Archive for the 'Consumer Product Safety' Category

Court to CPSC: Your Magnet Rule’s a Turkey

Zen Magnets, the tiny Colorado company that has challenged the CPSC’s actions turkeyregulating small, powerful magnets, will be having a very good Thanksgiving this year.  That is because, once again, Zen has shown that it is possible to fight the federal government and win.  Today the United States Court of Appeals for the Tenth Circuit ruled that the CPSC’s safety standard banning the magnets sold by Zen did not withstand judicial scrutiny.  The court told the agency that if it wanted to regulate magnets it needed to follow the requirements of the Consumer Product Safety Act, and that it should go back to the drawing board and rethink its justifications for the rule.

The CPSA requires that the agency do a cost-benefit analysis and make findings that identify the nature and degree of the risk of injury weighted against the public’s need for the product and then regulate in the least burdensome manner possible.  The Court found that the agency’s analysis was deficient.  The court found that the agency overstated the number on injuries and neglected to consider the public utility of many of the uses of the product.  In other words, the statutory requirement to weight the costs and benefits of a proposed action is a critical part of regulating.  My experience in the last several years of my term as a CPSC Commissioner was that this statutory requirement was seen as an annoyance rather than as a tool for informed decision-making.  Perhaps the Tenth Circuit’s decision will change the agency’s approach to using this statutory tool.

The agency’s approach to regulating magnets has been characterized by an “ends justifies means” mind-set.  The agency worked to cut off the ability to sell the magnets through retail channels by “asking” retailers to stop selling the product.  The agency sought to recall the product, knowing that consumers would not respond to the recall but also knowing that this device could stop further sales.  The agency sued those few distributors who had the fortitude to challenge the agency’s action.  The one company that has stayed the course is Zen, and its success rate has been quite remarkable.  The administrative law judge that heard the recall action ruled in Zen’s favor.  Now an appellate court has found that the rule the agency issued to ban future sales of the product is defective because it blew by statutory requirements that provide for balanced decision-making.

Zen is like a little Yorkie terrier that has grabbed ahold of the ankle of the CPSC and will not let go.  Yet, through its determination to challenge what it believes is over-reach by the federal government, it has forced the agency to reexamine its approach to a serious issue.  It may be that, through Zen’s actions, the CPSC will come to understand that it can protect consumer safety without disregarding basic notions of due process.  What a good Thanksgiving that would be.

Steps Forward; Steps Back

Now that August is over and Labor Day is but a memory, it is time to focus on how the twostepsforwardCPSC spent the closing days of summer.  On a positive note, the agency was able to push forward helpful initiatives that ease compliance costs without diluting safety.  Then they had to put a damper on this positive glow with threats of resurrecting the discredited and flawed proposals dealing with voluntary recalls and public information (the §6(b) rule).

Forward Steps

The recently published NPR interpreting the fireworks rule is one of those steps forward.  The fireworks regulation has been on the books for several decades and is sorely in need of updating.  Among many other things, the regulation is designed to address overloaded fireworks but does so in a less-than-straight-forward manner.  It bans fireworks “intended to produce audible effects” if those “audible effects” are produced by using more than 2 grains of pyrotechnic composition.  Rather than measure the pyrotechnic materials in the fireworks device to determine compliance, for years the staff has listened for the intensity of the sound produced by the device to determine if it was intended to produce audible effects or whether the sound produced was merely incidental to the operation of the device.  The staff’s determination as to how loud the device was, based on what a staffer heard, was hardly either objective or measurable and has resulted in compliance actions that have been criticized for lack of objectivity.

The American Pyrotechnic Association has a standard that actually measures the presence of materials that may be used to produce an audible effect.  The APA standard has been adopted by the Department of Transportation regulations that deal with the shipment of fireworks.  The proposal, which has been pushed by Commissioners Robinson and Mohorovic in particular, would adopt the APA standard as the testing measure for the CPSC as well. An objective standard would add clarity both for the staff who must make compliance decisions, and the industry which can stop worrying that compliance is dependent on a staffer’s ear.

Another example of a “step forward” is a proposal determining that four types of plastics used extensively in children’s products do not need to be tested for the presence of phthalates.  This proposal would put into action what product manufacturers have been telling the agency for some time—phthalates are not added to these substances and so testing for them both is unnecessary from the standpoint of safety and is costly and burdensome.  This proposal, which has been a long time in the making, compliments the flexibility found in the 2009 statement of policy on phthalates testing and, hopefully, should provide some relief to a number of manufacturers and importers.

Backward Steps

However, the Commissioners could not end the summer on a positive note.  Instead, on the last day of August, the Commissioners met to talk about their regulatory priorities for the upcoming fiscal year.  Observers of the agency are well aware of the controversy engendered by the agency proposal to significantly change the way voluntary recalls are negotiated and agreed to.  Similarly the proposed changes to §6(b) dealing with how information about individual products is made public would distort the statute and surely subject the agency to needless litigation. I have discussed the problems with these proposals in detail, and the Congress has told the agency to cease and desist.

Chairman Kaye has repeatedly expressed his lack of interest in moving forward with these two troublesome proposals.  However, each time he has been given the opportunity to vote to remove them from the agency’s regulatory priorities list, he has refused to do that.  At the recent priorities hearing he was given yet another chance to do that and he did not step up.  Instead, Commissioner Adler, a staunch foe of §6(b) and a supporter of the voluntary recall rule, announced that he would be trying to draft a “compromise” to offer at some unknown point in the future (and not specifying if that would be before or after the elections).  For those who thought that perhaps these two ill-conceived proposals were behind you, do not be so sure.  Commissioner Adler’s gambit may provide the excuse 3 Commissioners need to defy logic, good public policy and the Congress to promulgate these divisive and poorly thought-through rules.

Let’s Play Penalty Roulette

630139-casino-20-9-2004

Playing games at the CPSC

Commissioner Mohorovic has just issued a thoughtful statement discussing the black hole that the CPSC calls its civil penalty policy.  This statement follows another he filed this week discussing the $4.5 million penalty lodged against Sunbeam for a single-brew coffee maker that squirted out hot water when not used properly.

The Commissioner’s most recent statement precedes next week’s agency hearing on priorities for the upcoming year.  He outlines a number of ways to address the process for assessing penalties—a process that, at best, can be called veiled and perplexing and, at worst, seems like penalty roulette.  Those concerned about public policy and consumer protection should carefully review his suggestions for putting more discipline into an arbitrary process.

The CPSC Chairman has publicly stated his desire to see penalties increased.  While disagreeing with that view, I do believe that it could be achieved more effectively if the agency were up-front about how they calculate penalties.  It is not sufficient to say that this calculation is determined by applying the various factors set out in the regulation dealing with civil penalties.  The settlement agreements over the past several years have been decidedly uninformative about how various factors were applied.  As one who was directly involved in crafting that regulation, and as I have written before, I believe that the current practice is at odds with the underlying intent of the regulation—that is, to add more transparency to the process.

Commissioner Mohorovic is to be applauded for his persistence in highlighting the problem.  Not only has he accurately described the problem, he has come up with creative suggestions for solving it.  While Commissioner Buerkle has repeatedly expressed her dismay for the manner in which penalties are assessed, it will be interesting to see if the other commissioners pay any attention.

Last week it was $3.75 million for glass tumblers that can break. This week it is $4.5 million for coffee makers that can spill out hot water if not used according to instructions.  Can’t wait to see what next week brings—but, for sure, it will be a crap shoot.

Navigating An Unmarked Channel

 

Last week, Commissioners Buerkle and Mohorovic each issued a statement on a civil penalty settlement involving glass tumblers manufactured by Teavana.  Each is a thoughtful statement and both should be read by anyone interested in how the agency does its work.  They can be found here and here.  Both Commissioners address, in somewhat different ways, the subjective nature of the Consumer Product Safety Act’s reporting requirements and the opaqueness of the agency’s process for determining penalty amounts for violations of provisions of the Act that require product sellers to report potential safety issues to the agency.  Both are concerned about the secrecy of the criteria, if any, applied in assessing penalties by an agency that used to pride itself on its openness and transparency.

Commissioner Buerkle points out that–given the subjective nature of the statute– the regulations defining, first, what factors will affect a penalty amount and, second, how those factors will be applied, become critically important.  As one who was directly involved in developing that regulation, I agree that it is probably too general in nature, given that the agency has done little to flesh out its applicability in real cases.  Instead the agency has just nodded its head in the regulation’s direction to justify what appear to be arbitrary penalty amounts. The publicly-stated desire of Commission leadership for higher penalties leaves one thinking that the penalty policy of this commission is “get as much as you can” and not that “the punishment should fit the crime.” Consequently, one can only conclude that the penalty factors in the regulation are window dressing to justify whatever the enforcement staff demands.

Commissioner Mohorovic stated that the agency is falling down in its consumer protection duties by not putting out clear buoys to mark the legal channel.  As I have written before, the simplistic agency mantra—“when in doubt, report”—does not work so easily with today’s commission, which is more intent on punishment than on true safety.  Commissioner Mohorovic makes a persuasive case that the company did not have any obligation to report in the first place.  The products in question are glass tumblers and there is always a risk that glass will break, especially when holding hot liquids.  Apparently there were only minor injuries. There is no reason to believe the glass was inordinately thin or fragile.  Based on all this, Commissioner Mohorovic concludes that the company had no obligation to report, but agency enforcement staff reached a decidedly different conclusion.  The result was a $3.75 million penalty against the company, and we are left with no understanding as to how the agency got to that figure.

The agency has announced that it will hold a hearing this summer to consider its priorities for the upcoming fiscal year.  Here is a suggestion:  given the growing concern over the secrecy surrounding how penalties in ever-increasing amounts are assessed, a review of the agency’s penalty factors regulation is warranted.  The clarity the agency was seeking in 2010 when this regulation was issued has not happened; instead the process has become much less clear.  Perhaps it is time to consider a matrix approach to civil penalties—that is, putting a value on, and applying that value to different types of violations.  The practices of other agencies may also provide some learning here.  There are probably many ways to make the situation better and the agency should spend some time trying to figure this out.

EU-U.S. Regulatory Cooperation: Strides Made but More Should Be Done

Today the George Washington University Regulatory Studies Center released a significant report, “International Regulatory Cooperation:  Benefits, Limitations, and Best Practices.”  This report builds on earlier work done by the Center and examines opportunities to improve regulatory cooperation between the European Union and the United States.  The report is timely because negotiators from the U.S. and the EU this week are continuing their discussions to hammer out the Transatlantic Trade and Investment Partnership (TTIP) agreement.

The study examines the efforts of three federal agencies to foster regulatory cooperation, including a case study on the efforts of the CPSC, which I authored.   The case study builds on my experiences over an eight-plus year time span as a CPSC Commissioner, when I saw first-hand the need for collaborative efforts among jurisdictions internationally to address the issue of import safety. The study looks at the potential benefits of and the limits of and barriers to regulatory cooperation.  I also have made recommendations for changes that I believe would improve the agency’s ability to work with its foreign counterparts to improve safety.  The report identifies ways to reduce unnecessary regulatory divergences (and related wasteful regulatory costs) such as convergence on testing and standards, sharing of data and more active consideration of unnecessary differences when promulgating or reviewing regulations.

The CPSC has a good track record working with its foreign counterparts to enhance consumer safety. However, given the complexity of both consumer products and the global marketplace, consumer safety will demand even greater and more creative work among regulators but that work needs to minimize the unnecessary regulatory burdens that come from an unimaginative approach to regulation.

I would welcome feed-back to the recommendations made in this report.  Give me your comments here or at nnord@ofwlaw.com.

Such a Tiny Product; Such a Large Issue

On a recent overseas trip, in one of the trendiest shops in one of the trendiest Western European capitals, I saw a display of tiny spherical rare earth magnets (SREM’s) with signs extolling the coolness of the product.  I almost bought up the entire display but thought about the possibility, when I got back to the States, of CPSC investigators confiscating the whole batch and hauling me off as an importer of deadly banned products.  If only I were kidding.

Remember that, here in the U.S., SREM’s were once a very popular product, intended as an adult desk toy or for making remarkable sculptures and art works.  However, if children swallowed the tiny magnets, they could cause serious internal injury.  Therefore, the CPSC set out to force the product off the market–through a series of recalls aimed at individual importers together with strong pressure on retailers not to sell the product. The agency also issued a rule banning the sale of tiny powerful magnets when used as a manipulative.  Only one company—little Zen Magnets in Boulder, CO, whose CEO is not yet 30 years old—refused to knuckle under and decided to fight the government.

This past weekend, in a battle of David v. Goliath proportions, Zen finally got a win.  Here’s what happened.  When Zen refused to voluntarily recall the SREM’s he was importing and selling, the CPSC filed a lawsuit to force a mandatory recall.  A trial was held before an Administrative Law Judge (ALJ) to determine if the magnets, when sold, were defective and constituted a substantial product hazard and therefore must be recalled. After a long trial and much deliberation, the ALJ found what most of us, except the CPSC, already knew:  that ingesting SREM’s can create a risk of injury but that proper use of the magnets pose no threat and that, when sold with appropriate warnings and proper age recommendations, the magnets do not pose a substantial product hazard.  The ALJ rejected the agency’s argument that warnings cannot be effective because the spheres can become separated.  He also rejected the agency argument that the product was so inherently dangerous to children that proper use by adults must give way.  Significantly, this is the first judge to examine the underlying theory of the agency’s actions forcing recalls and he found the agency’s proof to be wanting.

Even though Zen won this battle, it has not won the war. The agency lawyers now have ten days to appeal the ALJ’s decision.  That appeal will be heard and decided by the five members of the CPSC—the same group who voted to sue Zen, who voted to issue the related rule banning the product, and several of whom have made public statements that suggest where they will come out on the appeal.  In other words, Zen doesn’t stand a chance before the Commission.  The Commission’s decision can then be appealed to the appropriate Court of Appeals.   If Zen has the resources and is scrappy enough to continue the fight, it will be a long one indeed.

Solving At Least One Magnet Issue

On a related matter, the Commission has stepped up to address a flaw in its rules governing trials before ALJ’s.  When the agency was trying to force the recall of SREM’s sold under the name “Buckyballs”, and when the company had the “hutzpah” to say “no” to the agency’s demand that it recall its magnet product, the agency voted to sue Buckyballs as well.  After the Commissioners voted to bring the action against the company, the agency staff took it upon itself to expand the complaint to sue the CEO of the company in his personal capacity.  While this case was ultimately settled, the settlement did not address whether the staff acted properly in expanding the complaint without an affirmative vote of the Commission.

The agency is currently updating its rules of practice for adjudicative proceedings and those proposed rules are now out for public comment.  Commissioner Mohorovic was able to get into the proposal – unanimously – an amendment that expressly requires the ALJ to refer to the Commission “any proposed amendment [that] would have the effect of adding or removing any person as a respondent to the complaint or adding or removing any count.” Just in case an ALJ tried to reason in such a way that an amendment that should come to the Commission didn’t actually add a party (by, say, reasoning that the CEO of a company is de facto on the complaint already, so it’s fine to add him by name) and thus could be done without Commission approval, the proposal also creates an interlocutory appeal right for any ruling on an amendment made without a Commission decision.

Admittedly, this language is overly broad since one would not want to capture situations where staff needs to add a DBA, for instance, nor should the agency give an interlocutory appeal for amendments that clearly are within staff’s administrative authority, but, for the handful of times in a decade that the agency actually litigates something, the burden of work from overbreadth seems to be insignificant compared to the risk to Commission authority from being too narrow. The staff’s action with respect to the Buckyballs situation demonstrates the need for this kind of correction.  Since the proposed amendments make a number of other changes to the adjudicative procedures, they should be carefully reviewed and comments provided the agency.

The proposed changes to the agency’s adjudicative proceedings are now out for public comment.  Those who practice before the agency and other interested parties should read them carefully and take the time to comment.  As we have seen from the Zen case, this stuff matters.

“Means are Inconsequential; Only the Ends Matter”

History is replete with examples of bad things that happen when good people, with good motives, act to achieve an end without regard to the means used.  The CPSC’s letter last week to sellers of self-balancing scooters (most of us call them hover boards) brings squarely to mind that Machiavellian notion about ends justifying means.

The agency’s action came in the form of a letter from the acting director of compliance to sellers of hover boards telling them that their products should comply with the newly-released UL voluntary safety standard addressing the risk of fire associated with some of these products. Those products that do not comply with this voluntary standard will be considered by agency staff “to be defective and . . .may present a substantial product hazard,“  thereby triggering the reporting and recall provisions of §15 of the Consumer Product Safety Act and related penalty provisions.  While this may perhaps be a good safety result, the statute sets out a path for achieving this result and that path involves a bit more by way of due process than just issuing a decree to make it so, as seems to have been done here.  That path forward is set out in §9(b) of the Act and instructs the agency on how to rely on voluntary standards to address an established safety risk.

Few would argue against the need to address the safety issues associated with hover boards that have been highlighted in recent months.  And the CPSC is to be praised for its desire to investigate and fashion an across-the-board solution as opposed to its unfortunate recent tendency to regulate class-wide hazards by recall or retailer intimidation.  But no matter how laudable the motives of the agency may be, short-circuiting the statute is never good practice by a regulator.  Yet, in a striking example of ends justifying means, this is exactly what the agency has done.

9(b) of the Act sets out a process for the agency to use when it wishes to rely on voluntary standards to address safety hazards. That process requires the agency to collect and consider public comments before making a final decision to rely on a standard written by a voluntary standards organization. Once the agency uses this process to rely on a voluntary standard, the reporting and related enforcement provisions of §15(b) apply.  This process has rarely been used by the agency.  Why this is true is inexplicable to me. However, its use would have allowed the agency to quickly put in place a regulatory mechanism to address the risks associated with these products in a way that was consistent with the statute and that respected the due process considerations central to good regulatory practice.  Aside from being the right thing to do, it would also bolster the agency’s enforcement position in the (unlikely) event its actions are ever challenged. Instead, the agency acted by fiat to achieve the result §9(b) contemplates without bothering to follow the statute.

Some may argue that these products are so dangerous that the agency needed to act quickly and just could not be bothered to follow the law.  But again, the statute contemplates this type of imminent hazard situation and instructs the agency on the path to follow in such circumstances, a path that also includes due process protections. The statute was written to balance the public’s legitimate safety concerns with the public’s need for procedural protections to assure a just and fair result.  Hop-scotching over the statute, no matter the reason, is not something the federal government should do.


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