CONSUMER PROTECTION

In the fall of 1982, seven people were found dead in the Chicago area form cyanide in Extra-Strength Tylenol capsules. The bottles which contained the capsules had different lot numbers and came from different plants, ruling out the possible of employee tampering on the production line. Rather, they theorized tampering after they reached retail shelves. Johnson & Johnson immediately recalled 93,400 bottles after authorities theorized that the killer drove along Route 53, turning off at randomly selected points to place a poisoned bottle of capsules in each store.

Soon thereafter, the Food and Drug Administration met to draft tamper-resistant packaging that went into effect on February 7, 1983.

Damage to Johnson & Johnson was substantial. Consumer confidence in Tylenol fell and eventually 31 million bottles of Tylenol were recalled nationwide at a cost of $50 million after taxes. Eventually, consumer confidence was regained with new packages and the company’s image was enhanced by the way it handled the incident.

Trust forms the basis for successful marketplace transactions. Consumers possess rights in the marketplace from a number of practices that can infringe on these rights. Government beginning with the Pure Food and Drug Act in 1906 has acted to protect those rights.

The Consumer Bill of Rights includes the following: 1) the right to safety, 2) the right to a choice, 3) the right to know, 4) the right to be heard, 5) the right to recourse and redress, 6) the right to full value, 7) the right to education, and 8) the right to representation and participation.

Government Agencies

The Federal Trade Commission established in 1914 protects consumers against "unfair methods of competition" and "unfair or deceptive acts or practices in commerce." The FTC issues cease and desist orders with regard to business practices and enforces specialized consumer protection statutes, such as Truth-in-Lending, Truth-in-Packaging, or Fair Credit Reporting Acts.

The FTC has 5 commissioners and is organized into three Bureaus, including the Bureau of Consumer Protection. The FTC has swung from being inactive prior to "Nader’s Raiders" to increased activism beginning in the 70s. In late 1970s congress was concerned over excessive FTC consumer action and began to talk about the legislative veto. The Veto was use by congress in 1982 to overturn the FTC rule requiring used car defects to be attached on a sticker for each car. (Later the Supreme Court found the Legislative Veto unconstitutional.) The activist era ended with Ronald Reagan’s presidency. In the 1990s the FTC has again become more active, especially regarding claims in advertising.

The Consumer Product Safety Commission was created in 1972 to protect the public against unreasonable risks of injury associated with a wide range of consumer products. Another 5 member commission covers a broad range of consumer products. It also enforces specific legislation, including the Flammable Fabrics Act, the Refrigerator Safety Act, the Hazardous Substances Act, and the Poison Prevention Packaging Act. It establishes standards, bans hazardous products, initiate and monitors recalls, helps to establish industry standards, gives consumer information, tests products, collects and publishes injury and hazard data, and harmonizes federal with state and local product safety laws and enforcement.

3. The Food and Drug Administration protects the public against impure and unsafe foods, drugs, and cosmetics and regulates hazards involving medical devices and radiation. The FDA also has responsibility for specific consumer legislation such as the Fair Packaging and Labeling Act.

The FDA regulates new drugs, requiring a thorough assessment by teams of physicians, pharmacists, chemists and statisticians from the Bureau of Drugs within the agency.

Medical devices must be approved before sale on the market. The composition, quality, nutrition, and safety of foods and food additives must also be approved, including any food additive that is found to cause cancer in animals as well as humans. In 1991, after a lassiz faire period during the 80s, the agency was revived by a new commissioner who planned aggressive enforcement of FDA regulations in several areas, including a high profile assault on food labeling. The commissioner also attacked the drug industry for questionable advertising and promotion.

Recently, a federal court ruled that FDA regulation of tobacco was not justified on the basis of nicotine being a drug.

The National Highway Traffic Safety Administration was created in 1966 to set safety standards for motor vehicles and equipment. It also has the authority to set standards for fuel economy and emissions.

Consumer Advocates consist of independent groups and organizations that are active in raising consumer issues and in supporting consumer causes. Their influence decreased during the conservative 1980s but have increased during the 1990s.
Business reaction to consumer concerns has changed from largely negative to more proactive as a way of improving public image. Business generally holds the ideology that the marketplace provides adequate protection for consumers and unscrupulous competitors will eventually be exposed and driven out of business. Some businesses have at least adopted a posture of reasonable accommodation to consumer groups.

CONSUMER ISSUES

Food safety legislation was originally passed in 1906 because some food packers were putting foreign substances into food to make it last longer or to increase its bulk and weight. In 1938, the Federal Food, Drug, and Cosmetic Act prohibited the sale of adulterated and mislabeled food, drugs, and cosmetics in interstate commerce. In 1958, the act was again amended to address food additives, making them unlawful unless adequately shown through scientific procedures to be safe under the condition of their intended use. The toxicology testing requirements of food additives has evolved with knowledge, including testing on animals and human experience. The Delaney Clause involving test dosages of additives that may cause cancer was always interpreted to mean "zero tolerance." Until recently it offered no discretion on the part of the FDA to examine risks versus benefits.

Amendments to the Delaney Clause that introduce "significant risk" into the decision making process, allow a team of scientist to evaluate the potential toxic risk of additives under normal circumstances.

What standards of safety should apply and what risk levels should be accepted? Use of Alar in pesticides may cause one case of cancer for every 4,200 preschoolers, 240 times the acceptable standard. 60 Minutes and Meryl Streep resulted in apples being removed from school cafeterias in New York City, Los Angeles, and Chicago, with other cities following suit. Alar-free apples were advertised, but the state of Washington where 50 percent of the nation’s apples are grown loss $100 million in revenues.

In the early 1990s bioengineered foods began to appear on the market. Sweeter tomatoes, longer-lasting peppers, leaner pork, and healthier cooking oils were the result of biotech industry. In general, the FDA must approve all plant generated products, but not biotech foods involving meats, poultry, fish, or dairy products.

Deceptive Advertising and Food Labeling is another concern that has developed over the past several years. Affirmative disclosure requires companies to tell the whole truth about their product. The FTC requires proof to back advertising claims. (Is Ford quieter?) Would a reasonable consumer be hurt by the ad? Corrective advertising, according to the FTC is required to undo deceptive advertising. (Hi-C Fruit Drink, Profile Bread, Listerine, etc.) R.J. Reynolds Foods Company was required to cease and desist its alleged misrepresentation of Hawaiian Punch as well as disclose the true facts (fruit proportions) of the drink.

In 1987 the "anything goes" era began with the FDA abandoning a 90-year-old rule barring all health assertions from food with regard to prevention from disease. New food labeling guidelines allow for consumers to make their own choices regarding fat content, saturated fat, calories, cholesterol, sodium, carbohydrates, and protein in the context of a daily diet of 2000 calories and 65 grams of fat. Serving sizes are also uniform.

Drug Regulation has increased the average approval time for a new drug to an estimated 10 years, with an average of 17 new drugs approved each year. The rate of return on R&D has fallen to about one-third its pre-regulation era and caused drug companies to put more money in product development rather than research.

The drug approval process proceeds in three phases. Phase I tests the drug for toxicity and determines how it is metabolized in the body. Phase II is a controlled trial to from 50 to 200 subjects. Phase III studies its effects on 200 to several thousands subjects.

Foreign countries approve drugs much faster than in this country. Critics of regulation in this country say that American consumers are denied health advantages and benefits of new research. Proposals are continually being made to speed up the process to approve breakthrough drugs in the case of severe, life-threatening illnesses. Proposals include relying more on foreign data and contracting with private medical staff.

Approval of AZT to treat AIDS was obtained much earlier than usual because the FDA worked with company researchers on the projected. New drugs are likely to treat cancer, Alzheimer’s, Parkinson’s, arthritis, etc. that could benefit from the same process.

Based upon the standard statistical decision making network, a type 2 error of accepting a drug that is harmful takes priority over a type 1 error of rejecting a new drug that is effective. Reporting schemes are more likely to document the harmful side effects of drugs than the positive beneficial effects of their use.

The Justice Department has been involved with the controversy over the use of generic drugs after the 17-year patent on a brand-name product has expired. There has been a very competitive market for their approval and use that has led to some evidence that FDA chemists were paid off to gain faster approval of generic products that falsified laboratory test results. The result was more regulation on generic drug approval that makes it difficult for small firms to enter the market and smaller cost savings to consumers.

Product Liability insurance rate have increased dramatically, with 3 in 20 companies not able to get insurance coverage at all, and some 7 in 20 considering going without coverage because of the expense. High insurance fees, additional costs from attorney’s fees, nuisance suits, and unwanted damage awards have costs billions of dollars that are passed on the consumers.

The first million dollar jury award occurred in 1962, while 401 such awards were offered in 1984 alone. The average verdict in product liability cases now tops $1 million. Ten juries handed out awards of over $25 million in 1989, reaching a high of $76 million to two workers that were exposed to asbestos. In 1993, a $105.2 million award in compensatory and punitive damages was assessed against General Motors after the death of a teenager whose pickup truck burst into flames after a crash. (The truck had outside-mounted gas tanks.)

The liability crisis has not abated, as juries award compensation for nonquantifiables, such as pain and suffering, and punitive damages that go far beyond actual damages. Many manufacturers have been forced to abandon products and markets they spent years in developing. Prices have been increased and product innovation reduced. The aviation industry produced only 1,085 aircraft in 1987, compared with 17,000 in 1979. The average cost of product liability coverage for each aircraft reached $70,000 compared with $51 in 1962. A surcharge to cover the cost of liability insurance on new planes by Beech and Cessna resulted in prices that could not compete with used planes on the market.

A theory based upon "reasonable person" negligence and limits to punitive damages would offer a replacement of "strict liability" theories that holds the producer or seller responsible for damages if a consumer is injured as a result of a product defect regardless of the degree of care exercised by the consumer. The Supreme Court has had several opportunities to place limits on punitive damages, but has been unable to find a constitutional foundation. Businesses have appealed for federal legislation to provide such limits. The liability crisis is particularly acute in the health care industry and has added to a movement toward tort reform that would place limits on damages in an effort to reduce health care costs.

Business organizations, the insurance industry, the medical profession, and assorted groups of educators and public officials favor limits, while personal injury lawyers, labor unions, and consumer and environmental groups oppose limits. Congress has been unable to pass legislation due to the opposition. Production liability will thus continue to be a major management problem that will require additional attention regarding warnings about using products, quality control systems to eliminate defects, and product design to eliminate hazards. Companies are adopting self-insurance strategies to avoid paperwork with insurance companies.

Tort law is likely to remain a principal method of redistributing resources away from active economic producers to passive "victims" of the economic system, just as the welfare system that was expanded during the 60s and the actions of regulatory agencies that were expanded during the 70s have done in the past.