Legal Issues for Manufacturers To Consider When Selling Into New Markets

BY JEFFREY WHITE 

ON FEBRUARY 4, 2016

POSTED IN CONTRACTS, INDUSTRY OUTLOOK, PRODUCT DEVELOPMENT, PRODUCT LIABILITY, SUPPLY CHAIN

Manufacturers continue to look for ways to increase sales revenue without a massive infusion of capital.  Many companies have been successful in adapting current products for new uses and markets.  

For instance, a company that makes aerospace components might use certain core competencies to develop products that can be sold in other markets without investing significant resources in a re-design.  As a general principle, this is good business and the legal risks can be managed with proper planning.

The following are some considerations when doing this type of business planning:

1.    Product Development:  Don’t be overconfident.  Just because a product has had a perfect safety and/or quality record in one line of business does not mean that such results will follow when the product is used in a different way.  It is important to review the designs to ensure that there is no additional testing that needs to be done to account for these new uses.

2.    Document Such Analyses:  Even if no new testing needs to be done, it is useful to document the process that is undertaken prior to the product hitting the market.  If something does go wrong, both the regulators and the plaintiff’s lawyers will be looking for evidence that the manufacturer considered certain risks that were associated with selling products that would be used in a different way than originally intended.

3.    Review Warnings/Instructions/Warranties:  Often, when it is anticipated that the design/product will be used in a different manner, the warnings and/or instructions need to be changed significantly.  There may be new risks that had never arisen before.  In addition, the failures may be different and might require different oversight from the quality department.

4.    Research the Regulatory/Litigation Landscape:  Not suprisingly, there are certain uses of products that are more dangerous and/or risky than others.  If you are selling products in a heavily regulated space (e.g., aerospace or transportation), it is important to consider whether the costs of regulatory compliance outweigh any potential revenues.  In addition, if competitors in these markets are constantly involved in litigation, it is important to assess the risk and expense of that particularly when it relates to insurance coverage.

In sum, all of these considerations can be overcome with sound business / legal advice.  The key is to perform due diligence up front as opposed to when the first lawsuit arrives.

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