June 2014
The German Practice Alert
By: Phillip J. Duffy, Peter Flägel, Julia Hagenkötter (German Referendarin)

Click here to view this article in German

German companies selling products into the United States should consider legal risks related to product liability. Under U.S. product liability law, manufacturers, distributors, suppliers, retailers, and others who make products available to the public can be held responsible for the injuries caused by those products. If a consumer, user or bystander gets injured by a product that is defective or unreasonably dangerous, the manufacturer or anyone else in the supply chain can be held responsible for that injury. Product liability lawsuits brought by individual consumers or groups of consumers can become costly and lengthy.

Types of Liability

The consumer's cause of action may be based on (i) negligence, (ii) breach of warranty, or (iii) strict liability.

Negligence means that the manufacturer or someone else within the chain of manufacture did not act with reasonable care to ensure the safety of the design and manufacture of product. What constitutes "reasonable care" depends upon the nature and risk of the harm that can be caused by the product. The higher the risk of bodily harm is, the stricter are the requirements in the manufacturing process. The consumer must prove a breach of duty on the part of the manufacturer and the causation of certain damage.

A warranty is an express or implied contract between a manufacturer or vendor and its customer concerning the fitness of the product. Express warranties can be created, for instance, by a salesperson's statements, or the literature distributed with the product or included in advertising materials. If the manufacturer doesn't fulfill the terms of the promise, claim or representation concerning the quality or type of product he breached the warranty. Implied warranties exist even if no such statements are made. Unless expressly excluded, a seller implicitly warrants that a product is merchantable and fit for the purpose for which the seller knows the buyer will use the product.

Strict liability makes a manufacturer or vendor responsible for all injuries that might be caused by a defective product that is unreasonably dangerous to the user, consumer or to his or her property. Unlike for warranty claims, it does not matter whether there is a connection between the user or consumer and the manufacturer. And unlike for negligence claims, it is not necessary to show that the manufacturer did not act with reasonable care. The consumer must only prove that the product was defective, that the defect existed when product left defendant's hands, and that the defect caused injury to the consumer, who must be a reasonably foreseeable user.

Types of Defects

There are different types of defects:

  • Manufacturing defect: The consumer has to show that a construction or manufacturing defect existed, which made the product unsafe for its intended use.
  • Design defect: A design defect refers to a whole class of products, that are inadequately planned and therefore unreasonably hazardous for consumers.
  • Failure to warn: Often the manufacturer has the duty to warn the consumer against a hazardous use or instruct him how to use the product properly. Typically, such warnings are included in the labeling or the instructional material. Additionally, the manufacturer always has a duty to warn consumers against a defect discovered after the product was sold. U.S. law generally imposes much stricter product warning requirements than German law. While German courts would often not require a warning because the inherent danger of the product is viewed as self-evident, U.S. courts often take a more consumer friendly approach.
Defenses

In order to escape liability, the manufacturer may raise various defenses. For instance, he may argue that the consumer modified the product or misused it, or that the consumer assumed the risk. Other typical defenses include contributory negligence or lack of proximate cause of injury.

Damages

While types of liabilities and defects are similar between the United States and Germany, it is in the area of damages, where we see in our practice the greatest differences. Consumers who were injured by a product can recover compensatory damages comparable to those in Germany. They can also receive compensation for their economic damages including medical costs and property damage and for non-economic damages such as pain and suffering. Non-economic damages awarded in the United States, however, are regularly significantly higher than in Germany. More importantly, punitive damages may be awarded in the United States. The concept of punitive damages does not exist under German law. Punitive damages do not compensate the injured consumer but, rather, they are intended to punish the tortfeasor and deter him and others from comparable conduct in the future. Therefore, malicious, evil or particularly reckless conduct on the manufacturer's part is required. Punitive damages are not awarded in every case (in fact, they are awarded very rarely), but where they are, they can be very significant.

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Product liability is generally speaking a more common source for lawsuits in the U.S. than in Germany. Usually, the U.S. product liability law is more favorable than German law to the consumer, in particular with respect to the determination of recoverable damages. Also, requirements for manufacturers regarding product warnings are more demanding than under German law. U.S. product liability law is also seen as an instrument to guarantee the safety of products and to protect the consumer and anyone who might foreseeably come into contact with products.

However, there are many ways to minimize the risk of a product liability lawsuit. The manufacturer should control carefully the quality of its products and review all procedures during manufacturing, distribution and sales. If governmental and industry standards exist, the manufacturer should know them and comply with them. Finally, manufacturers need to maintain product liability insurance, whether in the United States or Germany, sufficient to cover the increased U.S. product liability exposures.