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"Torts - New Technologies Reshape Product Liability," Crowell & Moring's Litigation Forecast 2016

January 2016

Contributor: Cheryl Falvey.

The Internet of Things (IoT) links a variety of devices to the network, from household appliances to automobiles, and it is opening the door to a range of new products—and new litigation risks.

"A trend to watch in the coming year is the growth of technology-based products and possible litigation risks, including both potential privacy and product liability claims," says Cheryl Falvey, co-chair of Crowell & Moring's Advertising & Product Risk Management Group and former general counsel of the Consumer Product Safety Commission (CPSC). Products are becoming smart and interconnected, she says, "and these developments are raising questions about how the new technologies fit into the more traditional product liability laws."

One of those questions is what constitutes a product defect in this interconnected world. Traditionally, defects have to be linked to some actual harm in order for lawsuits to proceed in federal courts. But now, says Falvey, plaintiffs are filing tort cases involving connected technology-based products where there is only the potential for harm, rather than actual injury. "These might involve a product that you thought was going to give you a certain functionality but didn't work exactly as expected, though no real harm resulted," she says. "So is that enough to meet the Article III constitutional requirement for standing?" Under the governing law, that answer should be no because no injury has occurred.

Another key area of concern is security, because the IoT involves a variety of devices on an open network. "With a home automation system, for example, someone might be able to hack into the system and affect the functionality of anything from your automatic garage door opener to your home heating system. In addition to wreaking havoc with these systems, the hacker might steal data collected by these home systems or the phone through which they are operated," says Falvey. As these products proliferate, plaintiffs are likely to bring more lawsuits around those types of problems, where the claim is based not on an actual attack's taking place, but the mere possibility that such an event might occur. "The heart of this issue is whether the case needs to truly involve a defect that led to harm, or if there is just a vulnerability that could lead to harm in the future," she says. As she explains, "the tech world is used to rolling out fixes and patches to vulnerabilities well before any defect manifests, and yet product liability law tends to take a more static and less fluid view of product design over time.

But an interconnected technology system is constantly evolving and changing, as new products are brought online and software is updated remotely. The product design and functionality constantly evolve, and whether the legal principles can evolve as well is something we are watching."

A case currently before the U.S. Supreme Court, Spokeo v. Robins, may provide more insight into the question of standing. Spokeo is a Fair Credit Reporting Act case, but its outcome on the question of standing could have an impact on product liability, privacy breach, and other tort litigation. In this case, the plaintiff claimed that Spokeo, a data aggregator that provides information about individuals on its website, had included inaccurate information about the plaintiff and had therefore violated the federal act. Spokeo argued that there was no injury, so the plaintiff had no standing. "The Court is addressing the question of whether a plaintiff who suffered no concrete injury can participate in litigating a case on the theory that they feel like their information is potentially being used in a way that they don't like," says Falvey. The Ninth Circuit ruled in favor of the plaintiff. If the Supreme Court affirms that ruling, Falvey says, "you can see how that could open up a whole host of no-injury claims premised upon alleged statutory consumer protection violations. In such cases, actual harm should be a hard floor to meet the injury requirement."

THE CHANGING ROLE OF PRIMARY JURISDICTION AND PREEMPTION

Preemption continues to be an important defense in tort litigation, and it is likely to play a role in the litigation that is emerging around the IoT. The primary jurisdiction doctrine gives courts the opportunity to stay proceedings or dismiss a complaint without prejudice pending the resolution of an issue being considered by an administrative agency. Referring to the home automation example, Falvey says, "if your phone and your garage door can be hacked, might that not fall under the responsibility of the Consumer Product Safety Commission as a regulator to decide whether the product is defective? Should the Commission be ensuring that products don't have a defect or mandating recalls, and should the courts defer to the federal agency in that area?"

Preemption often comes up in food labeling cases, where plaintiffs make claims about issues such as mislabeled "healthy products" or failure to mention the presence of genetically modified ingredients. In the past, courts have often stayed such cases in order to give the Food and Drug Administration (FDA) a chance to address labeling issues covered by existing or pending FDA regulations. Recently, however, some courts have decided not to wait. "Because the FDA hasn't acted, the courts have allowed states to move ahead with labeling laws, and plaintiffs to move ahead with labeling claims, based on those theories," says Falvey. Unless the regulator signals an intention to act—something the FDA finally did on "natural" claims by taking up a petition to address that issue in November—courts will continue to work the cases on their dockets.

Cases based on new connected technologies may fare better with preemption arguments because regulators may be more likely to weigh in. In general, federal agencies are focused on cybersecurity, and that could put new technology-enabled products in their sights. In addition, says Falvey, "with cars becoming more automated, the National Highway Traffic Safety Administration (NHTSA) is very interested and has issued detailed guidance on how systems in cars should be interconnected and operate. And in a recent product liability case involving airplane parts, the Federal Aviation Administration (FAA) wrote to the court in support of preemption, saying that aircraft design and certification are pervasively regulated by the FAA." Overall, she says, "it will be important to watch this evolving intersection of litigation and regulation."

New Risks on the Horizon

It is always difficult to predict the future. However, says Cheri Falvey, "by tracking the activities of federal agencies, states' attorneys general, and non-governmental organizations, it is possible to identify some key areas of emerging tort risk." These include:

E-cigarettes, liquid nicotinettes, and liquid nicotine

In 2015, the FDA called for data, research, and comments to support regulatory action. "FDA regulations are expected to focus on childproof packaging and warning labels, as well as potentially tougher standards for advertising," says Falvey. Meanwhile, pending legislation in several states aims to tax these as tobacco products, which will require stricter packaging and labeling.

Microbeads

The Microbeads-Free Water Act of 2015 passed on December 23, 2015, the last day of the legislative year. Companies will have to stop using microbeads in their products by July 2017. The federal law preempts the laws in eight states that had already banned microbeads. A large number of manufacturers have stopped or plan to stop using them. And the National Institutes of Health recently awarded a $3.6 million grant for further research into the material.

Synthetic turf

Health advocates are increasingly concerned about the safety of recycled tires (crumb rubber) in the artificial turf used in stadiums and playgrounds. Both the CPSC and the EPA have retreated from their past assurances about the material's safety, citing the limited nature of studies. In September 2015, Yale University reported finding a variety of chemicals in such products, many of which have no history of official government testing. 


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Cheryl A. Falvey
Partner – Washington, D.C.
Phone: +1 202.624.2675
Email: cfalvey@crowell.com