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Topics in U.S. Consumer Product Safety Law: Compliance, Enforcement, and Litigation Management
Hong Kong Productivity CouncilHong Kong
Jan. 22, 2010
Kimberly K. Egan
Peter M. EllisGeorge Gigounas
DLA Piper LLP (US)
1
Introduction
The Consumer Product Safety Improvement Act of 2008
Safety Standards
Testing and Certification RequirementsTracking Label Rules
EnforcementEnhanced Enforcement AuthorityState Regulatory EnforcementTrends in Enforcement
Product Liability / Class Actions
Challenges and OpportunitiesCPSIA Part of a Changed LandscapeRisk-Management StrategiesCompetitive Opportunities
2
AGENDA
Chinese imports accounted for 80 percent of lead paint recalls.
3
WHAT IS THE U.S. PUBLIC PERCEPTION?
Chinese imports accounted for 90 percent of all consumer product recalls.
SOURCE: http://schumer.senate.gov/new_website/record.cfm?id=289822
2007
1987to
2007
4
WHAT IS THE CONSUMER PRODUCT SAFETY COMMISSION?
The U.S. federal agency authorized to issue mandatory safety standards that are
“reasonably necessary to prevent or reduce an unreasonable risk of injury associated with a
consumer product.”
SOURCE: 15 U.S.C. § 2506(a); 2051(b) and 2052(a)(1).
5
WHAT IS A “CONSUMER PRODUCT?”
“. . . any article, or component part thereof, produced or distributed
(i) for sale to a consumer for use in or around a permanent or temporary household or residence, a school, in recreation, or otherwise, OR
(ii) for the personal use, consumption or enjoyment of a consumer in or around a permanent or temporary household or residence, a school, in recreation . . . .”
SOURCE: 15 U.S.C. § 2506(a); 2051(b) and 2052(a)(1).
6
WHAT IS THE CONSUMER PRODUCT SAFETY COMMISSION?
The Commission can also:
1. develop safety standards for consumer products;
2. reconcile conflicting State and local regulations;
3. investigate product-related injuries;
4. Initiate product recalls;
5. Levy civil penalties; and
6. Seek criminal enforcement.
SOURCE: 15 U.S.C. §§ 2506(a); 2051(b); 2052(a)(1); 2064; 2069; 2070.
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AGENDA
Introduction
The Consumer Product Safety Improvement Act of 2008
Safety Standards
Testing and Certification RequirementsTracking Label Rules
EnforcementEnhanced Enforcement AuthorityState Regulatory EnforcementTrends in Enforcement
Product Liability / Class Actions
Challenges and OpportunitiesCPSIA Part of a Changed LandscapeRisk-Management StrategiesCompetitive Opportunities
8
WHAT IS THE CPSIA?
New Safety Standards (Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
9
New Safety Standards (Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
WHAT PRODUCTS ARE COVERED?
Non-Children’s Products
Children’s Products
Safety standards:Lead;
Third-party test and certify;Tracking labels required.
ATV safety standards;Self-test and certify (Forproducts with CPSC standards)
All Products
New recall powers;Enhanced penalties.
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
Toys; Phthalates;New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
New Safety Standards(Sections 101, 106, 108, 232);
New Certification Requirements (section 102);
New Tracking label requirements (Section 103); and
New Recall Powers and Penalties (Sections 212-22).
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“Children’s product”
Any consumer product designed or intended primarily for children
12 years old or younger.
How Do I Know?
Does the product represent that it is suitable for 12 years old or younger?
Is the product commonly recognizedas suitable for 12 years old or younger?
Does promotional material state or imply that the product is suitable for 12 years old or younger?
WHAT PRODUCTS ARE COVERED?
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QUESTION: The tip on ball point pens are made from leaded brass and there is no other source for materials as the lead in the brass is required to machine. Is it ok for children to use ball point pens?
ANSWER: The lead ban is applicable to children’s products containing lead. The term “children’s product” means a consumer product designed or intended primarily for children 12 years of age or younger. Accordingly, to the extent that these pens are general purpose items not being marketed to, or advertised as being intended for use by children 12 years or younger, these pens would not be subject to the lead limits under CPSIA.
SOURCE: www.cpsc.gov: FAQs on Lead
WHAT IS A “CHILDREN’S PRODUCT?”
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600 ppm
90 ppm
600 ppm
300 ppm
100 ppm
August 14, 2009
August 11, 2011
2008
Lead Paint Lead Substrate
WHAT ARE THE NEW LEAD STANDARDS?
13
Precious gemstones: diamond;ruby; sapphire; emerald;
“any of many minerals and other materials commonly used to make jewelry and other adornments";
Natural or cultured pearls;
SOURCE: Jan. 15, 2009 Notice of Materials That Meet Lead Limits
ARE THERE ANY EXCEPTIONS?
NOT LEAD
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Other "natural materials”:coralamberfeathersfur untreated leather
Wood
Natural fibers, including: cottonsilk woolhempflaxlinen; and
ARE THERE ANY EXCEPTIONS?
SOURCE: Jan. 15, 2009 Notice of Materials That Meet Lead Limits
NOT LEAD
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“Printing inks, materials such as pigments for plastics that become part of an article itself, and materials such as ceramic glaze which become bonded to the surface of a product are not paints . . . .”
ARE THERE ANY EXCEPTIONS?
SOURCE: Jan. 2001 Lead Paint Ban
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HOW ARE CHILDREN AFFECTED BY LEAD?
SOURCE: http://www.uhl.uiowa.edu/publications/archive/annualreport/1996/lead2.gif
10
20
30
40
50
100
150
↓= Decreased function
↑= Increased function
TransplacentalTransfer
HemoglobinSynthesis
Colic
Neuropathy
Death
Encephalopathy
Frank Anemia
Nerve ConductionVelocity
DevelopmentalToxicity
IQHearingGrowth
Vitamin DMetabolism
ErythrociteProtoporphyrin
Vitamin DMetabolism (?)
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Permanently bans “3P phthalates” (DEHP, DBP, and BBP) at levels more than 0.1%;
Temporarily bans “6P phthalates” (DINP, DIDP, and DnOP) pending further study, at levels more than 0.1%;
Advisory Panel named on December 23, 2009
From “children’s toys” or “child care articles” that can be placed in a child’s mouth and that can be sucked or chewed.
WHAT ARE THE PHTHALATE STANDARDS?
WHAT IS A CHILDREN’S TOY?
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Consumer products used by children:
12 years old or younger;
Intended by manufacturer for use by the child when the child plays;
Does not include musical instruments, art supplies, “sporting goods” or bicycles.
WHAT IS A CHILDCARE ARTICLE?
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Consumer products used by children:
3 years old or younger;
Intended by manufacturer to facilitate sleep or feeding; or
Intended by the manufacturer to help with sucking or teething.
HOW DO PHTHALATES AFFECT CHILDREN?
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“Phthalates are animal carcinogens and can cause fetal death, malformations, and reproductive toxicity in laboratory animals . . . The extent of these toxicities and their applicability to humans remains incompletely characterized and controversial.”
“Like all phthalates, DEHP and DINP are ubiquitous contaminants in food, indoor air, soils, and sediments.”
“Scientific panels, advocacy groups, and industry groups haveanalyzed the literature . . . and have come to differentconclusions about their safety.”
SOURCE: Shea KM, Pediatric Exposure and Potential Toxicity of Phthalate Plasticizers, 111 Pediatrics 1467 (2003)
21
CPSC may exclude products from the new rules if there are no lead or phthalates in the product, or if the lead or phthalates in the product:
is inaccessible;
will not be absorbed by the human body; and
will have no adverse impact on public health or safety."
ARE THERE ANY EXCEPTIONS TO THE LEAD AND PHTHALATE RULES?
22SOURCE: Jan. 15, 2009 Notice re Inaccessible Parts
WHAT IS AN INACCESSIBLE COMPONENT?
An inaccessible component is "one that is located inside the product, whether or not such part is visible to a user of the product, and cannot be touched by a child."
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Requests for a blanket determination that a specific product complies with the CPSIA should be supported by:
reliable test results or other scientific evidence;
based on objectively reasonable and representative testing;
showing that the product or material does not, and would not, under reasonably foreseeable conditions exceed the lead limits.
SOURCE: Jan. 15, 2009 Notice of Procedures for Request for Determination
CAN I REQUEST A RULING ON MY PRODUCT?
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a detailed description of the product;
data on the content of the product or materials used in the production of a product;
data or information on manufacturing processes through which lead or phthalates may be introduced into the product or material;
any other relevant information; and
detailed information on the relied upon test methods.
SOURCE: Jan. 15, 2009 Notice of Procedures for Request for Determination
CAN I REQUEST A RULING ON MY PRODUCT?
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ASTM F963-08 became mandatory on August 17, 2009
Standard is detailed and comprehensive, covers structural, material and performance requirements for many items
Notable exclusions (not defined as “toys”):Bicycles, tricycles ▪ Sporting / athletic goodsModel kits ▪ Musical instrumentsMany art supplies ▪ Furniture.
Small parts regulations are still separate.
WHAT ARE THE TOY SAFETY STANDARDS?
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1. Certify conformity with all CPSC safety standards.
2. Certificates must accompany the goods during shipment.
3. Electronic certificates (accessible by internet) permissible.
Imported products = importer certifies
Domestic products = domestic manufacturer certifies
WHO MUST CERTIFY?
CHILDREN’S PRODUCTS
Independent Laboratory Certification
USE a third-party accredited testing laboratory:
Product specs: describe product, identify standards
Certification tests: specific protocols, identify laboratory
Testing interval: both “periodic” and with “material change”
Component testing, paint supply, paint composites
Remedial Action Plan: what happens if product fails test?
NON-CHILDREN’S PRODUCTS (with safety standards)
“General Certificate of Conformity”
USE a “reasonable testing program:”
Product specs: describe product, identify standards
Certification tests: show product meets standard
Production testing plan: describe tests and testing interval
“Reasonable assurance” that all products meet standard
Remedial Action Plan: what happens if product fails test?
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HOW DO WE CERTIFY?
CHILDREN’S PRODUCTS
Independent Laboratory Certification
USE a third-party accredited testing laboratory:
Product specs: describe product, identify standards
Certification tests: specific protocols, identify laboratory
Testing interval: both “periodic” and with “material change”
Component testing, paint supply, paint composites
Remedial Action Plan: what happens if product fails test?
28
HOW DO WE CERTIFY?
29SOURCE: www.cpsc.gov/cgi-bin/labapplist.aspx
WHAT LABS CAN TEST IN HONG KONG?
www.cpsc.gov/cgi-bin/labapplist.aspx
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November 10, 2008
Dec. 22, 2008
February 10, 2009
Lead Paint
Self-certification
Third-party testing
Lead Substrate
Self-certification
Third-party testing
Certify all product in inventory or on store shelves.
Feb. 10, 2011
WHEN MUST WE CERTIFY?
Phthalates
Self-certification
Third-party testing
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Permanent markings on children’s products for products made on or after Aug. 14, 2009.
“Permanent” = product’s useful life
Include:
Name of manufacturer or private labeler;
Location and date of production;
“Cohort information” (batch or run number, e.g.)
WHAT IS A TRACKING LABEL?
32
Record-keeping is essential under the CPSIA. Firms must know who is upstream and downstream in supply chain
Upon request by CPSC, every importer, retailer and distributor must identify manufacturer;
Upon request by CPSC, every manufacturer must identify:Each retailer or distributor to whom they supplied a product;
Each subcontractor involved in production or component supply.
WHAT OTHER INFO DO FIRMS NEED?
SOURCE: 15 U.S.C. § 2065.
33
No tracking label required if “not practicable.”Product is too small to be marked;
Individual pieces of, e.g., a board game;
Bulk vending machine products;
Marking would damage product or its utility;
Marking is impossible (elastics, beads, rocks);
Aesthetics of product would be ruined.
ARE THERE ANY EXCEPTIONS TO THE TRACKING LABEL RULES?
Introduction
The Consumer Product Safety Improvement Act of 2008
Safety Standards
Testing and Certification RequirementsTracking Label Rules
EnforcementEnhanced Enforcement AuthorityState Regulatory EnforcementTrends in Enforcement
Product Liability / Class Actions
Challenges and OpportunitiesCPSIA Part of a Changed LandscapeRisk-Management StrategiesCompetitive Opportunities
34
AGENDA
35
ENHANCED ENFORCEMENT AUTHORITY
SOURCE: 15 U.S.C. § 2064(c).
ENHANCED RECALL AUTHORITYRapid response for “substantial product hazards”
Previously, mandatory recalls required judicial or administrative rulingsNow, for “substantial product hazards,” the CPSC may
order distributor or retailer to immediately:Halt product distribution throughout supply chainNotify State and local public health officialsGive public notice through all media channelsMail notice to known customers
Most CPSC recalls have been voluntary
substantial product hazards
36
ENHANCED ENFORCEMENT AUTHORITY
Pre-CPSIAPer violation: $8,000
Maximum: $1,825,000
SOURCE: 15 U.S.C. § 2069(a)(1).
CPSIAPer violation: $100,000
Maximum: $15,000,000
CIVIL PENALTIESSubstantially increased
37
ENHANCED ENFORCEMENT AUTHORITY
SOURCE: 15 U.S.C. § 2070(a).
CRIMINAL PENALTIESFelony for knowing & willful violations
Possible jail time up to 5 years in prison
Criminal fines
Individuals: up to $250,000
Companies: up to $500,000
Asset forfeiture, possible disgorgement of profits
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Streamlined public disclosure of reported injuries
Public Consumer Safety Database creation
Online, searchable public access to all injury reports
ENHANCED ENFORCEMENT AUTHORITY
SOURCE: 15 U.S.C. § 2055.
PUBLIC ACCESSGreater public access to product hazard information
39
“No manufacturer, private labeler, distributor, or retailer, may discharge an employee or otherwise discriminate against an employee with respect to compensation, terms, conditions, or privileges of employment… [because the employee reported a CPSC violation].”
Protects those who report violations or alleged violations through any channel.
ENHANCED ENFORCEMENT AUTHORITY
SOURCE: 15 U.S.C. § 2051.
WHISTLEBLOWER PROTECTIONEmployees cannot be disciplined for reporting alleged problems
40
Violations affecting State’s residents
Products not complying with CPSC standardsSelling recalled productsFailure to provide certifications
Can determine “Substantial product hazards”State AGs likely to be
aggressiveIllinoisConnecticutCalifornia
ENHANCED ENFORCEMENT AUTHORITY
SOURCES: 15 U.S.C. § 2073; 36 BNA PSLRptr 40.
STATE ATTORNEYS GENERAL “DEPUTIZED”Can sue in federal court to stop violations of CPSC standards/rules
“What good is a recall [if the product is still for sale in the secondary market]?”
41
Violations affecting State’s residents
Products not complying with CPSC standardsSelling recalled productsFailure to provide certifications
Can determine “Substantial product hazards”State AGs likely to be
aggressiveIllinoisConnecticutCalifornia
ENHANCED ENFORCEMENT AUTHORITY
SOURCES: 15 U.S.C. § 2073; Conn. AG PR, Feb. 6, 2009.
STATE ATTORNEYS GENERAL “DEPUTIZED”Can sue in federal court to stop violations of CPSC standards/rules
“My office will take whatever steps are necessary to ensure that this phthalate ban is enforced.”
42
Violations affecting State’s residents
Products not complying with CPSC standardsSelling recalled productsFailure to provide certifications
Can determine “Substantial product hazards”State AGs likely to be
aggressiveIllinoisConnecticutCalifornia
ENHANCED ENFORCEMENT AUTHORITY
SOURCES: 15 U.S.C. § 2073; Cal. AG PR, Nov. 17, 2009.
STATE ATTORNEYS GENERAL “DEPUTIZED”Can sue in federal court to stop violations of CPSC standards/rules
"These products must be removed from store shelves at once to protect our kids from toxic lead exposure."
Introduction
The Consumer Product Safety Improvement Act of 2008
Safety Standards
Testing and Certification RequirementsTracking Label Rules
EnforcementEnhanced Enforcement AuthorityState Regulatory EnforcementTrends in Enforcement
Product Liability / Class Actions
Challenges and OpportunitiesCPSIA Part of a Changed LandscapeRisk-Management StrategiesCompetitive Opportunities
43
AGENDA
44
STATE REGULATORY ENFORCEMENT
STATE PRODUCT REGULATION INCREASINGStates see consumer product regulation as “health and safety” issue
45
STATE REGULATORY ENFORCEMENT
SOURCES: Cal. Health & Safety Code § 25249.5, et al.., § 108935; 17 C.C.R. § 93120, et al.
CALIFORNIALeading State on consumer product regulation
Proposition 65Most popular enforcement vehicleFocuses on exposure, not productCurrently, 829 chemicals listed
Lead, 5 phthalates, formaldehyde
Requires warnings for exposuresAG or “private attorney general”Injunction, penalties, attorneys fees
AB 1108 – Phthalate banSimilar to CPSIA, but retroactive
Formaldehyde ATCMApplies to composite wood productsTesting and certification like CPSIAPhased in compliance
46
STATE REGULATORY ENFORCEMENT
SOURCES: 410 ILCS 45/6; 410 ILCS 46/22, 23.
Lead Poisoning Prevention Act Amendment
Effective January 1, 2010Warning labels for lead contentChildren’s jewelry, child care articles, toysStricter than CPSIA: Warning if lead content (total or component)>40 ppmState AG claims CPSIA does not preempt
Mercury-Added Product ProhibitionApplies to cosmetics, toiletries,
fragrancesProhibits sale or distribution in state
ILLINOISConsumer product regulation
WARNING: CONTAINS LEAD. MAY BE HARMFUL IF EATEN OR CHEWED. MAY GENERATE DUST CONTAINING LEAD.
47
STATE REGULATORY ENFORCEMENT
OTHER STATES / LOCAL GOVERNMENTSConsumer product regulation more frequent
Introduction
The Consumer Product Safety Improvement Act of 2008
Safety Standards
Testing and Certification RequirementsTracking Label Rules
EnforcementEnhanced Enforcement AuthorityState Regulatory EnforcementTrends in Enforcement
Product Liability / Class Actions
Challenges and OpportunitiesCPSIA Part of a Changed LandscapeRisk-Management StrategiesCompetitive Opportunities
48
AGENDA
Border AuthorityEnforcement LagNew ResourcesFuture Development
STRONGER ENFORCEMENT AT PORTS OF ENTRYCPSC border authority is strong in theory
TRENDS IN ENFORCEMENT: PORTS OF ENTRY
Import Surveillance DivisionCreated March 2008Joint programs with CBP
New certification requirements
Substantial product hazard listBy characteristics or classes
E.g., children’s hooded sweatshirts with drawstrings
CPSC may target shipments and refuse admissionAdministrative challenge will be
narrower, more difficult
49
TRENDS IN ENFORCEMENT
SOURCES: U.S. GAO 09-803 Consumer Safety, August 2009; 15 U.S.C. § 2064(j)
Border AuthorityEnforcement LagNew ResourcesFuture Development
STRONGER ENFORCEMENT AT PORTS OF ENTRYCPSC border enforcement lags other key agencies
TRENDS IN ENFORCEMENT: PORTS OF ENTRY
50
TRENDS IN ENFORCEMENT
SOURCES: U.S. GAO 09-803 Consumer Safety, August 2009
“CPSC’S staff resources supporting border surveillance… may not be adequate to prevent
unsafe products from entering the United States.”
USDA Food Safety & Inspection Service95 staff; 150 facilities; 35 points of entryUSDA Animal & Plant Health
Inspection Service≈1800 inspectors (w/CBP);139 points of entryFDA
≈700 staff; 297 points of entry + CBP helpCPSC: 9 inspectors at 7 ports
CPSIA requires CPSC to growAt least 500 full-time staff by 2013
CPSC plans to grow at bordersRequested 10 more staff for 2010Predicts 50 staff within few years
Money?
Border AuthorityEnforcement LagNew ResourcesFuture Development
STRONGER ENFORCEMENT AT PORTS OF ENTRYCPSC is receiving more federal funding for enforcement
TRENDS IN ENFORCEMENT: PORTS OF ENTRY
51
TRENDS IN ENFORCEMENT
SOURCE: CPSIA § 202(c)(1) and (2).
TRENDS IN ENFORCEMENT: PORTS OF ENTRY
52
TRENDS IN ENFORCEMENT
SOURCE: http://www.ombwatch.org/node/10211.
Border AuthorityEnforcement LagNew ResourcesFuture Development
STRONGER ENFORCEMENT AT PORTS OF ENTRYCPSC actions will emphasize border enforcement
TRENDS IN ENFORCEMENT: PORTS OF ENTRY
Rule implementationCertification requirementsSubstantial product hazard list
Increased inspection/seizureMore effective methods
Risk assessment methodologyBetter advance shipment dataUpdated cooperation with CBPImporter Self-Assessment Product Safety Pilot Program
More port-stationed staffParticulary on Pacific Coast
53
TRENDS IN ENFORCEMENT
SOURCES: U.S. GAO 09-803 Consumer Safety, August 2009.
0 500 1000 1500
2008
2007
2006 616
748
1,171
54
TRENDS IN ENFORCEMENTTRENDS IN ENFORCEMENT: MORE ACTIONS
Civil ActionsCriminal ActionsState ActionsNon-US Defendants?
MORE CPSC ENFORCEMENT ACTIONSRecalls and civil penalty actions may increase
CPSIA rules facilitate recallsMandatory recalls easier to forceMore standards to meetPenalty hike encourages voluntaryPublic reporting databaseTracking labels make recalls easierState Attorneys General
Implementation lag?
CPSC likely seek more penaltiesHigher rewardHigher profile recoveryPossibly delayed for rule-making0 50 100 150 200
2009
2008 162
41
U.S. Toy Recalls
SOURCE: Plastics News, “Governments Urge Keeping Focus on Toy Safety,” January 13, 2010.
55
TRENDS IN ENFORCEMENT: MORE ACTIONS
Civil ActionsCriminal ActionsState ActionsNon-US Defendants?
MORE CPSC ENFORCEMENT ACTIONSStronger criminal penalties may encourage more prosecutions
Criminal suits likely still rareReserved for most egregious casesResource intensive
Felony rating may attract DOJConvictions would be high-profileIndividual criminal penaltiesPursuit could have deterrent effect
State attorneys generalCould be more aggressive in some states
56
TRENDS IN ENFORCEMENT: MORE ACTIONS
Civil ActionsCriminal ActionsState ActionsNon-US Defendants?
State law enforcement benefitsPolitical benefit – “hometown hero”Penalty recoveries are state fundsLocal sensitivitiesState court advantages
Proposition 65 enforcementSustained resurgence in consumer products“Private attorney general” statusBreadth and ease – copycat laws?
No “local face” to the companies
MORE STATE ENFORCEMENT ACTIONSMore and stronger state and local laws have consequences
57
TRENDS IN ENFORCEMENT: MORE ACTIONS
Civil ActionsCriminal ActionsState ActionsNon-US Defendants?
“Consent to jurisdiction” toolU.S. government studied itCPSC does not favor it
Without consent, many hurdlesSufficient contactsFair notice
Trending?Two Hong Kong companies settled CPSC enforcement actions in 2009
MORE CPSC ENFORCEMENT ACTIONSEnforcement against foreign companies – it could happen!
CPSC OutreachChina/HK RegulatorsPotential Impacts
U.S. / CHINA / HK REGULATORY COOPERATIONStrong indications of closer future regulatory relationship
CPSC office in BeijingBetter cooperation with companies and government
Outreach / training events3 events each year 2008-2010
China Program PlanOverall strategy, updated annually
Cadmium problem - exampleTenenbaum’s first statements
58SOURCES: U.S. GAO 09-803 Consumer Safety, August 2009; CPSC 2010 Perf. Budget Request; et al.
TRENDS IN ENFORCEMENT: COOPERATION
CPSC OutreachChina/HK RegulatorsPotential Impacts
U.S. / CHINA / HK REGULATORY COOPERATIONStrong indications of closer future regulatory relationship
US-Sino Product Safety Summit
Hong Kong visit, August 2009More formal relationship with
Hong Kong Customs Information sharing and
enforcement cooperation
Chinese law revisions / AQSIQ
Information sharing / MOUEuropean Union experience
59
TRENDS IN ENFORCEMENT: COOPERATION
CPSC OutreachChina/HK RegulatorsPotential Impacts
U.S. / CHINA / HK REGULATORY COOPERATIONStrong indications of closer future regulatory relationship
Foreign facility inspections
Foreign country equivalencyMajor hurdles, not likely
Preapproval requirementsFDA examplePossible for problem products
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TRENDS IN ENFORCEMENT: COOPERATION
“It is no longer really practical to undertake enforcement on a national or
even regional level.”Meglena Kuneva, European Union’s Commissioner for Consumer Protection
Introduction
The Consumer Product Safety Improvement Act of 2008
Safety Standards
Testing and Certification RequirementsTracking Label Rules
EnforcementEnhanced Enforcement AuthorityState Regulatory EnforcementTrends in Enforcement
Product Liability / Class Actions
Challenges and OpportunitiesCPSIA Part of a Changed LandscapeRisk-Management StrategiesCompetitive Opportunities
61
AGENDA
What is it?Can I be sued?Trends in litigation
WHAT IS A PRODUCT LIABILITY LAWSUIT?Individual or class action that can generate major liability
Lawsuit by individual or classTypically state lawTypically tried to a jury
Harm caused by “defect” in a product
Design defectsManufacturing defectsWarning defects
All in the manufacture and distribution chains can be liable
“Strict liability” possiblePunitive damages possible
62
PRODUCT LIABILITY / CLASS ACTIONS
What is it?Can I be sued?Trends in litigation
WHAT IS A PRODUCT LIABILITY LAWSUIT?Individual or class action that can generate major liability
Personal jurisdiction for foreign companies
Minimum contacts, systematic and continuousReasonableness
Foreign defendants – factorsDesigned/marketed for U.S.?Control over distribution
Service on foreign entitiesHong Kong lawChinese law
Enforcement of judgments
63SOURCES: U.S. Dept. of State; Froland v. Yamaha Motor Co., 2003 WL 22971360 (D.Minn. 2003), et al.
PRODUCT LIABILITY / CLASS ACTIONS
What is it?Can I be sued?Trends in litigation
WHAT IS A PRODUCT LIABILITY LAWSUIT?Individual or class action that can generate major liability
More product liability litigationHand-in-hand with more regulationPublic access databaseToxicology science developmentsGreater media focus
More foreign defendants suedMarket maturationGreater domestic regulation
More risk for foreign defendantsSupplier contractual indemnityPublic perception / jury hostility
64
PRODUCT LIABILITY / CLASS ACTIONS
Introduction
The Consumer Product Safety Improvement Act of 2008
Safety Standards
Testing and Certification RequirementsTracking Label Rules
EnforcementEnhanced Enforcement AuthorityState Regulatory EnforcementTrends in Enforcement
Product Liability / Class Actions
Challenges and OpportunitiesCPSIA Part of a Changed LandscapeRisk-Management StrategiesCompetitive Opportunities
65
AGENDA
66
CPSIA PART OF A CHANGED LANDSCAPE
GLOBAL FOCUS ON CONTENT & MANUFACTUREGreater scrutiny on manufacturers is here to stay
Public perception of risk
Pressure to strictly regulate
Importer / retailer demandsPermanent spotlight on China / Hong Kong product manufacturers
CPSIA PART OF A CHANGED LANDSCAPE
Recognizing the Risk
A recent Study - 'Managing Supply-Chain Risk for Reward' – sponsored by ACE and prepared by the Economist Intelligence Unit, concluded that, "while businesses claim supply-chain risks merit a high priority at board level, many still underestimate the potential impact of these risks and face a challenge in terms of expertise in this critical area of risk management…."
68
CPSIA PART OF A CHANGED LANDSCAPE
The world’s attention is on China and Hong Kong product manufacturers
Media coverage dramatically upPublic disclosure built into new regulationsToxicological understanding is advancing
Regulators active from China and abroad
Retailers pushing harder to move risk and cost to manufacturers
Contractual and legal liabilityA new set of commercial, social and political
expectations
GLOBAL FOCUS ON CONTENT & MANUFACTUREGreater scrutiny on manufacturers is here to stay
69
RISK MANAGEMENT STRATEGIES
Immediately assess all products currently in inventory, on store shelves or on order, to determine whether any of your products are subject to the new requirements.
If you have not already done so, begin testing products for compliance with the new standards.
Consider whether it would be appropriate to request a determination that your products do not contain lead or phthalates and/or will not result in human lead absorption.
TAKE ACTIVE MEASURES TO MITIGATE RISKProtecting your company in a difficult business and legal environment
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RISK MANAGEMENT STRATEGIES
TAKE ACTIVE MEASURES TO MITIGATE RISKProtecting your company in a difficult business and legal environment
Your customers are preparing, so should youImporters are highly conscious of minimizing liability
and maximizing protections under the CPSIA.
Typical advice to importers:Maintain independent testing consultant to audit
certificationsContractually require exporters to comply with all
applicable U.S. safety and quality standardsGet a good lawyer in exporter’s jurisdictionRequire exporter to carry recall and product liability
insurance
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RISK MANAGEMENT STRATEGIES
PREPARE FOR CUSTOMER’S COMPLIANCEImporters and retailers placing major priority on compliance
Source dependable materialsFrequently updated network of dependable, efficient
suppliersTransparent system for supplier QC
Document manufacturing process and QC
Develop relationship with accredited labsMaintain several optionsDifferent labs have different testing capacity
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Demonstrate capacity for complianceFlexible material sourcing
Knowledge regarding material content
Laboratory relationships
Organized documentation system
Specific, knowledgeable compliance point person(s)
Proactive inquiry regarding customer compliance concerns
COMPETITIVE OPPORTUNITIES
COMMUNICATE COMPLIANCE ADVANTAGEImporters and retailers placing major priority on compliance
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Know the CPSIA requirements, even if customer is ultimately responsible
Key requirements:Standards applicable to product/material?Testing protocols and requirementsCertification needsTracking label issuesDocumentation and record-keeping
COMPETITIVE OPPORTUNITIES
COMMUNICATE COMPLIANCE ADVANTAGEImporters and retailers placing major priority on compliance
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Proactive communication with customersKnowledgeable, effective point person(s)Establish expectations regarding CPSIA compliance
responsibilitiesDemonstrate supply chain QCWork with customers in advance regarding:
Problematic materialsTesting protocols and planCertification expectationsLabeling issues
Know cost consequences of compliance optionsAnticipate and communicate production delays for
compliance issues (consider back up plans)
COMPETITIVE OPPORTUNITIES
EXECUTE COMPLIANCE STRATEGYOngoing compliance initiative maximizes competitive advantage
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Tremendous opportunity for market shiftThe analysis is simple…
Non-compliance creates significant risk that customers may not want to incur
Compliance creates opportunities to distinguish as industry leader
COMPETITIVE OPPORTUNITIES
Firms With Strong Compliance Principles Will Gain Market Share
COMPETITIVE OPPORTUNITIES
THE CADMIUM CONCERNFirms with strong compliance principles will gain market share
SOURCE: AP 2010.
COMPETITIVE OPPORTUNITIES
DEVELOP MARKETING STRATEGIES FOCUSED ON COMPLIANCE
Marketing campaigns should communicate Marketing campaigns should communicate compliance advantage and minimized risk to compliance advantage and minimized risk to customerscustomers
Emphasis on benefits and pride of complianceEmphasis on benefits and pride of compliance
Highlight company investment in complianceHighlight company investment in compliance
Cost is important but may not be customers only Cost is important but may not be customers only concernconcern
COMPETITIVE OPPORTUNITIES
BECOME AN INDUSTRY LEADERTake Advantage of the Change In Landscape
• Standardize, Streamline and Establish Best PracticesStandardize, Streamline and Establish Best Practices
•• Oversee the Development of New TechnologiesOversee the Development of New Technologies
•• Improve Collaboration with Business Partners and Improve Collaboration with Business Partners and SuppliersSuppliers
•• Collaborate, Share and Join Industry Consortiums (You Collaborate, Share and Join Industry Consortiums (You Are Not Alone)Are Not Alone)
•• Embrace the Changed Landscape and Remain FlexibleEmbrace the Changed Landscape and Remain Flexible
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“We now expect companies to implement proven best practices, such as factoring misuse into design, strict controls on components and other inputs, and enough sampling and testing to ensure that all of the product coming off the line is safe for consumers.
“CPSC and AQSIQ will push companies to build safety into the product at every stage of the production and the distribution chain. Suppliers and importers need to understand that this is now our expectation.
“AQSIQ, for its part, will hold Chinese suppliers responsible for implementing best practices in manufacturing. This way safety – and compliance with export market requirements – is built into the products they are making or for which they are supplying materials.”
Chairman Tenenbaum, CPSC-AQSIQ Summit, October 2009
COMPETITIVE OPPORTUNITIES
THE MESSAGE IS CLEARMeet The Challenge
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“For all the emphasis on Chinese businesses and their role in export markets, those companies who have truly separated themselves and built their own autonomous brands in export economies are extremely rare”
COMPETITIVE OPPORTUNITIES
THE ROAD LESS TRAVELED
SOURCE: Shobert, “’Made in China’ Gets a New Gloss,” Asia Times Online, Jan. 15, 2010.
COMPETITIVE OPPORTUNITIES
From China and Hong Kong’s perspective, the time is right to reach out and try to speak directly to American (and the world’s) consumers, reminding them not only of the benefits they enjoy from their Chinese-made products, but the true interconnectedness of business and the world’s reliance on Chinese manufacturing
Chairman Tenenbaum
THE TIME IS NOW!