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Managing Products LiabilityRisk for Manufacturers and
Distributors
The material provided herein is for informationalpurposes only and is not intended as legal advice or
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Please help yourself to foodand drinks
Please let us know if the roomtemperatureis too hot or cold
Bathroomsare located pastthe reception desk on the right
Please turn OFFyour cell
phonesPlease complete and returnsurveysat the end of theseminar
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Current cts and !arranties
Moderator and Presenter:Hon. William A. Dreier
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Product Liability of Manufacturers"
Distributors and #ellers
1. State
A.ommon !aw".Statutoryi #ew $ersey Product !ia%ility Act
ii. onsumer &raud Act
iii. 'niform ommercial ode Warranties
(. &ederal
A. Magnusson)Moss Act
". onsumer Product Safety Act
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$%&% Product Liability ct
A. Manufacturing Defect1. *f causes in+ury, strict lia%ility
". Design Defect1. annot warn later - Must correct(. easona%le person standard
/. &ederal preemptions - "enefits lessened%y Supreme ourt
. Warning Defect1. Post)sale warning re0uired, if later
discoered
(. easona%le person standard
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'%C%C% !arrantiesA. 23press Warranties
1. ontracts
(. Adertisements and %rochures". *mplied Warranties
1. Warranty of merchanta%ility
(. Warranty of fitness for particular purpose/. Waiers and limitations
4. Magnusson)Moss prohi%itions
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(ighly )echnical * Don+t ,o -t lone
5 Multiple state and federal statutes
5 Hundreds of pu%lished and unpu%lishedcourt decisions
5 &ederal and state regulations
5 Sometimes no definitie answers5 When in dou%t, err on the side of
caution
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#trategies for ReducingProducts Liability Risk
Presented "y:Steen A. 6arg
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(
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ProductsL
iability
Ris
k
dvance Planning and .ffort
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(andout Materials5 Primer in Protecting /our Company gainst
Products Liability Risk" published by #omerset
Business 012234%
5 #eller Be5are6 )imebomb Could Be )icking!ithin /our ,ood Faith Business Practices" NewJersey Defense, 7ol% 18" -ssue 1012294%
5 Contractual -ndemnity for Product Manufacturers"New Jersey Defense" 7olume 3:" -ssue 1 039994%
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,eneral Risk Reduction
)echni;ues5 ;ood "usiness Structure Planning
- !imit !ia%ility of
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,ood Practices * Producing a #afe
Product * )hree ,oals
Design a product for which there is no
reasona%le safer alternatie design.5 Manufacture the product as it was designed
and without manufacturing defects.
5 *ncorporate appropriate warnings andinstructions to aoid risks that could not %eeliminated through reasona%le alternatiedesign.
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38 -deas for Producing a Product for
!hich )here is $o Reasonable #aferlternative Design
1> 2sta%lish a products lia%ility losspreention committee.
(> 6eep a%reast of and employ the state
of the art./> Hire e3perienced and knowledgea%le
design personnel to design yourproducts.
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38 -deas for Designing a#afe Product
4> losely monitor competing products.
?> 6eep actie in related industryorgani@ations.
9> losely monitor and comply withapplica%le minimum regulatory andindustry standards.
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38 -deas for Designing a
#afe Product
> orrect design and manufacturing defects as youac0uire knowledge of them for past and future
products.5 *mproe the product for the future.
5 onsider a recall, retrofit, or supplemental warningsfor past products with after)discoered defects.
> onduct safety testing.
7> onsider and design against foreseea%lemisuses of your product.
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38 -deas for Designing a
#afe Product
18> onsider the enironment in which the
product will operate and design the productto operate safely in that enironment.
11> Design against safety pro%lems created %yworn parts.
1(> Hire a safety consultant to reiew andimproe the product.
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38 -deas for Designing a
#afe Product
1/> Patent your product innoations.
14> Document your improement effort.5 =each your organi@ation the
importance of the documents they
generate.1?> 'pdate your designs to keep up with
safety innoations.
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,ood Practices * Producing a #afe
Product * )he #econd ,oal
5 Design a product for which there is no
reasona%le safer alternatie design.Manufacture the product as it was designed
and without manufacturing defects.
5 *ncorporate appropriate warnings andinstructions to aoid risks that could not %eeliminated through reasona%le alternatiedesign.
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8 -deas for Manufacturing a Product
!ithout Manufacturing Defects
1> arefully purchase and inspect raw
materials and component parts.
(> *nstitute a 0uality control program for yourmanufacturing lines and document your
efforts.
/> losely monitor the manufacturing processto aoid recurring manufacturing pro%lems.
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8 -deas for Manufacturing a Product
!ithout Manufacturing Defects4> *nspect completed products for proper operation
and compliance with manufacturing standards,
then document the indiidual results wherepractical.
?> 'se some of the 1? good design practice ideas forthe manufacturing phase as may %e applica%le.
5 &or instance, conduct testing, +oin manufacturinggroups and keep a%reast of the industry.
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,ood Practices < Producing
#afe Product * )he )hird ,oal
5 Design a product for which there is no
reasona%le safer alternatie design.5 Manufacture the product as it was designed
and without manufacturing defects.
*ncorporate appropriate warnings andinstructions to aoid risks that could not %eeliminated through reasona%le alternatiedesign.
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!hy #o Many
!arnings=
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33 -deas for 'sing ppropriate
!arnings and -nstructions1> 6now the difference %etween, and how to apply, the
terms of art: BDA#;2B, BWA#*#;B, andBA'=*
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33 -deas for 'sing ppropriate
!arnings and -nstructions
(> omply with State and &ederal
la%eling regulations and standards.
/> Address the foreseeable audience%y:
5writing at its leel,
5 writing in its languages, and
5 effectiely deliering the warning to it.
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33 -deas for 'sing ppropriate
!arnings and -nstructions
4> Place and distri%ute the warnings properly toensure that the information is deliered in amanner calculated to reach the end user.
?> Document the deliery and use of warningsand training materials and saecontemporaneous copies or samples to %eproduced later if needed.
9> Proide first aid or antidote information whereapplica%le.
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33 -deas for 'sing ppropriate
!arnings and -nstructions
> Proide an instruction manual containing:
a> a safe method for assem%ly of the productE
%> instructions for safe use of the productE
c> a description of the productFs intended uses andits limitationsE
d> warnings of any latent dangers inherent in theproductE
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33 -deas for 'sing ppropriate
!arnings and -nstructions
e> maintenance proceduresE
f> measura%le ad+ustment specifications for safeand proper operationE
g> a recommended fre0uency for maintenanceE and
h> warnings against misuse or modification thatstress the conse0uences of misuse ormodification.
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33 -deas for 'sing ppropriate!arnings and -nstructions
> 2mploy a safety and warningsconsultant where warranted.
7> eiew manuals and warnings with an
e3perienced products lia%ility attorney.
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33 -deas for 'sing ppropriate
!arnings and -nstructions
18> onsider Warranty)elated *ssues:
5 Whether to 'se an 23press Warranty5 !imitations of emedies
5 Disclaimers of Warranty
5 Magnuson)Moss ompliance for onsumerProducts
5 onsumer &raud *ssues
11> Aoid too many warnings - the C"ill%oard2ffect.
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> Risk Reduction -deas for
the #ale of Products
1> Aoid affirmatie misrepresentations of the
capa%ilities of the product.(> Disclose information a%out the product that
the %uyer would deem important to hisknown application.
/> Aoid er%al warranties that are inconsistentwith e3press warranties or disclaimedwarranties.
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Consumer Fraud ct5 Damage caused %y a product as
opposed to economic harm relating topurchase
5 =re%le Damages
5 Attorneys &ees
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Consumer Fraud ct
5 Actiona%le onduct 'nder &A:
5 *nnocent or intentional misrepresentationsin an affirmatie statement
5 *ntentional omissions of material fact
5 *nnocent or intentional iolation ofapplica%le regulation
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Consumer Fraud ct
5 Bosland v. Warnock Dodge
5 Si3 year limitations period
5 #o demand re0uirement
5 lass action pro%lem
5 =icking time %om%
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,eneral Risk Reduction
)echni;ues
5 "usiness Structure Planning
5 Selection of ;ood "usiness Partners5 ;ood Design, Manufacturing, Sales, Distri%ution
and Monitoring Practices
Aoidance of Successor !ia%ility
5 =he Shift of isk to
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!hat is #uccessor Liability=
5 ourt imposed lia%ility of a successor in
interest for the lia%ilities of itspredecessor.
5 =he rationale is that the ac0uiring entity
has %enefited %y the dissolution of thepredecessor, and should coer itsresponsi%ilities.
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#ome Potential #ources of
#uccessor Liability
5 An e3press or implied agreement to assume the predecessorcompanyFs de%ts and o%ligationsE
5 A fraudulent transferE5 A de facto merger or consolidation of entitiesE
5 A purchasing company %ecomes a mere continuation of theselling companyE
5A transfer for no ade0uate considerationE and
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1 )ips for voiding
#uccessor Liability
1. onduct due diligence %efore
purchasing assets from other%usinesses.
(. onsult counsel regarding potentialsuccessor lia%ilities when purchasingassets from other %usinesses.
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,eneral Risk Reduction
)echni;ues
5 "usiness Structure Planning
5 Selection of ;ood "usiness Partners5 ;ood Design, Manufacturing, Sales, Distri%ution
and Monitoring Practices
5 Aoidance of Successor !ia%ility
=he Shift of isk to
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Chain of Distribution Liabilities
Manufacturer
Distributor
Retailer
InjuredParty
Liability
Common La Indemnity
Contractual Indemnity
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'nderlying )hemes for Reducing
Products Liability Risk
5 Strie to Produce a ;ood, State of the
Art ProductE5 Select ;ood "usiness PartnersE
5 Plan Ahead to educe Product elatediskE and
5 'se isk Shifting =echni0ues.
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-nsurance Considerations
Presented "y:harles W. Miller ***
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-nsurance Considerations
!argest !awsuits
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-nsurance Considerations
Product !ia%ility *nsurance
1. !egal lia%ility
(. Arising out of accidents
/. During the period of insurance
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-nsurance ConsiderationsProduct !ia%ility *nsurance
4. Arising out of any defects in the product?.
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-nsurance Considerationsecall *nsurance
eim%ursement for:
1. ecall e3penses
(. !oss of profit
/. Product reha%ilitation4. risis communications
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-nsurance Considerations
Practical Suggestions
1. egular risk assessmentIinsurancereiew
(. #egotiate for the %est coerage
/. Purchase needed insurance coerage
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-nsurance Considerations
4. "uy sufficient policy limits
?. 'se %usiness partners coerages, ifpossi%le
9. eiew coerage once it is issued
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Product #ellers?
Liability Concerns and #olutionsRegarding Foreign
Manufacturers@#uppliers
Presented by?
M% Aaren )hompson
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Problems rising from Dealings 5ithForeign Manufacturers@#uppliers?
5 !ess sophisticated safety and 0uality systems
5 !imited goernmental oersight5 $urisdictional *ssues
5 Post)sale pro%lemsIrecalls
5 Difficulty of serice of process
5 !ack of assets in the '.S.
5 Damage to reputation
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Fact Pattern?5 #ew $ersey distri%utor purchases grinding tools from
=aiwanese manufacturer
5 #o formal contract %etween them, +ust purchase orders5 Manufacturer attaches distri%utors logo to the tools in the
factory
5 Manufacturer drafts all instructions and warnings for tools
5 Manufacturer %o3es tools in indiidual packaging withinstructions and warnings
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Fact Pattern?0Continued45 =ools are shipped direct from =aiwan to distri%utor
5 Distri%utor sells tools to customers in original packaging
5 =ools fail to include recommended A#S* and
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Product Liability Causes of ction in
$e5 &ersey?=he manufacturer or sellerof a product shall %e lia%le if the
claimant proes that the product was not reasona%ly fit,suita%le or safe for its intended purpose %ecause it:
a. failed to contain ade0uate warnings, or
%. deiated from the design specifications, formulae, orperformance standards of identical units Ki.e. a
manufacturing flaw>c. was designed in a defectie manner Ki.e. design defect>.
#ew $ersey Products !ia%ility Act, N.J.S.A.(A:?)(
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Product #eller under $e5 &ersey
#tatute Means?Any person who, in the course of a %usiness conducted for thatpurpose:
5 sellsE distri%utesE leasesE installsE prepares or assem%les
5 a manufacturers product according to themanufacturers plan, intention, design, specificationsor formulations, or
5 %lendsE packagesE la%elsE marketsE repairsE maintains or
otherwise is inoled in placing a product in the line ofcommerce.
N.J.S.A.(A:?)
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Limited #tatutory Protection for
Product #ellers in $e5 &ersey?Statute may afford relief from imputed lia%ility if certaincriteria are met:
a> Product seller must certify as to the manufacturerscorrect identity, and
%> Product sellers role with respect to the product wasminimal
N.J.S.A. (A:?)7Ka> and Kd>
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#tatutory Protection Doesn+t pply and
Product #eller is #trictly Liable if?5 the identity of the manufacturer is incorrect, or
5 the manufacturer has no known agents, facility or other
presence within the 'nited States, or5 the manufacturer has no attacha%le assets in the 'nited
States, or
5 the manufacturer has %een ad+udicated as %ankrupt and is
+udgment proof
N.J.S.A.(A:?)7Ka> and Kc>
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-mputed Liability to Domestic
Distributors if Foreign Manufacturer is
'navailable?
a. "y Statute: =en states, in addition to #ew $ersey
%. Model 'niform Product !ia%ility Act
c. estatement K/d> of =orts, L 1
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Product #eller #hall lso be Liable if?Product seller has e3ercised significant control oer theproducts
5 Design5 Manufacture
5 Packaging
5 !a%eling
with respect to the alleged defect or warning which causedthe in+ury, or
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Product #eller #hall lso be Liable if?5 Product seller knew or should hae known of the defect or
had facts aaila%le from which it should hae known of thealleged defect, or
5 Product seller created the defect in the product whichcaused the in+ury.
N.J.S.A. A:?)7Kd>
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Risk Controls for Distributors@Product
#ellers?
,ood -mporter Practices 0draft guidance4
5 6now the foreign company and other companies with whichthey do %usiness
5 'nderstand the products and ulnera%ilities
5 'nderstand the ha@ards that may arise
5 2nsure proper control and monitoring of ha@ards
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Risk Controls for Distributors@Product
#ellers?5 *nitial *nestigation "efore Purchasing
5 eputation of manufacturer
5 &inancial sta%ility of manufacturer
5 uality and safety of product
5 uality Assurance Procedures
5 =esting
5 onformity to specifications5 ompliance with '.S. re0uirements
5 ompliance with industry standards
5 Monitoring throughout life cycle of product
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Risk Controls for Distributors@Product
#ellers?5 Warnings and *nstructions
5 lear and direct
5 Proper language for intended users5 ompliance with industry or regulatory standards
5 Adertising and Sales !iterature
5 Accurate statement of capa%ilities and uses
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Risk Controls for Distributors@Product
#ellers?5 Packaging and Shipping
5 Ade0uate to preent damage
5 ontains warnings and instructions
5 e0uired documents
5 etain shipping records and identification data
5 =ransfer the isk to &oreign Manufacturers through Detailed
ontract Proisions:5 ertifications of safety and 0uality testing Kin 2nglish>
5 Audit procedures
5 Product warranties
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Risk Controls for Distributors@Product
#ellers?5 #otice o%ligations
5 egarding safety issues
5 egarding changes in manufacturing processes5 egarding suppliers or parts K0uality fade issue>
5 ecalls
5 esponsi%ility for recalls5 ecall protocols
5 ooperation lause
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Risk Controls for Distributors@Product
#ellers?
5 *ndemnification proisions5 Strict construction5 onspicuous placement5 Duty to defend5 *dentification of protected parties5 oer negligence of distri%utor5 Assumption of defense5 onsent to settlement
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Risk Controls for Distributors@Product
#ellers?5 *ndemnification proisions Kontd>
5 Surial of duty
5 Assignments
5 Sophisticated parties
5 onsent to +urisdiction
5 *nsurance oerage
5 '.S. %ased insurer5 Distri%utor as additional insured
5 ertificates of insurance
5 =ail coerage
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Pending Legislative #olution * #% 3:2:?&oreign Manufacturers !egal Accounta%ility Act of (887
5 &oreign manufacturers must designate a registered agent inat least one state to accept serice of process
5 &oreign companies must consent to the +urisdiction of thestate or federal court where the registered agent is located
5 State should hae a su%stantial connection to the importation,distri%ution or sale of the products of the foreign manufacturer
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Reporting Recalls 'nder the
Consumer Product #afety-mprovement ct of 122E
Presented "y:Haekyoung Suh
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Consumer Product #afety-mprovement ct of 122E
5 =hird)party testing of childrens products %y certified
la%oratories for certification purposes.5 ertificate of conformance re0uired for all consumer
products.
5 AS=M &79/)8 now mandatory.
5 "an on childrens products containing more than aminimal amount of lead or phalates.
5 Packaging for childrens toys and games must containa la%el or cautionary statement a%out chokingha@ards.
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Consumer Product #afety
Commission
5 egulation
5 Pu%lic *nformation5 ompliance
5 esearch
5 *mport Safety
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#aferProducts%gov
5 Actie %y March 11, (811
5 onsumer Portal5 *ndustry Portal
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ommission eceies
*ncident eport Manufacturer
K?>
ommission ManufacturerPu%lishes K18> esponds to
*ncident eport *ncident eport
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)ime
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$otificationManufacturers, distri%utors, and retailers of a consumerproduct or any other product oer which the ommission has
+urisdiction must notify the ommission immediately uponreceipt of information that reasona%ly supports theconclusion that the product:
5 &ails to comply with an applica%le consumer product safetyrule or oluntary consumer product safety standard.
5 &ails to comply with any other rule, regulation, standard or%an enforced %y the ommission.
5 ontains a defect that could create a su%stantial productha@ard.
5 reates an unreasona%le risk of serious in+ury or death.
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C*f in dou%t, report.
Ceport early and often.
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#trategies For $otification
5 'ather information needed to report to the#ommission.
5 Draft an e(planatory letter and follo" up "ith atelephone call.
5 #ommence a dialogue "ith the #ommission.
5 !e)uest that the #ommission ackno"ledge receipt ofyour company*s notification$ in "riting$ to confirm thedate of notification.
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=
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#trategies For (andling a Recall
5 Develop +re,!ecall +lans.
5 &stablish a !ecall +rotocol.
5 -mplement +ost,!ecall +rocedures.
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Myth N1: *m a small companyE * wont get
caught.
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Myth N(: *d rather pay a small fine than
deal with the headache and cost of a recall.
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Myth N/: * dont sell products across
state lines so * dont need to worry
a%out a federal statute.
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Myth N4: * can handle the pro%lem %y
myself.
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uestion ns5er #ession
=hank you for comingO
Please fill out the ealuation forms and returnthem at the registration ta%le.
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