A 9 STEP GUIDE TO NAVIGATING ITALIAN PRODUCT LIABILITY LAW

To most of us, product liability is straightforward… Either pursue a strict liability claim, a negligence claim, or a breach of warranty claim.  But navigating a civil law system is both confusing and may not come naturally to U.S. businesses.  Read here to learn more!

(Disclaimer: This post is long and provides detailed information for a reason – we want you to come out knowing everything you need about the a) the Italian legal system b) a civil law system)

 1) Sources of Law Governing Product Liability:

In Italy, the tort and contract sections of the Civil Code and the Consumer Code govern product liability. Essentially two different liability approaches coexist in our system:

  • A traditional, fault-based tort liability regime and
  • A “new”, strict product liability regime.

The fault-based approach is the oldest and it based on section 2043 of the Italian Civil Code that provides a general torts clause. Under this approach a consumer can sue a manufacturer for damages caused by defective product even without a direct contractual relationship but the burden of proof he must bear is very demanding (as explained in point 5).

“Strict Liability” Approach:

A more favorable approach to the consumer/victim is provided by section 2050 of the Italian Civil Code in case of dangerous activities. Said section states that whoever injuries another in carrying out an activities which is dangerous per se is liable for damages unless he proves that he adopted all possible measures to avoid the damage. 

The Consumer Code introduced a strict product liability regime and it shifted the burden of proof to the manufacturer. Indeed, unlike the tort liability, the consumer doesn’t need to prove the manufacturer’s fault. Due to the strict liability regime actions brought under the Consumer Code became more and more frequent.

2) Procedural structure and hurdles: EVERYTHING YOU NEED TO KNOW

What is the structure of the civil court system? What are the main pleadings filed by the plaintiff/defendant? Are there specific rules set for a product liability action?

In Italy there are 3 levels of courts: trial court, court of appeal and Court of Cassation. The Italian civil proceedings are governed by a single judge or, in a second-instance courts and in the court of last resort (Court of Cassation), by a panel of judges. Unlike common law tradition, Italy does not contemplate trial by jury (a jury is required only in few specific criminal cases).

A case starts with the plaintiff’s complaint, which states all the claims against the defendant and all the facts and points of law supporting his claims. A plaintiff may also include the evidentiary means that he/she intends to submit to the court in his first pleading but, as we will see below, the claimant may also submit the request for evidence after the first hearing. The defendant’s answer is similar to the plaintiff’s pleading; it needs to contain any defense arguments (facts and points of law) and means of evidence (if he/she does not decide to postpone the latter after the first hearing). This differs slightly from the requirements of a defendant in a typical U.S. civil case.

A trial can generally be divided into three phases:

  • introductory phase, in which the judge takes care of the formal and procedural regularity of the proceedings and decides which evidence to admit to the trial;
  • evidentiary phase, in which witnesses are examined by the judge and experts, if appointed, render their written opinions; and
  • decision phase, in which the judge evaluates the evidence, the experts written opinion and the closing arguments of the parties to reach the final decision.

A product liability action is governed by the same rules as are set for ordinary proceedings by the Code of Civil Procedure.

3) Class Action:  

Is there any class/group action available to product liability claimants?

The class action in Italy has been introduced by the Law No. 99/2009, section 49 which modified section 140-bis of the Consumer Code. The class action became effective on January 1, 2010.

On one hand the Italian class action presents some similarities with a US class action, such as the commonality and typicality requirements and the role and obligations of the representatives. On the other hand our class action does not need the “numerosity” requirement [US Federal Rule 23(a)(1) i.e. a requirement that the class be so numerous that joinder of all members as individual named parties be “impracticable”].

Section 140-bis, 2nd period, describes the cases in which class action treatment will be permitted.

The procedural structure presents some differences in regard to an ordinary civil proceeding. Indeed in a class action suit the plaintiff is also required to notify the pleading to the public prosecutor. The first hearing represents the center of all the proceeding since the judge must decide how and if to proceed. He/she can be denied certification of the class only if:

  • the consumers’ claims are clearly without any basis;
  • there is a conflict of interests;
  • the consumers’ claims (questions of law) are outside of the provisions states in section 140-bis, 2nd period and
  • the representative party is not able to fairly and adequately protect the interests of the class.

After having certified the class the judge must decide the best way to notice the potential members of the class and to proceed with the case.

The final decision is binding for all the members of the class.

4) Possible respondents:

Who can be held responsible for a defective product between a manufacturer, an importer, the distributor, and the supplier?

The basic rule is that the manufacturer, as defined by section 115 of the Consumer Code, shall be liable for damages caused by its products. Suppliers may also be held liable but only in the event that the manufacturer is not been identified. Nevertheless a supplier can avoid liability by allowing the identification of the manufacturer.

5) Burden of proof in a product liability action:

Does the Consumer Code soften the burden of proof for the consumer?

Yes, it does. Normally in a tort action, under section 2043 of the Civil Code, a plaintiff must prove:

  1. the defect of the product;
  2. the damages suffered;
  3. the causality (in other words, the plaintiff must prove the nexus between defect and damage under probabilistic criteria) and
  4. negligence or willfulness of the manufacturer.

On the contrary the Consumer Code is based on a strict product liability regime and it shifts the burden of proof to the defendant (manufacturer, distributor, etc). Indeed section 120 of the Consumer Code does not require the plaintiff to prove point n. 4.

6) Defendant’s tools:

What are the possible defenses for a manufacturer?

According to section 118 of the Consumer Code a manufacturer may avoid liability if:

a. the manufacturer did not place the product on the market;

b. the defect that caused the damage did not exist when the manufacturer released the product onto the market;

c. the manufacturer did not manufacture the product for sale or any other form of distribution against payment of consideration, and did not manufacture or distribute the product in the exercise of his professional activity;

d. the defect depends on the compliance of the product with a mandatory legal rule or a binding measure;

e. the state of scientific and technical knowledge at the time when the product was released on the market did not allow the existence of the defect to be discovered; or

f. the manufacturer or supplier of a component part of the product fully complied with the instructions given by the manufacturer who used the component or the defect is fully due to the concept of the product in which the part was incorporated. 

There are two more circumstances that may avoid or reduce a manufacturer’s liabilities:

  1. the manufacturer may be held liable only if the product is defective in relation to its specific use; and
  2. according to section 122 of the Consumer Code:
    1.  if the consumer contributed to cause the injury or damage, the assessment of damages shall be reduced consequently and
    2. If the consumer was aware of the defect or of the danger of the product and nonetheless he/she decided to use the product and expose himself/herself to the risk no damages can be granted.

The Consumer Code (section 124) states that any clause that rules out or limits liability in advance shall be considered void.

7) Statute of limitations

Are there any time limits on seeking damages?

Yes, there is and it depends on what kind of legal path the plaintiff decides to follow.

If the action is based on tort provision, the status of limitation period is 5 years from the day the consumer became aware.  However, a contract liability action has a period of 10 years.

Under the Consumer Code (section 125) the limitation period is 3 years from the day on which the injured party becomes or should have become aware of the damage, the defect, and the identity of the liable party. In any case the consumer’s claim is barred after 10 years from the day on which the product was placed on the market (section 126).

8) Damages

What types of damage can be recovered by a plaintiff in Italy?

Unlike most of the common law countries, the Italian legal system does not contemplate punitive damages but only compensatory damages. Apart from that general principal the types of damages a petitioner may recover depends on whether the plaintiff sues under contract law, tort law or under the Consumer Code.

In the first case, the claimant may only recover material/economic damages resulting from a breach of contract such as actual damage and lost profit.

On the contrary under tort law the victim, in addition to material/economic damages, may recover moral damages. 

Under the Consumer Code (section 123) a plaintiff may recover:

  • the damage for injury to life or limb and
  • the destruction or deterioration of property other than the product itself, but only if the amount of damages exceeds euro 387. 

9) Final decision:

How long does it take to get a first instance decision?

The length of a product liability action depends on:

  • the complexity of the case and
  • the amount of evidentiary means offered by the parties and admitted by the Court.

Having a large number of witnesses or appointing one or more experts (called consulente tecnico  ’ufficio, CTU) may significantly lengthen the duration of a trial. Usually a civil proceeding lasts 3 years.

Tackling a foreign legal system is a daunting task especially when the legal system is based on principles that are unknown.  However, assessing a foreign legal system’s pros and cons prior to business entry is imperative. Use this guide to navigate the Italian legal system and watch this space to learn more about Italy.

- By Fabrizio De Fabritiis, Esq. with input from Anitha Cadambi, Esq.

About Fabrizio: Fabrizio is a lawyer from Milan, Italy. He received his LL.M from the University of California, Berkeley, School of Law (Boalt Hall). He can be reached at contedefa@gmail.com. Check his company website out at http://www.lawyer4italy.com/.
 

Entry to India: Legal Options Available

Often, residency and citizenship can be a deterrent to effectively investing in a foreign country. For many businessmen, wiggling through the endless list of regulations seems unnecessary and outright annoying. So, with the help of an Indian attorney friend, a simple explanation to entry routes available in India was put together. Read below to find out more:

A non-resident entity can invest or operate business in India, subject to the Foreign Direct Investment Policy, as an Indian Company or Foreign Company (subject to restricted activities).

I. As an Indian company: 

A foreign company can commence operations in India by incorporating a Company under the Companies Act, 1956, either as a wholly-owned subsidiary or through the formation of a joint venture with an Indian partner (of course finding a suitable joint venture partner after a thorough due diligence is both essential and a key aspect to your future business success).

(i) Joint Venture With An Indian Partner

Foreign Companies can set up their operations in India by forging strategic alliances with Indian partners.

Joint Venture may entail the following advantages for a foreign investor: (All of which should be questions you include during your due diligence process in selecting a suitable joint venture partner.)

  • Established distribution/ marketing set up of the Indian partner
  • Available financial resource of the Indian partners
  • Established contacts of the Indian partners which help smoothen the process of setting up of operations
Note: For a U.S. business, in addition to these advantages, you should consider the ease at which an FCPA compliance program with your JV partner can be implemented.

II. As A Foreign Company: 

Foreign companies can also set up wholly-owned subsidiary in sectors where 100% foreign direct investment is permitted under the FDI policy.

Foreign equity in wholly-owned subsidiaries can be up to 100 per cent, subject to equity caps in respect to the area of activities under the foreign direct investment (FDI) policy. http://www.fipbindia.com/FDI_Circular_02_2011.pdf

As a foreign company: Foreign companies can operate in India through the following:

  • Liaison office
  • Project office
  • Branch office

Such offices can undertake permitted activities after registering with the Registrar of Companies (ROC) within 30 days of setting up a place of business in India.

FDI policy lays down two routes:

Under the Automatic Route, the non-resident investor or the Indian company does not require any approval from Government of India for the investment. However, the foreign company needs to inform the RBI within 30 days of receipt of inward remittances in the bank account of the Indian company and in the case of issue of shares to non-residents. The RBI has prescribed a new form, Form FC-GPR (instead of the earlier FC-RBI), for reporting issue of shares to foreign investors by an Indian company

Under the Government Route, prior approval of the Government of India is required. Proposals for foreign investment under Government route, are considered by FIPB.

 There are certain business sectors where FDI is not permitted at all, namely:

(a) Retail trading (except single brand product retailing)

(b) Atomic energy

(c) Lottery business including government/private lottery, online lotteries, etc.

(d) Gambling and betting, including casinos, etc.

(e) Business of chit fund

(f)  Nidhi company

(g) Trading in transferable development rights (TDRs)

(h) Real estate business or construction of farmhouses

(i) Activities/sectors not opened to private sector investment

(j) Agriculture (excluding floriculture, horticulture, development of seeds, animal husbandry, pisciculture and cultivation of vegetables, mushrooms, etc., under controlled conditions and services related to agro and allied sectors) and plantations (other than tea plantations)

(k) Manufacturing of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

Besides the entry conditions on foreign investment, the investment/investors are required to comply with all relevant sectoral laws, regulations, rules, security conditions, and state/ local laws/ regulations.

….. If there is anything you want to take away from this post, it is the following information: 

Step-by-step process to start business in India:

  1. Study of the RBI master circulars/FEMA regulations and the FDI policy – to identify the route of entry, sectoral caps and permissions required.
  2. Take DIN and DSCs
  3. To file forms for name availability
  4. To draft MoA & other documents
  5. To file papers for company formation (i.e. MoA), Directors and address of business
  6. File form with RBI

- By Lolita Fernandes with input from Anitha Cadambi, Esq.

About Lolita: Lolita Fernandes received her Bachelor of Law degree in 2008 from the University of Mumbai, India, where she also completed a Master of Law degree with a specialization in criminal law. She is admitted to practice law in India.  She worked as an in-house counsel in India until June 2010 and much of her work focused on drafting and vetting business contracts, commercial agreements, loan documentation and rendering advice on compliance and regulatory related matters. She graduated from University of Southern California, Gould School of Law with a LLM degree in May, 2011.  Currently, she is working as a volunteer legal intern at the Eviction Defense Collaborative, a non-profit legal services clinic counseling tenants facing eviction. (http://www.linkedin.com/in/lolitafernandes)

India, Hot Dogs, & What To Expect: My Interview With Your Future Competitor

I sincerely believe that no advice serves better than advice from the ground. Having said that, today’s post contains information I put together with the help of a young entrepreneur from India. The entrepreneur in question runs a very successful hot dog business called Hungry Hogs (www.hungryhogs.comin Bangalore, India.

I. Hot Dogs outside of the U.S.? You would be surprised by their popularity!

As one of Hungry Hogs’ founding member pointed out – “We realized from the inception that our biggest hurdle would be selling a relatively unknown product and that we were an unknown brand. People might have heard about hot dogs, but were either unimpressed with what other places had to offer or preferred something else to hotdogs.”

So they did what any other smart entrepreneur would do – “We carried big blown up photos of hot dogs wherever we set up our stalls and when people asked us what hot dogs were, we just pointed to our photos and then continued to explain the concept to them in more detail. In all honesty, it is still easier now to sell popular western products as people are more exposed to them than 10 years ago . People have already included burgers, pizzas, and pastas to their regular diets. The fact that hot dogs weren’t in this category is what prompted us to get into hot dogs and hot dogs only. From day 1, we could honestly say that we served the best hot dogs in town! Often, industry experts though excited by our idea, advised us to add burgers to our menu, and some even told us to add coffee! But we remained adamant from the beginning to keep it simple, and that has helped us stay focused ever since.”

II. Start-Up Issues: What to Consider?

Initially, the idea behind Hungry Hogs was to have hot dog carts all over Bangalore. But as they began researching and talking to people, they realized that it wasn’t very feasible as they had initially anticipated. Instead, they decided to start off by catering only to college fests, concerts etc.

“It seemed to be a safe first step at that point of time. But in hindsight, it was a crucial move because it laid the groundwork for the diners we would eventually open.”

“Since our scope of operations were limited, getting capital wasn’t a problem. Legally, rules were laid out clearly for establishments like us. The only thing we weren’t too happy was with the fact that there are no clear rules covering vendors selling food on the street. A lot of the existing vendors could not get licenses even if they wanted to (another reason we decided against hot dog carts).”

One World South Asia (http://southasia.oneworld.net/fromthegrassroots/saving-the-street-vendors-of-incredible-india) touches on this point by saying:

The existing laws to support the rights of street vendors are weak. City planners and other civic authorities scrap laws that support vendors’ rights. Instead of spending money on civic amenities, improving drainage, sewerage systems and garbage disposal facilities, they shift the blame for shortages of services onto vendors and migrants. They brand them a civic nuisance and actively encourage the police to evict them. Even when the rules are in favor of the vendors, lack of operative-level transparency plays havoc with their livelihoods. The harassment by various authorities, local bodies and departments, and the exploitative fees paid in bribes to those who exploit the loopholes in the system, leads them to destitution. This, in its worst form, takes the shape of eviction and a complete loss of working capital. Instead, regularizing their activities in a manner that gives opportunities for relocation would be a better option.

But as profoundly pointed out by Hungry Hogs’ founding member:

“So I guess the difficulties we faced initially were business related, but by starting small we feel we bypassed legal and financial issues that otherwise would have proven to be problematic.”

III. Growing your business might not be as easy as starting one!

“The upside and sometimes annoying fact about start-ups is that every day throws a new challenge — some are exciting, some are, for the lack of a better word, extremely challenging, some feel like they’re downright unnecessary (they aren’t). I guess the biggest challenge though, even now, is to maintain quality and consistency in the food as well as service throughout all our outlets/diners.”

“Once we started our diner though, our approach was totally different. We were (still are) already the only place serving specialty hot dogs. Our food was (still is) pretty delicious, and the rates were (still are) easily affordable. But what we set out to do was to ensure that anyone walking into our diner would have a good time. And I feel that’s what sets us apart. You walk into any Hungry Hog diner, you’re more likely to be met with a “Hey, What’s up (first name)” than a “Good evening Sir/Madam, welcome to Hungry Hogs, May I take your order”. We know most of our customers by face; we know what they like to order and also the little tweaks to their orders.”

Biggest Challenge: Transitioning from Self-employed to An Employer

One thing common among all start ups is that the founders always seem to have this extreme passion which to the uninitiated borders on, insane behavior! So the challenge was to get everyone on the same page and showing the same energy/enthusiasm/passion.”

Have you ever questioned your age or lack of experience?

“It was hard not to. Wherever we went we were reminded that we were young, not as if we were oblivious to it, but we were confident that we had what it takes. But we considered our lack of experience as bringing a certain sense of freshness to our venture. Nonetheless, it hasn’t been a walk in the park, and obviously there are days when we feel we’re too young to be in this Food & Beverage industry. But being young is what gives us an edge as well as helps us connect to a growing middle class, a category made up of people largely in our own age group. So as long as being young has more advantages than disadvantages, we are not bothered by it.”

Packaging My Goods For Transport Across The Border: Compliance Issues To Consider

U.S. customs officials and other government officials (read FDA) are appointed to examine every aspect associated with your shipment.

Does this mean that even the box I use to package my goods will be examined? ABSOLUTELY.

Take the FDA……it must approve any materials used in the construction or manufacture of containers for use in the packaging of food or beverages.  Further, certain plant materials used for bottle jackets for wine or other liquids are subject to special restrictions under plant quarantine regulations of the Animal and Plant Health Inspection Service.  That is, all bottle jackets made of dried or unmanufactured plant materials are subject to inspection upon arrival and are referred to the Department of Agriculture.

Can I use wood to package my goods? ABSOLUTELY.

All wood packaging material (WPM) for international transport must meet International Plant Protection Convention standard ISPM #15 with the proper markings indicated.  WPM is defined as “hardwood and softwood packaging other than that comprised wholly of wood-based products such as plywood, particle board, oriented strand board, veneer, wood wool, etc., which has been created using glue, heat, and pressure or a combination thereof used in supporting, protecting or carrying a commodity (includes dunnage).”[1]

The marking required on the wood packaging material must be placed in a visible location on each article, preferably on at least two opposite sides of the article; must be legible and permanent and it must indicate that the article has been treated as required as well as approved by the IPPC to certify that the wood packaging material has been subjected to an approved measure.

But I plan to  use  third-party packaging materials…should I be concerned? 

Ask your third party for a “letter of guaranty”.  A “letter of guaranty” releases you from any FDA liability.  If a third party supplier has followed FDA guidelines while providing you with the requested packaging material, such third party will not hesitate to furnish a “letter of guaranty”.

Did you say Intellectual Property?

Intellectual property and packaging go hand in hand. In particular, you should be concerned with the “trade dress”.  Trade dress is essentially the combination of elements on packaging, containers, wrappers, or labels that is unique to a particular brand or producer.  The key to determine whether a producer owns a protectable trade dress is whether the packaging has become unique enough that consumers associate that packaging with a particular brand. [2]

If an individual has not registered their trade dress, they can still sue under federal and state unfair competition laws, provided all the requisite factors have been met.

So ask yourself, why were my goods stopped at the border? …because  faulty packaging should NOT be the reason.

Remember to run through the same issues before exporting your U.S. goods.  Most foreign countries take wood packaging and intellectual property enforcement seriously.

DISCLAIMER:

The views expressed above are personal and for educational purposes only. This blog is not a substitute for legal advice from an attorney in your own state. 


[1] United States Department of Agriculture, Wood Packaging Materials, Frequently Asked Questions @ http://www.aphis.usda.gov/import_export/plants/plant_exports/wpm/wpm_faqs.shtml, December 22, 2011

[2] American Bar Association, Unique IP Issues @ http://www2.americanbar.org/calendar/young-lawyers-division-spring-conference-2011/Documents/jackandcolaprogrammaterials.pdf, December 22, 2011

Another blog…Another Story

I always knew I liked to write. But I never thought I would enjoy blogging. Yes, I do distinguish ordinary writing from blogging and I respect bloggers because it’s not easy to share your views with the world.

My sole purpose with this blog is to convey information that may be relevant to your business. More particularly, information that is relevant to expanding your business internationally as well as domestically.

I encourage comments and discussions.

- Anitha Cadambi