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Samsung Recalls Expanding to China After Consumer and Media Complaints

Samsung's much-publicized recall of the new Samsung Galaxy Note7 phones due to alleged fire hazards of lithium-ion batteries started in North America. Within weeks, after a media and social media outcry in China, the company expanded the recall to cover consumers in China. Samsung's decision to expand the recall to cover consumers in China echoes the recent experience of other major international brands involved in high-profile consumer product recalls, and illustrates a longstanding challenge and two emerging trends. First, it has long been difficult to identify what, if any, defect a consumer product poses when presented with experience data suggesting a hazard may exist. Second, in the "no good deed goes unpunished" category, is the increasing risk that swift direct communications to U.S. consumers about a potential risk - which is not prohibited in any way by the U.S. Consumer Product Safety Act (CPSA) - will result in a public backlash by regulators complaining about a "go it alone" strategy when a company acts unilaterally. Third is the growing power of the consumer movement in China. All of these factors illustrate the need to consider a holistic global notification and recall strategy. Accordingly, today's product recall landscape has become far more complex.

The path to the Samsung recall of the Galaxy Note7 began shortly after the devices were made available for sale on August 19, 2016. Reports quickly began coming in concerning overheating of the phone's battery, including reports of injuries and fires. By September 2, Samsung had received enough reports in North American and other markets to publicly announce a unilateral partial recall of Galaxy Note7s sold in those markets. This initial announcement was not issued in the usual form of a joint press release in cooperation with the U.S. Consumer Product Safety Commission (CPSC) or other safety agencies. Although recalling a product without CPSC agreement is entirely legal, the CPSC strongly prefers to negotiate with companies over the terms of their voluntary recalls, and can force mandatory recalls if it deems companies' actions insufficient. The sale of products covered by a recall - including products recalled voluntarily - is also a violation of the law, and CPSC immediately criticized Samsung for the unilateral action.

A traditional formal recall announcement of covering some Galaxy Note7 units was subsequently issued by Samsung, CPSC, Health Canada, and Profeco (Mexico's Procuraduría Federal del Consumidor) on September 15. Reports of overheating and fires associated with additional units not included in the recall continued to come in, however, as well as reports associated with replacement units. This led the company to expand its recall to cover all Galaxy Note7s on October 13.

Meanwhile, in China, Samsung announced only a limited recall of 1,858 units on September 14. The company justified the narrow recall by pointing to the different batteries used in Chinese units, asserting that the only affected units were pre-sale samples offered to a limited universe of consumers. Reports spread in the Chinese news and social media about the breadth of recalls in North America, and Chinese users posted photos and videos in social media showing the phones failing ("exploding," as the consumers described them) in China. Samsung disputed some of those reports. The official state-run broadcaster, China Central Television (CCTV), however, castigated the company, asking "[i]f Samsung continues to violate the legitimate rights and interests of Chinese consumers and continues to refuse to make public the samples used in its testing process as well as the process itself, who would be able to help Chinese consumers find the truth?" Critiques also came in from other government-associated media sources. After the Chinese consumer product agency, General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) received about 20 reports of overheating, Samsung recalled its Chinese units on October 11, just before recalling all units worldwide and cancelling the Galaxy Note7.

When user reports of batteries overheating began coming in after the Galaxy Note7 was launched, Samsung reportedly began an immediate investigation. Conducting a sound product-safety root-cause analysis is hard. Samsung appears to have opted to make a public announcement about the potential battery issue based on its initial assessment of the cause of the issue. Its actions in publicly notifying consumers were clearly motivated by an interest in advancing consumer safety by a swift public notice. But further reports involving replacement batteries and criticism by CPSC for the firm's unilateral action in notifying the public illustrate the conundrum that consumer product firms face every day: It is hard to balance the need to precisely identify potential safety issues (and notify regulators about them) with a desire to quickly advise the public about potential safety concerns.     

Global interconnectedness, including through the internet and social media, complicate the situation further. National recalls can easily become international recalls. Although there is little evidence, to date, that pushing recalls on social media meaningfully improves recall response, there is no question that Chinese consumers are turning to social media to pressure global businesses to recall products in China when those products are recalled elsewhere. Ironically, after years of Chinese exports being called into question by recalls in the U.S., Europe, and elsewhere, Chinese consumers are insisting that the products sold in the Chinese market must be held to safety standards applicable elsewhere, and that Chinese consumers be offered equivalent remedies.

In today's fast-paced social medial environment, consumer product companies must carefully consider not only the facts on the ground and the legal framework, but also the potential social media scrutiny and resulting implications of regionally limited recalls for globally distributed products. There may well be excellent safety arguments that justify not recalling products everywhere, but in today's environment, decisions to limit recalls to specific jurisdictions require a strong basis of support and considerable on-the-ground effort to work with regulators and understand the market dynamics.  

© 2017 Keller and Heckman LLP

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About this Author

David J. Ettinger, Keller Heckman, Partner, Food and Drug Corporation, International Trade Lawyer, Attorney, Shanghai, China
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David Ettinger joined Keller and Heckman in 1999. Mr. Ettinger represents domestic and foreign corporations in the area of food and drug law.

Mr. Ettinger relocated to Keller and Heckman's Shanghai office in November 2012 to focus on the Asian market and counsel companies in the Far East on food, drug, and chemical regulatory matters. He has extensive experience counseling clients on product development and product protection of food and drug packaging in the United States, Europe, Asia, Canada, and South America. From 2006-2007, Mr. Ettinger...

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Sheila Millar, Keller Heckman, advertising lawyer, privacy attorney
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Sheila A. Millar counsels corporate and association clients on advertising, privacy, product safety, and other public policy and regulatory compliance issues.

Ms. Millar advises clients on an array of advertising and marketing issues.  She represents clients in legislative, rulemaking and self-regulatory actions, advises on claims, and assists in developing and evaluating substantiation for claims. She also has extensive experience in privacy, data security and cybersecurity matters.  She helps clients develop website and app privacy policies, data security and access procedures, manage trans-border data flows, respond to data breaches and create training programs. She assists clients on digital media issues, helping them develop social media, blogging and user-generated content policies, and to understand advertising technology and online behavioral advertising issues.  Ms. Millar also works with clients to navigate the array of federal and state requirements governing contests and sweepstakes, and advises on gift cards, coupons and rebates.  She represents clients on advertising and privacy matters before the Federal Trade Commission (FTC), the Children’s Advertising Review Unit (CARU), the National Advertising Division (NAD), as well as in connection with investigations by state regulatory bodies and Attorneys General.

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Jean-Cyril Walker, Keller Heckman, Environmental Compliance Lawyer, Renewable Fuel Standards Attorney
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Jean-Cyril Walker joined Keller and Heckman in 2000. He advises clients on a wide range of environmental matters, including compliance with U.S. requirements governing the safe management and disposal of chemical and hazardous substances. Mr. Walker counsels fuel industry clients on federal and state requirements governing the development and distribution of fuels and fuel additives, including the renewable fuel standards (RFS and RFS2), and matters involving renewable fuel identification number (RIN) transactions. Mr. Walker regularly advises industry and trade...

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