From tainted pet food and poisoned toothpaste to toys laden with kerosene or lead paint, the increase in recalled consumer products imported from China has caused heightened anxiety among American consumers and justifiably so. The situation has also drawn increased scrutiny from the Consumer Product Safety Commission (CPSC).
The Consumer Product Safety Act gives the CPSC broad jurisdiction over the safety of consumer products. This applies equally to those products produced domestically, and those imported from foreign sources. Moreover, importers of foreign goods must not only report defective products to the CPSC, they must also recall those products that pose a hazard to consumers.
The controversy involving imports from China also recently moved Congress to resolve a situation that hampered the Consumer Product Safety Commission's (CPSC) ability to order mandatory recalls or assess civil penalties. Due to an unfilled position on the Commission, the CPSC did not have the quorum needed to meet and take action. In light of the tainted import controversy, Congress amended the Homeland Security Bill, which the President signed into law on Aug. 3, to allow the CPSC to meet without a quorum for the next six months. Democratic lawmakers are also moving to increase the CPSC's budget and enhance its enforcement authority.
Thus, importers may not simply turn a blind eye to the safety of products they distribute in the belief that foreign manufacturers bear the sole responsibility for such matters. The Act imposes a duty upon importers to go further in determining whether the products they distribute are safe.
Although importers should evaluate for themselves the safety of products they distribute, the first indication of a defect or hazard involving an imported consumer product may first come to light from consumer complaints, reports from retailers, or lawsuits. When these events occur, an importer must carefully evaluate its duties under the Act.
What Are The Reporting Requirements?
The Act requires importers to report information about a product to the CPSC if the company receives information that reasonably supports a conclusion that the product: 1) fails to comply with a regulatory or voluntary consumer product safety standard; 2) contains a defect which could create a substantial product hazard; or 3) creates an unreasonable risk of serious injury or death. In certain circumstances, the Act may also require a company to report if a product is the subject of a civil lawsuit.
Companies are often confused about whether a defect constitutes a "substantial product hazard." The Act is far from clear, but defines "substantial product hazard" as "a product defect which ... creates a substantial risk of injury to the public." In deciding whether a product poses a risk significant enough to trigger a reporting obligation, the CPSC will consider the obviousness of such risk; the adequacy of warnings and instructions to mitigate such risk; the role of consumer misuse of the product; and the foreseeability of such misuse.
If the CPSC determines there is a risk to consumers, it will decide on the level and intensity of corrective action. This can include everything from notifying consumers to a mandatory recall.
Should I Report?
The CPSC has recognized the need to balance the free flow of goods between countries with the responsibility importers have to protect American consumers from unreasonably hazardous products made abroad. However, it encourages companies to file reports when in doubt. To encourage reporting, the CPSC regulations do not require an importer to admit that the product constitutes a substantial product hazard. By reporting a potential hazard, however, an importer may avoid future penalties and other negative consequences that may flow from a failure to report. Companies should remember that one of the objectives of reporting is to allow the company to work with the CPSC in using both the company's and the CPSC's skills and resources to conduct an effective product recall, if it is needed.
A company is generally required to report to the CPSC within 24 hours of obtaining information that a product may be potentially dangerous, even if the company is still conducting an investigation concerning the product. The CPSC considers a company to have obtained knowledge of a defective product when information regarding a potentially hazardous product is received by an employee or official of the company "who may reasonably be expected to be capable of appreciating the significance of that information."
What Are The Penalties For Not Reporting?
The Act makes it unlawful to import into the U.S. any consumer product not conforming with applicable safety standards, as well as those the CPSC has banned as hazardous. When an importer fails to report, it is subject to civil penalties at a minimum of $5000 for each offense and a maximum of $1.25 million -- an amount that may substantially increase in the future. The House of Representatives recently introduced a bill that could raise the cap to $20 million. Further, imported consumer products that fail to comply with consumer product safety rules or other provisions in the Act can be refused entry into the United States.
Conclusion -- If In Doubt, Report
In deciding whether to report, importers may fear the financial impact and negative publicity associated with a product recall. The potential risk of incurring a reporting penalty from the CPSC -- which could also impact future litigation claims -- coupled with the implications for a company's reputation, however, should more than counterbalance these concerns. Attempting to avoid a recall by failing to report information to the CPSC can ultimately result not only in greater financial losses, but a devastating blow to the company's brand and position of trust in the marketplace. Companies would be wise to heed the CPSC's advice to "report if in doubt."
William V. Custer is a partner in the Tort Litigation & Environmental Practice Group at Powell Goldstein LLP (Atlanta). He can be reached at 404.572.6828 or [email protected]. Adwoa Ghartey-Tagoe Seymour is an associate in the firm's Tort Litigation & Environmental Practice Group and can be reached at 404.572.6928 or [email protected].