Five reasons why your product planning needs to cover legal risks...

Written on the 16th of January 2012

In all the excitement of bringing a new product or service to the marketplace it is easy to overlook the related legal risks - which may, at the time, seem trivial or inconsequential.

However, at every step of the way from the naming of your product or service to the delivery of it, 'hidden' legal risks can potentially cause you serious embarrassment, and in some cases might place your business itself at risk.

Here are just five examples (out of many that may be relevant) which you should definitely consider:

1.                It’s a fancy new product or service, so you'll be wanting a fancy new name for it.  A bit of brainstorming in the office produces a list of names, from which the CEO picks one to settle the issue.  However, two weeks after the (extensive) marketing material has been printed, thousands of dollars have been spent on designing a logo to incorporate the new name, and the ad campaign is about to kick off, you discover the same name being used by another business operating in your area.  This is similar to what happened to a major Australian brewing company who were forced to change the name of a whole range of beers, a dispute which ended up in Court but which could have been avoided if proper steps were taken initially to research and trademark the new name.

2.               You genuinely believe that people who use your new product or service will be much better off.  You say this in your advertising.  However, a few months later you are served with a claim, brought by a disgruntled customer who says he was misled by your advertising.  To top things off he has also made a complaint to the ACCC, who are investigating whether your advertising was deceptive behaviour under the Trade Practices Act 1974 (now known as the Competition and Consumer Act 2012).  This is what happened to a large telecommunications business in Australia recently, who ended up paying out about $5.26 million due to customers having been misled by 'false' advertising.

3.                Is your product safe?  Are you really sure of that?  Do you have control over every aspect of manufacturing and distribution so as to be sure that negligence by a contractor or supplier is not exposing you to liability risk?  Think outside the square – this is not just about the core product itself, but the possibility of liability arising from accessories or fittings, or even from packaging materials.  I doubt that UK and US blind makers were prepared for the heartache, reputational risk and financial cost which arose from young children being caught around the neck by the strings from window blinds manufactured and sold in those countries.

4.                Consider carefully the lifetime risk profile of your product or service.  In relation to products the law generally expects that spare parts will be available for the whole of the reasonable life of the product, or that some other arrangements are in place to compensate consumers who experience product failure during the reasonably expected life of the product.  While a limited guarantee period may appear to protect you from some claims, consumer legislation often includes statutory rights that effectively extend the guarantee period.  In relation to services it is important to ensure that your insurance coverage remains in force long enough to protect your business from claims that arise years after the service was provided or carried out.  In one case an architectural practice had to pay a substantial claim itself, as its insurance cover no longer covered claims for negligence arising from a building designed by them several years earlier.  They saved a modest sum by changing insurers after the building was finished, but that saving paled into insignificance against the cost of the claim.

5.                Be careful who you employ.  Due to a legal principle known as “vicarious liability” you are generally liable for the negligence of your employees during periods when they are employed by you or carrying out tasks specified by you.  Responsibility for the actions of employees who mislead your customers, or whose work is sub-standard, rests with you as far as your customers are concerned.  Even if you have some entitlement to recover your losses from an errant employee, that is unlikely to result in full recovery of the financial losses or repair the reputational damage suffered by your business.

Keep in mind that a product you sell today could remain in use for many years, multiplying the likelihood of inherent issues coming to light.  Similarly, a service you provide today may have consequences well into the future.

To summarise the five points above:

•        Trademark your product name
•        Avoid misleading claims
•        Consider all possible safety risks
•        Plan for the long-term
•        Choose and train your employees carefully

It's a good idea to check with a lawyer before finalising your product planning.  Most commercial lawyers can help you identify 'hidden' risks and put in place measures to address those risks.

If you have any questions, please don’t hesitate to call us on (02)  4904 8000 or send an email to enquiries@turnbullhill.com.au.