Many states have laws forbidding price gouging during an emergency. These laws, which vary significantly by state, seek to avoid predatory pricing behavior that takes advantage of a disaster situation like a hurricane or pandemic.

The economics behind price gouging involves a surge in demand resulting in a temporary monopoly power for the party who has access to that good. Anti-price gouging laws are often triggered by a declaration of emergency and are part of a state’s consumer protection laws. These laws usually allow for recovery of all of the remedies available under a state’s consumer protection law, unless alternate remedies are specified. And while some states do not have specific price gouging laws, it is important to note that state Attorneys General have announced they will use their states’ consumer protection laws, which broadly prohibit unfair or deceptive practices, to combat price gouging during the COVID-19 crisis. While most companies would not actively engage in price gouging, the surge in demand for particular goods during an emergency often results in shortages, increasing supply costs along the supply and distribution chains. In the face of that, companies then must assess pricing in a way that allows them to cover their costs without violating anti-price gouging laws. At the end of this client alert, we provide a checklist to help companies think through pricing products that might be covered under state price gouging laws or subject to state Attorneys General scrutiny.

Lessons Learned

Attorneys General and private counsel have been on the watch for price gouging since the beginning of the COVID-19 crisis. Because of this, several large companies have become subject to Attorney General investigations, and others have been named defendants in class action lawsuits brought by unhappy consumers. For example, a recent California class action lawsuit accuses eBay and individual sellers of price gouging goods such as N95 masks by selling them at a high markup. In Texas, retailers have been sued for raising egg prices. Companies should treat these high-profile matters as lessons learned and become aware of the intricacies of price gouging laws to avoid liability as they are considering price increases. This awareness will be crucial in the current context, as food staples, PPE, cleaner supplies and other shortages continue, and basic economics (rising costs) will result in further necessary price increases.

Assessing State Anti-Price Gouging Laws

Companies should recognize, first and foremost, that each state’s price-gouging laws are different, and even small differences in these laws can greatly impact the risk of a contemplated price increase. Accordingly, each state’s law must be carefully and independently considered.

The factors to consider include:

1. Is your product covered?

The first factor to consider is what products are covered by each state’s price gouging law. If the product (or supply line for your product) is not covered by the law, the risk from a price increase will be low. While state anti-price gouging laws cover a wide variety of products, some laws only apply to a specific list of covered products. For example, Pennsylvania’s law broadly covers consumer goods, while Idaho’s only covers fuel, food, pharmaceuticals, and water. Other states indicate that their primary focus is on goods that will be in growing demand due to an emergency, and some, such as Vermont, are very limited as they only apply to fuel or petroleum. The state law’s definitions should be carefully analyzed in those states that enumerate only specific products that are covered. For example, “consumer food” items might include food for animals, as it does in Tennessee, and emergency supplies might include a flashlight or candle. On the other hand, “consumer goods” might actually be limited to emergency goods. In South Carolina, the law broadly covers “commodities,” but the definition indicates a focus only on emergency goods. The generality or narrowness of these definitions may be surprising, so they should always be taken into careful account.

In addition to enumerating products covered, price gouging laws may not apply at the supply level. Some laws only apply at the retail level, while others specify that they apply to any party within the chain of distribution. Others are silent. For example, New York’s law applies to all parties within the supply chain, while Connecticut’s and Washington D.C.’s are limited to retail. Companies should therefore carefully check both the supply level and goods covered under the law.

2. Is your product covered by an exception? 

Second, companies should carefully check for applicable exceptions. Almost every price gouging law has some type of language allowing the pass through of increased supply costs. However, these laws sometimes contain vague language about the level of pass through costs allowed, particularly for maintaining profit margin. A few states, such as Utah and Washington, allow a price that represents the increased cost plus “customary markup,” capped at a percentage, usually 10%. Others, such as Wisconsin, do not allow for any increase above the increased cost, so no markup. However, terms such as “customary markup” are often undefined. Other states, such as North Carolina, only indicate that the pass through of increased costs is a factor to consider, rather than an automatic defense to a price gouging claim. It will be important for any company to consider permissive language related to supply cost increases, particularly if it seeks to maintain its profit margin rather than pass through costs dollar by dollar.

3. What is the price increase limitation? 

Third, companies should assess what percentage of price increase is permitted. Many price gouging laws specify particular percentages above which companies cannot increase prices for covered goods. For example, Kansas allows for an increase of up to 25%, while Arkansas, California, and New Jersey only allow up to 10%. Some states, such as Connecticut, do not allow any price increase. Other laws, like those in Texas, broadly prohibit “unconscionable” or “excessive” price increases, and sometimes with these terms undefined. Some states, like Missouri, define these terms, but in separate portions of the statute, so finding and analyzing the definitions section should be of primary importance.

Companies should also ensure the law allows them to make a profit, and if so, how much of one. Some laws, such as Iowa’s, state that the supplier may continue to make a reasonable profit, and some cap the profit at a certain percentage, such as Maryland’s law, which allows an increase in value of profit by up to 10%. Other states, such as Oklahoma, specifically provide that no profit may be accounted for when making price increases. Language about allowances for customary markup will also be crucial in assessing whether the company may profit.

4. What price is the starting point?

Lastly, companies should assess what pricing consideration can be taken into account. For example, certain states’ price gouging laws provide exceptions for promotional pricing, for goods that were sold at a discount at the beginning of the emergency, or for seasonal fluctuations in price. Kentucky and Virginia, among others, allow an exception for a good sold at a reduced price, and South Carolina accounts for seasonal fluctuations. Other states, such as North Carolina and Pennsylvania, consider the increase in costs such as attendant business risk and taxes. Recent price gouging provisions, such as California’s Executive Order, also contemplate the possibility of negotiating a price with government entities.

Each of these steps will involve a deep dive into each state’s particular price gouging law and a careful consideration of the text of the law. The analysis may also require researching any announcements or actions the state’s Attorney General has made or brought in order to clarify the law’s scope and focus. However, carefully considering these questions will allow companies to correctly assess risks in their pricing plans and avoid future liability.

Pricing Checklist

1. Is the product covered by the price gouging law?

  • Is the product enumerated? Does the law only contemplate emergency goods or any consumer goods? Is it primarily in place for Personal Protective Equipment (PPE)?
  • Are there definitions for general words such as “consumer goods,” “emergency equipment,” or “consumer food items”? The narrowness or generality of these definitions may be surprising.
  • Consider whether the law only applies at retail only versus retail plus any party in the supply line.

2. Are there exceptions, particularly for increased supply costs?

  • Many states provide exceptions for increased supply costs, as well as fluctuations that occur in the regular course of business.
  • What, if anything, does the law say about the type of increased costs that are exempted? What type of pass-through costs does it contemplate?

3. What is the amount of price increase allowed, and does it account for profit?

  • Some laws forbid any price increase, while others allow an increase of up to 25%.
  • Some laws specifically allow a company to make its usual profit, while others specify a ceiling for a percentage increase above cost plus normal markup, without defining what “normal markup” means.

4. Does the law provide exceptions for previous promotional pricing or other unique situations?

  • Several laws explicitly exempt products that were subject to a sale or other promotional pricing at the beginning of or prior to the emergency.

Want to learn more on this topic, and have the opportunity to ask questions? Please join our state AG practice on June 2, 2020 for our webinar, Pricing Items in an Anti-Price Gouging World.

   

COVID-19 has disrupted and will continue disrupting supply chains in many important ways, as suppliers, carriers and buyers navigate the global pandemic. But does the pandemic allow activation of force majeure clauses in your contracts? If a force majeure clause is activated, what are the rights and responsibilities of each party during the pandemic? When does performance restart and how? And, what if there is a dispute?

    The following five steps should serve as a starting point to evaluate the efficacy of invoking a force majeure clause or similar doctrine in the face of a global pandemic.

1. What types of events excuse non-performance?
Many contracts include force majeure clauses, but they are not all the same – not even close. Thus, the very first step in your analysis should be to read the contract. Some force majeure provisions exclude certain types of situations like unprofitability, while others may specifically include a pandemic or infectious disease as a force majeure event. Your contract may be drafted in a way that limits force majeure events and only excuses non-performance in limited instances. Your contract may also instruct how to proceed in cases of supply or labor shortages. How your contract is worded, and the law that governs it, matter a great deal.

Some contracts do not include force majeure language. If this is the case, you will need to consider which state law governs the relationship. Many jurisdictions recognize the doctrines of impossibility or impracticability and frustration of purpose. The UCC codifies similar defenses. While there may not be a significant amount of case law interpreting these doctrines in your jurisdiction, you likely will find analogous fact patterns to inform the analysis.

2. What is the cause of the disruption?
You need to ask yourself if the pandemic itself has created the disruption, or if the cause of the disruption is an intervening factor, such as a third party’s response to the pandemic. Potential reasons for a disruption may include the following:

  • An aspect of the COVID-19 disease itself
  • Government action or prohibition in response to COVID-19 (e.g., many states have limited business operations to those deemed essential)
  • Shortage of supply and/or raw materials required to perform under the agreement
  • Shortage of labor, due to illness or quarantine or some other COVID-19-related cause
  • Significant decline in demand or material drop in potential profitability of the business metrics supporting the agreement due to COVID-19 or related events
  • Curtailment of transportation modalities or facilities

Performance may or may not be excused in each situation. You should also determine whether the contract allows for alternative means of performance, which may not be excused by the claimed disruption. Some supply contracts specify a particular upstream source, which if disrupted by a cause linked to the pandemic may excuse the supplier’s performance to the buyer. Others may not limit the supplier to use a sole source, requiring the supplier to go elsewhere to perform the contract, even if at much greater cost.

3. What steps should or must you take to protect yourself?
Does the contract require notice to assert force majeure? What about timing? If you assert force majeure, are you permitted to suspend performance or terminate the contract? Are there allocation requirements for limited supply?

You should consider how any written communication or other documentation reflecting the problem may later be characterized, given the actual words of the force majeure clause and the governing law. You should think strategically about your business’s operational needs and legal risks that the business faces. Consider how the arguments you are making in this dispute could impact other disputes, including those in which you may be disputing an assertion of force majeure. Be sure to keep copies of any documentation you are relying upon, including correspondence and emails between the parties.

4. What if your counterparty stops performing?
Can you stop performance? A counterparty’s declaration of force majeure may or may not be, in and of itself, sufficient to excuse your non-performance. Whether or not performance under the contract is entirely excused will depend on a careful reading of the force majeure clause and the contract as a whole. Can you seek supplies elsewhere, i.e., cover who bears the additional risk and cost of alternative supply? Again, the answers to these questions depend on what the contract says and which jurisdiction’s law governs.

5. What if there is a dispute?
Some contracts specify a dispute resolution procedure that must be followed before going to court. Some contracts require mediation. Think about what an acceptable resolution of a dispute looks like for your business. Carefully consider other issues in the supply relationship that are unrelated to the pandemic. This may be the time to take those up with your counterparty as well.

If you cannot resolve the dispute, then what? Some contracts call for binding arbitration in a particular forum instead of litigation in court. Other contracts allow you to sue, but only in certain courts. Either way, what damages or other remedies are available? Even if you hope to resolve the dispute amicably, developing a strategy that analyzes how your dispute may play out can give you leverage.

Mobile news application in smartphone. Man reading online news on website with cellphone. Person browsing latest articles on the internet. Light from phone screen.There have been several important happenings in May at the CPSC. A quick update for our readers follows:

  1. Leadership

Nancy Beck, a toxicologist formerly with the American Chemistry Council and serving at the Environmental Protection Agency (EPA), has been nominated by President Trump to chair the agency.  While she awaits confirmation, she is serving on the White House Council of Economic Advisers. Her nomination is opposed by some Democrats given controversial positions she has taken on the regulation of PFAS while at EPA and more recent activity under her supervision at the White House with regard to its handling of the CDC‘s recommendations for reopening during the pandemic. Her nomination could be taken up by the Senate shortly.

The current acting chair of the CPSC, Robert Adler, and Commissioner Elliott Kaye recently issued a joint statement in connection with their votes on the Commission’s revisions to the Safety Standard for Handheld Infant Carriers. In the statement, the Commissioners called for ASTM to pay attention to infant sleep products that may fall through the cracks and not yet be covered by any of the specific ASTM standards covering infant sleep environments.

  1. Hearings and Regulatory Activity

Two proposed product safety rules are out for comment, the Safety Standard for Sling Carriers (comment period open until May 20) and the Safety Standard for Crib Bumpers (comments open until June 17).

On May 27, 2020, the CPSC will hold a public hearing on its fiscal year 2021 and 2022 Agenda and Priorities. The hearing allows the Commission to consider whether to make any changes or adjustments to the agency’s proposed or ongoing regulatory and enforcement efforts. The Commission will consider where to dedicate resources, de-emphasize activities, as well as whether to review retrospectively and outdated rules. The commenters have identified the following product safety issues and activities as potential agency priorities:

  • Completing the rule on portable generators and the risk of carbon monoxide poisoning first introduced in 2006
  • Preventing the strangulation hazards posed by corded window coverings
  • Promulgating mandatory standards to prevent death and serious injuries from high powered magnet sets, furniture tip-overs, infant sleep products, other durable infant products and crib bumpers
  • Reducing flame retardants used in consumer products
  • Providing guidance on protecting against the product safety risks posed by Internet connected products
  • Enforcing the Child Nicotine Poisoning Prevention Act
  • Reducing injuries on electric scooters as well as educational activities about safe operation of scooters
  • Addressing counterfeit goods as a safety issue
  • Continuing attention to the CPSC‘s “senior safety initiative“
  • Reviewing incident data on ingestion of liquid laundry packets to determine whether a mandatory standard requiring even further child proofing is necessary
  • Reevaluating the voluntary standard on recreational off-highway vehicles in light of potential fire risks and completing the ATV standard
  • Renewing its emphasis on civil and criminal penalty enforcement
  • Regulating fragrance and propellants in air fresheners
  • Enhancing both the Fast Track recall process and incident and injury data collection through renewed engagement on the retailer reporting program
  • Improving recall effectiveness including, among other ideas, piloting a tiered recall system to elevate awareness of products that pose the greatest risk to consumers and using technology to enhance recall response
  • Allowing garment labels to use digital information
  • Improving the consumer database saferproducts.gov
  • Enhancing import surveillance using the U.S. Customs and Border Protection’s (CBP) Trusted Trader Program
  • Increasing the number of estimated death and injury reports as well as more timely issuance of the annual estimated death and injury report for playgrounds and other products where reports have not been updated since 2017
  • Aligning with the priorities of the Australian product safety regulators many of which overlap with other suggestions outlined above
  1. Enforcement

The beginning of 2020 has seen the continuation of an uptick in the number of regulated product recalls, with a significant number of Poison Prevention Packaging Act recalls for failure to childproof essential oils and other products requiring those packaging protections. Likewise, the number of lead paint and lead content recalls in children’s products appears to be higher over the same four month period when compared to recalls in recent years. Burn hazards and furniture tip-over appear to top the list in terms of recall activity due to product defects.

  1. In other news (at other agencies)

The Bureau of Land Management (BLM) has issued a proposed rule on increasing the recreational opportunities at parks and other lands managed by the BLM through the use of electric bikes.  Comments on that proposal are due by June 9, 2020.

EPA has issued a notice of proposed rulemaking related to “strengthening transparency and regulatory science.” Over 50,000 commenters have weighed in on this proposal which suggests a modified approach to the public availability provisions for data and models underlying both pivotal science and pivotal regulatory science. The rule would establish a procedure for an agency-wide approach to handling studies when the data and models underlying EPA’s significant regulatory decisions and influential scientific information are publicly available and when those data and models are not publicly available. While this is an EPA-proposed internal rule, the decisions EPA makes on chemical risks can have relevance to CPSC decisions under the Federal Hazardous Substances Act (FHSA), and therefore, this rule is worth watching.

Smartphone ChargingThe U.S. Department of Energy (DOE) issued a Request for Information (RFI) last week soliciting comments no later than June 3, 2020, on possible revisions to the energy efficiency regulations for battery chargers. Understanding how both the existing regulatory regime and any proposed changes will impact a company’s battery chargers and related products is an essential but often overlooked component of company compliance programs, and compliance failures can result in substantial civil penalites.

The Energy Policy and Conservation Act

As our Energy Efficiency and Appliance Standards Team has previously discussed here and here, DOE administers the Energy Policy and Conservation Act (EPCA) by setting mandatory appliance efficiency or conservation standards for over 60 covered products, including refrigerators, vacuums, many smart appliances, and of course battery chargers and external power supplies.

Each efficiency standard has two components: (1) a device-specific conservation standard and (2) an associated test procedure which the manufacturer must apply to demonstrate compliance with that conservation standard. Failure to comply with these standards is costly. DOE can seek penalties of up to $460 for each non-compliant unit sold or made available for sale, with up to a five-year look back.

EPCA compliance is generally the responsibility of either the manufacturer of a covered product or the importer of the product if the product was manufactured outside of the U.S. Retailers serving as importers of record would therefore assume responsibility for compliance and should pay close attention to these developments.

The Request for Information

DOE’s RFI seeks feedback on the regulations concerning test procedures for battery chargers covered by EPCA, meaning any charger that is capable of charging batteries for a consumer product, including chargers that may be embedded as components of other consumer products (i.e., where a device with some other primary use includes battery charging functionality).

In particular, the Department of Energy is interested in comments on:

  • How to alter test procedures for battery chargers so that it lessens the burden on regulated industries;
  • Whether there are viable test procedures for wireless chargers, most of which are not currently subject to energy efficiency standards;
  • Possible testing procedures for testing battery chargers that are not shipped with the product they are intended to charge; and
  • New or third-party developed test procedures that might more accurately capture a battery charger’s energy efficiency.

In 2018, DOE sought information on the emerging market for smart appliances with the purpose of ensuring that the agency, in pursuing its regulatory mission, did not inadvertently impede market development. As part of this RFI, DOE is also seeking feedback on whether and to what extent the battery charger test procedures affect the growth of the smart appliance market.

Comments responding to this RFI must be submitted no later than June 3, 2020.

Recalls in Review: A monthly spotlight on trending regulatory enforcement issues at the CPSC.

The CPSC has been very clear that protecting children from dresser tip over is a top priority.  The Commission actively monitors and tests furniture for compliance with stability standards, and frequently recalls products that present a tip over hazard.  As of today, the CPSC has recalled at least thirty dressers since 1996, and five already in 2020 alone.

 

A review of the recalls shows that the majority (61%) were conducted despite zero reported incidents involving consumers.  Most of those were based on noncompliance with the tipover standard, ASTM 2057.

ASTM 2057, the standard safety specification for clothing storage units, was revised in 2014, 2017, and most recently in 2019.  Importantly, even if a product is compliant with the current standard at the time of manufacture, it could still be recalled for noncompliance with a future revised version.  This has been the case in at least 2 recalls: here and here.

* * * * *

About Recalls in Review: As with all things, but particularly in retail, it is important to keep your finger on the pulse of what’s trending with consumers. Regulatory enforcement is no different – it can also be subject to pop culture trends and social media fervor. And this makes sense, as sales increase for a “trending” product, the likelihood of discovering a product defect or common consumer misuse also increases. Regulators focus on popular products when monitoring the marketplace for safety issues.

As product safety lawyers, we follow the products that are likely targets for regulatory attention. Through Recalls in Review, we share our observations with you.

The Supreme Court issued a landmark ruling in a trademark-infringement matter on April 23, 2020, holding that willfulness is not a necessary precondition to an award of profits. The unanimous ruling in Romag Fasteners, Inc. v. Fossil, Inc. ends years of uncertainty among the lower courts as to whether willfulness is a prerequisite to awarding profits or whether, as some circuit courts had determined, it is only an important factor to consider. This ruling immediately raises the stakes for trademark-infringement suits, as profits can be awarded even if the defendant claims the infringement is innocent. This expansive ruling may also benefit false-advertising claimants, as false advertising and infringement of trademarks are both governed by Section 43(a) of the Lanham Act (15 U.S.C. § 1125(a)), and are governed by the same provisions concerning potential awards of profits.

The Romag Fasteners case involved the infringement of handbag fasteners. One company, Romag, sells fasteners to be used in leather goods; the other, Fossil, designs and sells fashion accessories. The two came to an agreement by which Fossil would use Romag’s fasteners in its products. However, Romag later sued after discovering that the factories Fossil employed to make its products were using counterfeit Romag fasteners. Though the jury ruled in Romag’s favor, finding that Fossil acted “in callous disregard” of Romag’s trademarks, they did not find that Fossil acted willfully. Because of this finding, the district court refused to award Romag profits, as the controlling Second Circuit precedent required a finding of willfulness in order to do so.

Justice Gorsuch delivered the Court’s opinion in a concise and textualist ruling, emphasizing that the Court does not “usually read into statutes words that aren’t there.” Romag Fasteners, Inc. v. Fossil, Inc., No. 18-1233, slip op. at 3 (Apr. 23, 2020). Gorsuch states that while Section 43(c) of the Lanham Act (15 U.S.C. § 1125(c)), which covers trademark dilution, requires willfulness for an award of profits, Section 43(a), which covers trademark infringement, does not. While the broader statute includes much discussion of the mental state of the trademark user, the Lanham Act imposes no express requirement as to infringement in order to obtain an award of profits. The Court also rejects Fossil’s argument that willfulness is required because a violation under § 1125(a) may trigger a profits award “subject to the principles of equity.” Slip op. at 4. The ruling explains that there is no such fundamental rule and that trademark law has not universally required a showing of willfulness prior to allowing the recovery of profits. Gorsuch concludes by ruling that while the “defendant’s mental state is a highly important consideration” in determining whether profits should be awarded; this is a “far cry from insisting on the inflexible precondition to recovery Fossil advances.” Slip op. at 7. In a one paragraph concurrence, Justice Alito, joined by Justices Breyer and Kagan, said that “willfulness is a highly important consideration in awarding profits,” but “not a precondition.” In their arguments before the Court, Fossil raised fears that a broad ruling would lead to large judgments against good-faith infringers. In line with this argument, Justice Sotomayor, concurred on the judgment that willfulness is not required, but criticized the majority for not taking into account innocent infringement and did not sign the majority opinion.

This decision is an important win for trademark owners seeking to protect their marks from infringement who now have a better chance of obtaining monetary awards and more incentive to follow through with the litigation process. One undeniable impact from this ruling is that businesses, especially manufacturers, licensees and product sourcing companies, have to be even more vigilant in preventing inadvertent infringement that could lead them to be liable for greater monetary damages. Justice Sotomayor anticipated this potential effect and addressed her concerns in her concurrence. It remains to be seen how lower courts will tackle innocent or inadvertent infringement in future trademark infringement cases. We will continue to monitor these important developments and will provide routine updates.

 

On April 20, 2020, the Federal Trade Commission (FTC) announced a consent order that imposed $9.3 million in consumer refunds to settle allegations that Fashion Nova, Inc. violated the agency’s Mail, Internet, or Telephone Order Merchandise Rule (the “Mail Order Rule”), which applies to merchandise sold to consumers, online, by mail, or by phone. 16 C.F.R. Part 435.

The Mail Order Rule is a longstanding FTC rule that takes on added significance for online sellers during the COVID-19 pandemic. It requires retailers who accept orders from U.S. customers to ship each order within the time stated in their ad or on their website. If the shipping date is not clearly stated, the seller is deemed to have provided no shipment representation and must ship within 30 days. If shipping obligations cannot be met, the company must provide the customer with timely notice and the option to either agree to a delay or cancel the order and obtain a refund. Because of supply chain and shipping delays brought on by COVID-19, we are seeing an increased number of retailers unable to fulfill shipping promises in compliance with the Mail Order Rule, putting them at peril of landing in the shoes of Fashion Nova.

The FTC’s Fashion Nova complaint alleged that Fashion Nova, an online fashion retailer, regularly failed to meet its shipping promises to customers, despite advertising language claiming “Fast Shipping,” “2-Day Shipping,” and “Expect Your Items Quick!” It also alleged that Fashion Nova failed to notify consumers of shipping delays and to give them the option to cancel; it also failed to cancel orders and provide refunds when it did not offer consumers delay option notices. Further, the complaint stated that Fashion Nova failed to refund consumers for items that didn’t ship, and instead chose to issue gift cards, which are not considered refunds under the Mail Order Rule.

The settlement prohibits Fashion Nova from any further violations of the Mail Order Rule, and requires the company to ship ordered merchandise within one day of receipt of an order when the company doesn’t specify a shipping date. From the $9.3 million payout, $7.04 million will be sent to the FTC for use in refunding consumers and Fashion Nova is required to refund $2.26 million directly to consumers. Lastly, past customers who received gift cards instead of refunds during the relevant time period of the alleged violation will be eligible for refunds under the settlement.

What Does This Mean for Stakeholders?
Online retailers need to keep a rigorous schedule and calendar for shipping orders. If they cannot fulfill orders in the time promised on their website, and in any event within 30 days, they must comply with the Mail Order requirements for notification of cancellation rights. The ins and outs of Mail Order Rule compliance can be tricky. However, understanding the requirements of the Mail Order Rule takes on new significance for online retailers during this time of supply chain disruption, which can result in delays in fulfillment. The Fashion Nova case shows the potential significance of violating these requirements.

Doctor's hands in protection gloves holds Testing Kit for the coronavirus testThe EEOC today updated its online guidance regarding COVID-19 and the Americans with Disabilities Act (the ADA), stating that employers may now test their employees for the presence of the COVID-19 virus before entering the workplace. The EEOC had previously stated that employers could monitor their employees’ body temperatures consistent with the ADA’s direct threat principles, but had left open the question of the permissibility of COVID-19 testing. The EEOC’s guidance is particularly timely as states begin to take steps to re-open businesses. The EEOC’s guidance is available here.

While the EEOC’s position gives employers welcome comfort that they can test without running afoul of federal employment law, there are still many practical considerations employers should evaluate before implementing COVID-19 testing measures. Testing kits are still not widely available in many areas. Even where available and when administered properly, current tests may provide limited information to employers and therefore have limited usefulness in helping employers maintain a workplace free from the virus.

There are currently two forms of the test. The first is a swab test that detects whether the virus is currently present in the body on the day the test is administered. The test does not tell whether the person has had the virus or whether they will develop the virus in the future. Such tests would need to be administered daily to effectively mitigate workplace spread. The second is a blood test that detects COVID-19 antibodies. This test can tell whether the person has had COVID-19, but not whether the person is actively contagious. Because both types of tests are novel and have been rapidly developed in response to the COVID-19 crisis, there are still concerns about their accuracy and ongoing reports of false-positive and false-negative testing results. The EEOC therefore cautions employers to ensure that any tests used have been evaluated for accuracy and reliability. The EEOC further directs employers to review the latest guidance from the U.S. Food and Drug Administration before implementing any testing protocol.

Employers should also ensure that tests are conducted in a consistent, non-discriminatory, and confidential manner. Testing should not be used as a substitute for implementing other recommended (or, in some jurisdictions, required) safety measures like social distancing, regular sanitization of the workplace, and good hygiene practices. Before re-opening onsite operations or bringing more employees back to the workplace, employers are well-advised to work with counsel to develop a robust health and safety operational plan that complies with federal, state, and local laws and guidance.

On April 8, 2020, the Centers for Disease Control and Prevention (CDC) issued Interim Guidance for implementing safety practices for critical infrastructure workers who may have been exposed to COVID-19.

The CDC advises that these workers (which include both employees and contractors) may be permitted to continue work following potential exposure provided that they remain asymptomatic and the employer monitors these workers and implements additional precautions in the workplace.

The CDC’s guidance defines “potential exposure” as either household or close contact with an individual with confirmed or suspected COVID-19.
The time frame for this contact includes the 48 hours preceding the individual’s first sign of symptoms.

The Guidance states that, prior to and during the work shift for these workers, employers should:

  • Pre-screen and measure the employee’s temperature and assess symptoms prior to them starting work.
    Ideally, temperature checks should happen before the individual enters the facility;
  • Regularly Monitor the employee’s temperature and symptoms (and have the employee self-monitor under the supervision of their employer’s occupational health program);
  • Have the employee wear a face mask at all times while in the workplace for 14 days after the last exposure;
  • Have the employee social distance and maintain a 6 feet perimeter as work duties permit in the workplace;
  • Clean and disinfect all areas such as offices, bathrooms, common areas and shared electronic equipment routinely; and
  • Work with facility maintenance to increase air exchanges in the building.

If the employee becomes sick during the day, the employee should be sent home immediately and all surfaces in the employee’s workplaces should be cleaned and disinfected. Employers are also encouraged to compile information on all persons who have had contact with the ill employee during the time the employee had symptoms as well as two days prior to the first sign of symptoms. The guidance contemplates that other employees with close contact – within six feet of the sick employee – are considered to have been “exposed.”

The CDC’s new guidance provides some helpful guidelines for employers, but employers with essential work forces must still carefully consider processes and methods to best ensure the health and safety of employees who remain in the workplace and how to respond to confirmed or suspected cases within the workforce.  We will continue to monitor and provide updated guidance concerning the evolving guidance regarding COVID-19, and we encourage you to reach out to one of the individuals below or your regular Crowell & Moring contact with any questions you may have.

 


On March 11, 2020, California’s Office of the Attorney General (OAG) released a second set of proposed revisions to the California Consumer Privacy Act (CCPA) draft regulations originally released in 2019 (Proposed Regulations).

The latest revisions, available here, are substantial and come in response to public comments submitted to the OAG during a 15-day comment period that concluded in late February. The new revisions request additional comments from the public, to be submitted by March 27, 2020.

Below is an overview of new changes to the Proposed Regulations that, if adopted, could have a significant impact on businesses’ compliance efforts. These revisions cover the following topics:

  • Definitions
  • Notice at Collection of Personal Information
  • Notice of Right to Opt-Out of Sale of Personal Information
  • Privacy Policies
  • Requests to Know and Requests to Delete
  • Service Providers

Key Proposed Changes to CCPA Implementing Regulations

I. Definitions

There are a number of newly proposed revisions to the definitions section set forth in Section 999.301 of the Proposed Regulations. Highlighted below are key definitions that relate to required consumer disclosures and actions businesses must take.

1. Triggering language for “financial incentives” and “price or service differences”: The definitions of both “financial incentives” and “price or service differences” are now tied to whether “a program, benefit, or other offering [or difference in the price or rate charged for a good or service] is related to the collection, retention or sale of personal information” instead of the “disclosure, deletion or sale of personal information.”

Businesses offering financial incentives are required to make a separate disclosure with details about the program and are prohibited from charging a different price or offering a different service in exchange for a consumer’s data unless that difference is reasonably related to the value of the data.

Businesses that rely on a previously made determination that they do not need to issue a notice of financial incentive or are not offering a “price or service difference” because their processing did not include the “disclosure, deletion or sale of personal information” should take careful note that the triggering behavior for such a disclosure has changed to the “collection, retention, or sale of personal information.”

2. Deletion of guidance on interpreting CCPA definitions: The new Section 999.302 introduced in the last round of revisions to offer additional clarity on whether information is “personal information” under CCPA, including an example related to the collection and use of IP addresses, has been deleted.

The removal of this interpretive guidance and the accompanying example leaves businesses with less information on what the Attorney General is likely to consider “reasonably capable of being associated with” an individual and thus qualify as “personal information” under the CCPA.

II. Notice to Consumers at Collection of Personal Information:

The latest revisions add information on how businesses should provide “Notice at Collection of Personal Information.”
New changes include:

1. No notice requirement for indirect collection of personal information by non-sellers: Businesses that “[do] not collect personal information directly from a consumer [do] not need to provide a notice at collection to the consumer” if they “do not sell the consumer’s personal information.”

2. No requirement to direct employees to general privacy policy: Notices provided at the collection of employment information do not need to link to a copy of the employer’s privacy policy.

III. Notice of Right to Opt-Out of Sale of Personal Information:

Regarding businesses’ compliance with the CCPA’s guarantee that consumers have the right to opt-out of the sale of their personal information, the new revisions include:

1. Removal of the example “Opt-Out Button or Logo”: Section 1798.185(4)(C) of the CCPA specifically tasks the OAG with adopting regulations “[f]or the development and use and a recognizable and uniform opt-out logo or button by all businesses to promote consumer awareness of the opportunity to opt-out of the sale of personal information.” The example of the opt-out button in the previous draft, as well as the accompanying guidance on how businesses that sell consumers’ personal information could implement the proposed button, has been removed.

As a result, while businesses that sell consumer data are still obligated to provide notice of the right to opt-out out of the sale of information, and comply with the requirement imposed by Section 1798.135(a) to submit a “clear and conspicuous link on the business’s Internet homepage titled “Do Not Sell My Personal Information,” there is no longer any guidance or example opt-out button for use on a business website.

IV. Privacy Polices:

For privacy policies, the latest revisions propose:

1. A requirement that businesses identify the categories of sources of personal information: Businesses must “identify the categories of sources from which personal information is collected.” The categories “must be described in a manner that provides consumers a meaningful understanding of the information being collected.”

Per the proposed definition found at Section 999.301(d), categories of sources “may include the consumer directly, advertising networks, internet service providers, data analytics providers, government entities, operating systems and platforms, social networks, and data brokers.” It is important to note that this definition is non-exclusive, so businesses may have to provide additional information in order to make the disclosure “meaningful” to consumers.

2. A specific description of the business or commercial purpose for collecting or selling personal information: Businesses must identify the business or commercial purpose for collecting or selling personal information. The purposes must be described “in a manner that provides consumers with a meaningful understanding of why the information is collected or sold.”

While the Proposed Regulations do not define business or commercial purposes with any more specificity, Section 1798.140(d) of the CCPA defines a “business purpose” as “the use of personal information for the business’s or a service provider’s operational purposes, or other notified purposes, provided that the use of personal information shall be reasonably necessary and proportionate to achieve the operational purpose for which the personal information was collected or processed or for another operational purpose that is compatible with the context in which the personal information was collected.”

The CCPA further provides seven specific examples of business purposes, which can be accessed in full here. Without a separate definition in the proposed regulations, businesses may consider structuring their proposed purpose disclosures based on the example purposes provided in the statute itself.

3. A requirement that businesses describe the required opt-in processes if they have actual knowledge that they are selling the information of minors under 16 years of age.

This description must follow the processes described in Sections 999.330 and 999.331 of the Proposed Regulations. Section 999.331 requires that a business with actual knowledge that is selling the personal information of children between 13 and 16 years of age must “establish, document, and comply with a reasonable process for allowing such minors to opt-in to the sale of their personal information.”

V. Requests to Know and Requests to Delete:

The latest revisions propose several crucial clarifications to businesses’ obligations when responding to requests to know or delete, including the following:

1. A requirement to inform consumers that information that cannot be disclosed in response to a collection request has been collected: Businesses that collect information that cannot be disclosed in response to a request to know, such as a consumer’s Social Security Number, other government identification number, or other information prohibited by the regulations, must inform a consumer “with sufficient particularity” if it has collected that type of information when responding to a request to know (where the business would be prohibited from disclosing the information itself).

2. No requirement to ask consumers to opt-out of sales if responding to a deletion request: The requirement that businesses selling consumer information inquire whether a consumer requesting the deletion of their information would also like to opt-out of the sale of information (if the consumer has not already done so) has been removed.

3. A requirement that businesses denying a request to delete inquire if the consumer would like to opt-out of the sale of information: Businesses selling consumer information must now inquire whether a consumer requesting the deletion of their information would also like to opt-out of the sale of information (if the consumer has not already done so) if the business denies the consumer’s request to delete their information.

Businesses that have developed processes for responding to consumer requests to know and delete based on previous versions of the Proposed Regulations should take note of the specific information that must now be provided to a consumer in the event that a request to know is denied.

VI. Service Providers:

The latest revisions propose several changes regarding service providers:

Service provider permitted uses of personal information: The latest revisions alter the list of “permitted uses” of personal information that service providers receive from businesses in order to provide services, including:

  • Replacing “To perform the services specified in the contract with the business” with “to process or maintain personal information on behalf of the business that provided the personal information, or that directed the service provider to collect the personal information, and in compliance with the written contract for services required by the CCPA.”
  • Changing Section 999.314(c)(3) of the Proposed Regulations to permit service providers to use personal information: “[f]or internal use by the service provider to build or improve the quality of its services, provided that the use does not include building or modifying household or consumer profiles to use in providing services to another business, or correcting or augmenting data acquired from another source.” Altering the internal use permitted from “to build or improve the quality of its services, provided that the use does not include building or modifying household or consumer profiles” to include “to use in providing services to another business,” and replacing “cleaning” with “correcting” when referring to data acquired from another source.

The previous version of these permitted uses did not specify that only profiles created for use in providing services to another business were prohibited. Specifying that service providers may use information “for internal use by the service provider to build or improve the quality of its services” applies to building profiles, so long as the service is confined to the original business customer, is a major clarification from the earlier proposed regulations and a significant reduction in CCPA risk for many service providers in the consumer profiling space. Changing to “correcting and augmenting data acquired from another source” rather than “cleaning” avoided potentially creating confusion around what conduct would qualify as “cleaning,” a term not otherwise used or defined in the statute or regulations.

Businesses should continue to monitor changes and updates to the CCPA regulations and how the law and associated regulations are enforced and interpreted. The California Attorney General’s Office has indicated that the COVID-19 pandemic will not delay the beginning of CCPA enforcement, which remains set for July 1, 2020.