South Korean companies have made great strides in the US consumer product market, yet they must be more proactive in preventing US class action lawsuits.
South Korean companies have progressively exposed themselves to one particular threat that is characteristic to the US market, as they make inroads into the country: the risk of being targeted by consumer class action lawsuits. These lawsuits abound and illustrate the need for South Korean legal departments to be prepared to face litigation that can cost millions of dollars in legal fees and damages.
Large South Korean companies have been targets of numerous US class action lawsuits. For instance, a leading Korean manufacturer had to deal with a lawsuit where a putative class of owners of certain refrigerator models were sued for alleged defects. Television sets have also been the subject of a class action lawsuits in the United States, as well as front-load washing machines and car engines.
“The types of Korean industries being targeted for class actions are expanding, including Korean ramen makers for alleged price fixing,” says James K. Lee, head of White & Case’s Korea practice. In 2013, for example, class action lawyers targeted noodle makers Nongshim, Ottogi, Samyang Foods and Korea Yakult after they were accused of fixing the prices of some varieties of ramen.
The class action procedural rules, combined with the consumer protection laws of many states, have created a difficult environment for companies that sell consumer products, and plaintiffs’ lawyers specializing in class actions are always monitoring consumer products companies for opportunities to file a class action.
There have, however, been positive developments for South Korean companies in the United States. In recent years, the US Supreme Court confirmed that companies may agree in advance to arbitrate disputes on an individual basis with consumers rather than as a class. However, significant risks remain for companies that are not proactive and do not institute a strategy to prevent class actions before they are filed.
Even less-known South Korean companies are on the radar of the plaintiffs’ consumer class action attorneys.
According to Bryan Merryman a partner at White & Case in Los Angeles, South Korean firms that are sued in the United States typically operate in the consumer electronics market. Their products are pushed to market quickly and consumers pay a lot of money for them and expect them to work perfectly, which is often not the case with new technology.
“Technologies change quickly, and the expectations for such products are high. If the product does not meet expectations, even in a minor way, there is often a consumer class action filed,” Merryman says. “These lawsuits often challenge the accuracy of the advertising and marketing that was used to sell the product.”
The problem is compounded by the use of social media platforms by plaintiffs’ firms and consumer activists. Today, unhappy consumers, who used to call a company and ask for a refund, can go online, read reviews or exchange information—whether or not accurate—on blogs and other platforms, and create the appearance of a more serious issue, or easily locate a lawyer to file a case. “The mere threat of a class action is often enough to cause companies to modify products or change advertising or a marketing strategy, even if the companies do not believe they have done anything wrong,” notes partner James K. Lee, head of White & Case’s Korea practice.
The problem is compounded by the use of social media platforms by plaintiffs’ firms and consumer activists.
States of complexity
A major Korean company recently had this experience concerning new technology introduced into some of its smart TV sets. A privacy group filed a complaint with the US Federal Trade Commission claiming that the company’s TV sets were intercepting and recording private communications of consumers in their homes. The company responded that users could disable the feature if they did not want to use it. But the complaints continued, and class actions became a threat.
As a result, the company changed how the feature worked. What steps do South Korean companies need to take to lessen the risks of class action lawsuits in the United States? “Understanding US consumer protection laws is essential,” according to Lee, “because the rules that apply to advertising and marketing are very complicated and may differ from state to state.
“The key is to be proactive and to consider what the company can do to minimize the likelihood that a case will be filed,” Merryman observes. “For example, many companies are able to place an arbitration and class waiver agreement in their consumer agreements, warranties, or other documents given to purchasers that may enable the companies to avoid class actions altogether. In addition, a company should always consider potential class action liability when it comes to developing marketing plans, packaging, advertising and the use of social media.”
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