Article and Position Papers Detail

ADK Directory
Author: Freeman, Rod and Duchesne, Cecile

As product manufacturers enjoy the benefits of increasingly globalized markets, the expansion of trade both within Europe and across the world has increased the variety of consumer products available to European citizens.  To some degree, regulatory regimes around the world have struggled to keep pace with the rapid development of international markets.  The European Union (the "EU") has for a long time led the world in product safety regulation.  The response of EU policy-makers and legislators to the changing nature of European markets has resulted in increasing challenges for international product manufacturers to manage the compliance and liability risks associated with their products.

Whilst product safety regulations in Europe are dominated by those emanating from the EU's central legislative process, implementation and enforcement is generally dealt with at a national level#.  The practical reality is that this leads to inconsistencies in how national enforcement authorities interpret and enforce product safety laws.  Sometimes these differences arise from ambiguities in the legislation.  Other times, the disparities arise from cultural differences, or from differing structural issues within the national regulatory regimes.  Regardless of the reasons, these differences pose real practical problems for product manufacturers, and create risks that need to be proactively managed.  

Those risks are multiplied by the fact that the volume of regulation is increasing, and (more importantly), the fundamental approach to product regulation by the EU authorities is changing.

Risks are further enhanced by the increased level of interaction and co-operation between national enforcement authorities and their counterparts across the EU when monitoring compliance with EU product safety laws, and by increased interaction amongst authorities around the world.  The more communication takes place between the enforcement authorities, the more likely it is that product manufacturers will be accountable for any shortcomings in their products or their compliance systems.   
This article offers practical advice to businesses, based on our decades of experience in working with leading brand names and other manufacturers across a wide range of product sectors, on the steps to avoid the pitfalls when dealing with product safety issues in the EU.

Managing ongoing compliance with EU product safety laws
Laws intended to protect consumers from unsafe products are taken very seriously throughout the EU, and the consequences for companies who fail to meet their obligations can be significant.
Whilst questions of basic compliance usually present few problems, where companies, including major international brand names, often find themselves in difficulties is if they do not effectively deal with change within the EU regulatory regimes.   
EU product safety regulation is changing rapidly, both in terms of scope, and fundamental approach.  Often, those changes require companies to change their own practices, and in some cases change the design or labeling of their products, or the way in which they are marketed.  Companies need to anticipate these changes, provide input to the development of policy where appropriate, and be ready to adapt.  Publications such as International Product Liability Review can be a valuable tool for keeping abreast of trends and important developments.

Dealing with the complexity of the European regime
The fact that responsibility for enforcement of EU product safety legislation is mainly handled at a national level is a common source of risk for manufacturers.  The harmonizing effect of EU legislation brings great benefits, but many companies fall into the trap of believing that the EU can simply be treated as a single perfectly harmonised market.  This is not the case.  Situations frequently arise in which individual national authorities adopt an interpretation of a regulation that is different to the view taken in other Member States.  Equally, the approach to risk assessment and enforcement generally can differ from country to country. 

Where those differences arise, companies need to tread a fine line between ensuring they maintain good relationships with local enforcement authorities, whilst at the same time relying on their legitimate right to expect that regulatory requirements for their products are uniform throughout the EU.  Managing these issues requires good judgement, based on experience.  The first step is understanding the broader context in which those issues are being raised.  From there, the judgement calls are based on experience in dealing with the authorities in the individual country, balanced against a good understanding of the EU regime more generally.  For most companies, some help from advisers with deep experience in these matters and a good track record of achieving results is needed to find the most efficient and commercially effective solution.  

Maintaining a dialogue with national market surveillance authorities 
The approach to market surveillance and regulatory enforcement varies greatly from country to country.  In some countries, authorities encourage an open dialogue with companies, which can be very beneficial when it comes to dealing with problems that might arise from time to time.  In other countries, the authorities take a much more formal approach, and do not encourage informal dialogue with companies.
The reality is that failure to manage carefully the expectations of national authorities in each country when dealing with a product risk is much more likely to lead to unnecessary complications that may not be easy to resolve.  Over recent times, we have witnessed well-publicized examples of consumer product safety concerns that have quickly snowballed into major public crises for the brand names concerned.  Often, the companies have lost control of those issues because they have failed to effectively manage their dialogue with national authorities.  Therefore, maintaining a good relationship with national authorities across the EU, to the full extent possible, is key to ensuring that product manufacturers can deal with their unexpected risks in a controlled way that best protects their valuable brands and reputations.

Sensible management of product recalls and unexpected product risks 
EU law requires that, in certain circumstances, risks identified in relation to marketed products be notified to national authorities.  However, many companies fail to understand the importance of this obligation, or make the mistake of assuming that the obligation is to be dealt with in a similar way to its equivalent in the US.

In fact, the reporting obligation in Europe is very different to that in the US, and international product manufacturers need to take care to ensure that they properly manage their EU obligations.  
One of the key points that international companies often fail to understand is that the reporting obligation in Europe arises as an independent obligation in every country in which the product puts consumers at risk (usually interpreted as meaning every country in which the dangerous product has been marketed).  There is no central authority who can receive such reports.  Whilst the European Commission has introduced an on-line tool to enable a quick and cheap method to notify multiple national authorities simultaneously, companies with valuable brand names to protect should not fall into the trap of seeing this as a substitute for establishing a direct dialogue with the national enforcement authorities who each will have responsibility to determine how the risk should be dealt with in their own country. The reporting obligation is not necessarily onerous – particularly when compared with the costs and risks a company faces when dealing with an unexpected product risk.  Companies should not cut corners in this area, but should, if necessary with the help of experienced European advisers, take care in dealing with this aspect of their relationship with national enforcement agencies in the EU.

Understanding the EU risk assessment methodology
One of the most important developments in EU product safety regulation in recent times has been the emergence of a new emphasis on a formalized risk assessment when dealing with unexpected product risks associated with marketed products.  In fact, the EU is currently leading the world in this approach to dealing with situations that might require a product recall or other corrective action.
In 2010, the European Commission published a new risk assessment methodology to be used when considering risks identified with marketed consumer products.  Whilst the new methodology is a significant improvement on its much-criticised predecessor, it is more complex and difficult to apply, so some expertise is needed in order to use it reliably.
We now have considerable experience in the EU in working with this new methodology in relation to products covering a wide range of sectors, and it is proving to be a useful tool when used properly.

Managing privacy and confidentiality issues

As part of their obligations under EU regulations, manufacturers need to maintain data about their marketed products.  That data may be sourced from information that includes personal information about consumers.  In some cases, product manufacturers may be required to communicate relevant information to authorities in the EU or even beyond.  Privacy issues are taken very seriously in Europe, and the Data Protection Directive places very onerous obligations on companies that collect and maintain personal data.  It is therefore critical for international businesses to properly design and implement policies to ensure proper treatment of personal information held by them in relation to European citizens.

From the businesses' point of view, the protection of their own confidential information when dealing with national authorities can be a difficult area to manage.  Generally speaking, the European product safety regime provides poorer protection for confidential information than its equivalent in the US.  This has an effect on the way in which companies need to approach the disclosure of any confidential or sensitive information to national authorities.  Judgement and experience are often required in order for the risks to be properly managed.

Keeping an eye on the international stage 
The level of interaction between the authorities in Europe is now such that all risks need to be managed with at least an eye on the EU-wide implications.  A challenge by an enforcement authority in one country will always carry a risk of collateral damage across the EU if the product is marketed throughout the Member States.  Companies, and the professional advisers on which they rely, need to be equipped to fully appreciate and manage the EU-wide implications of the issue.     
In fact, the reality is that the level of dialogue between enforcement authorities around the world has increased so much in recent years that product safety issues now need to be managed with a careful eye on the potential global implications.  This means that companies need to ensure that product safety issues are always dealt with by personnel who have a good view of the potential international implications.  Similarly, where a company relies on external advisers for advice, those advisers need to be sufficiently experienced and linked in with the rapidly changing global developments to be able to anticipate the full potential implications, and give appropriate advice on the strategy in light of those broader considerations.  
Whilst international companies have for many years enjoyed the benefits of the globalization of markets for their products, it is only now that we are seeing the trend towards "globalization" of regulatory regimes.  This is a new challenge for product manufacturers – but is one that can be effectively managed if proper care is taken.

Rod Freeman is a partner in the product liability and product safety team in the London office of the international law firm Hogan Lovells, where he has extensive experience working with companies to manage European and international product safety, compliance and liability issues. 

Cecile Duchesne is a French-qualified Associate in the product liability and product safety team at Hogan Lovells' London office, where she practices as a Registered European Lawyer.  Cecile has experience in product safety, regulatory and liability work.

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