In my introductory business law course, we cover a chapter on torts, or personal injury law. There are many types of torts, and one particularly relevant to business law is called “product liability.” Under product liability laws, a person or business who sells a dangerous product may be financially responsible for a resulting injury. In some situations, this is based on a negligence theory, where the plaintiff must show that the company (or an individual acting on the company’s behalf) did not meet a “reasonable” standard of conduct. In other situations, courts apply strict liability, where a company that puts a harmful product into the stream of commerce is liable without the need for a plaintiff to show negligence.
What makes a product dangerous to the point where tort liability will attach? The typical example is a product with a manufacturing defect – a flaw which causes it to not work as intended. For example, a radio-controlled airplane is expected to take off, land, and otherwise respond to signals from a remote. What if the plane explodes in midair, or upon takeoff? The explosion is obviously unintentional and the sign of a serious defect. If the exploding plane causes harm (for example, if the user was hit by flaming shrapnel), it is is logical that a court might require the plane manufacturer to pay the resulting medical bills. It is also logical that some government agency might require the company to recall all the defective planes that have been sold, and stop selling more planes until the defect is fixed. (Yes, this actually happened.)
But what about when the danger does not come from a defect, but from a product that works as expected? Tort cases have been brought against companies simply because their products had a high potential for harm through misuse. Holding a company responsible in such situations is not as intuitive as in the case of a mechanical defect. And the outcome of such lawsuits is less certain, and largely depends upon the specific facts and jurors. Take the example of a gas can that might explode if gas is poured from the can onto an open flame. Some might say this product is inherently dangerous. Others might say that any consumer who pours gas on an open flame does so at their own risk. And there is a third possibility – that the gas can manufacturer should be required to warn consumers of this danger, but, once consumers are sufficiently warned, the company has no liability for injury from misuse. (These were also real lawsuits, involving gas cans manufactured by the company Blitz, now in bankruptcy.)
A tort case can only be brought after the damage is done – that is, after someone has been injured or killed by the product. Part of the social value of a tort case is to compensate the injured party. But another social value of tort liability is that it may encourage a bad or negligent actor to take greater care to avoid future lawsuits. That said, even a business that has been successfully sued may consider the amount of the judgement/settlement and the likelihood of future tort claims, and decide that, from an economic perspective, no changes are needed.
Tort claims are not the only product liability issues that a company must consider. Governments, at the local, state, and federal level, can impose restrictions on the products a company bring to market. These authorities can encourage, and sometimes require, a company to stop sales of a product, as well as recall a product and compensate the purchaser and any middlemen for costs. So if a government authority concludes that a company’s product is unsafe, a company might have no choice but to stop sales or make improvements, even if that company is willing to accept the tort exposure (or even if no tort cases have been brought).
In teaching future businesspeople about this area of the law, what advice can I offer for them to avoid the risks of product liability? It’s difficult to say. Certain products have become the target of tort suits and/or product safety regulations when other products, arguably more dangerous, have not. A classic example is firearms. These carry a risk of misuse, with potentially catastrophic results. However, tort suits against gun manufacturers typically fail.
Sometimes, lawsuits and regulations can be triggered by new scientific reports that suggest a product is more dangerous than previously thought. Such was the case for asbestos, and, more recently, flea and tick products for pets.
Part of effective business planning is evaluating the legal liability of your business. It can be difficult for a company to judge the potential liability of a new product. When teaching undergraduates complicated legal issues, like product liability, I try to find a “hook” – something they can relate to and will make the lesson interesting and memorable. So this year, I plan to teach a class on banned toys.
Toys are a common target for recalls and product liability lawsuits. Why? Likely because the consumer, or at least the end user, is often a child. Children are sympathetic plaintiffs and juries may be less willing to apply a contributory or comparative negligence theory to a child. Also, toys are frivolous – the banning of a toy is unlikely to be seen as a great loss to society. Still, there has been strong public reaction to certain toy bans. I took a look at some of the most famous “banned toys” in history and I saw many teaching opportunities – to discuss the principles of tort law, heatlh and safety regulations, corporate officer liability, and the role of public opinion and perception in business law and ethics. I’d like to focus on two examples of toys that came under CPSC scrutiny – “Jarts” and “Buckyballs.”
Jarts, or lawn darts, are a classic example of a banned toy. The Jart (javelin-dart) is a foot-long dart with a weighted metal tip that is meant to be lobbed underhand at a distant target, usually a hula hoop placed on the lawn. The dart travels in a high arc and lands point-first, sticking in the ground. However, if the dart goes off-target and hits a person, it is sharp and has enough momentum to puncture skin or even a skull. There was the possibility that a misguided release could send the dart straight up into the air, and the thrower would then have to run for cover to avoid the descending dart. There was also the possibility that a misguided child might throw one at, say, his sibling. Jarts can, and did, cause injuries, even death. This drew the attention of the federal government, who first set limits on the marketing and sale of lawn darts and then, in 1989, banned their sale entirely.
Where does the federal government get authority to ban toys? In 1972, Congress passed the Consumer Product Safety Act (CPSA), finding that “an unacceptable number of consumer products which present unreasonable risks of injury are distributed in commerce.” The CPSA established the Consumer Product Safety Commission (CPSC), with powers to set safety standards for consumer products. As a federal agency, the CPSC has the power to promulgate regulations consistent with the statute that established it. One thing the CPSC did with this power was ban the sale of certain toys, listed at 16 CFR sec. 1500.18.. These toys are not banned due to a mechanical defect, but because “the Commission has determined that . . . in normal use, or when subjected to reasonably foreseeable damage or abuse, the design or manufacture presents an unreasonable risk of personal injury or illness.” (sec. 1500.18(a)). Most of the list of “banned toys” describes categories of toys, for example toys emitted sounds over a certain decibel level, or toys with parts under a certain size (presenting a choking hazard). But the lawn darts section is essentially a total ban – “Lawn darts and other similar sharp-pointed toys usually intended for outdoor use and having the potential for causing puncture wound injury.”
The CPSC is not kidding around. If you attempt to sell lawn darts, in a store or online, they very well may come after you, requiring a recall and destruction of your stock, and possibly imposing civil penalties. Despite the ban’ almost 35-year history, it is still enforced. In 1997, the CPSC re-issed its warning as to the danger of lawn darts and recommended all lawn darts be destroyed. And as recently as 2011, the CPSC found two companies were selling Jarts in violation of the ban and were forced to recall. (CPSC 2011 Annual Report at 78). One website owner that used to sell the products describes his own experience being “raided” by the CPSC.
Is this an appropriate use of federal power? Or to look at it another way, is this an appropriate use of federal taxes? The dart ban has aroused much backlash as being excessive government interference — an example of the so-called “nanny state.” However, the ban also has supporters, including those who have had loved ones injured or killed by the products. Does the age of the intended user matter? Jarts were initially marketed as toys, a game that was “fun for the whole family.” The CPSC’s initial recommendation was to allow the sale of lawn darts to continue, but to require warning labels and prevent marketing to children (for example, by removing Jarts from the “toy” section of department stores). But Congress, in 1989, declared those precautions were not sufficient, and directed the CPSC to impose a total ban.
The Buckyball Stops Here
If you read my Bountygate post, you know that I encourage students to examine a historical case, and then look at it side-by-side with a current case that presents similar issues. What’s the modern equivalent of a Jart? It’s not big, heavy, or pointy. It is actually small, light, and round. I’m referring to neodymium magnet toys, which one manufacturer has branded “Buckyballs.”
I can say from experience that they are pretty cool. These BB-sized magnets are incredibly powerful and can be joined together to form different shapes. They are almost too powerful, making magnet ball art rather tricky. One Buckyball in the wrong place can pull all the others out of alignment. When done carefully, however, there are almost unlimited possibilities for configuration, and they became very popular “desk toys.”
So what makes Buckyballs and their ilk dangerous? The magnets are strong, but not enough to crush a finger between them. If someone threw one at you, it wouldn’t hurt much. What if you swallowed one? Probably not a big deal. They are small enough that they don’t appear to present a serious choking hazard, and the magnet ball would probably make it through your system eventually. What if you swallowed two? Ah, now there we have the problem. Two (or more) magnet balls in your body are bad news. The magnets are strong enough to attract each other inside your body, to the point where they can pinch tissue and organs caught between. This can prevent you from passing the magnet balls and, eventually, can create holes in your tissue as the magnets try to connect.
That sounds pretty gruesome, but how often does it really happen? According to the CPSC, they have received reports of 18 children having to undergo surgery due to ingesting Buckyballs or similar neodynium magnets, with at least one death (these numbers include both magnet ball incidents and incidents where similar high-powered magnets came detached from children’s toys). Similar to the lawn dart, when Buckyballs first came to the CPSC’s attention, it attempted to impose stricter labeling requirements. However, eventually, the CPSC concluded that no warning label could make the toys safe and ordered the companies to recall the products. What’s interesting about this case is that, while many retailers agreed to the recall, several magnet suppliers, such as the companies that manufacture Buckyballs and Zen Magnets, fought the recall, and the CPSC’s lawsuit against these companies is pending. The filings in the lawsuit are available on the CPSC’s website here.
Topics for classroom discussion:
- Buckyballs and Zen Magnets, who are market competitors, were joined as codefendants. Zen Magnets resisted joinder, claiming their product was different, but the court didn’t see it that way. So two companies that were bitter rivals are now joined by a common purpose – lawsuits make strange bedfellows. What was the CPSC’s interest in joining the defendants? Why might Zen Magnets not want to be joined with Buckyballs?
- The company that manufactures Buckyballs went out of business and no longer sells the product. Zen Magnets is still in business and is still selling magnets. Could this reflect a different business strategy by the two companies in the face of the lawsuit? A different risk assessment? If you were the CEO of one of these companies, what would you do?
- With the dissolution of the company that manufactures Buckyballs, the CPSC added the company’s CEO to the lawsuit, as a responsible corporate officer. This is an opportunity to discuss responsible corporate officer doctrine and how it has been applied by the courts. Note that the CEO’s efforts in defending against the recall were cited by the CPSC as evidence that he was a responsible officer. Is this fair?
- The million dollar question – how should this case come out? Students will likely have an emotional response to the lawsuit, but have them think and argue like lawyers – look at the scope of the CPSC’s authority under the CPSA, the regulations CPSC has passed on other “banned toys,” and compare the injury rate of Buckyballs to that of lawn darts. What will it mean for other businesses if the magnet ball companies are found liable? What will it mean if the magnet ball companies are found not liable?
- How might the results of this case affect tort claims brought by private individuals against magnet ball companies? The sharks are circling – look at this website of a personal injury lawyer seeking magnet ball plaintiffs.
- Lawn darts and magnet balls are very different products, but have a few similarities. Should the magnet ball manufacturers have seen this coming? What lessons do these recalls and lawsuits hold for future products?