Archive for the 'Recalls' Category

Shihan vs Goliath, Addendum

It is nice to know that folks out there read what I write.  When I started this blog I really wanted to have a conversation with people who are impacted by the actions of the CPSC, both positively and otherwise.  In response to my last blog post, I got a response from Shihan Qu, among others, and I thought I would share his comments.

Shihan takes issue with my notion that the magnets rule applies only to magnet sets that are intended to be used as adult desk toys and manipulatives.  He reminds me that the final rule blew a hole through this interpretation when the Commission added the phrase “commonly used” to the definition of magnet set.  The definition states “magnets sets are aggregations of separable magnetic objects that are marketed or commonly used as a manipulative or construction item.”  By expanding the definition this way, all powerful small magnet spheres may well end up within this definition since it is the end user, not the manufacturer, who determines whether the product is regulated or not.  One problem is that US based industrial magnet companies who never considered themselves within the definition may well be in for a nasty surprise if their products fall into the hands of the wrong user.

In response to my observation that magnets are easily available for sale online, Shihan responds, “Indeed you can still purchase magnet spheres easily by searching “neocube” or “buckyball” online. The rest of the companies are based in China, and are not easily targeted by the CPSC like we are. As long as there is demand, there will continue to be suppliers who will provide them. What can the CPSC do about them, if anything?”

Finally, I again emphasize that, in its latest action, the CPSC has targeted Mr. Qu personally, as it did when it went after Craig Zucker, in his individual capacity, in the Buckyballs matter.  It seems that the agency is really prickly when it comes to young entrepreneurs who still think that they can challenge the government.  Oh, when will they grow up?!

However, for those who are not willing to accept the notion that the government is always right, this is a troubling development.  And for CPSC attorneys who represent small companies, best let your clients know that, apparently if you want to fight the CPSC, be prepared to put your entire bank account on the line.

Shihan vs Goliath

As the saga of the magnets ban continues to unfold, last week another chapter was added when the CPSC brought yet another action against Zen Cartoon David and GoliathMagnets, the one company that has refused the CPSC’s demand to do a recall.  But this time the agency sued not only the company but also its young founder, Shihan Qu, in his personal capacity.  The CPSC alleges that Zen purchased, and then illegally resold, the inventory of a competitor, Magnicube, that was negotiating a recall with the CPSC.

The law is pretty clear—it prohibits the sale of a product which a manufacturer (including an importer) has recalled.  However, Mr. Qu argues forcefully in the attached newsletter that the products were totally fungible, one magnet being indistinguishable from another, and it was still legal for him to sell magnets identical to those sold by his competitor.  Mr. Qu argues that Magnicube could have sent its remaining inventory back to the factory in China to be comingled with other identical magnets and then shipped to Zen–a more complex transaction but achieving the same result.

In raising this latest action by the federal government against tiny Zen Magnets, it is not my purpose to argue the merits of the case being brought.  Instead, I raise it because, to me, it poses questions of proportionality and discretion. I have repeatedly expressed my concerns about the agency’s troubling willingness to disregard fair process in an “ends justifies means” mindset, at least with respect to this product.   This latest action seems to smack of a vendetta against the one company that did not give in to the agency’s demands, especially since the issue of whether Zen’s magnets should be recalled is well into the latter stages of litigation and, presumably, will be resolved soon.

The government is no doubt arguing that its latest action is needed to keep products it sincerely believes are unsafe out of the hands of consumers.  However, as noted above, the exact same magnets were easily available to Zen from China at the time so the agency’s action would not accomplish this purpose.   Further, with a ban on prospective sales of these products now going into effect (unless it is overturned by judicial review at some point down the road), consumers seem to be protected.

Recalls—the remedy the agency was originally ostensibly seeking from Zen—have been totally ineffectual in getting this product out of consumers’ hands. (It seems consumers like the product and do not want to hand it over, even for money.)  And remember, in spite of the CPSC’s rule banning magnet sets sold as adult desk toys, it is possible to go online to buy sets of magnets, like those at issue here.  I did so this morning.  As long as they are not advertised as having entertainment value, they can be sold.

I wonder whether this latest action, rather than making the government appear strong, makes it appear vindictive and petty, given the force the federal government can bring against a tiny company that dares to challenge it.  I wonder whether the government could not have advanced whatever safety purpose it had in a less Goliath-like way. I am curious what you think.

Note to CPSC: You Really Dropped a Stitch Here!

I am a knitter.  Knitting teaches patience and is a great way to pass time on an airplane.  While traveling, I missed a recent CPSC recall and am thankful to my friendclip-art-knitting-981445 Lenore Skenazy, the author of the blog Free Range Kids, for bringing to my attention important information about a silent killer—yarn.  Since she said it better than I could, the following is from her blog post:

Gracious me! This brand of yarn can unravel! Have you ever heard of such a thing? It’s just too scary! How irresponsible can a yarn maker be? No wonder the Consumer Product Safety Commission just issued this dire warning:

Name of Product: Bernat Tizzy Yarn

Hazard: In finished knit or crochet items, the yarn can unravel or snag and form a loop, posing an entanglement hazard to young children.

Incidents/Injuries: Bernat has received two reports of children becoming entangled from unraveling or snagging yarn blankets. No injuries have been reported.

Remedy: Consumers should immediately stop using the yarn or finished yarn projects, keep them out of the reach of young children, and contact Bernat for a full refund.

Remember! Children are only safe near items that can never unravel or make a loop. Kindly avoid all necklaces, ponytails, jumbo rubber bands, snakes, shoelaces, licorice whips, octopi, thread, phone cords, scarves, kites, jump ropes, taffy (long form), fishing line, string cheese, and, of course, marionettes. – L.

What is the agency thinking?  While unraveling yarn may be a quality problem (for the company to address with unhappy customers), turning a quality problem into a safety issue takes the agency way outside its mandate.

In an earlier post I addressed my concern that silly recalls can serve to make consumers stop listening.  This certainly qualifies as a silly recall. Consumer safety is not advanced by such a result.  However, if the agency persists in pushing its mandate so that product quality problems are viewed as safety issues warranting a recall, what unravels is any predictable definition of a safety hazard and then safety becomes what the agency says it is at any given time. Now that is a snag folks should be worried about.

Shopping the Global E-Mall, Round 2

In my last post, I discussed the growing phenomenon of e-commerce sales directly to consumers from foreign (Chinese) manufacturers. My concern is that the regulatory stance of the CPSC—asserting that a foreign manufacturer is legally responsible for compliance with all U.S. safety standards when a U.S. consumer buys a product directly from that manufacturer—is both naïve and unenforceable.

Therefore, I was interested to see the announcement last week from the CPSC that it has entered into a voluntary agreement with Alibaba, the Chinese e-commerce direct sales company, to work with the agency to try to monitor its platforms for dangerous products.  Kudos to the agency for negotiating this agreement, as modest as it is.

According to press reports, Alibaba handles more e-commerce business than Amazon.com and eBay Inc. combined and, as a platform for third parties, it controls as much as 80 per cent of the Chinese e-commerce business.  Obviously, Alibaba can be a potent ally in policing the marketplace for unsafe products.

Looking at the reported details of the agreement, it is not clear whether it will prove to advance consumer safety in the global e-mall or merely serve as a fig leaf to which the parties can point to show they are doing something.  Alibaba has apparently agreed to block sales of up to 15 recalled products upon request from the CPSC.  Since a substantial number of the over-400 recalls the CPSC does each year are of products from China, there should be no problem finding candidates for this list.  All concede that this agreement is not enforceable. It remains to be seen how aggressive Alibaba will be carrying it out over time.

More interesting is the company’s agreement to make available information about safety requirements to importers into the United States.  U.S. safety requirements are not easily understood, especially those issued since 2009 in response to the CPSIA—see the labyrinthine regulations dealing with testing and certification for examples. Any way to get information to those who are honestly trying to comply can do nothing but help.

Whether this agreement is a modest, but effective first step or just another counterfeit product remains to be seen.  Stay tuned.

Questionable Recalls–Will Consumers Just Tune Out?

Through all the controversial statutory and regulatory changes that have occurred at the CPSC over recent years, the product recall has remained the most reliable mechanism to provide consumers protection from hazardous products that find their way into the marketplace and into their homes.  When I was a commissioner, I was both impressed and proud of the herculean work that the agency compliance staff did to identify the true hazards warranting recalls and to winnow out the incidents that did not warrant further investigation or action.

But a recall will not accomplish its purpose unless the consumer pays attention and either takes advantage of the remedy being offered or otherwise alters behavior to avert the risk.  And consumers will not pay attention if they think that recalls do not affect them, are of no consequence, or, worse, are just silly.  And, if they think that, they will be less likely to pay attention in the future.

This past week, I was traveling abroad, and being stuck in an airport with limited reading material, I read the recent CPSC recall press releases.  One caught my eye, but because I was several time zones away from Bethesda, MD, I could not call anyone at the agency or any practitioners in Washington to ask about it. In other words, I was just an average consumer reading the recall notice.

The recall involved a small folding table that was being recalled because it collapsed when sat upon. The company reported that four consumers sustained injuries after the tables collapsed when the consumers sat on the table tops.  Note that the recalled products are tables, not chairs or benches; they are designed to hold plates and glasses, not people’s derrieres.  From the picture in the press release, these are the kind of small tables that are pulled up beside a chair to hold a plate or glass and then are folded away when not needed.

Apparently four consumers misused the product and were injured as a result.  Foreseeable consumer misuse can be a justification for a recall.  The agency has not really defined when consumer misuse will justify a recall but hauls that rationale out when needed.  Is four consumers being injured by sitting on what is clearly a small table foreseeable consumer misuse or is it just four consumers acting without care or perhaps negligently?  Does this matter in the agency’s eyes?

And why would the company agree to do such a recall?  Perhaps given the hostile climate at the agency right now, it is easier and cheaper to just do a recall than to risk an investigation and the threats of seven or eight figure penalties because four people were injured sitting on a table you sold.  But while this rationale may be understandable, it leads to recalls of dubious merit.  And consumers may stop listening.

It used to be that the agency did not accept such recalls but times have changed.  With this recall, it would appear that now almost any misuse can justify a recall and this seems to be a pretty broad expansion of the notion of foreseeable consumer misuse.  But that is only how it looks to this average consumer.

$375,000: The Price for Peace

Yesterday the CPSC announced that it has reached a settlement with Craig Zucker, in the litigation to force a recall of Buckyballs.  The Commission alleged that 0727_buckyballs_630x420Buckyballs, although designed and marketed for adults, were defective because a number of children had sustained serious injuries after swallowing the tiny powerful magnetic balls.  The settlement calls for the CPSC staff to establish a recall trust fund to manage the recall. Mr. Zucker will fund an escrow account to dole out money to the trust fund up to $375,000.  In its press release, the CPSC trumpets that this is “a win for safety.”  Mr. Zucker, on the other hand, says that he hopes “the settlement will discourage the CPSC from wrongfully pursuing . . . entrepreneurs in the future.”

Who, then, won and who lost?  In the most simplistic terms, perhaps one could say that the agency won since it accomplished a recall that would not otherwise have occurred.  But what is that recall worth and at what price was the recall obtained?

Left on the table is the question of whether Buckyballs are defective.  The government’s theory of defect was that warnings are not sufficient to prevent injury to an unintended user group and therefore the product cannot be made and sold, even though there were no injuries to the intended user group.  In the settlement Mr. Zucker does not concede that Buckyballs are defective, and the settlement leaves unresolved the agency’s apparent philosophy that a product can be banned if warnings do not work.

Also left on the table is the question of whether the agency even had jurisdiction over Mr. Zucker in his personal capacity. The agreement makes clear that Mr. Zucker is not conceding the issue of jurisdiction and so the applicability of the Responsible Corporate Doctrine is not addressed by this agreement except to say that Mr. Zucker personally is released from all agency liability (assuming it existed in the first place).

The recall itself is very curious.  The CPSC staff will implement the corrective action plan and claims (accompanied by proof of purchase or an affidavit attesting to purchase location and price) must be presented within six months of the recall trust being established and consumers notified of the recall.  Refunds will be made in the order they are received and any consumers who either file after the six month period ends or after the funds have been depleted are out of luck.  A web site paid for out of the recall fund will be established and maintained by the Commission for five years. The escrow account funding the recall will be closed after 12 months with any remaining funds reverting back to Mr. Zucker.  But since the government does not have experience administering recalls and will, no doubt, have to hire a third party (paid for out of recall funds) to administer the fund and oversee the recall, it is pretty unlikely that there will be any monies going back to Mr. Zucker.

The settlement agreement does raise a side issue that may be interesting to lawyers or students of regulatory policy.  The Antideficiency Act prohibits a federal agency from obligating the government to pay out money before funds have been appropriated and a real question exists as to whether this agreement violates the Antideficiency Act.  Further, administering recalls is not within the specified functions of the Commission and the act is rather specific in stating that recalls will be undertaken by the product seller.  It is not clear to me that the agency has the authority to take the actions specified in the agreement but it is also not clear who (other than the agency’s inspector general) would be in a position to object.

Going back to the question of winners and losers, it seems that there are lots of losers but I don’t see any winners.  The agency lost since it has spent substantial public resources (would it not be interesting to know how much the government has spent on this?) to reach an agreement that is about half a percent of what it initially wanted.   The agency lost because the issues that were central to the litigation were left unresolved.  Mr. Zucker lost because he, no doubt, ended up spending more in legal fees than the value of the recall and basically paid the government to get them off his back.

But at the end of the day, consumers lost. Scarce public resources were spent to achieve a recall that cannot be effective both because of how it is structured and what it is trying to accomplish.   Past experience shows that very few of these products will be returned, thereby achieving little added safety even if the government’s theory of hazard is correct.  And if the past is prologue, then the government achieved very little at a very great cost with consumers footing the bill.

 

 

Recall the Recall Rule

Earlier this week I was at St. Louis University to present at its product safety management program, an intensive executive education course offered by the University’s business school for product safety professionals.  I have done this several times before and, as always, the students were smart, insightful and articulate as they posed practical questions about complying with the complex CPSC rules that have been issued over the past several years.

It was interesting to me that the class participants were all aware of the CPSC’s proposed changes to the voluntary recall rule.  Quite a bit of concern was expressed by the class about how those rules, if finalized, would change the recall process.  I was very impressed that company compliance professionals are watching what happens with this rule—clearly, this is not inside baseball.

Much has been written about this proposed rule—how it is a solution in search of a problem; how it will fundamentally change the voluntary recall process; how it will slow down recalls to the detriment of consumers.

The Washington Legal Foundation recently asked me for my thoughts on how the proposed rule would impact the voluntary recall process.  Today they published my article and you can find it here:

http://www.wlf.org/upload/legalstudies/legalbackgrounder/042514LB_Nord.pdf.

Let me know what you think.


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