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Liability & Confidentiality Issues

Eugene Ung

August 29, 2011

2 Min Read
Liability & Confidentiality Issues

The issue of confidentiality in regards to proprietary formulations is a concern of many customers. In the contract manufacturing of dietary supplements, there are very few data, formulations, etc. that are truly ground-breaking. Formulations and products are often copied or reverse-engineered. With that being said, confidentiality is legally ensured primarily through signing NDAs (non-disclosure agreements). However, there are other ways you can tell if a company has a culture/habit of ensuring confidentiality: Do they speak openly about the customers they currently manufacture for? Are they telling you very detailed specifics about a new product innovation that they’re working for another company? If they are saying all these things about other customers, chances are, they may tell others about the work they’re doing for you.

Another legal issue relates to liability. The risk and responsibility really depends on the type of event. Typically, there are legal events (such as adverse events/injury) and regulatory events (recalls, claims substantiation, compliance failures), or a combination of the two.

In legal events, generally speaking, the prosecuting lawyers will try to include everyone involved in the product from the retailer, wholesaler, distributor, manufacturer, raw material supplier, etc. The way most companies protect themselves or mitigate their risk in this area is to have product liability insurance. In fact, many larger retailers and marketers require their contract manufacturers to carry product liability insurance. Similarly, many manufactures also require their customers and supply chain vendors to also have their own product liability insurance. When a problem arises, generally speaking, the product liability insurance will kick in to help provide legal support and cover other costs.

In regulatory events, the responsibility is shared between the marketer and manufacturer. The marketer is responsible for the claims made on their marketing materials (i.e., website, brochures, store displays, etc.) while the manufacturer and marketer are jointly responsible for claims made on product labels. There has to be a very clear line and understanding between marketer and manufacturer when it comes to product labels. Manufacturers will often review and “approve” customer supplied labels to ensure they are FDA compliant. However, sometimes, marketers may not agree with certain edits as suggested by their manufacturer because the FDA language is not crystal clear in many areas, and different interpretations of the GMPs may exist. In these cases, the manufacturer will normally ask the marketer to write a letter that the manufacturer had reviewed their label, and that the marketer will take responsibility for the label.

Liability/risk/responsibility is certainly shared, and it’s in the best interest of either manufacturer or marketer to do some homework with whom they’re working with. For example, as a manufacturer, you may not want to manufacture products for a customer who is aggressively marketing with products with questionable ingredients and outrageous claims. You may do everything by the book from a manufacturing perspective, but you may get dragged into lawsuits or come under FDA scrutiny because of your customer’s actions.

About the Author(s)

Eugene Ung

CEO, Best Formulations

Eugene Ung, CEO of Best Formulations, has been in the dietary supplement industry for over 20 years and has deep experience and knowledge in executive management, strategic operations, manufacturing, product development, marketing and regulatory affairs. As CEO, Eugene oversees the overall strategic direction of the company, focusing on customer relationships, product innovation and employee development to grow Best Formulations into the industry’s leading contract manufacturer. Eugene graduated with a B.A. in Nutritional Sciences from Cornell University and is a founding board member of the Nutrition Industry Association West.

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