Undertaking a Successful Global Recall Campaign Tuesday, October 20, 2015 Panel Members Debra Clements Sr. VP, Sr. General Counsel & Corporate Secretary Milliken & Company Richard Galindo Director Brigard & Urrutia Abogados (Lex Mundi Member Firm for Colombia) Markus Hartmann Vice President & North American General Counsel Sandoz Inc. Thomas Klindt Partner Noerr LLP (Lex Mundi Member Firm for Germany) Why Are We Here? As information sharing among consumer protection agencies has become more common, in-house counsel should be aware of the various types of regulations in connection with product liability and recall campaigns. We are here today to: Explore real world case studies of global recall campaigns Address the main legal issues to consider when undertaking a recall campaign of products sold in more than one jurisdiction Learn the different types of recall campaign regulations around the world Take away practical tips to launch a recall campaign in several jurisdictions without violating local rules Answer your questions Case Study 1: Drinking Bottles Debra Clements Sr. VP, Sr. General Counsel & Corporate Secretary Milliken & Company Case Study: Drinking Bottles B2BCo produces a chemical that is incorporated by its customers into a plastic that is made into drinking bottles. Black flecks were noticed at the customer facility in the bottles coming off its line. After much analysis, it is determined that the black flecks are caused by charring on the screw of the injection molding machine. Testing does not indicate any health risk related to the spots. It is not known how long this condition has existed or whether any non-compliant units have left the plant. Case Study 1: Drinking Bottles The customers chemical formula is a trade secret and not known to B2BCo. B2BCos additive seems to be causing an unexpected reaction with the customers formulation, resulting in the charring. Now what? Case Study: Drinking Bottles The prospects of a recall are so enormous that much attention is paid to them. What will happen in this case if bottles have been filled with beverages and must be removed from the shelves? Cost The plastic additive sold by B2BCo may be valued at only a few thousands of dollars. But, if the bottles have hit the shelf, removing them could be in the millions. Logistics Tracking the eventual location of the bottles that may have been effected on a global scale can be daunting. Reputation Consumers will likely not care whether the black specks are found not to be harmful. They will reject the product and the entire supply chain may be tarnished. Steps a Company Should be Prepared to Take Get legal involved privilege and other issues Stop production of defective products Confirm any health implications and the severity of the situation This will inform reporting and other obligations Determine the technical cause of the failure Coordinate with your customer and check your contract Call your outside lawyer Track the likely breadth of distribution Elevate the concern internally Check your insurance Challenges for In-House Counsel Thomas Klindt Partner Head of Product Compliance Noerr LLP (Lex Mundi Member Firm for Germany) The Challenge I distribution in many countries II recall in many jurisdictions Global Trade Flows (in bn US$) A Global Dishwasher Recall 5 million dishwashers estimated to be still in the market a campaign in more than 85 countries The Challenge II You need 1 global legal head counsel (in-house and/or external lawyer) Check the duties of notifications to market surveillance authorities first o e.g., under European law: for all b2c products, medical devices, pharmaceuticals, feed- & foodstuff, o What about your country, what about ROW? o Risk of fine for late notifying Set up a roll-out-plan for X-Day o logistics o translations o media booking o dark site/social media o IT-monitoring of incoming calls, retrofit work, bills, etc. o teach local hotlines incl. staff & FAQ Notification to Market Surveillance Authorities Global Product Recall: X-Day Synchronized start of field action Synchronized press release in print & social media Synchronized going-live of hotlines & FAQs FDA Recall Regulations in the U.S. Markus Hartmann Vice President & North American General Counsel Sandoz Inc. What is an FDA Recall? Recall is an effective method of removing or correcting consumer products that are in violation of laws administered by the [FDA]. May be undertaken voluntarily and at any time by manufacturers and distributors, at the request of the FDA, or mandated by the FDA. A request by the FDA that a firm recall a product is reserved for urgent situations and is to be directed to the firm that has primary responsibility for the manufacture and marketing of the product that is to be recalled. Certain recall information (e.g., press releases) are posted on FDAs website and all industry product removal or corrective actions classified by the FDA are included in FDAs weekly Enforcement Report. See 21 CFR 7.46, 7.49. FDA-Regulated Products Subject to Recall human drugs animal drugs medical devices radiation-emitting products vaccines blood and blood products transplantable human tissue animal feed cosmetics most foods eaten in the United States tobacco FDA Notification The Field Alert Report NDA and ANDA holders are required to submit Field Alert Reports to the FDA if they find any significant problems with an approved drug within three days of identification. NDA and ANDA holders must report: Information concerning any incident that causes the drug product or its labeling to be mistaken for, or applied to, another article. Information concerning any bacteriological contamination, or any significant chemical, physical, or other change or deterioration in the distributed drug product, or any failure of one or more distributed batches of the drug product to meet the specification established for it in the application. The three days begins when the applicant becomes aware of a reported problem through either a complaint or internal testing. It does not begin the day the applicant confirms or invalidates a problem. See 21 CFR ; 21 CFR ; FDA Compliance Policy Guide FDA Notification The Recall Submission A firm that decides to recall a product must notify and provide the following information to the appropriate FDA district office: Reason for the recall and the date and circumstances under which the product deficiency or possible deficiency was discovered. Evaluation of the risk associated with the deficiency or possible deficiency. Proposed recall strategy. Distribution information, including: total amount of products produced, the timespan of production, amount of products estimated to be in distribution channels, and number and identity of direct accounts. A copy of the firms recall communication or a proposed communication. While FDA reviews the recall submission, the firm need not delay initiation of its product removal or correction. See 21 CFR 7.46, 7.49. Evaluation of Risk A recalling firm must provide an assessment of the health risk associated with the deficiency. FDA will perform a Health Hazard Evaluation and designate a recall classification. Class I: Dangerous or defective products that predictably could cause serious health problems or death. Class II: Products that might cause a temporary health problem, or pose only a slight threat of a serious nature. Class III: Products that are unlikely to cause any adverse health reaction, but that violate FDA labeling or manufacturing laws. The class of the recall frequently dictates the depth of the recall, i.e., distributor or warehouse level, retail level or consumer level. See 21 CFR 7.41, 7.46; Guidance for Industry: Product Recalls, Including Removals and Corrections (November 3, 2003) (Recall Guidance). Key Elements of a Recall Strategy Depth of recall: The level in the distribution chain to which the recall is to extend depends on the products degree of hazard and extent of distribution. Consumer or user level; or Retail level, including any intermediate wholesale level; or Wholesale level. Public warning: A recalling firm should submit its proposed public warning and plan for distribution of the warning for review and comment by the FDA. Effectiveness Checks: To verify that all consignees at the recall depth specified by the strategy have received notification about the recall and have taken appropriate action. See 21 CFR 7.42; Recall Guidance. Recall Communications Direct Accounts A recalling firm is responsible for promptly notifying each of its affected direct accounts about the recall. Guidelines for communications to direct accounts: Explain concisely the reason for the recall and the hazard involved, if any; Provide specific instructions on what should be done with respect to the recalled products; Where appropriate, instruct the direct account to notify its customers who received the product about the recall; and Provide a ready means for the recipient of the communication to report to the recalling firm whether it has any of the product. If the depth of the recall is beyond the direct accounts, then the direct accounts should be instructed by the recalling firm to contact sub-accounts. See 21 CFR 7.49. Recall Communications Press Release Where a product is in the hands of consumers and may pose a significant health hazard, issuance of a press release should be the highest priority and it should be issued promptly. FDA will issue its own press release if the firm-initiated press release is not adequate. Press releases should be distributed as appropriate through: the general news media and/or specialized news media (e.g., professional or trade press). See 21 USC 375; 21 CFR 7.42; Recall Guidance. Human Drug Model Press Release Available at Effectiveness Checks The purpose of effectiveness checks are to verify that all consignees at the recall depth specified by the strategy have received notification taken appropriate action. The recall strategy must specify the method(s) to be used for and the level of effectiveness checks that will be conducted, as follows: Level A: 100 percent of consignees to be contacted; Level B: percent of consignees; Level C: 10 percent of consignees; Level D: 2 percent of consignees; or Level E: No effectiveness checks. The recalling firm will ordinarily be responsible for conducting effectiveness checks. FDA selectively conducts audit checks separately from the effectiveness checks of the recalling firm. Evaluation and Termination of the Recall FDA Status Reports: The recalling firm must submit periodic recall status reports to the FDA. Root Cause Analysis: The recalling firm must notify the FDA once the root cause has been established so that appropriate preventative measures can be taken. Corrective and Preventive Actions: Explain CAPAs to FDA that are planned or underway and advise FDA when CAPAs are in place. Recall Termination: A recall will be terminated when the FDA determines that all reasonable efforts have been made to remove or correct the product in accordance with the recall strategy, and when it is reasonable to assume that the product subject to the recall has been removed and proper disposition or correction has been made commensurate with the degree of hazard of the recalled product. See 21 C.F.R. 7.53; 7.55; Recall Guidance. Recall Campaigns in Germany and Europe Thomas Klindt Partner Noerr LLP (Lex Mundi Member Firm for Germany) General Rules: Germany Germany implemented the European provisions on product safety including the obligation to recall products Requirements also to be found in German tort law General Rules: Europe European product safety law: obligation to recall a product in case of serious risk Other risk levels might only trigger obligation to take less intense corrective action (design change for the future, taking product back from dealers or similar) Specific method of risk assessment implemented by the European Commission Notification obligation for b2c products, medical devices, feed&food From April 2016 on: new notification obligation for specific b2b products (e.g. Low Voltage) Experience with 5 Mil Diswasher Recall in 85 countries Regulation of Recall Campaigns in Colombia and Latin America Richard Galindo Director Brigard & Urrutia Abogados (Lex Mundi Member Firm for Colombia) General Rules: Colombia Right to receive safe products. The consumer has the right to receive products that will not threaten her life, safety or health during its normal use. Safety: Condition of a product that does not pose unreasonable risks to the health or life of the consumer when used under normal circumstances. Defective Product: Product that due to an error of design, manufacture, packaging or information, does not grant reasonable safety consumers are entitled to. General Liability Rule. Strict liability regime that requires only proof of defect, damage and causation. Liability of Supply Chain: Joint and several liability between manufacturer and retailers/distributors for direct damages on assets and health (excluding loss of profits). No privity required Duty to Inform: Colombia When a member of the production, distribution and supply chain becomes aware that at least one product manufactured, imported or sold by him, has caused or may cause an adverse event that threatens the health, life or safety of the consumers, it shall report the defectiveness of the product within the next three (3) calendar days to the consumer protection agency. The distributor or retailer that fails to comply with this duty will be jointly and severally liable with the manufacturer for the all damages arising from such failure. Duty to Recall: Colombia When a member of the production, distribution and supply chain becomes aware that at least one product manufactured, imported or sold by him, has caused or may cause an adverse event that threatens the health, life or safety of the consumers, it shall take corrective measures in connection with the products in circulation and those that have not been distributed; and The distributor or retailer that fails to comply with this duty will be jointly and severally liable with the manufacturer for the all damages arising from such failure.. Recall Campaigns - Automotive Industry: Colombia Mandatory when (i) defectiveness is found or communicated by any means; or (ii) when more than 4% of the units of the same make and model have the same failure, even if such failure does not pose a risk on the health, life or safety of the consumers. Notification of defectiveness must include: (i) description of failure; (ii) description of affected line or model; (iii) description of the campaign; (iv) number of potentially affected units; and (v) timeline for implementing recall campaign. No consumer relationship required to trigger protection. Duty to set up a formal mechanism to receive complaints and claims in connection with the defect or failure. Duty to upload information on the campaign on the official website of manufacturer and dealers. Recall Campaigns - Automotive Industry: Colombia Duty to explain if a recall campaign carried out abroad on vehicles sold in Colombia is not applicable in Colombia. Quarterly reports on results of the campaign. Target of 45% of units serviced/repaired during the last three months of campaign or 80% during the first year. If not, authority may issue orders to improve success rate of the campaign (e.g. issuance of press release). Campaigns end when more than 80% of units have been serviced/repaired. Recall Campaigns Other Products: Colombia Hazardousness required but not qualified. No special regulations on contents of a campaign. No special regulations on success and reports but in practice similar guidelines to those of applicable to automotive industry. Lack of precedents create uncertainty as to pro. Recall Campaigns Sanctions: Colombia Sanctions of the Superintendence of Industry and Commerce Fines of up to two thousand (2,000) minimum monthly legal wages (Approx. $500,000 USD) Temporary closure of the business for up to one hundred and eighty (180) days. Temporary or permanent ban to produce, distribute or offer certain products to the public. Fines up to three hundred (300) minimum monthly legal wage (Approx. $ USD) to managers of companies that breach the Consumer Protection Statute. Recall Campaigns Latin America: Who shall report the existence of the defective product? Peru: suppliers must notify to the Competent Authorities if they detect any kind of risk in its products that represents a potential danger for consumers. Mxico: suppliers shall inform the competent authorities as soon as the manufacturer/importer/distributor becomes aware. Argentina: suppliers who become aware that a product is dangerous after having it introduced into the market. Chile: Importer, manufacturer or supplier shall inform to the authorities if they become aware of the defect. Regulation Latin America: Are there time limits to report the existence of a defective product? Peru: no specific timeframe for the report. It should be done within a reasonable period considering the risks involved. Mxico: The report must be made immediately Argentina: The report must be made immediately Practical Tips for a Sucessful Global Recall Campaign: Ensure traceability of products (specifically have quick access to a list of all countries of distribution, delivery period, serial numbers, various brands?) Staff training: everybody must know what to do No communication/action before complete alignment Give some time for technical evaluation before decision is made Daily calls with core team at least during technical investigation until decision making Questions? Debra Clements Sr. VP, Sr. General Counsel & Corporate Secretary Milliken & Company Richard Galindo Director Brigard & Urrutia Abogados (Lex Mundi Member Firm for Colombia) Markus Hartmann Vice President & North American General Counsel Sandoz Inc. Thomas Klindt Partner Noerr LLP (Lex Mundi Member Firm for Germany)