Corp. v. Public Serv. Comm ' n , 447 U.S. 557 (1980)), and factual statements that inform consumers ' decisions about whether to enter into a transaction with a particular company. Bolger v. Youngs Drug Products Corp. , 463 U.S. 60, 62-66 (1983). Statements need not necessarily concern a specific product or service to be considered commercial speech. Id. at 67 n. 14. In short, the term “commercial speech” contains some ambiguity; a particular statement will be assessed on a case'by-case basis by judging its format, its reference to products and its commercial motivation, among other things. City of Cincinnati v. Discovery Network , Inc. , 507 U.S. 410, 419 (1993) (recognizing “the difficulty of drawing bright lines that will clearly cabin commercial speech in a distinct category”).

Company blogs and other forms of interactive communication with consumers over the Internet, therefore, run some significant risk. If a statement is construed as commercial speech, and is found to be false or misleading, the state's consumer fraud statute may expose the statement's maker to liability. This suggests that informal company communications with consumer-designers and “citizen marketers” should be treated in the same way a company would treat any other public statement, with legal safeguards in place.

Defense of Product Liability Trials

Consumer interconnectivity, supported by the Internet, may make product liability trials more difficult to defend.

In addition to creating potential new avenues for liability, a more interactive population of consumers also may have unexpected consequences for the defense of product manufacturers at trial, in at least the following ways:

• Consumer complaints about a product on blogs or networking sites are apt to generate a significant volume of previously uncollected and untested reports of “similar accidents.”
• Companies may find it difficult to authenticate electronic documents, particularly in the face of the passage of time and hardware conversions. See In Re Vee Vinhee, 336 B.R. 437, 447 (9th Cir. 2005) (requiring that records custodians be able to testify about both hardware and software of electronic documents to establish foundation for same).
• In many instances, a complaint articulated on a blog by a single individual has evolved into a firestorm of public criticism, including television coverage, in a matter of days. Given the speed with which consumers coalesce to communicate negative comments about a product, and the news media ' s reliance on these kinds of communications to generate a “story,” it may be difficult to find an unbiased jury pool.
• Counsel should consider the existence and prevalence of Web-based communications about their client ' s products in crafting voir dire, telling the company ' s story, and throughout the trial.

Conclusion

Epic shifts in the marketplace always bring great opportunity and great risk. The shift of the American product manufacturers toward co-design, marketing and sale of products over the Internet, and the substantial increase in company communication with and information made available to consumers by the Internet, are offering product manufacturers both opportunity and risk today. It is imperative for companies and trade associations to monitor these developments as they impact specific industries, and to be prepared to respond to new theories of liability in the courtroom, the statehouse, and with the public, as the changing marketplace impacts the law of strict product liability.

Sarah ('Sally') L. Olson, a member of this newsletter's Board of Editors, is a partner in the Litigation Department of Wildman, Harrold, Allen & Dixon, LLP, in Chicago. Ms. Olson represents manufacturing companies and, through trade associations, industries facing litigation, legislative change, or regulatory action in relation to the design, manufacture, marketing, and distribution of their products.