Retailer Product Safety

Our colleagues in Mintz Levin’s Intellectual Property Practice, Aarti Shah and James Wodarski, recently authored an expert analysis piece in Law360 that examined the use of the U.S. International Trade Commission (ITC) to combat a rising tide of counterfeits and knockoffs in all kinds of consumer product industries.  Aarti tells us that, in addition to the potential for reputational harms to the targeted Brand, many of the counterfeits often are poorly made.  Sometimes they even bear completely false UL or Energy Star certifications.  Accordingly, they can raise a host of serious safety concerns that can directly and adversely affect the Brand through no fault of its own.

Examples of poor quality counterfeit products that actually harmed consumers and tarnished the Brand name are described in Aarti and James’s article.  In one illustrative case, Farouk Systems, Inc., owner of the CHI™ mark used for high-end hair irons and hair products, faced with a flood of counterfeits and knockoffs that were entering the market through websites, distributors, and eBay.  Farouk filed over 21 lawsuits in the U.S. district courts; hired a company to monitor Internet websites selling unauthorized Farouk products; and worked with eBay to prevent sales of knockoffs on that site – and it was still unable to slow down the influx of infringing products, thus leading it to seek protections through the ITC process.  Even worse from the perspective of those of us who worry about consumer product safety and products liability, Farouk was receiving daily calls from customers regarding poorly made, faulty products – which in most cases turned out to be counterfeits.

Aarti and James’s full article can be viewed here.  We recommend it as a quick read for  every manufacturer, private-labeler, and retailer of consumer products who faces counterfeiting or other forms of serious Brand dilution.

On Tuesday, the U.S. Consumer Product Safety Commission (CPSC) announced that Best Buy Co., Inc. entered into a settlement agreement with the CPSC to pay a $3.8 million civil penalty to resolve allegations that it “knowingly sold, offered for sale, and distributed in commerce recalled consumer products.”  This civil penalty is significant because the alleged violation of the Consumer Product Safety Act (CPSA) had nothing to do with timely reporting under Section 15(b)—the usual suspect in civil penalty cases.  Rather, the allegation against Best Buy is that it violated CPSA Section 19, which prohibits the sale, distribution, or importation of any product that has been recalled.

This penalty is just the second such penalty in recent years (see Meijer 2014 civil penalty).  In a tweet commenting on the penalty and noting the reason for it, CPSC spokesman Scott Wolfson said “[The] challenge is great enough to get recalled products out of homes.  We need retailers to keep them out of their stores.”

Scott_Wolfson_US_CPSC_Tweet_Best_Buy

The CPSC alleged here that Best Buy knowingly sold and distributed sixteen different recalled products between 2010 and 2015, including washing machines and dryers, ovens, televisions, surge protectors, computers and other electronics.  Notably, according to the CPSC’s allegations, sales of recalled products continued even after Best Buy had told the Commission that measures were put in place to catch such products and reduce the risk of sales of recalled products.

Importantly, the CPSC imposed the penalty and highlighted in its press release that internal logistics issues caused the sale of the recalled products. Specifically, the CPSC alleged “Best Buy, in some cases, failed to permanently block product codes due to inaccurate information that signaled that the recalled product was not in inventory.  At other times, the blocked codes were reactivated prematurely, and in a few cases, overridden.”

In a complicated and massive supply chain, these issues are not unheard of.  However, where such issues lead to the sale of recalled products, the CPSC is clearly not accepting them as excuses or defenses, and will not hesitate imposing a hefty civil penalty.

In response to the civil penalty announcement, Best Buy stated the following: “We regret that any products within the scope of a recall were not removed entirely from our shelves and online channels.  While the number of items accidentally sold was small, even one was too many.  We have taken steps—in cooperation with the CPSC—to help prevent these issues from reoccurring.”

Along with paying the $3.8 million civil penalty, Best Buy has agreed to maintain a product safety compliance program with the common program elements we have seen in recent timeliness penalties to ensure that the Company complies with product safety standards and regulations enforced by the Commission.  Not surprisingly, the compliance program also contains elements related to the “appropriate disposition of recalled goods,” and management and oversight of that program.

As we frequently advise, companies in the consumer products arena should remain mindful of and attentive to their obligations under the Consumer Product Safety Act—not just Section 15(b) reporting (as that, deservedly, receives a lot of attention)—but also to the CPSA’s many other requirements and prohibitions, including the prohibition on the resale of recalled products.

This civil penalty is a good reminder that companies, large or small, must have robust procedures in place to identify and set aside recalled products whether on the shelves, in inventory, or otherwise, and to control all supply channels to prevent this from happening.

 

 

 

Time Expired Statute of LimitationsAfter filing a Section 15(b) report and conducting a recall with the Consumer Product Safety Commission (“CPSC”), it is not uncommon for a company to wonder whether it timely filed its report under the Consumer Product Safety Act (“CPSA”). A question sometimes asked of us is how much time must pass before the company can feel confident that the agency is not going to initiate a timeliness investigation or civil penalty action.

CPSC’s Statute of Limitations

The CPSA does not contain an explicit statute of limitations that answers this question. Instead, the CPSC operates under the general statute of limitations for the government to bring an enforcement action for a civil penalty, 28 U.S.C. § 2462, which states the following: Continue Reading What is CPSC’s Statute of Limitations for Civil Penalties? That’s a Gabelli Question

Last week, FDA finalized new food safety regulations seeking to ensure the sanitary transport of human and animal food, as required under the Food Safety Modernization Act (FSMA). The final Sanitary Transportation of Human and Animal Food Rule will affect shippers, loaders, carriers, and receivers of food transported by rail or motor vehicle in the United States. Among other sanitary controls, the rules will require that vehicles are adequately cleaned, designed to maintain safe temperatures, and operated by personnel trained in sanitary transportation practices and documentation.  Most affected entities will have a one-year compliance deadline, with smaller businesses getting an additional year.

As our readers may know, this Final Rule is the sixth of seven “foundational” rules being promulgated by the Agency under FSMA, the massive food safety overhaul law enacted in 2011.  Interestingly, unlike the other major FSMA rules, this one originated in a 2005 law called the Sanitary Food Transportation Act – Congress reminded the Agency to follow through on those mandates through a provision in FSMA.  Continue Reading A Decade Later, Rules for the Sanitary Transportation of Food Finally Finalized by FDA

HoverboardOver recent weeks, national media outlets have reported extensively on multiple claims from consumers that hoverboards—self-balancing scooters growing immensely in popularity, particularly over the holiday period—have caught fire.  Much of the focus of these claims has been related to the overheating of the hoverboards’ lithium ion batteries.  In the wake of these reports, major airlines are now starting to prohibit hoverboards from being transported on flights and some retailers, such as Amazon, have stopped selling certain models of the product online.

In response to the ever-increasing publicity and concern expressed over the product, U.S. Consumer Product Safety Commission (CPSC) Chairman Elliot Kaye released a statement about hoverboards, in which he stated, in part, the following: Continue Reading The Future of Hoverboards: Federal Safety Standard or Voluntary Safety Standard?

Nail Salon ProductsThe “toxic trio” is a foreboding name some associate with common and seemingly innocuous manicures and pedicures. Salon workers suffer higher-than-average rates of birth defects, miscarriages, cancers, and skin afflictions stemming from their daily use of nail products, many of which contain potentially harmful chemicals. A New York Times exposé on the health conditions affecting nail salon workers has thrust this issue, which exists largely outside FDA’s authority, into the regulatory spotlight.

The toxic trio refers to the following three chemicals:  Continue Reading Hidden Costs of Common Beauty Treatments?

US CPSC Fast Track Recall ProgramSo what is the CPSC’s “fast track recall” program and what is the benefit of participating in it? What is a “stop sale notice” and why does the CPSC generally request it for fast track recalls? What else is required by the CPSC in order to participate in the program and what are the potential downsides? When should a company utilize fast track? These are common questions for companies who believe they could have a product safety issue and are already seriously considering a voluntary recall.

What is the CPSC “Fast Track Recall” Program?

Continue Reading What is CPSC’s Fast Track Recall Program and When Should Companies Utilize It?

Michaels DOJ For the first time in recent memory, the Department of Justice (DOJ) and Consumer Product Safety Commission (CPSC) jointly announced the filing of a lawsuit in federal court for the imposition of a civil penalty and injunctive relief for violation of the Consumer Product Safety Act (CPSA). The lawsuit is against arts and crafts retailer Michaels Stores and its subsidiary Michaels Stores Procurement Co. Inc. (collectively, “Michaels” or “the Company”)  for failing to timely report a potential product safety hazard to the CPSC. Unlike other CPSC civil penalty actions involving DOJ, this penalty does not already have a negotiated consent decree in place and it appears that the case could be fully litigated.

The complaint alleges that Michaels knowingly violated the CPSA by failing to timely report to the CPSC that the glass walls of certain vases were too thin to withstand normal handling, thereby posing a laceration hazard to consumers.  According to the complaint, multiple consumers suffered injuries, including nerve damage and hand surgeries, from 2007 to late 2009.

Michaels allegedly did not report the potential defect to the Commission until February 2010.  Of course, we only know one side of the allegations, and Michaels will respond to those allegations in the coming weeks. The Company did state that “it believes the facts will show it acted promptly and appropriately.” Continue Reading CPSC & DOJ Sue Michaels Stores for Failing to Report Product Safety Hazard and Filing Misleading Information

Auburn Courthouse Prop 65Recent attempts to modify California’s Safe Drinking Water and Toxic Enforcement Act of 1986, Proposition 65, have been the work of the California Legislature.  (See A Sane Tweak To Proposition 65 and California Reenters the GMO Food Labeling Arena – This Time Through The Legislature).  This past week, however, the California Appellate Court for the First District in Environmental Law Foundation (ELF) v. Beech-Nut Nutrition Corp., 2015 B.L. 72035, (Cal. Ct. Ap., No. A139821, 3/17/15) upheld a trial judge who determined, after entertaining extensive expert testimony, that low levels of lead in products including baby food, fruit juice and packaged food do not produce exposures that trigger a requirement for warnings under Proposition 65.

The Beech-Nut case is one of the few situations where a Proposition 65 plaintiffs’ group has had to litigate what triggers a requirement for warnings under the law.  In this case, the court held that the manufacturers met their burden of proof.

Underlying Action:

Continue Reading California Appellate Court Takes on Proposition 65 Warning Triggers

The Pick Off DefenseIn recent years, we’ve noticed a new maneuver that class-action defense counsel have increasingly added to their playbooks: The Pick Off.  This is how the play is run: Offer the named plaintiff(s) full relief through a Rule 68 offer of judgment and, even if the plaintiff(s) reject the offer, argue that the fact that they were offered full relief nevertheless moots the case and requires dismissal.

For reference, Rule 68 of the Federal Rules of Civil Procedure allows a defendant to “serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued.”  If the plaintiff rejects the defendant’s Rule 68 offer of judgment and the judgment ultimately obtained by plaintiff “is not more favorable than the unaccepted offer,” then the plaintiff is liable for any costs the defendant incurred after the offer was made.

Continue Reading Class Action Defense Counsel adding ‘The Pick Off’ to Their Playbooks