Author: Shun Matsuura, Attorney at Law

1．Product Liability in Cross-border EC/Inbound Consumption

In recent years, cross-border EC and inbound consumption have been increasing, and in light of the yen’s depreciation and the easing of Corona-related regulations, this trend is expected to continue.
In this regard, the Product Liability Act (PL Act) is a law that cannot be avoided when manufacturing and selling products, and if risks are not appropriately dealt with, unexpected damages may occur. This article provides an overview of the PL Act and describes risk hedges that manufacturers should keep in mind.

2．Outline of the PL Law in Different Countries

（1）The Japanese PL Act

The Japanese PL Act provides that manufacturers are liable, without negligence, in cases where a defect in a product causes extensive damage to life, or causes bodily injury, etc. Similar laws have been enacted in other countries such as America and China, but there are some differences from Japanese law.

Although a detailed explanation of the PL Act is omitted, in many countries the PL law is mandatory and liability cannot be waived by contract. In addition, products sold for inbound consumption may also be subject to product liability in the traveler’s country of residence, even if the products are only sold domestically, and therefore, it is necessary to understand the content of the PL law in the country of export and take appropriate countermeasures.

（2）The American PL Law

There is no unified federal law or regulation regarding product liability in America, and it is regulated by each state. In addition, not only the written laws of each state but also court precedents have a large influence on the decisions of each state, so unlike Japan, it is difficult to predict in which cases product liability will be recognized.

Furthermore, America has a punitive damages system, and there is a possibility that a much larger amount of compensation may have to be paid than the damages actually suffered by the victim.

（3）The Chinese PL Law

The Chinese PL law is characterized by the fact that it clearly stipulates the obligation to suspend sales and recall products when a defect is discovered after the products have been distributed, and by the existence of a punitive damages system similar to that in America.

In addition, the trend regarding the burden of proof is that if the victim can provide basic proof of the existence of a defect, it may be presumed that the product was defective unless the manufacturer can provide evidence to prove that the product was not faulty, thus requiring a more prompt and accurate investigation into potential defects in the product.

 3．Method of Risk Hedge

As mentioned above, if the product is used overseas, there is a risk that the products will be subject to liability for damages that are broader and way more expensive compared to Japan’s PL Act. Therefore, when it comes to considering appropriate risk-hedging methods, the first thing that should be considered is purchasing product liability insurance. In principle, though, product liability insurance should be taken because the success or failure of a product liability case and the amount of compensation awarded in foreign countries are difficult to predict. However, the insurance premiums are more expensive when the product is sold in America, so it may be necessary to consider whether or not to purchase product liability insurance depending on the size of the sale and the nature of the product.

Additionally, to improve the safety of the products themselves, the possibility of defects occurring throughout the supply chain should be reduced and compliance with safety standards common to the destination country and the world should be ensured. Due consideration should also be given to establishing a scheme to reduce risk by concluding contracts to transfer responsibility to a certain extent through transporters and importers.

To conclude, overseas sales businesses are risky, but they can also generate significant profits if the risks are analyzed and dealt with appropriately, so please feel free to contact us if you are considering starting a business.