Supply Chain Risk Management

A recent Federal Court decision on the issue of whether to grant a preliminary injunction in the ongoing saga of the appropriateness of adding the pesticide Glyphosate to the CA Prop 65 list (see prior posts, here and here) has become the grist for the “Fake News” phenomenon. More specifically, Momsacrossamerica.org issued a press release on February 28, 2018 entitled “Judge Says Public Doesn’t Need Cancer Warning.”

However, a quick scan of the decision issued on February 26th reveals that the judge did no such thing. Continue Reading Prop 65 Preliminary Injunction and “Fake News”

Much of the recent discussion regarding Prop 65 has been focused on the regulatory changes going into effect in August of 2018. And that makes sense since there will be significant changes to the warnings, responsibility, and labeling obligations on product websites. There is, however, other activity that may result in a more profound change as to which chemicals require Prop 65 warnings.  As we have discussed in the past (see prior post here), there has been litigation in California state court addressing the appropriateness of adding the pesticide ingredient Glyphosate to the Prop 65 list. Continue Reading A Federal Court Gets Opportunity to Weigh In on Prop 65 With a Little Help from Some Friends

California’s Safe Drinking Water & Toxic Enforcement Act of 1986 (affectionately known as “Proposition 65”) has long been the subject of discussion, both pro and con. Much of the conversation is on various issues surrounding the enforcement of Proposition 65 (for example, see a prior post here). In March 2017, a California trial court in  Monsanto Co. v. Office of Environmental Health Hazard Assessment (“OEHHA”), No. 16-CE CG 00183, addressed a much more basic issue: should a chemical – here Glyphosate, a key ingredient in Monsanto’s Round-Up® product – even be on Prop 65’s list of cancer-causing chemicals? Continue Reading California’s Prop 65: More Form Over Substance

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.

“…Clowns to the right of me, jokers to the left, here I am…”

-Stealers Wheel (1972)


Legal actions regarding “Made in the USA” claims, whether prosecuted by the Federal Trade Commission (FTC) or through various state unfair trade practices acts, often settle early in the proceedings.  For example, in 2014, the FTC issued 16 “closing letters” wherein the target company agreed to revise its “Made in the USA”  claim to clarify that its products, even those assembled in the United States, included imported components. In 2015, the FTC issued 28 such “closing letters”; and in 2016, to date, the FTC has issued 18.

Earlier this month, Chemence, Inc., the Ohio maker of Kwikfix, Hammer-Tite and Flash Glue, entered into a settlement with the FTC.  Chemence was the third glue company that has resolved its claims issues with the FTC since 2015.   Toagosei America, Inc., makers of the Crazy Glue brand, and Gorilla Glue both previously reached agreement with the FTC, with FTC issuing closing letters after both companies agreed to make clear that their products included some imported materials.

Chemence’s path to resolution with the FTC was different.  Continue Reading Stuck in the Middle with the FTC

Last month, the California Office of Environmental Health Hazard Assessment (“OEHHA”) adopted new Proposition 65 warning regulations.  Much of the discussions regarding these new regulations have centered on the warning requirements that become effective, after an approximately two-year phase-in period, in August 2018.

There were, however, amendments to Prop 65 settlement terms, penalty amounts and attorney’s fees in civil actions filed by private persons that became effective on October 1, 2016.  These amendments have “flown under the radar” but actually may be more problematic than the proposed new warnings.

Proposition 65 permits private citizens (known by the plaintiff’s bar as “citizen enforcers”) to initiate enforcement actions, and, when they do, they are entitled to 25% of any penalties assessed by the courts and attorney’s fees.  Continue Reading California Prop 65: More Unintended Consequences

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.

 

 

 

The last of FDA’s seven “foundational” rules mandated under the Food Safety Modernization Act of 2011 (FSMA) was published at the end of last month, just a few days before the May 31, 2016 deadline agreed to by the Agency when it settled a lawsuit related to its implementation of FSMA (our posts on the previous six FSMA rules are here, here, and here). The newest Final Rule, titled Mitigation Strategies to Protect Food Against Intentional Adulteration, has an effective date of July 26th. Responding to calls from affected stakeholders that a one-year compliance deadline from the effective date, as proposed originally, would not be enough time for companies to meet these significant and brand-new obligations, FDA has increased the compliance dates to 3 years for most businesses (along with 4 years for “small” and 5 years for “very small” businesses, as those terms are defined in the Final Rule).

The purpose of these new regulations, according to FDA, “is to protect food from intentional acts of adulteration where there is an intent to cause wide scale public health harm,” and they establish requirements for covered food facilities to implement various food defense measures. Food defense consists of efforts to protect the food supply against intentional contamination due to sabotage, terrorism, counterfeiting, or other illegal, intentionally harmful means.  Continue Reading The Last Set of Major FSMA Regulations Are Done!

On May 17, 2016, the U.S. Department of Agriculture (“USDA”) announced that it is allowing an additional 200,000 short tons of cane sugar imports to meet food manufacturers’ increasing demand for non-genetically modified sugar products. In its news release, the agency explained that

“USDA recognizes that America’s beet sugar producers have made significant investments in a strong 2016 crop, but they continue to face uncertainty. Based on the projections in the May 10, 2016 World Agricultural Supply and Demand Estimates (WASDE) report, USDA took this action as required by the Farm Bill in order to maintain an adequate sugar supply in an uncertain market. This uncertainty is due to inaction on GE [genetic engineering] legislation and lack of consumer information about genetic technology.”

USDA further noted that it would “closely monitor[] sugar production, stocks, consumption, imports, and all sugar market and program variables on an ongoing basis,” and it recognized that the agency “may need to make additional adjustments to imports or domestic marketing allotments.”

This USDA action regarding cane sugar imports is just one example of the market consequences stemming from the uncertainty regarding mandatory GE labeling legislation at both the federal and state levels.  Manufacturers are scrambling to find new sugar suppliers, reformulate their products, and/or relabel their products that could enter Vermont after the  July 1, 2016 compliance date for  Vermont’s Act 120 (which requires food manufacturers to label all FDA-regulated products that have been produced with GE ingredients). Confusion and uncertainty will likely continue among manufacturers and consumers alike as we get closer to that date, as Congress continues to go back-and-forth on a federal law, and as other states begin taking up their own, potentially disparate GE labeling bills.

Stay tuned to this space for more news regarding GE or “GMO” food labeling laws. Our prior GMO coverage is available here.

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