Section 2 Liability and risk analysis

January 30th, 2013 Leave a comment Go to comments

WINNERS = Products with no chance of hurting anyone regardless of how they are used.

If you live in a hotel room and your only transportation is a rented moped, and you plan on being a student for life you are virtually “judgment proof”.

However, if you own anything that can be turned into cash by greedy attorneys and plaintiffs, look out!

In the good old days, before the “great attorney glut”, companies had to worry about liability only when an injured plaintiff could establish fault.  In other words, the plaintiff had to prove that the company was negligent and put out a product that the company knew could be harmful.

Now, with the “strict liability” concept, a plaintiff need not show fault.

Inventors, designers, manufacturers, sellers and their executive officers and corporate directors have responsibilities far beyond negligence and they all must assume the responsibility for the safety of the product.  They all can be potentially liable for any real or imagined, direct or indirect injury which has “some connection” with the products use.

The primary authority on product safety is the Consumer Product Safety Commission (CPSC).  The CPSC is empowered to protect the public from unseen risk, to evaluate products, and to develop uniform standards.  The penalties for violating safety standards can be severe, and the CPSC promises to “prosecute violators aggressively” You can reach them at:

Consumer Product Safety Commission

Washington, DC 20207


Or, visit their website at for a full list of recalled products

If your idea is for a toy, be sure to checkout  This site is a project of the National Association of State Public Interest Research Groups (PIRGs). The information contained on this site was researched and compiled by state PIRG staff across the country and each year they publish their “trouble in toyland report” which is reviewed closely by most chain store buyers.  Be sure your potential product does not have similarities in materials or construction with listed “troubled toys.”

Another source of information on product standards is Underwriters Laboratories.  They will be happy to tell you whether a product should be “listed” with them or “approved” by them.  There are cases where a product may not have to be legally listed with them, but the failure to do so may result in some retail outlets refusing to carry the product.


Also, Underwriters Labs has four locations to choose from:

*  1655 Scott Blvd., Santa Clara, CA 95050   Phone (408) 985-2400

*  333 Pfingsten Rd. North Brook, IL.  60062   Phone (847) 272-8800

*  1285 Walt Whitman Rd. Melville, NY  11747   Phone (631) 271-6200

*  12 Laboratory Dr., Research Triangle Park , NC 27709   Phone (919) 549-1400

If the product will be used in industry, assembled in the U.S. or if the technology you are evaluating will be developed or used in industry in the U.S., it is a good idea to check with the National Institute for Occupational Safety and Health division of the Health and Human Services Department, commonly known as NIOSH,  to be sure that the product meets OSHA standards for use in industry.  NIOSH will be happy to tell you whether they have already completed tests on similar products, and what the results were.  If they have not reviewed or tested a similar product, they will test yours to be sure it meets OSHA standards.  You may reach them at:


The National Institute for Occupational Safety and Health

4676 Columbia Parkway

Cincinnati Ohio, 45226

Telephone (513) 841-4382


405 Capitol Street, Suite 407

Charleston, West Virginia, 25301

Telephone (304) 347-5937

Meeting minimum standards does not absolve the manufacturer of all responsibility.  Producers must go beyond basic standards and either eliminate identifiable hazards or properly warn users of possible hazards.  Do not underestimate the difficulty of making sure that the buyer and end-user are fully instructed in how to use the product safely, and alerted to every imaginable way the product could cause harm to them and others.

I am a firm believer in the fact that you should have as many government and testing agencies give you their approval on a product as possible.  That way, if a problem ever develops in the field with the product, you can point back at the agency or certification firm and at least have a chance at “spreading the liability”.

I once read an article in the Wall Street Journal which noted that the CPSC had just filed suit on “seven major toy distributors” for selling toys which the government considered hazardous.  The CPSC claimed that after “a yearlong investigation” they had found that these distributors were selling “rattles and other toys with small parts that could pose a choking risk to small children as well as toys coated with lead based paint.”  The article went on to say that “although most of the product labels recommended the toys for children over three years of age, commission officials said the design of the toys proved they were actually intended for younger children”.  Even though the commission admitted that there were, “no known injuries or deaths” resulting from the toys, most of which were made in Taiwan, the commission still filed the suits, and named the chief executives of the distribution companies in the suit.

Points worth noting from the above mentioned article are:

    1. The CPSC spent a whole year of its time and our tax dollars building grounds for a lawsuit against companies selling products which had not caused harm to anyone.
    2.  When they filed the suits they named the chief executives, not just the companies.
    3. These companies were only selling the products.  Can you imagine the commission’s wrath had they been manufacturing the products in the U.S.


This litigious atmosphere is actually stifling creativity and killing companies’ incentives to market new health care products, drugs, etc. which would be beneficial to society.  One of my clients presently has a new piece of medical equipment which would save many lives per day, every day, but he is afraid to market it for fear of the lawsuits from the one or two patients who might die from other causes yet their lawyers or survivors might sue him anyway.  Another factor which is killing companies’ incentives to improve their products is the fact that the court system shows its appreciation for a company improving the safety of a product by declaring that “if you improved the safety of a product then the old version is, by definition, unsafe”.  This leaves companies open to lawsuits on the older version of their products, and certainly makes it less attractive for them to add new safety features.

Sick isn’t it!  Perhaps Shakespeare was right.  Maybe we should rid ourselves of all lawyers.  Surely there would be a big demand for a new product which avoids good lawyers but eats greedy plaintiffs, lawyers, and short-sighted, litigious bureaucrats, and emits pure air and water as a by-product!  The real problem is that most people would like to see all lawyers except theirs, banished.

Originally we needed some legislation and a few lawyers, to protect unwary consumers from companies too negligent to cure known defects in products.  Now we need legislation to protect over regulated companies and individuals from greedy plaintiffs and their lawyers, before we literally kill all incentives for innovation in this country, and our trade deficits reach astronomical proportions.

Don’t belittle the consequences of this section of the evaluation.  The benefits of the product had better well exceed the chances of injury or you may be headed for big trouble.

Financial Liability to Consumers

Federal laws now stipulate that monetary damages shall be paid to the consumer if the manufacturer or seller fails to deliver on a promise.  Implied promises are also a major factor to consider. Some state laws are very strict on guarantee periods and returnablility.

Today, many retail stores will require that you provide proof of liability insurance for your product before they will stock the product.  Often, it is nearly impossible for a new startup or individual inventor to obtain such insurance.  However, one little known tip is that if you are having an outside manufacturer make your product for you, or manufacture parts for you, in many cases at little or no additional cost you can ask the manufacturer to name you as an “additional insured” on their liability policy and when you submit the copy of that document to the retail store, most of the time it is accepted.  Go ahead, you can thank me profusely for this little secret.  It could save you thousands of dollars per year.



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