The popularity of electronic cigarettes, vaporizers and other electronic nicotine delivery system (ENDS) products (“e-cigs”) has significantly increased in recent years. As with other growth industries, counterfeit products have flooded the e-cig market. Foreign manufacturers are selling counterfeit devices, component parts, batteries and e-liquid to unknowing consumers, as well as U.S. distributors and retailers. Many of these counterfeit products lack certain safeguards and thus can be more prone to combust or have other unintended risks. With the rise of product liability claims resulting from e-cig failures, those in the industry should understand how to address issues regarding counterfeit e-cig products. This client alert discusses types of counterfeit e-cig products, how those in the industry can protect themselves in connection with their operations and ways to defend against lawsuits related to counterfeit products.
Understanding Counterfeit E-Cig Products
Foreign companies, many of which are located in China, are notorious for reverse engineering authentic products to manufacture cheaper versions—and e-cigs are no exception. Although China is home to some of the best e-cig manufacturers in the world, there are hundreds of other Chinese e-cig manufacturers producing counterfeit goods that flood the U.S. market.1 Counterfeit e-cig products can be made to resemble an authentic, name brand product. The cloned products look real, but the counterfeit manufacturers often use lower quality materials, use inaccurate labeling, and disregard safety regulations. Manufacturers of genuine e-cig products are subject to certain FDA requirements, such as submitting a PMTA (pre-market tobacco application) or MRTP (modified risk tobacco product) application before selling the product.2
Counterfeit manufacturers may sell knock-off component parts for use in an authentic device, such as a battery or e-liquid pod. Counterfeit batteries are often made with lower quality lithium-ion, steel, or plastics. Impurities in low quality metals interfere with the smooth transition of charged particles, which makes for a short-lifespan, inadequate performance, and increased likelihood of a thermal runaway (i.e., combustion).3 An authentic e-cig with a quality processor and parts will typically have a 10-second cutoff, meaning the device will only allow power to be drawn from a battery for a maximum of 10 seconds to prevent a thermal runaway.4 Combining an inferior lithium-ion battery, a substandard processor, and a poorly constructed device can significantly increase the chance of combustion.
Counterfeiters may also take batteries not suited for use in e-cigs and “rewrap” them to resemble e-cig compatible batteries. Rewrapping involves replacing the battery label and prevents consumers and others in the supply chain from ensuring that the rewrapped battery contains the correct voltage level compared to the label. Without the proper voltage, these rewrapped batteries can be at serious risk for combustion.
While combustion incidents have been the focus of the majority of e-cig litigation to date, counterfeit e-liquid can be dangerous as well. E-liquid is the mix of water, glycerol, propylene glycol, flavors and (usually) nicotine used to create the vapor for e-cigs.5 Counterfeit e-liquids may contain ingredients or concentrations that do not match those on the label. For example, counterfeits may contain a different quantity of nicotine than what is shown on the label, or impurities such as other drugs and chemicals such as vitamin E.6 Counterfeiters also take empty cartridges and replace them with their own e-liquid.7
While much is still unknown about the long-term health effects of e-liquid, it has recently been in the spotlight with the thousands of lung illnesses reported across the country from using e-cigs. According to the U.S. Centers for Disease Control and Prevention (the “CDC”), most of the nearly 2,300 people who suffered lung damage from vaping had vaped liquids that contained THC (the high-inducing chemical in marijuana).8 The role of counterfeiting in such cases could become an issue as those involved evaluate the source of the e-liquid and its contents.
Protecting Your Company Against Counterfeit E-Cig Products
It is important for e-cig product sellers downstream from the manufacturer (i.e., distributors and retailers) to protect themselves against purchasing counterfeit products. In addition to ensuring that consumers are provided with a high-quality product, this will limit risk of future product liability claims against the company.
Companies have multiple ways of protecting themselves against purchasing counterfeit products. As an initial matter, companies should purchase from known manufacturers or suppliers with a reputation of providing authentic, high-quality products.
In addition, many leading manufacturers equip their products, including mods, tanks, and coils, with a product ID number that can be cross-referenced to show that the product is genuine. Distributors and retailers can then enter that code into the manufacturer’s website. If the product is counterfeit, the code may come back as invalid or the system will note that the code has been checked in the past.9 A previously checked code indicates that a counterfeiter may have copied the authenticity code in an effort to produce a convincing replica. Distributors and retailers should purchase their products from manufacturers that provide this protection or request that it be implemented.
Even if products do not contain product ID codes for evaluating authenticity, distributors and retailers can request certificates or assurances of authenticity from their suppliers prior to purchasing the products.
Defending Against Lawsuits
If named in an e-cig lawsuit, determining at the outset whether the product at issue is counterfeit can significantly impact the overall defense strategy. Engaging an experienced electrical engineering expert can assist with determining authenticity and the source of any malfunction, including potential misuse by the plaintiff.
If the product is authentic, this may increase the defendants’ chances of demonstrating that the plaintiff misused the product by, for example, failing to follow instructions for using it properly (e.g., plaintiff put a battery free of defects in his or her pocket without a carrying case). Also, from the distributor and retailer’s perspective, showing that the product is authentic may help keep the alleged manufacturer in the lawsuit. This could enable the distributor or retailer to get out of the lawsuit under an innocent seller statute or lessen potential exposure to a significant judgment. At a minimum, it could help defray costs of defense and settlement for a distributor or retailer.
If a product is counterfeit, this could allow an alleged manufacturer to avoid the lawsuit altogether on the basis that it did not manufacture the product. Distributors or retailers may also be able to get out of lawsuits by demonstrating that they could not have sold the counterfeit products depending on any available product ID information, as discussed above.
If the manufacturer gets out of the lawsuit, the distributor or retailer could be the only viable defendant left in the supply chain. For example, while the counterfeit manufacturer may become a proper defendant, it may not be identifiable, or may be a “fly-by-night” company that frequently moves its operations to avoid liability. Even if a counterfeit manufacturer is identified and located, obtaining jurisdiction over the company and ultimately collecting on any judgment against it is often not possible or cost-prohibitive. Accordingly, it is critical for distributors and retailers to determine at the outset of a lawsuit involving an alleged counterfeit whether any other component parts could have contributed to the incident. For example, in a case involving a counterfeit battery, an expert should be engaged to evaluate whether the device or charger could have contributed to the incident. If so, even if the alleged battery manufacturer gets out of the lawsuit, those in the supply chain for the device or charger may be viable parties to add to the lawsuit.
Regardless of whether other parties can be added to the lawsuit, it is important for distributors and retailers, which are closer to the consumer, to demonstrate that they took steps, such as those mentioned above, to protect against counterfeits. This not only helps rebut claims that the company unreasonably endangered consumers, but it also may impact the company’s ability to argue that its upstream supplier should be liable.
Counterfeit e-cig devices and parts are a dangerous and increasingly prevalent issue in the e-cig market. Unfortunately, there is often no straightforward way to deal with counterfeit manufacturers and the impact that their products have on companies downstream, including in connection with litigation. Those in the industry should consider the steps discussed above to protect against counterfeiting and should have a reliable strategy to identify authentic products. When faced with an e-cig product liability claim, it is important to first determine if the product in question is counterfeit, and if so, develop a defense strategy accordingly.
For more information about how these cases might affect your business and/or current or pending litigation, please contact one of the attorneys on the E-Cigarette/Vape Team.