As the trend of private label among distributors grows, it's important to recognize the legal risks associated with this strategy. If products are sourced from overseas, as many are, wholesalers may end up carrying the ultimate blame or responsibility in a number of situations.
The information provided here is from a National Association of Wholesaler-Distributors legal brief. The brief can be found at NAW's Web site, www.naw.org.
In the U.S., any seller of a private-label or manufacturer-branded product is liable for losses, injury or damage caused by the defective product under strict tort liability.
Normally, a wholesaler-distributor in a U.S. suit will bring the manufacturer of a defective product into the case and claim the manufacturer is at fault. But if the product is made by a foreign supplier, and that supplier does not have a legal presence in the U.S., or has not agreed by contract to be subject to the U.S. courts, the distributor cannot obtain jurisdiction over that supplier in the U.S. Instead, the distributor must go to court overseas.
Private label product sellers also face greater exposure to claims that the product infringes upon another's patent rights, trademarks or other intellectual property rights. When a product is sourced from a foreign supplier beyond the reach of U.S. courts, the seller may be ultimately responsible for intellectual property rights infringement.
Find a foreign supplier that will produce defect-free products that meet U.S. legal and regulatory requirements.
This is best done in the field to assure compliance and detect product irregularities or unauthorized changes to the design of the product, or to the raw materials used in production.
Product Recall Responsibility
In cases where a manufacturer is in a foreign country, is in bankruptcy, out of business, or thinly capitalized," distributors may hold the burden of a product recall, according to U.S. Consumer Product Safety Commission rules.
Products intended for use in commercial and industrial settings may be considered consumer products, so may fall under CPSC jurisdiction.
The law authorizes the commission to order a seller of a product to notify buyers of that product of the defect.
It also requires the sellers to repair the defect, replace the product with an equivalent product free of defects, or refund an amount up to the purchase price of the defect. Importers of motor vehicle parts and equipment face similar rules.