US National Highway Traffic Safety Authority shocks industry in Germany with record sanctions for product recalls

Compared to the European judicial area, product safety law in the USA has always stood out due to two special features. Firstly, greater emphasis is traditionally placed on consumer protection, which is repeatedly felt clearly by industry and trade when importing products in the USA. Secondly, the dominance of the state market surveillance authorities is much more pronounced in the USA (and in Canada) than in the EU area: this applies, for example, to the Food and Drug Administration (FDA) in the area of food and pharmaceuticals, the Consumer Product Safety Commission (CPSC) in the area of consumer products or the National Highway Traffic Safety Authority (NHTSA) in the area of automobile safety. And the USA in particular has in recent years repeatedly made a name for itself with spectacular recall campaigns with millions of vehicles, which is, however, a statistically logical consequence for one of world’s biggest automobile markets in terms of numbers. But even insiders have been surprised at how fiercely the NHTSA has reacted towards FiatChrysler with respect to allegations of problems with product recalls.

The whole approach is for us, who are used to German administrative procedures, more than unusual: The US Department of Transport (DOT), for example, held a public (!) hearing on 2 July 2015 in order to clarify the issue of whether FiatChrysler had acted and communicated properly in 23 (!) product recalls. The minutes of this hearing have also been officially published and can be accessed by anyone. On 26 July 2015, the DOT established three categories of infringements of the Motor Vehicle Safety Act for these 23 recalls (affecting a total of more than eleven million vehicles): it is accusing the company of a) failures to effectively and rapidly organise product recalls, b) failures in the communication to vehicle owners and automobile dealers and finally c) failures with respect to official notifications to the NHTSA as the competent authority. As a consequence of all this, FiatChrysler has in a settlement with the NHTSA agreed to its demands not only to repair defected vehicles, but also to buy back 1.4 million vehicles from their owners (!); FiatChrysler is also paying a record fine of US$ 105 (which even beats the recent record fine imposed on Toyota in connection with recalls).

A look at the European product safety law in EU Directive 2001/95/EC which applies for motor vehicles shows how much more comprehensive the powers of intervention and authorisations of the American authorities are compared to the competent European authorities: although Article 5 (3) also contains the obligation to notify the competent authorities of known safety defects, which if not complied with is in accordance with Article 7 also to be penalised with “effective, proportionate and dissuasive” sanctions imposed by the relevant Member State, in Germany, however, this for example only means a maximum fine of EUR 30,000.00, as is the case in many of EU Member States. Fines as high as those imposed in America are completely unheard of under EU law. The range of European regulatory powers (cf. Article 8 of the Product Safety Directive 2001/95/EC) available to the competent authorities of the Member States include prohibiting distribution, official warnings and recall orders. These certainly constitute very robust invention possibilities for the Member States. On the other hand, European administrative law does not recognise interventions in civil-law legal relationships, in particular the authority of a Member State to force an industrial company to buy back its products under private law.

Overall, this case once again shows how important it is for export-driven German industry to be sensitive to and extremely mindful of US law when it comes to product recalls involving the USA. Via the Product Liability & Product Safety Practice Group of our international law firm network LexMundi (our Partner Thomas Klindt was Global Chair of this Practice Group for two years) we can put our clients in touch with excellent product safety specialists in the USA.