The brand implications of class actions
A trend towards a more friendly class-action regime in the UK needs careful watching, particularly by companies that depend on their brand(s) for their competitiveness. Experience of class actions in other jurisdictions, in particular the US, indicates that the negative implications for business of a permissive class actions regime in terms of both costs and reputation could be significant, particularly if claims with limited benefits for individual claimants proceed unchecked.
The increased litigation risks that come with a more permissive regime can be expected to enhance compliance and increase consumer empowerment. These positive effects need to be offset against potentially negative effects which policymakers must heed for a holistic view. The US experience, where the courts operate an “opt out” approach, presents a salutary picture of the potential winners and losers.
Class actions based on clear consumer harm are uncontentious, though the US experience suggests that litigation can be driven more by lawyers seeking out minor regulatory infringements where there is no consumer injury or detriment. Whether any specific case is considered vexatious is down to the individual judge.
Aside from the drivers of litigation, the costs and reputational damage arising from adverse judgments make this the area of highest risk for US branded companies. Rewards to the claimants’ counsel influence the scale of final settlements and penalties may amount to full refunds for all affected products sold in a class action period, amounting to eye-watering sums and implications that the product is worthless. Alternatively, damages may amount to a proportion of the defendant’s product price over a lower-cost alternative, undermining any case for premiumisation.
Under the US approach, defendant companies are required to publish notices, in broadcast as well as social media, to notify affected consumers, compounding the reputational damage.
If a more permissive regime is introduced in the UK without detailed consideration of the benefits and risks, there could be adverse unintended consequences. For example, companies may be prompted to focus more on risk management than consumers’ best interests and the potential scale of damages could fuel higher prices for consumers more generally. A balanced approach is critical so it is an area of policy with which branded companies need to engage over the coming years.
This Brands Blog was originally published by CMS as part of their Advising the Board on Class Action Risk report. CMS is an associate member of the British Brands Group (contact Colin Hutton Tel: 0131 200 7517 and Email: email@example.com).