Alerts and Updates

With Efforts Underway to Overhaul the CPSC, Now Is the Time to Re-Examine Consumer Product Safety Compliance Programs

May 28, 2008

Bipartisan efforts are well underway in the U.S. Congress to make sweeping changes to the laws enforced by the Consumer Product Safety Commission (the "CPSC"), the federal agency that regulates the safety of consumer products. These efforts, prompted by last year's highly publicized recalls of tainted toys, will likely result in a more active and aggressive agency. In the last few months, the CPSC has increased both its surveillance activities and testing of suspect products. Moreover, the CPSC has entered into agreements with various foreign states that export large numbers of consumer products to the United States that are aimed at deterring tainted products from entering the United States. Based on these developments, those involved with the sale, manufacture or importation of consumer products should closely examine their consumer products programs to make certain they understand and are in compliance with present CPSC laws/regulations. They should also be prepared to comply with the proposed changes, which could fall into place within the next year.

The CPSC

The CPSC was created in 1972, at a time of heightened awareness about consumer safety and environmental issues. The agency is charged with regulating the safety of consumer goods, which are essentially any products used in and around the household. The CPSC estimates that it regulates more than 15,000 different types of consumer products, which can encompass almost anything imaginable found in the household, including toys, clothing, consumer electronics (i.e., computers, televisions, stereos, MP3 players and electronic games), batteries, household cleaners, garden tools, household appliances, furnaces, mattresses and lighters. The CPSC does not regulate automobiles, drugs, tobacco and/or alcohol. Products that are in violation of CPSC statutes/regulations are subject to recalls that can be very expensive. Such recalls can involve large-scale consumer notification programs and actual replacement of the recalled device. Currently, individuals and/or corporations that violate CPSC statutes/regulations can be subject to civil penalties of up to $1.8 million and criminal penalties of up to one year in jail.

Present CPSC Statutes

The CPSC acts pursuant to the following five statutes.

1. The Consumer Product Safety Act ("CPSA"), 15 U.S.C. §§ 2051-2084, mandates that all manufacturers, distributors and retailers of consumer products must report immediately1 to the CPSC any information which reasonably supports the conclusion that a product contains a defect that could create a substantial product hazard.2 This specific reporting requirement is found in Section 15(b) of the CPSA, and such reports are commonly referred to as Section 15(b) reports. Id. Consideration of this reporting obligation typically comes into play after a company has sold a product and then received safety complaints about the product. While the CPSC has set forth guidelines on when to report, these guidelines do not provide any real objective test for when to report. Moreover, the CPSC has taken the position that the threshold for reporting is very low and could be triggered in certain situations even when there are no reports of any injuries associated with a product. The CPSC encourages companies to report if in doubt and this is typically the prudent course to follow as there is no clear-cut objective test for when to report.

When a company provides an initial Section 15(b) report, it typically advises that its investigation has only just begun; that the report is not an admission of substantial product hazard and that the report is being done only out of caution. The company and the CPSC then conduct further investigation. After this investigation, the CPSC in many cases concludes that no corrective action is necessary and then simply closes its file.

In situations in which the CPSC makes a preliminary determination of substantial product hazard,3 the reporting company and the CPSC then enter into negotiations that almost always end in a "voluntary recall" of a product. While a company could force the CPSC to file an administrative court proceeding to obtain a formal order for such a recall, this essentially never occurs as it would place the company and the CPSC in very public adversarial positions. In the last few years, several million-dollar-plus fines have been imposed against U.S. corporations that ran afoul of the mandatory reporting obligation, including companies that waited months and even years to report and companies that initiated recalls without ever advising the CPSC about a potential product problem (a.k.a. silent recalls).

Section 37 of the CPSA also requires companies to report if consumer products have been the subject of at least three death or grievous bodily injury suits within two-year time periods when such suits resulted in final settlement or judgments in favor of plaintiffs (a.k.a. Section 37 reports). 15 U.S.C. § 2084.

2. The Federal Hazardous Substances Act ("FHSA"), 15 U.S.C. §§ 1261-1278, requires that any consumer product containing hazardous material must have cautionary labeling. FHSA labeling is typically found on such things as household cleaning products or other products that contain hazardous substances. The FHSA also bans toys that contain hazardous substances and permits the CPSC to ban by regulation any hazardous consumer product that cannot be made safe by labeling.

Under the FHSA, the CPSC has issued an Interim Enforcement Policy as to children's jewelry pursuant to which it will not take enforcement action against children's jewelry if each component of the jewelry has lead content of less than or equal to 0.06% of weight (600 parts per million ("ppm")).4 The CPSC earlier this year fined a major seller of athletic shoes $1 million for selling a charm bracelet (with children's shoes) that CPSC testing revealed had a lead content of between 78% and 93%.

The CPSC also has in place a lead regulation (technically promulgated under the CPSA) that bans any toy or piece of furniture that bears lead-containing paint. Lead-containing paint is defined as paint that has a lead content in excess of 0.06% of weight (600 ppm). 16 C.F.R. § 1303. Some of last year's highly publicized recalls of toys imported from China involved toys bearing lead-containing paint.

3. The Poison Prevention Packaging Act ("PPPA"), 15 U.S.C. §§ 1471-1476, provides authority to the CPSC to require special child resistant (CR) packaging of certain substances. Under the PPPA, the CPSC has established CR packaging requirements for prescription and certain over-the-counter drugs, including aspirin, acetaminophen and ibuprophen. 16 C.F.R. § 170.14. CR packaging requirements for certain drugs are separate and in addition to Food and Drug Administration tamper-proof requirements, which were implemented when several people died in 1982 after ingesting cyanide-laced Tylenol. 21 C.F.R. § 211.122. CR packaging requirements do not extend to drugs dispensed in hospitals and nursing homes. CR packaging requirements have also been established for other substances, including mouthwash, naproxen, minoxidil, furniture polish and paint solvents. Id.

4. The Flammable Fabrics Act ("FFA"), 15 U.S.C. §§ 1191-1204, establishes mandatory flammable standards for clothing textiles, rugs, children's sleepwear and mattresses.

5. The Refrigerator Safety Act ("RSA"), 15 U.S.C. §§ 1211-1214, sets forth mandatory safety standards for refrigerators.

Recent Congressional Activity

Primarily in response to last year's recalls of tainted toys imported from China, Senate Bill 2663 was passed by the U.S. Senate on March 6, 2008. This bill makes significant changes to existing CPSC laws in an effort to strengthen and overhaul the CPSC. Some of these changes are summarized below.

Increased Budget and Staff

Over the years, the CPSC's budget and number of employees have consistently declined. The bill calls for the CPSC's budget to almost double by 2015, and for increases in the number of CPSC employees, including port inspectors.

Increased Civil and Criminal Penalties

Civil penalties are increased from $1.8 million to $20 million. Criminal penalties are increased from one to five years in jail and can include forfeitures of assets.

State Enforcement

States are given the right to bring enforcement actions under CPSC statutes in situations in which the CPSC has not acted. If a state is successful in a civil action, reasonable costs and attorneys' fees may be recovered from a product manufacturer, distributor or retailer.

Employee Whistleblower Protection

Whistleblower protection is provided to employees discharged for providing information to the CPSC as to CPSC violations. The bill provides for compensatory and consequential damages, reasonable attorneys' fees and costs as well as up to $250,000 in punitive damages.

Extends Automatic Section 15(b) Reporting to All CPSC Rules

At present, if a product is not in compliance with a CPSA rule, an automatic Section 15(b) report must be made. See infra, fn 2. This automatic reporting requirement technically does not apply to products not in compliance with rules promulgated under the other four CPSC statutes above (the FHSA, PPPA, FFA and RSA). Instead, companies in deciding whether or not to report must undertake the difficult substantial product hazard analysis previously discussed that does not set forth a straightforward objective test. The bill eliminates this issue and requires an automatic Section 15(b) report whenever a product is not in compliance with a rule promulgated under any of the five CPSC statutes.

Children's Products

Children's products (i.e., products designed or intended for use by children ages seven and under) with a lead content greater than .03% (300 ppm) by weight in any part are banned. This lead content figure may be further reduced to .01% (100 ppm) within three years. The permissible lead content for paint used on children's products and furniture as well as consumer use paint (a.k.a. house paint) has also been reduced from .06% (600 ppm) to 0.009% (90 ppm). Complicating these proposed lower lead limits is the fact that presently no reliable and cost-effective test method for detecting these lower lead levels exists. Moreover, certain states that apparently do not want to wait for new federal law to be enacted as to lead in children's products have passed and/or are in the process of passing legislation on this issue.5

ASTM Standard F963-07 for toys is adopted as a CPSC rule. All children's products must be tested by independent third parties and certified to be in compliance. Tracking labels must be placed on children's products.

No Cost Benefit Analysis CR Packaging Standards

The bill clarifies that the PPPA does not require CPSC to undertake cost benefit analysis when establishing CR packaging standards.

House Bill 4040, which is similar to the Senate bill, was unanimously passed by the U.S. House of Representatives in December 2007. The Senate and House, via conference committee, are now working out the differences in these two bills. One key difference between the bills relates to the fact that under the Senate bill, "children's products" are limited to products intended for children ages seven and under, while the House bill extends "children's products" to products intended for children ages 12 and under.

At this point, it is too early to predict the exact final version of the law. Moreover, final passage will likely be influenced by the results of the 2008 presidential election.

Recent CPSC Activities

The CPSC has also stepped up its surveillance activities. In the past, the CPSC rarely conducted inspections at ports of entry. This spring, the CPSC announced the creation of a new subdivision, the Import Surveillance Division, which works with Customs and Border Protection ("CBP") to identify possible problem shipments through the use of CBP's import tracking system, the Automated Environment System. Suspect products are sampled and sent to the CPSC's laboratory in Maryland for testing. In the last nine months, this laboratory has tested three times the number of products it tested in prior periods. Shipments that are not in compliance are held up at the port of entry. The CPSC has also announced that a permanent inspection office has been set up in Long Beach, California, the nation's second busiest port. In addition, the CPSC is moving to establish permanent inspection offices at other U.S. ports.

Certain CPSC port inspectors have been provided with handheld x-ray fluorescence devices that can rapidly screen a suspect product for certain hazardous substances. Products that are flagged by such preliminary testing are sent to the CPSC's laboratory for further testing.

This spring, the CPSC entered into an agreement with Vietnam calling for information and technical exchanges between the countries' consumer safety programs. The number of products imported from Vietnam has skyrocketed in recent years. The CPSC has entered into similar agreements with other nations that export large numbers of consumer products to the United States, including China, Japan, Korea and the European Commission.

Conclusion

Because the CPSC has in the last few months stepped up its enforcement actions and Congress is making strong moves to strengthen and revitalize the CPSC, those involved with consumer products should make certain that they understand and are in compliance with current CPSC laws/regulations and are prepared to comply with any proposed changes. Taking this course may, in the long run, help companies avoid the substantial costs associated with tainted products, including recall costs; civil and criminal penalties; the legal costs of defending possible injury actions; and the adverse publicity that is often associated with tainted products.

For Further Information

If you have questions about this Alert or would like more information, please contact Robert B. Hopkins, any other member of the Products Liability and Toxic Torts Practice Group or the attorney in the firm with whom you are regularly in contact.

Footnotes

116 C.F.R. § 1115.14(d) provides a firm with 10 days to investigate whether a report should be made.

215 U.S.C. § 2064(b). This reporting obligation also applies if (1) a product does not comply with a CPSA rule or with a voluntary standard upon which the CPSC relies; or (2) if the product creates an "unreasonable risk of serious injury or death." Id.

3Companies can avoid the CPSC's making a preliminary determination of substantial product hazard by participating in the CPSC's Fast Track Product Recall Program, which requires companies to initiate an acceptable recall program within 20 days of an initial report to the CPSC.

4In addition, consumer use paint (a.k.a. house paint) is limited to a lead component of less than or equal to 0.06% (600 ppm). 16 C.F.R. § 1303.

5For instance, Maryland in May passed legislation (effective July 1, 2008) that bans any children's products intended for use by children under the age of six with a lead content greater than 0.06% by weight (600 ppm) in any part. Other states, including California, Connecticut, Illinois, Michigan and Washington have and/or are in the process of passing similar legislation.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.