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Requirements for Foreign Companies Entering U.S. Market

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By Greg Doherty & Justin J. Prochnow, Bolton & Company/Greenberg Traurig LLP | October 3, 2016

Companies must understand all of their insurance, regulatory and legal responsibilities.

International companies looking to enter the dietary supplement market in the U.S. have a long and winding road to navigate. Negotiating the maze of laws and regulations enforced by federal and state agencies can be a daunting proposition. A subset of these difficulties involves securing the insurance—product liability, principally—that will satisfy potential U.S. customers and let company principals sleep at night, knowing our litigious system. This article will examine the insurance and regulatory challenges companies face.

Liability Insurance

There are two categories of international companies we see that are interested in insurance protection for U.S. operations. Companies that 1) are already insured in their home country, with an insurer domiciled in that country, and 2) are not insured at all (not uncommon).

For those in the first category, the question that often first arises is: “will this policy cover us for sales/operations in the U.S.?” Generally the answer is no. Certain obstacles exist that make this the case. The foreign insurer is not licensed to do business in the U.S. and thus can’t legally offer coverage to anybody; therefore, customers of the company entering the U.S. will not accept a foreign insurer as evidence of insurance. In addition, many foreign insurers’ policies we have seen specifically exclude coverage for claims arising in the U.S. and/or for products sold there. The company with no insurance faces the same obstacles.

The solution is that a foreign company must secure coverage from an insurer licensed and domiciled in the U.S. The prerequisite to doing this is to form a legal U.S. entity. U.S.-based carriers are loathe to name a foreign corporation as the insured entity on the policy, as most policies have a definition of “policy territory” that would potentially cover the company’s products sold in countries other than the U.S., which is not the intent of the U.S.-based insurer providing the coverage.

Once the foreign company forms a legal U.S. entity, the application process for product liability becomes routine, the only caveat being that U.S. sales of the products must pass through this entity so that a proper audit can be performed by the carrier.

Legal & Regulatory Issues

The following is a brief summary of the state and federal agencies, as well as other actors, which are most responsible for regulating the sale of dietary supplement products in the U.S. Foreign companies wanting to sell their products in the U.S. need to be aware of all of them.

The Food and Drug Administration (FDA) is the primary federal agency responsible for overseeing the manufacture, distribution and sale of dietary supplements. The FDA is charged with enforcing the Federal Food, Drug and Cosmetic Act (FFDCA), which includes the Dietary Supplement Health and Education Act (DSHEA), as well as the numerous regulations issued by the FDA to further implement the provisions of the FFDCA. The FFDCA and the accompanying federal regulations address all of the various aspects of bringing products to market, including the manufacturing, labeling, packaging and holding of products.

While the FDA regulates labeling, the Federal Trade Commission (FTC), pursuant to the FTC Act, regulates all advertising. The FTC is responsible for ensuring that all advertising for dietary supplements is 1) truthful and not misleading, 2) not unfair, and 3) properly substantiated. The FTC closely scrutinizes the advertising for products, especially those in areas like weight loss, enhanced memory and concentration, and “natural” products. And since many pieces of promotional material may be both labeling and advertising, it is likely that both the FDA and the FTC will be viewing materials to ensure that consumers are protected.

Two other federal agencies that assist in the regulation of supplement products are the U.S. Customs and Border Protection (CBP) and the U.S. Department of Agriculture (USDA). The CBP works in conjunction with the FDA to review products at the border to ensure that products entering the U.S. are safe and compliant with U.S. laws and regulations. The USDA is the federal agency responsible for regulating meat, poultry and egg products. In addition, the USDA’s National Organic Program (NOP) regulates organic products, ensuring that products designated as organic have gone through the organic certification process.

In addition to these federal agencies and corresponding state agencies, dietary supplement companies have felt pressure from another source with increasing frequency over the last five years. Plaintiff lawyers, most notably in California, have targeted companies for making alleged false or misleading labeling claims. Such actions have been varied and frequent, including claims that a product is “All Natural”, “Non-GMO,” or “Made in the USA,” and non-compliant with California’s Prop 65 disclosure law. While most cases settle for some amount of money instead of going to trial, the time and cost associated with such actions can be a drain on a company’s resources.

Experts Can Help

Due to the scrutiny applied from all of the areas identified here, as well as others, it is of paramount importance that companies ensure they know and understand all of their insurance, regulatory and legal responsibilities. Otherwise, companies looking to enter the U.S. market could end up spending a lot of time and money, only to have products turned away at the border or end up engaged in protracted legal battles. Hiring knowledgeable personnel in-house or retaining a qualified outside counsel and insurance broker is the first, and perhaps most important, step to successfully entering the U.S. marketplace.

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