Retail & Consumer Products Law Observer

Retail & Consumer Products Law Observer

Legal Insight for the Retail and Consumer Products Industry

ICPHSO International Symposium Panel on GDPR and the EU’s Digital Single Market

By Maarten Stassen on Posted in EU Regulation, Privacy & Data Protection

@getty images

On November 12, Crowell & Moring chaired a plenary session during the 2018 ICPHSO International Symposium in Brussels, which was presented as part of the European Commission’s International Product Safety Week. The panel focused on how, as a result of their Big Data strategies, Business-to-Business (“B2B”) companies are affected by consumer-focused legislation such as the General Data Protection Regulation (“GDPR”). Additionally, the EU’s Digital Single Market initiatives and their expected consequences were discussed.

As a brief reminder, the GDPR is a European-wide legislation applicable since the end of May that regulates the use of personal data, which is basically any type of information that can identify an individual. Replacing a name by a number, only referring to the identification number of a vehicle or device or using a nonsensical patient ID number is not sufficient to be out of scope; only truly anonymized data, e.g. aggregate data, is.

Manufacturers of industrial equipment are a good example of companies whose Big Data strategy forced them to focus on GDPR compliance. Indeed, in order to enhance the safety of the users of their equipment, a huge amount of data is collected. As such data relates to these users, such data is considered “personal data” and thus in scope of the GDPR. Therefore, the GDPR challenges and risks are very similar or the same for both B2B and Business-to-Consumer (“B2C”) businesses.

The same applies to the Internet of Things (“IoT”) in general, and connected devices more specifically, as we have moved from people speaking to each other, over people speaking to devices, to devices speaking to each other. Because connected devices operate both in B2B and B2C environments, compliance challenges are very similar or the same in this situation as well.

While compliance with very strict legislation such as the GDPR is not impossible, it cannot be denied that organizations with innovative Big Data-based business models often encounter substantial challenges. In the medical environment, for example, both artificial intelligence and 3D-printing can undoubtedly enhance the accuracy of a diagnosis or the precision of a treatment and, thus, add significant value to the entire healthcare sector. However, as such accuracy and precision increases with the amount of personal data that is processed, the use of huge amounts of data needs to be aligned with GDPR principles such as data minimization and purpose limitation, to only name a few.

Key to this dilemma is trust, combined with true ethical behavior and a clear focus on the rights of individuals. The importance of the latter cannot be underestimated, as the right to the protection of personal data is a fundamental right in the European Union, which means that this right should be respected in a similar way as other fundamental rights, freedoms and principles such as the right to life, prohibition of torture, the right to liberty and security, etc.

The buzz created around innovative technologies such as artificial intelligence and blockchain have put the need for an ethical approach high on the agenda. While, depending on their effective role in the actual processing of personal data, developers of these technologies might entirely be out of scope of the GDPR, the parties who use their technology are not. The latter will therefore have to embrace their responsibility and accountability obligations and make sure that the individuals’ rights and freedoms are optimally respected by means of appropriate technical and organizational measures, in line with the GDPR’s Data Protection by Design requirements. Clear information and even education about the efficiency and effectiveness of these measures is crucial to ensure that the true value of innovation is not thrown away with the bathwater.

Another topic that was discussed is the EU’s strategy for the future. While the “old school” single market approach ensures a level playing field and a free flow of goods, capital, services and labor within the European Union, the goal of the Digital Single Market is to ensure access to online activities for individuals and businesses under conditions of fair competition, consumer and data protection, removing geo-blocking and copyright issues.

In that context, an important initiative is the proposed Cybersecurity Act, which wants to ensure safe access to online activities for individuals and businesses. The EU-wide certification scheme that comes with it is a highly debated topic, as its approach seems to differ from the GDPR’s accountability requirement, where organizations themselves need to assess the risks and, based on such analysis, take appropriate technical and organizational measures accordingly.

A last topic that was part of the discussion was the EU’s proposed New Deal, that is aimed at strengthening consumer rights online, giving consumers the tools to enforce their rights and get compensation, e.g. via class action-like representation, and introducing effective penalties for violations of EU consumer law.

The panel concluded that the challenges posed by new EU consumer legislation cannot be underestimated, and that not only consumer products will be affected by the new regulatory framework. Compliance is certainly not impossible, and a focus on ethical behavior, a clear allocation of responsibilities and a constructive collaboration between the different stakeholders seem the key to success.

ICPHSO’s next event will be its 2019 Annual Meeting & Training Symposium which will be held February 25-28, 2019 in Washington, DC.

Before You Settle That Class Action, Remember the Footlong

By Sarah Gilbert and Honor Costello on Posted in Advertising & Product Risk Management, Consumer Class Action

This article originally appeared in Bloomberg BNA.

Image of ruler at the 10 inch mark

@GettyImages

When Subway faced a class action over its “footlong” sandwiches coming up short, a quick settlement seemed like a good bet. Instead the case became a memorable example of how the courts and the Justice Department are cracking down on settlements that often do little more than generate easy money for plaintiffs’ attorneys.

Companies facing meritless class actions often move to quickly settle to avoid costly drawn-out legal battles, but in this new legal climate, companies should reconsider their strategies for resolving these lawsuits.

One of the most famous examples of this trend is the proposed settlement of class action lawsuits filed after a picture of a Subway “footlong” sandwich measuring less than 12 inches went viral. The lawsuits claimed the sandwich company engaged in deceptive marketing and sales practices. But the company quickly provided discovery showing it used the same amount of dough in each “footlong” roll. Thus, any variation in length of the rolls was merely a fluke of the baking process and not an indication that consumers were receiving less food.

Still, Subway agreed to settle the case and committed to institute quality-control practices designed to ensure consumers received 12-inch rolls. The company also agreed to post notices explaining that, even with the quality-control practices, the bread-baking process sometimes results in rolls measuring less than 12 inches.

For obtaining these concessions, plaintiffs’ attorneys were to receive more than $500,000 in fees.

No Benefit to Class

Subway, like many companies, embraced the opportunity to quickly settle a meritless lawsuit for only the cost of legal fees and a few minor business changes. But the U.S. Court of Appeals for the Seventh Circuit, one of a number of increasingly skeptical courts, rejected the settlement because it provided “zero benefits for the class,” noting “[a] class settlement that results in fees for class counsel but yields no meaningful relief for the class is no better than a racket.”

Courts are not alone in turning a more critical eye on proposed class action settlements.

Earlier this year, the Department of Justice signaled it would be making a concerted effort to review class action settlements. For the past 13 years, the DOJ has had the authority to review and weigh in on the fairness of class action settlements but has rarely done so. But in February, departing Associate Attorney General Rachel L. Brand indicated that the DOJ would use its authority to ensure class action settlements provide meaningful value to class members.

Soon after, the DOJ made good on its promise and issued a statement of interest opposing a proposed consumer class action settlement in federal court in New Jersey. Again, the concern was that class counsel was receiving $1.7 million for a settlement of dubious value to consumers. The plaintiffs claimed that an online wine retailer had misled them by showing very high “original” prices for bottles of wines, leading consumers to believe they were getting a better discount. However, as the DOJ pointed out, the plaintiffs “actually received the products they ordered at the prices to which they agreed.”

But even assuming the plaintiffs could show they suffered a loss, the proposed settlement offered only rebate codes that would allow a plaintiff a $2 discount per bottle of wine purchased from the defendant. The DOJ determined that, either way, the settlement was not fair.

The court agreed and ultimately rejected the settlement.

Do Your Homework

With courts and the DOJ viewing class settlements more stringently, companies should carefully consider whether a settlement that appears to be an easy way out is truly the best approach.

Such settlements may prove a waste of time and resources if they are challenged by the DOJ or ultimately rejected by the court. Although plaintiffs’ attorneys could withdraw their claims following a rejected settlement, often companies are faced with months or even years of continued litigation. And even if the settlement survives the increased level of scrutiny, it will not necessarily reduce the risk of similar lawsuits by plaintiffs that were not bound by the agreement.

Instead, companies should determine whether, even if more costly in the short term, they may ultimately have more to gain from seeking a dismissal of the action on the merits.

If companies still decide to settle, they should avoid the hallmarks of settlements that were found not to provide benefits to the class. If the value to the class involves only business practice changes, the companies should make certain to include changes that were not already in place before the settlement and that will materially reduce the risk of harm to consumers.

And instead of offering consumers coupons, which have limited value because customers need to spend money to get the benefit, companies should offer them small credits instead. Apple showed benefit to its customers when it settled a 2016 class action lawsuit by agreeing to pay $400 million to consumers who bought e-books at an inflated price by automatically crediting their e-book accounts.

Given the increased scrutiny on class action settlements, a more thoughtful approach to settlements that seem like a quick fix could save companies time and money in the long run.

 

Webinar: “Cataclysmic Change or Business as Usual: Product Regulation in the Trump Administration”

By Cheryl A. Falvey, John Fuson and Peter B. Miller, CIPP/G/US, CIPP/E, CIPM, CIPT on Posted in Advertising & Product Risk Management, Consumer Class Action, Events, Torts

Join Us For A Complimentary Webinar – Thursday, October 25, 2018 – 12:00 – 1:00 PM ET

Two years into the Trump Administration and:

  • The Consumer Product Safety Commission finally has a Republican majority,
  • the Department of Transportation has released its 3.0 guidance on autonomous vehicles,
  • NIST has published a 375 page recommendation on medical device security,
  • the FTC is holding a series of hearings on the transformative nature of the digital transformation on markets.

@GettyImages

What does all this activity in the United States mean for companies following the rapidly evolving regulations globally related to the safety and security of products?

This PLAC webinar will describe the current landscape at the federal agencies setting policy for product safety and security. With all the recent talk of regulatory humility in the face of great technological change, we’ll discuss whether regulators practice what they preach and if recent actions encourage or stifle innovation. Our session will compare and contrast activities across the federal government relevant to consumer products broadly defined with a particular focus on product safety and security.

Presenters:

Cheryl Falvey, Partner, Crowell & Moring, Washington, DC
John Fuson, Partner, Crowell & Moring, Washington, DC
Peter Miller, Senior Counsel, Crowell & Moring, Washington, DC

Please click here to register for this webinar.

Senate Confirms Peter Feldman to CPSC; Republicans Gain 3-2 Majority

By Matthew Cohen and Carolyn Wagner on Posted in Advertising & Product Risk Management, Consumer Class Action, Product Liability & Torts, Torts

@GettyImages

Earlier this summer, President Trump nominated Republican Peter Feldman to serve as the fifth commissioner on the U.S. Consumer Product Safety Commission (CPSC). The Senate has now confirmed Mr. Feldman to both (1) serve out the remainder of former Commissioner Joe Mohorovic’s term, which expires in October 2019; and (2) serve a seven-year term beginning in October 2019.

Significantly, the confirmation of Mr. Feldman gives the Republicans their first majority control of the Commission in nearly twelve years, and presents an opportunity for Acting Chairman Ann Marie Buerkle to further move the agency in a direction that reflects her regulatory priorities, as well as those of the Administration. Notably, the Commission will soon consider its FY 2019 operating plan which sets the agency’s agenda for the coming year.

Interestingly, the Senate voted 80-19 to confirm Mr. Feldman to serve out the remainder of former Commissioner Mohorovic’s term. However, on the following day when it came to vote on Mr. Feldman’s own seven-year term that would start in October 2019, the Senate split along strictly partisan lines confirming Feldman by a slim 51-49 majority. Some had argued that since Mr. Feldman’s “new” term would not begin until 2019, the next Senate should take up the nomination after the midterm elections.

Mr. Feldman is well-known among the product safety community. Having served as legal counsel to Senator John Thune (R-SD) at the Senate Committee on Commerce, Science, and Transportation since 2011, he is experienced and well-versed in consumer product safety law and the activities of the Commission.

The CPSC released the following statement upon Mr. Feldman’s confirmation including this quote from Mr. Feldman himself:

“I believe strongly in the mission of the agency because American consumers have every right to expect that the products they purchase will be safe and will not pose an unreasonable risk of injury to themselves or their families,” Feldman said. “CPSC’s safety work is critical, particularly when it comes to protecting our most vulnerable populations. I look forward to advancing these agency priorities while ensuring fairness in the execution of its duties.”

We look forward to working with Commissioner Feldman in the years ahead and congratulate him on his confirmation.

 

Peter A. Feldman Nominated to CPSC; Republican Majority in Sight

By Matthew Cohen on Posted in Advertising & Product Risk Management

© Getty Images

Two weeks ago, after the Senate confirmed Dana Baiocco to the U.S. Consumer Product Safety Commission (CPSC), we wrote that it would not be a surprise if President Trump appointed a fifth commissioner in the coming weeks to give the Republicans a 3-2 voting majority on the Commission. Well, on June 4, the President nominated Peter A. Feldman to be a Commissioner of the CPSC. This is a very significant development. If confirmed, Feldman will fill the remainder of former Commissioner Joe Mohorovic’s term, which expires in October 2019, and give the Republicans their first majority at the Commission in nearly twelve years. The confirmation would also allow Acting Chair Ann Marie Buerkle to start to move the agency in a direction that reflects her regulatory priorities, as well as those of the Administration.

Mr. Feldman is known to many in the product safety community. Having served as legal counsel at the Senate Committee on Commerce, Science, and Transportation since 2011 (most recently as Senior Counsel), he is knowledgeable and well-versed in consumer product safety law and the activities of the Commission. He is a graduate of American University’s Washington College of Law.

Upon his nomination, Senate Commerce Committee Chairman John Thune (R-SD) stated the following:

“Peter has been part of the Commerce Committee team and an invaluable resource during my entire tenure as ranking member and chairman. While I will miss his steady hand in our committee’s bipartisan efforts to fight for consumer safety and fairness, the Consumer Product Safety Commission will benefit from his expertise and leadership. Once the committee receives the formal nomination and other required submissions, I expect we will move quickly to convene a confirmation hearing.”

We expect Feldman’s nomination to move faster than that of Commissioner Baiocco. Should Feldman be confirmed to fill former Commissioner Mohorovic’s term, we also expect President Trump to re-nominate him for a new seven-year term in October 2019. In the meantime, until Feldman’s confirmation, the Commission remains in a 2-2 voting “tie.”

Who You Gonna Call? (Just Don’t Use an Autodialer!)

By Mimi Dennis on Posted in Advertising & Product Risk Management

© Thinkstock

Multiple class actions have alleged violations of the Telephone Consumer Protection Act (TCPA) for use of automated dialing systems (auto-dialer). In a 2015 Order, the Federal Communications Commission (FCC) defined an auto-dialer under the TCPA to mean any device with the theoretical “capacity” to place autodialed calls, even if had the potential to be transformed into an auto-dialer. Importantly, the FCC’s definition was prospective and applied even if additional software was required. However, several recent cases have narrowed the scope of the definition of “auto-dialer,” creating a potential hurdle for plaintiffs and creating confusion about the viability of class actions that hinge on whether the marketing platforms used to send messages to consumers qualify as “auto-dialers.”

In March, in ACA International v. Federal Communications Commission, No. 15-1211 (D.C. Cir. Mar. 16, 2018), the D.C. Circuit limited the FCC’s 2015’s broad prospective definition of auto-dialer, stating that it would “subject ordinary calls from any conventional smartphone to the act’s coverage” and that the statute did not necessitate such a “sweeping swoop.”  Instead, the court reasoned, the proper analysis of whether a device is an auto-dialer under the TCPA should turn on the capacity of a device to behave as an auto-dialer, as well as the amount of effort required to turn a device into an auto-dialer.

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Democrats Lose Voting Majority at CPSC with Baiocco Confirmation

By Matthew Cohen on Posted in Advertising & Product Risk Management

© iStock

The 3-1 Democratic majority at the U.S. Consumer Product Safety Commission has officially come to an end one and a half years after the election of President Trump and eight months after the nomination of Dana Baiocco as a commissioner of the CPSC. This afternoon, the United States Senate voted 50-45, mostly along party lines, to confirm Ms. Baiocco to the Commission. This confirmation is significant.

As of today, Ms. Baiocco will be able to take her seat on the Commission, and Commissioner Marietta Robinson, currently in her “hold-over” year as her term expired last October, will depart the agency. Commissioner Baiocco’s arrival at the CPSC will shift—or at least begin to shift—the Commission’s balance of power from Democratic to Republican control.

With Ms. Baiocco’s confirmation, Republicans will hold two seats on the Commission currently occupied by Acting Chair Ann Marie Buerkle and Commissioner Baiocco. They will serve alongside Democratic Commissioners Robert Adler and Elliot Kaye. The fifth seat on the Commission has remained vacant since former Republican Commissioner Joe Mohorovic resigned from the agency last October.

Commissioner Baiocco’s confirmation marks an end to the unusual dynamic whereby the Commission’s leader, Acting Chairman Ann Marie Buerkle, a Republican, was in the minority, and generally unable to implement the regulatory priorities of the Administration. Although Acting Chairman Buerkle will not command a 3-2 majority until the President appoints a fifth commissioner (who must also be confirmed by the Senate), the Democrats will no longer have a de facto majority to control the agency’s agenda.

While Ms. Baiocco’s confirmation certainly changes the balance of power at the Commission, some political limbo and uncertainty remains. Acting Chairman Buerkle’s nomination to be permanent Chairman remains pending—and there is no indication from the Senate that it plans to move the nomination forward as it has just done with Ms. Baiocco’s nomination. Moreover, although the Democrats have lost their 3-2 majority on the Commission, a 2-2 voting “tie,” may result in stalemate as Acting Chairman Buerkle does not have any tie-breaking authority as Chairman.

Nevertheless, we can now expect the Commission to start to move in a direction that reflects some of the Administration’s regulatory priorities and agenda. Furthermore, we would not be surprised if President Trump appointed a fifth commissioner in the coming weeks to once again shift the balance of power—this time, giving the Republicans a 3-2 voting majority.

Check Your Spam Filters!: CPSC Has Automated FOIA Communications

By Cheryl A. Falvey, Carolyn Wagner and Matthew Cohen on Posted in Advertising & Product Risk Management, Product Liability & Torts

You may have received an e-mail notice this week from the CPSC about the FOIA office’s new “Electronic Manufacturer Notification Collaboration Portal.”  The main purpose of the Portal is to reduce costs by using e-mail instead of snail mail for Section 6(b) and other FOIA-related notifications. 

Generally, automation of this process shouldn’t result in any meaningful changes in the FOIA notification and objection process.  The Commission’s regulations allow firms to submit information with a request for confidential treatment.  If the Commission receives a FOIA request for information previously designated confidential, the person who previously submitted the request for confidentiality is notified of the FOIA request and the need for quick response to protect that information from disclosure.

Given the quick turnaround time on requesting exemption from disclosure under FOIA, it is imperative for all industry players to make sure that the right contact is assigned – including someone in the Legal Department – to receive Portal notifications so your team can make quick decisions and take action if filing an objection with the CPSC is necessary.  The same contact person used for the Clearinghouse or Saferproducts.gov is a good bet.  But requesting an exemption under FOIA takes some analysis of the regulations.  Was the information submitted under section 15?  Is it a trade secret?  And so, companies would be well advised to make sure they have a process in place and conduct a training program to protect confidential data from disclosure.

If you haven’t yet received any notifications about the new automated Portal, you should check in with the CPSC at cpsc-foia@cpsc.gov and provide contact information for the proper registration person.  The full text of the notification recently sent by the CPSC is below:

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CPSC Reaction to Consumer Misuse – Human Factors Design Process

By Cheryl A. Falvey and Stephanie Crawford on Posted in Advertising & Product Risk Management

© Getty Images

Product liability suits and regulatory product defect enforcement actions associated with consumer foreseeable – and unforeseeable – misuse have become the norm. Consumer product companies can mitigate these risks by focusing on use-related hazards and user-centered designs in an effort to reduce injuries and improve the usability of products. But the real question is how far to go with these efforts — at what cost and for what incremental benefit.

On March 15, 2018, the Consumer Product Safety Commission published Draft Guidance on the Application of Human Factors to Consumer Products for industry comment by May 14, 2018. The draft guidance was developed in conjunction with Health Canada’s Consumer Product Safety Directorate. CPSC and Health Canada aim to increase product safety by explaining to product designers and manufacturers how to incorporate human factors[1] into the design process.

The draft guidance describes the product design process and provides guidance on human factors considerations at each stage and then summarized in the graphic depictions collected at the end of this post. Because the guidance is not an enforceable rule, no cost benefit analysis accompanies the myriad of product design recommendations proposed.

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FTC Targets Cryptocurrency Pyramid Schemes

By Kate Watkins and Lauren B. Aronson on Posted in Advertising & Product Risk Management

© iStock

The FTC’s Consumer Protection Division has long targeted advertisements for “work-at-home,” business and investment opportunities that exaggerate the earning potential and downplay risks. Recently, the FTC announced that it filed a complaint against four individuals doing business as “Bitcoin Funding Team” in the U.S. District Court for the Southern District of Florida for deceptively advertising a cryptocurrency scheme that promised consumers that they could turn a cryptocurrency payment of approximately $100 into $80,000 in monthly income. Specifically, the complaint alleges two counts: 1) that Defendants’ representations that the programs are structured to operate as bona fide money-making opportunities are false or misleading and violate Section 5(a) of the FTC Act, and 2) that Defendants’ representations that consumers who participate in the programs are likely to earn substantial income are also false or misleading, violating Section 5(a). On March 16th, the Commission secured a temporary restraining order against, and froze the assets of pending trial, the defendants it alleges who were operating and promoting cryptocurrency pyramid schemes.

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