1. Identify what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding.Also, provide a graduate-level response to each of the following questions:a. What type of defects most commonly around found in products liability actions? Analyze what is required for each type of defect, providing examples of each.b. Does the United States allow for joint ventures in international markets that would not be permitted under anti-trust laws in the United States? Why or why not? Should this be changed?post should be at least 450+ words and in APA format (including Times New Roman with font size 12 and double spaced).Please refer to this textbox: Jennings, M. M. (2017). Business: Its Legal, Ethical, and Global Environment (11th ed.). Cengage LearningNote : no plagiarism pleaseMarianne M. Jennings
BUSINESS
Its Legal, Ethical, and
Global Environment
11th Ed.
Chapter 14
Business Competition:
Antitrust
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
Common Law Protections
• Covenants Not to Compete
– Initially were void
• Gradually Became Acceptable
– If necessary to protect business
– If reasonable as to time
– If reasonable as to geographic scope
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-1
Modern Trade Restraints
• Case 14.1 Redner’s Markets, Inc. v.
Joppatowne G.P. Ltd. Partnership
(2014)
– Discuss various stores and why the court
distinguishes them
– What will be the impact on the grocery
store?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-2
Negotiating Valid Covenants
Not To Compete
1. State the reason for the covenant
Mix of tenants
Goodwill preservation
Protection of proprietary information
2. Be sure the covenant is reasonable
Time
Geographic scope
3. Make the covenant part of the sale, lease, or
employment agreement
4. Have the parties initial the noncompete clause
5. Have legal representation
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-3
Federal Antitrust Statutes
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14-4
A Look At Markets, Competition,
and Antitrust Laws
HORIZONTAL MARKETS
VERTICAL MARKETS
Monopolization
Tying
Monopsony
Price-Fixing
Price Discrimination
(Sherman Act)
(Robinson-Patman Act)
Refusals to deal
Resale Price Maintenance
Group Boycotts
Exclusive Dealing, Sole Outlets,
Customer and Territory
Restrictions
Mergers Among Competitors
Mergers Along the Supply Chain
(Clayton Act)
(Clayton Act)
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-5
Horizontal Restraints
• Designed to Lessen Competition
Among a Firm’s Competitors
– Examples
• Price Fixing
• Group boycotts/refusals to deal
• Joint Ventures/Mergers/Monopolization
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-6
Horizontal Restraints
• Sherman Act Restraints −
Monopolization
– Section 2 prohibits monopolization
– Some monopolies are permitted
• Newspapers − town cannot support more
than one business
• Monopoly gained by nature of product −
superior skill, foresight, and industry
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-7
Horizontal Restraints
• Sherman Act Restraints −
Monopolization
– Monopoly power
• Power to control prices or exclude
competition in the relevant market
• Examine firm’s market power
• Examine relevant markets
– Geographic market
– Product Market
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-8
Horizontal Restraints
• Sherman Act Restraints − Monopolization
– Elements of monopolization
• Purposeful act required
• Monopoly has resulted from something other than
superior skill, foresight, and industry
• Predatory pricing − pricing below cost for a
temporary period to drive others out
• Exclusionary conduct − prevents competitor from
entering the market
– Attempts to monopolization
• Section 2 of Sherman Act may be violated even
though no monopoly exists
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-9
Horizontal Restraints
• Sherman Act Restraints − Price Fixing
– Collaboration among competitors for the
purpose of raising, depressing, fixing,
pegging, or stabilizing the price of a
commodity
– Per se violation
• Conduct is unreasonable and illegal
• No defenses for such action
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-10
Horizontal Restraints
• Sherman Act Restraints − Price Fixing
– Minimum prices − discourages competition
– Maximum prices − stabilizes prices but see
State Oil Co. v. Khan, 522 U.S. 3 (1997)
– List prices − exchange of price information
hurts market
– Production limitations − controls supply and
controls price
– Limitations on competitive bidding
– Credit arrangements − universal agreement on
charges is price-fixing
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-11
Horizontal Restraints
• Case 14.2 U.S. v. Apple, Inc. (2015)
– Explain what Apple was trying to do
with the e-book publishers
– Why does the court find that Apple
violated the Sherman Act?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-12
Horizontal Restraints
• Division (Divvying Up) of Markets
– Per se violation; lessens competition in
that market
• Group Boycotts and Refusals to Deal
– May have the best intentions in the
world but boycotts are still illegal
• Example: Garment boycotts on knock-offs
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-13
Horizontal Restraints
• Free Speech and Anticompetitive Behavior
– Noerr-Pennington doctrine
• Competitors can work together for governmental
action
• Lobbying and political efforts
• Cannot restrain this activity − First Amendment
protection
– Local Government Antitrust Act
• Exempts state and local government from antitrust
suits
• Must have state policy to allow suit
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-14
Horizontal Restraints
• Subtle Anticompetitive Behavior:
Interlocking Directorates
– Prohibits director of firm with $1 million
or more in capital from being a director
for a competitor
– Lessens likelihood of exchange of anticompetitive information
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-15
Horizontal Restraints
• Merging Competitors and the Effect
on Competition
– Presumptively illegal to have horizontal
mergers
– Courts look at market share to determine
true illegality
– Today Justice Department follows the
Herfindahl-Hirschman Index to evaluate
market concentration
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-16
Vertical Restraints
• Covers Parties in Chain of Distribution
– Manufacturer
– Wholesaler
– Retailer
• Resale Price Maintenance
– Attempt by manufacturer to control price
retailers charge for the product
– May be a violation of Section 1
– Applies to minimum and maximum prices as
well
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-17
Vertical Restraints
• State Oil v. Khan (1997)
– Vertical price fixing is not a per se
violation
– Does not decrease competition
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-18
Vertical Restraints
• Case 14.3 Leegin Creative Leather
Products, Inc. v. PSKS, Inc. (2007)
– What happened to retailers who
discounted the products?
– Why does the court see customer service
as a part of competition?
– Does the court see services as a means
of justifying minimum prices?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-19
Vertical Restraints
• Monopsony
– A monopsony is price control by the buyer
– In Weyerhaeuser v. Ross-Simons, the court
held that a buyer was not artificially
driving up suppler prices through its large
orders – its manufacturing process was
superior and it needed more supplies just
because it could process more
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-20
Vertical Restraints
• Sole Outlets and Exclusive Distributorships
– Manufacturer appoints a distributor or retailer
as the exclusive outlet
– Subject to a rule of reason analysis: Not
automatically illegal; violators can present
justification
– Factors examined in rule of reason analysis
• Manufacturers can pick and choose dealers
• There must be inter-brand competition
• If there is little inter-brand competition, then intrabrand competition is required
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-21
Vertical Restraints
• Customer and Territorial Restrictions
– Restricting to whom and where a dealer
can sell
– Subject to a rule of reason analysis
• Consider amount of inter-brand competition
• Consider market power of manufacturer
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-22
Vertical Restraints
• Tying Arrangements
– Sales arrangements that require buyers
to buy an additional product in order to
get the product they want
• Tying product = desired product
• Tied product = additional product
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-23
Vertical Restraints
• Tying Arrangements
– Generally illegal per se violation
(Clayton Act Section 3)
• Clayton Act − covers goods
• Sherman Act − Section 1 covers services,
real property, and intangibles
• Violation depends on market and power −
is tying product unique?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-24
Vertical Restraints
• Tying Arrangements: Defenses
– New industry defense: needed to protect
quality of tying product
– Quality control for protection of
goodwill specifications are so detailed,
could not be supplied by anyone else
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-25
Tying Arrangement
• Case 14.4 Illinois Tool Works, Inc.
v. Independent Ink, Inc. (2006)
– Is the arrangement illegal per se?
– Is proof of market power required for
typing?
– Is there a problem with tying
unsuccessful products with successful
ones?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-26
Vertical Restraints
• Price Discrimination
– Prohibited by Robinson-Patman Act
– Selling goods at prices that have different
ratios to the marginal cost of producing them
– Required elements (if established, both buyer
and seller are guilty)
•
•
•
•
Interstate commerce
Price discrimination between purchasers
Commodities of like grade and quality
Lessening or injuring competition
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-27
Vertical Restraints
• Price Discrimination: Defenses
– Legitimate cost differences
– Quantity discounts OK (if there is an
actual savings)
– Market changes, inflation, material costs
– Meeting the competition
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-28
Vertical Restraints
• Vertical Mergers: Mergers Between Firms With
a Buyer-Seller Relationship
• Illegality Depends Upon
– Geographic and product markets
– Whether entry of competitors would be difficult
• Failing Firm Defense
– No other offers to buy
– Chapter 11 bankruptcy would not help
• States Now Have Authority to Step in and
Regulate Mergers if Feds Do Not
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-29
Antitrust Remedies
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
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14-30
International Competition
• International Competition and the World
Market
– United States allows joint ventures in
international markets that would not be
permitted in the United States
– Antitrust laws most stringent in the United
States
– Foreign companies doing business in the United
States are still subject to U.S. Antitrust laws
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
14-31
Marianne M. Jennings
BUSINESS
Its Legal, Ethical, and
Global Environment
11th Ed.
Chapter 13
Product Advertising
and Liability
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
Development of Product
Liability
• Initially No Liability for the Seller
– Courts followed a theory of Caveat
Emptor (‘Let the buyer beware’)
• Caveat Emptor Removed in Section
402A of the Restatement of Torts
– Law has swung from no liability to
almost per se liability
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-1
Contract Basis for Product
Liability
• Express Warranties
– Creation: Affirmation of fact or
promise of performance (samples,
model, descriptions)
– Restriction: Must be part of the basis of
the bargain
– Disclaimer: Cannot make a disclaimer
inconsistent with an express warranty
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-2
Fact vs. Opinion
FACT
This car gets 20 miles per gallon.
X
This car gets great gas mileage.
These goods are 100% wool.
X
X
This is the finest wool around.
This truck has never been in an accident.
X
X
This truck is solid.
This mace stops assailants in their tracks.
This mace is very effective.
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
OPINION
X
X
X
13-3
Fact vs. Opinion
FACT
This makeup is hypoallergenic.
X
This makeup is good for your skin.
This ink will not stain clothes.
X
X
This ink is safe to use.
This computer is IBM-compatible.
X
X
This computer is as good as any IBM.
This watch is waterproof.
This watch is durable.
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
OPINION
X
X
X
13-4
Contract Basis for Product
Liability
• Case 13.1 Castro v. QVC Network,
Inc. (1998)
– Was the pan represented as suitable for
roasting a 25 lb. turkey?
– What is the relationship between tort
liability and warranty liability?
– Did the pan pass the risk/utility test?
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-5
Federal Regulations
• Federal Trade Commission Act
Authorizes FTC as Enforcement
Agency
– Passed in 1914
– Federal Trade Commission given broad
authority
– Requires regulation of “unfair and
deceptive trade practices”
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-6
Federal Regulations
• FTC Broadened by Wheeler-Lea Act
of 1938
– “Is public deceived?” standard
– Not limited to adverse impact on
competition
• FTC Improvements Act of 1980
– Put some restrictions on FTC regulation
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-7
Federal Regulations
• Content Control and Accuracy
– “No aspirin,” “aspirin free,” all dairy
products, and so on (like express
warranties)
• Performance Claims: Advertiser Must
be Able to Prove Claim
– Corrective advertising: FTC has required
corrective advertising when
unsubstantiated claims have been made
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-8
Performance Claims
• Case 13.2 Warner-Lambert Co. v.
FTC (1977)
– What proposals for corrective
advertising are made in the order?
– What modification in the order does the
court make?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-9
Federal Regulations
• Celebrity Endorsements
– Celebrity must have used the product
– If the celebrity has not used the product,
the source of claims must be given
• Bait and Switch
– Prohibits advertising cheaper product
and then getting customers to buy the
more expensive product
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-10
Federal Regulations
• Celebrity Tweet Guidelines
– To thine own self be true – whatever the celebrity says
must be a honest opinion
– Time will tell – endorsement can be used only as long
as the celebrity uses the product and believes in the
product
– Celebrity cannot ignore obvious facts that indicate
claims about the product are not true
– Companies must disclose that the celebrity is being
paid for the Tweets –Tweets must contain information
about celebrity compensation
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-11
Federal Regulations
• Product Comparisons
– FTC took a laissez-faire approach
during the 1980s
– It encouraged comparisons
– Congress amended trademark law in
1989 to allow competitors to bring suit
for deceptive statements about products
in competitor’s ads
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-12
Product Comparisons
• Case 13.3 McNeil-PPC, Inc. v.
Pfizer, Inc. (2005)
– What concerns were there about the ad
representations about the studies in
flossing vs. use of Listerine?
– How did experts feel about flossing vs.
Listerine?
– Are floss companies and mouthwash
companies really competitors?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-13
Federal Regulations
• FTC Remedies: Consent Decree is a
Negotiated Settlement
• Ad Regulation by FDA
– FDA is regulating more as more
prescription medications are directly
advertised
• State Regulations: Professional Ads
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-14
Implied Warranties
• Implied Warranty of Merchantability
(§ 2-314)
– Given in every sale of goods by a
merchant
– Goods are fit for ordinary purposes
– Average quality with adequate
packaging
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-15
Merchantability
• Case 13.4 Rothbaum v. Samsung
Telecommunications America LLC
(2014)
– What was the technical problem with the
phone?
– What is the percentage of phones with
problems?
– Was Samsung aware of a problem?
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-16
Merchantability
• Food and Drink Merchantability
Cases
– Foreign-natural v. reasonable
expectation
• Case 13.5 Estate of Pinkham v.
Cargill, Inc. (2012)
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publicly accessible website, in whole or in part, except for use as permitted in a license
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13-17
Implied Warranties
• Implied Warranty of Fitness for a
Particular Purpose (§ 2-315)
– Requirements
• Seller has particular skill or judgment
• Buyer is relying on that skill or judgment
• Seller knows or has reason to know of
reliance
• Seller makes recommendation to buyer
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publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
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13-18
Contract Product Liability
Type
Creation
Restriction
Disclaimer
Express
Affirmation of fact
or promise of
performance
(samples, model,
descriptions)
Must be part of
the basis of the
bargain
Cannot make a
disclaimer
inconsistent with an
express warranty
Implied
Warranty of
Merchantability
Given in every sale Only given by
of goods by a
merchants
merchant (“fit for
ordinary purposes”)
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
(1) Must use
disclaimer of quality
or use
“merchantability” or
general disclaimer
“as is” or “with all
faults”; (2) If written
– (record) must be
conspicuous
13-19
Contract Product Liability
Type
Creation
Restriction
Disclaimer
Implied
Warranty of
Fitness for a
Particular
Purpose
Seller knows of
buyer’s reliance
for a particular
use (buyer is
ignorant)
Seller must have
knowledge; buyer
must rely
(1) Must be in writing
(record); (2) Must be
conspicuous; (3) Must
be clear there are no
warranties (using
specific language) or
(4) Also disclaimed
with “as is” or “with all
faults”
Title
Given in every
sale
Does not apply in
circumstances
where apparent
warranty is not
given
Must state “There is no
warranty of title”
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-20
Implied Warranties
• Eliminating Warranties by
Disclaimers
– Can disclaims both implied warranties
by using “with all faults,” “as they
stand,” “as is”
– Can also disclaim by using the names of
both warranties in clear language
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-21
Implied Warranties
• Privity Standards (§ 2-318)
– Privity at buyer level − three code
alternatives
• Alternative A − buyer, members of
household, and guests
• Alternative B − any natural person expected
to use goods
• Alternative C − extends to any person
expected to use the goods
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-22
Strict Product Liability
• Strict Tort Liability (§ 402A)
– Defendant had duty to manufacture a
reasonably safe product/was in the business of
selling or manufacturing product
– That duty was breached
– Breach of duty caused plaintiff’s injury
(product reached plaintiff in same condition)
– Foreseeable that defect would cause injury
– Plaintiff has property or physical damages
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-23
Strict Product Liability
• Unreasonably Dangerous Defective
Condition
– Design defect
– Improper warnings or insufficient
instructions
– Negligent packaging, manufacturing, or
handling
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-24
Unreasonably Dangerous
• Case 13.6 Smith v. Coleman Co.
(2010)
– Was the product defective because the
warnings were not adequate?
– Did the buyer ignore the warnings?
– Where does privity fit in the case?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-25
Strict Product Liability
• Manufacturing, Handling, or Processing
Error
– Product must be properly manufactured,
handled and packaged to avoid liability
• Reaching the Buyer in the Same Condition
– No substantial change in product design that
caused malfunction or injury
– Product not tampered with during distribution
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-26
Strict Product Liability
• Requires for a “Seller”
– Need not be a merchant
– Need not be “in the business” of selling
that product
– Example: peanuts sold at games by a
baseball club
– In some cases recovery has been
allowed against groups of sellers
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-27
Negligence
• Product Liability Suits Based on
Negligence
– Same elements as strict tort liability plus
prior knowledge of defective condition
– Punitive damages if plaintiff can show
manufacturer/seller knew of defect
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-28
Comparison of Product
Liability Theories
TYPE
PRIVITY KNOWLEDGE
REQUIRED OF PROBLEM
REQUIRED?
WARANTY
PROMISE
REQUIRED?
Negligence
No
Yes
No
Section 402A/strict
liability
No
No
No
Express warranty
Yes
No
Yes
Implied warranty of
merchantability
Yes
No
No
Implied warranty of
fitness for a
particular purpose
Yes
No
Yes
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-29
Legal Basis for Product
Liability
CONTRACT
TORT
Express warranty
402A – Strict Tort Liability
Implied warranty of
merchantability
Elements
Implied warranty of fitness
for particular purpose
(1) Defective condition
unreasonably dangerous:
design; manufacturing defect; or
inadequate warning
(2) Defendant in business of using,
selling, or manufacturing
product
(3) Condition of product is the same
(4) Knowledge of defect
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-30
Negligence: Privity
• Does Not Require Privity of Contract
• Was Injury to That Party Foreseeable
• Should Anticipate Household Use,
Presence of Children, and So On
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-31
Defenses
• Misuse or Abnormal Use: Exceeding
Weight Limitations, Using Around Flames
• Contributory Negligence: Complete
Defense That Overlaps With Misuse
• Comparative Negligence: Reduces The
Amount of Recovery
• Assumption of Risk: Plaintiff Aware of
Danger, But Does it Anyway
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-32
Assumption of Risk
• Case 13.7 Thomas v. Staples, Inc.
(2014)
– Was the shredder defective?
– Are there any defenses for Staples?
– Does the court find a design defect?
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-33
Product Liability Reform
• Movement Toward Reform
– Verdicts and costs affect international
competitiveness
– Congress has made efforts to make laws
uniform
– Businesses need to focus on prevention.
– Restatement (Third) of Torts
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-34
Federal Standards
• Consumer Product Safety Commission
– Up to $1,500,000 maximum (willful violations
carry $100,000 and/or 1 year)
– Consumer Product Safety Improvements Act −
covers secondary sales (lead toys)
• Uniform Product Liability Law
– The Department of Commerce has tried to get
states to adopt uniform product liability laws
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-35
International Issues
• EU Trying to Gain Uniformity
– “State-of-the-Art” Defense: Product as
good as it can be upon release
– International Standards Organization’s
9000 guidelines for quality assurance
©2017 Cengage Learning®. May not be scanned, copied or duplicated or posted to a
publicly accessible website, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password-protected website
or school-approved learning management system for classroom use.
13-36
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