A comprehensive guide to the legal implications around product liability in China. Prepared in association with Fangda Partners, one of China’s most prestigious and well-regarded law firms. This is an extract from The Pharma Legal Handbook: China, which can be purchased here for USD 99.
1. What types of liability are recognized in your jurisdiction?
Violation of laws and regulations may result in civil liabilities, administrative penalties and criminal liabilities.
Civil liability shall include:
- Discontinuance of infringements;
- Removal of obstacles;
- Elimination of dangers;
- Return of property;
- Restoration of original conditions;
- Repair, reworking or replacement;
- Resumption of performance;
- Compensation for losses;
- Payment for breach of contract damages;
- Elimination of adverse effects and rehabilitation of reputation; and
- Extension of apology.
Administrative penalties include:
- Forfeiture of illegal earnings, forfeiture of illegal property;
- Order to stop production and business;
- Suspension or withdrawal of permits, suspension or withdrawal of licenses;
- Administrative detention; and
- Other administrative punishments as stipulated by law or administrative regulations.
Criminal liabilities consist of principal punishments and supplementary punishments.
Principal punishments include:
- Mandatory control;
- Criminal detention;
- Fixed-term imprisonment;
- Life imprisonment; and
- Death penalty.
Supplementary punishments include (supplementary punishments may also be applied independently):
- Deprivation of political rights; and
- Confiscation of property.
2. How do these types of liabilities apply to the manufacturers of medicines and devices?
Pursuant to the Drug Administration Law and its Implementing Rules and the Medical Device Supervision and Administration Rules, noncompliance (depending upon the specific illegal activities) could be subject to different administrative penalties, including the monetary fine, confiscation of illegal gains, suspension of business activities, revocation of marketing authorization and other permits and license. In the worst scenario, violation of drug and medical device legislations may result in criminal liabilities.
For example, a company that sells drugs without proper marketing authorizations will be confiscated of all illegal gains, subject to an administrative fine of 2-5 times of the value of the relevant drug products, or criminal imprisonment if there is adverse impact on human health. A company that manufactures or sells devices without proper marketing authorizations may also be subject monetary fine, confiscation of illegal gains and suspension and debarment actions.
3. Does potential liability extend to the manufacturer only or could claims extend to corporate executives, employees, and representatives?
Claims could extend to corporate executives, employees, and representatives of a company. For example, a director or legal representative who breaches the fiduciary duty or duty of care may face civil, administrative or criminal liabilities.
A director or legal representative who breaches the duties will face the following civil liabilities: (i) if breach of the fiduciary duty, forfeiture by the company of any proceeds from the breach; and (ii) if breach of either fiduciary duty or duty of care, liability to compensate for losses suffered by the company as a result of the breach.
Directors falling within the regulated business sectors (e.g. banking, securities, insurance and other financial institutions) and legal representatives, in general, may face additional administrative penalties, such as fines and/or disqualification or prohibition from the market, for breach of the duties under the rules and regulations issued by the relevant regulators.
If a director or legal representative’s own acts amount to a criminal offence (e.g. fraud), he will be penalized. If the company commits a criminal offence (e.g. fraud) and if the director or legal representative or any other employee is a person directly responsible for the company’s wrongdoing, then he will also be penalized. This will particularly be a concern if a director or legal representative serves at the senior management, such as being the general manager, deputy manager or chief financial officer of the company.
4. How can a liability claim be brought?
Civil liability claims can be brought up by the aggrieved party as plaintiff in a civil court, or through arbitration if there is an arbitration clause in the underlying transaction documents.
Administrative investigations will be initiated by governmental authorities (such as NMPA or NHC) if there is suspected non-compliance with relevant laws and regulations upon findings by the authority itself or report of third parties.
Where there is a violation of the criminal statute by a person, the criminal cases are brought up and prosecuted by the procuratorate against the defendant in a criminal court in the interest of protecting the public welfare.
5. What defenses are available?
The following defenses are available for drug manufacturers:
- The medicinal products involved have not been put in the market by the manufacturer.
- The defect causing the damage does not exist at the time when the relevant product is put in circulation.
- The science and technology is at a level incapable of detecting the defect at the time the product is put in circulation.
- The statutory term of limitations for the action has expired.
- Jurisdiction objection.
- The medicinal products involved conform with regulatory and/or statutory requirements relating to the development, manufacturing, licensing, marketing and supply.
- No causation between the defect and personal injuries or property damages exists.