With any new consumer product craze, lawsuits will inevitably follow. The hemp-CBD industry is no exception.
The current wave of CBD-related lawsuits has primarily been product liability claims. As no company wants to find themselves on the receiving end of a lawsuit, there are some simple preventive steps you can take to help decrease the likelihood of this type of lawsuit and save money in the long run.
What is a Product Liability Lawsuit?
In the broadest terms, a product liability lawsuit is a type of lawsuit that typically involves injuries or harm caused by a product that is (alleged to be) defective in some way.
The most common product liability lawsuits are those that deal with false labeling. In this type of lawsuit, a product’s label states a certain percentage of CBD, e.g. 25% CBD. A consumer buys the product, tests the product, and finds out the amount of CBD is different (either more or less). The consumer then sues the seller of the product claiming a false label.
The second typical lawsuit involves a plaintiff (consumer) friendly state that allows a private cause of action (right to sue) for violation of federal law. For example, in this second category of lawsuit, a state adopts the Federal Food Drug and Cosmetic Act but instead of only allowing the government to sue for violations, the state allows any consumer who is injured to sue the company. The alleged injury in this type of lawsuit is that the sale of CBD to the consumer is the sale of an “illegal product.” The consumer’s best evidence, in this case, would be attached to a U.S. Food and Drug Administration (FDA) or state regulatory action enforcement letter stating that the product being sold violates the law.
How to Minimize Exposure to Product Liability Lawsuits
While there are various tactics a company can do (or not do) to minimize its exposure to a product liability lawsuit, here are five quick and easy places to start:
1. Label your products accurately
It is crucial to know what is in your products and accurately represent that information on your product’s label.
Exactly what information needs to be displayed on such a label will depend on your CBD product type.
2. Obtain adequate insurance coverage
3. Have thorough and protective contract provisions
4. React quickly and efficiently if you receive a notice of a lawsuit
As soon as you receive notice of a lawsuit (e.g., FDA enforcement letter, a letter from a state enforcement agency, the threat of a lawsuit from a consumer, etc.), you should line up defense counsel. The timing to respond to a lawsuit is often short, so it is best to have at least introduced your company to an attorney before actually being served with a lawsuit.
5. Be selective in which states your products are sold
As stated above, the second category of lawsuits only arises in certain states. It is important to know which states are more plaintiff (customer) friendly. For example, California and New Jersey are extremely pro-plaintiff.
As a company, you should consider whether the financial or business gain in a pro-plaintiff state is worth the litigation risk.
The regulations surrounding CBD, combined with those for product liability make for an incredibly tricky industry to successfully and legally navigate. We advise that those who are concerned about their product liability risks to contact a knowledgeable attorney as soon as possible.