In today’s protectionist environment, importers are facing heightened legal risks and a potential False Claims Act (FCA) violation when providing information to Customs and Border Patrol (CBP). In June, the United States Attorney’s Office for the Southern District of New York filed a civil fraud lawsuit against Manhattan-based children’s apparel companies Stargate Apparel, Inc., Rivstar Apparel, Inc., and their CEO, Joseph Bailey. The Complaint, filed under seal, had alleged that Bailey, Rivstar, and Stargate violated the FCA when they submitted invoices to CBP understating the true value of imported goods.

The alleged fraud was first brought to light by a whistleblower who filed a complaint under the FCA. It alleged that from 2007 to 2015, Stargate engaged in a double-invoicing scheme with a manufacturer in China. And that the manufacturer provided Stargate with two invoices for the each shipment of goods. One invoice, referred to as the “pay by” invoice, was for a much higher amount and reflected the actual price Stargate paid the manufacturer for the goods. The second invoice was for a much lower price. Stargate presented only this second invoice to CBP and thus was able to pay a fraudulently lower amount of customs duties.

A second variation of this fraud scheme involved invoices for “sample” goods. The Chinese manufacturer would send two invoices for one shipment, one marked commercial invoice and one marked sample invoice. Together, the two invoices reflected the real price Stargate paid to the manufacturer, but Stargate only paid customs duties on the commercial invoice and not on the sample invoice because sample goods are not subject to customs duties. According to the Complaint, none of the goods Stargate received from the manufacturer were actually sample goods.

The allegations claim that Bailey, Stargate, and Rivstar engaged in similar schemes with additional manufacturers. Through these schemes, the Complaint alleges that they undervalued imports by tens of millions of dollars and cost the U.S. government over $ 1 million in duty revenue. Bailey and his companies now face civil penalties and treble damages, and Bailey faces an additional criminal charge of conspiracy to commit wire fraud.

Importer FCA cases just like this one have been on the rise in recent years. The Trump administration’s focus on trade policy will likely only lead to continued scrutiny in this area. Additionally, the recent Supreme Court ruling in U.S. ex rel Hunt v. Cochise Consultancy, No. 18-315 (2019), has allowed whistleblowers to take advantage of a longer statute of limitations period previously only available to the government under 31 U.S.C. § 3731(b)(2). Thus, where the government does not learn of the FCA violation, a lawsuit can be filed up to 10 years after the date the false statement was made. This expanded statute of limitations may also contribute to the increase in importer FCA cases.

On August 12, 2019, a jury in Delaware federal court found L’Oreal USA Inc. liable for misappropriating Olaplex LLC’s trade secrets, infringing two patents relating to hair-coloring, and breaching a nondisclosure agreement between the two parties. The jury awarded $91.3 million to Olaplex. Olaplex’s victory demonstrates the importance of entering into nondisclosure agreements before disclosing potential intellectual property to a competitor – especially a large one.

This suit stems from a meeting in 2015 between L’Oreal and Olaplex to discuss a potential acquisition or licensing deal. Olaplex alleged that after the parties met, L’Oreal exploited its trade secrets and created “three knockoff versions” of products discussed during the meeting. At trial, the jury found that L’Oreal stole Olaplex’s trade secrets in violation of the nondisclosure agreement.

The jury found that L’Oreal willfully infringed both patents, leaving open the possibility of an award of increased damages.

L’Oreal hopes to remove this stain upon its reputation on appeal.

In June 2018, the Office of the United States Trade Representative (USTR) announced additional tariffs on products imported from China. The additional tariffs are part of the U.S.’ response to China’s unfair trade practices related to “the forced transfer of American technology and intellectual property” pursuant to Section 301 of the Trade Act of 1974. To date, three lists of tariffs against China have been posted.

Today, August 13, 2019, the USTR released two additional lists (List 4A and List 4B) of products that will be subject to a 10% tariff that will directly affect the Fashion Industry, particularly apparel and clothing accessories, footwear, and hats.

This list will go into effect September 1, 2019. The ad valorem tariff could potentially impact approximately $42 billion worth of imported apparel.

List 4A covers the following:

Footwear articles (91 tariff lines);
Apparel and clothing accessories (e.g., scarves, gloves, trousers, suits, blouses, shirts, skirts)(356 tariff lines); and
Headwear products (hair-nets, safety headgear of reinforced or laminated plastics, and safety headwear) (3 tariff lines).

List 4B (the second list of products subject to the tariffs) will not go into effect until December 15, 2019.  It will include an additional 56 lines of footwear articles; and 35 lines of apparel and clothing accessories.

List 4A: Effective as of September 1, 2019

List 4B: Effective as of December 15, 2019

USTR also indicated that it will launch an exclusion request process for products subject to the additional 10 percent ad valorem tariff.

The complete list of Chinese Tariffs, Trade Actions, and Retaliatory Measures is available here.

On July 9, the European Commission (EC) fined the Japanese company Sanrio – which holds and licenses various popular brands, including Hello Kitty, Chococat and the Mr. Men characters – € 6.2 million for licensing practices that restricted online and cross-border sales of merchandise. In late June it also published the full text of its decision fining Nike €12.5 million for similar behaviour. Both decisions form part of the series of enforcement actions taken by the EC in the wake of its e-commerce sector inquiry that we have discussed in previous posts.

What did Sanrio and Nike do?

The European Commission’s Sanrio fine stemmed from Sanrio having entered into non-exclusive licensing agreements for territories within the EEA that included clauses (i) explicitly prohibiting out-of-territory sales within the EU single market, (ii) requiring licensees to refer orders from outside their territory to Sanrio, and (iii) limiting the languages to be used on merchandising. Sanrio also implemented a series of measures to ensure compliance with the restrictions, including carrying out audits and not renewing contracts in case of non-compliance.

Nike – about whose behaviour we have more detail now – restricted cross-border and online sales of licensed merchandise in similar ways. The practices condemned by the EC included:

  • License conditions expressly prohibiting out-of-territory sales;
  • Restrictions on online sales, including license terms that authorized the use of websites accessible from outside the territory provided “such website does not allow any person … [from] outside the Territory to purchase”;
  • Indirect restrictions on out-of-territory sales, including obligations to refer out-of-territory orders to Nike, obligations to pay back profits from out-of-territory sales (clawbacks), and double royalties on out-of-territory sales;
  • Use of standard license conditions to prevent or discourage out-of-territory sales, including threats of termination for breach, non-renewal on expiry, and third party audits;
  • Limiting the supply from Nike of holographic “security labels” attached to merchandise to certify authenticity in circumstances where out-of-territory sales were suspected; and
  • Prohibiting sales to customers suspected of exporting merchandise between licensee territories.

Based on well-established case law, the EC concluded that these measures constitute per se restrictions of EU competition law. Among others, in the absence of exclusive territories, no restrictions on out-of-territory sales can be imposed within the EEA.

More developments in this area are expected in the coming months with the Vertical Block Exemption Regulation up for review. On July 31, the EC published a summary of the public feedback it has received in this regard. A majority of the respondents expressed concerns about the complexity of rules in this area and called for a revision of the guidance in particular in relation to online sales restrictions.

You need only to look around you to see that the number of connected devices is increasing exponentially. Watches, TVs, fridges, coffee machines, speakers… If they are not “smart” and connected to some type of network, there is a greater chance of finding them in an antique store than in the average Western household.

Greater connectivity comes with greater cybersecurity risk, which threatens not only the functionality and availability of the connected services but, more importantly, the confidentiality and security of the underlying data.

It is against this backdrop that the European General Data Protection Regulation (GDPR) became applicable in May 2018. With possible fines of up to 4 percent of an organization’s global revenue, this legislation has forced a reassessment of the risks emanating from the processing of personal data.

But when is the technology used to process this data “safe enough”? Many companies struggle to find objective standards to determine the level of security of Information and Communication Technology (ICT) products, services or processes – standards that will justify their use of the technology in the event something goes wrong.

This uncertainty is one of the problems that the European Union wanted to solve with its recent Cybersecurity Act. This legislation, which entered into force on June 27 and which is directly applicable in all EU Member States, creates an EU-wide cybersecurity certification scheme for ICT products, services, and processes. Furthermore, it renews and reinforces the mandate of the EU’s Cybersecurity Agency ENISA and determines its specific role and tasks.

While the GDPR focuses on Data Protection by Design, which has both privacy and security components, the EU Cybersecurity Act focuses on Security by Design. These are focus area that we also see in the United States, where guidance for managing IoT cybersecurity and privacy risks was recently published by the National Institute of Standards and Technology (NIST).

The cybersecurity certification framework is in line with the European Union’s Cybersecurity Strategy and the Commission’s Digital Agenda. These aim to harmonize the EU’s digital ecosystem so as to better exploit the potential of ICT in order to foster smart, sustainable, and inclusive innovation, economic growth and progress in Europe.

ICT designers and manufacturers now have the opportunity to benefit from an EU-wide cybersecurity certification that could significantly increase trust in their products, services and processes. The certification is voluntary, unless otherwise specified by EU or Member State law, and it is explicitly stipulated that the European Commission should assess, at least every 2 years, whether a particular certification should be made mandatory (with December 31, 2023 as the deadline for a first assessment).

The EU Cybersecurity Act introduces three levels of assurance: basic, substantial, or high. These levels reflect the risk associated with the intended use of the ICT product service or process in terms of the probability and impact of an incident. Each assurance level determines the security functionalities to be assessed and the corresponding rigor and depth of the assessment.

Manufacturers or providers of ICT products, services and processes that present a low risk, corresponding to the ‘basic’ assurance level, may issue a statement of conformity based on a self-assessment. Where there is no such self-assessment, or the assurance level is ‘substantial’ or ‘high’, the certification procedure is carried out by an independent third party. The certification scheme should indicate whether that third party should be a private or public conformity assessment body or a national cybersecurity certification authority.

Will the cybersecurity certification make the ICT product, service or process absolutely secure? No, obviously and unfortunately not. The conformity assessment will attest that they have been tested, and that they comply with certain cybersecurity requirements (e.g., technical standards).

But cyber attacks continue and cyber risks evolve, which is presumably why certificates will be issued only for a specific period. Furthermore, the authority or body issuing the certification should be notified of any subsequently detected vulnerabilities or irregularities concerning the security of the certified ICT product, service, or process that may have an impact on its compliance with the requirements related to the certification. Such information is to be forwarded without undue delay to the national cybersecurity certification authority concerned.

To give this legislation teeth, EU Member States are expected to impose penalties for infringing the European cybersecurity certification schemes as from mid-2021. Such penalties should be “effective, proportionate, and dissuasive”.

It remains to be seen whether the ICT market will react favorably to this initiative, which is intended to ensure and increase trust in their products and services. Even in cyberspace, the proof of the pudding is in the eating…

Manufacturers of battery chargers or external power supplies (EPSs), or sellers of consumer products that include battery chargers or EPSs, are likely subject to strict energy conservation standards. By virtue of Department of Energy (DOE) regulations that took effect in February 2016 and June 2018 for EPSs and battery chargers, respectively, manufacturers and importers of these charging devices must now meet stringent conservation standards under the Energy Policy and Conservation Act (EPCA) or risk the assessment of civil penalties.

Under EPCA, DOE enforces mandatory appliance efficiency or conservation standards for over 60 covered products, such as refrigerators, dehumidifiers, washing machines, and recently, EPSs and battery chargers. The EPS and battery charger regulations are expansive, and affect products that charge thousands of standard consumer electronic products, including laptop computers, mobile phones, game consoles, electric razors, and electric toothbrushes. With so many products powered by batteries or external power supplies, the universe of EPCA-regulated chargers seems infinite.

Under the standards, EPSs are defined as devices that convert household electricity to direct current in order to operate a consumer product. The battery charger rule applies to any charger that charges batteries for a consumer product, including chargers embedded in those consumer products. Notably, the rules cover all manufacturers of these charging devices and often the companies that import them from foreign manufacturers. EPCA also requires companies to certify and demonstrate compliance with the standards to DOE, and DOE has authority to independently confirm that these representations are accurate.

The scope of these battery charger regulations creates significant potential liability for manufacturers and sellers. The cost of non-compliance may be steep: EPCA penalties are assessed on each noncompliant unit distributed into commerce (either sold or made available for sale), at a maximum penalty rate of $460 per unit, with a “look-back” period of five years. As a result, manufacturers and sellers of consumer products are potentially liable for tens of millions of dollars for chargers that are in most cases adjuncts to their core product lines. Moreover, DOE generally seeks the maximum penalty against manufacturers and sellers who knowingly distribute products that violate EPCA standards, although DOE’s practice is to reduce these maximum penalties based on mitigating factors such as self-reporting, cooperation and prompt cessation of sales of non-compliant products.

To avoid these substantial civil penalties, a manufacturer or seller of EPSs or battery chargers should develop procedures to determine whether the rules apply to its devices, and to establish, demonstrate, and maintain its current and future compliance with these rules.

Connecticut Governor Ned Lamont signed into law on June 25, 2019 “An Act Concerning Paid Family and Medical Leave” (Act), that provides paid time off to new parents and caregivers, positioning Connecticut as the seventh state in the U.S. to provide paid family leave. Neighboring states, New York and New Jersey, already offer similar benefits. The Act creates a Family and Medical Leave Insurance (FMLI) program that provides wage replacement to workers covered under the State’s Family Medical Leave Act (CTFMLA), which it also amends. As amended, CTFMLA provides twelve (12) weeks of payments during any twelve (12)-month period of family and medical leave in connection with the birth, or placement with the employee for foster care or adoption, of a son or daughter of the employee, to care for a seriously ill family member, or to care for a person’s own serious illness. An additional two (2) weeks of payments is provided to a covered employee for a serious health condition resulting in incapacitation that occurs during a pregnancy. The FMLI wage-replacement program will be funded by a 0.5 percent payroll tax on each employee and self-employed individual enrolled in the program. The tax will go into effect on January 1, 2021. Covered employees will be eligible to receive benefits beginning January 1, 2022.

The FMLI benefit will cover 95 percent of a covered employee’s base weekly earnings up to 40 times the Connecticut minimum wage, then 60 percent of base weekly earnings until the total benefit reaches 60 times the state minimum wage. With the new Connecticut minimum wage law signed last month, the weekly cap for covered employees when benefits go into effect will be $780, based on a $13.00 minimum wage. The cap will increase to $900 benefits per week in June 2023, when the minimum wage will rise to $15.00. In light of these benefits, the Connecticut program currently offers the most generous wage-replacement rate in the nation, with D.C. and Washington following close behind with 90 percent replacement rates.

The Act also amends the CTFMLA to, among other things:

  • Expand the current CTFMLA to cover all private-sector employers with at least one (1) employees, as compared with the current threshold of 75 employees.
  • Allow an additional two weeks of leave due to a serious health condition that results in incapacitation during pregnancy.
  • Add to the family members for whom an employee can take CTFMLA leave to include the employee’s siblings (including siblings by marriage), parents-in-law, grandparents, grandchildren, and anyone else related by blood or affinity whose close association the employee shows to be the equivalent of a spouse, sibling, son or daughter, grandparent, grandchild, or parent.
  • Lower the employee work threshold to qualify for job-protected leave from (a) 12 months of employment and 1,000 work-hours with the employer to (b) three months of employment with the employer, with no minimum requirement for hours worked.

The Act is expected to help small employers be more competitive in attracting talent, since they are often unable to provide the same paid family leave benefits that larger employers can currently afford. Effective July 1, 2022, the Act requires employers to provide written notice to each employee of their entitlement to family and medical leave, the opportunity to file a claim for compensation under the program, the prohibition against retaliation for requesting or using family and medical leave, and their right to file a complaint with the Labor Commissioner for violation of any provision of the Act.

Bottom Line: While requirements under the Act will not begin to take effect for at least 18 months, Connecticut employers should begin to evaluate their paid leave policies and procedure and to the extent required, begin to contemplate implementing paid leave programs that comply with the Act.  For a Connecticut employer that operates in multiple states and provides a uniform paid leave benefit program to all its employees, it should evaluate whether its current paid leave benefit program complies with the federal Family and Medical Leave Act as well as the paid family leave laws of all states (including the Act) in which it has employees.

NIST has finalized Internet of Things (IoT) risk management guidance, which derived from a draft publication.  The guidance informs government agencies how to understand and manage IoT risks throughout device lifecycles.  Industry can anticipate government focus on three high-level goals:

  1. Device security;
  2. Data security; and
  3. Individual privacy.

The publication highlights three differences between managing risks for IoT devices and conventional information technology devices:

  1. IoT devices interact with the physical world differently than conventional devices;
  2. IoT devices cannot be accessed and monitored the same as conventional devices; and
  3. The availability and effectiveness of cybersecurity and privacy capabilities are different for IoT devices than conventional devices.

While not mandatory, the guidance provides useful considerations for IoT cybersecurity and privacy risk management.

In the third of our series of blog posts on antitrust and e-commerce in Europe, we look at the €40 million fine imposed on clothing company Guess by the European Commission (EC) in December 2018.

The case is the first in which the EC finds that restrictions on the use of a brand name for online advertising may constitute a per se infringement of EU antitrust law. With the recent Nike decision¸ it emphasises the limits placed by EU antitrust rules on owners’ ability to control use of their brand. Together, the two cases form part of a resurgence in EC enforcement activity involving online distribution following its 2017 e-commerce sector inquiry.

What did Guess do?

In Europe, Guess distributed its products – online and offline – through a mixed network of subsidiaries and authorized third-party distributors. Guess’ agreements with distributors contained a number of restrictive provisions, including:

  • restrictions on use of the Guess brand name in online search advertising;
  • a general prohibition on online sales without prior authorization;
  • obligations to comply with minimum prices (resale price maintenance); and
  • restrictions on cross-border sales between EU countries.

These restrictions formed part of a comprehensive e-commerce strategy in which third-party distributers were expected to focus on offline sales, while online sales were channelled primarily through an online shop owned and operated by Guess itself. Guess’ internal documents showed that the overall purpose was “to avoid cannibalisation of [the] official Guess website.” The EC found that each of the four categories of restrictions above constituted a per se violation of EU antitrust rules.

Restrictions on use of the Guess brand name in online advertising

Guess prohibited distributors from bidding on Guess brand names as keywords when purchasing online advertising on Google. Guess regarded Google AdWords as a particularly important advertising tool as it generated around 30% of all visits to the Guess online shop. Internal documents identified two objectives for the advertising ban:

  • to maximize traffic to Guess’ own online shop, by limiting distributors’ ability to advertise their alternative sites online; and
  • to minimise Guess’ advertising costs, by preventing distributors from bidding up the price of Guess brand related terms.

The EC concluded that by reserving the exclusive rights to the Guess brand name to itself, Guess achieved a significant online competitive advantage over its retailers and, as a result, restricted intra-brand competition.

Other per se restrictions

In addition to the novel advertising restriction, Guess also imposed several more established per se restrictions on its distributors. First, they were prohibited from making any online sales without first obtaining specific authorization from Guess. Guess had established no criteria for authorizing online sales and its internal documents stated “Less is more” and “We need to set up very clear criteria which will help us not to answer positively.”

Second, certain distributors were required to comply with a list of minimum prices set by Guess. The intention was said to be “making the product image uniform.”

Finally, Guess implemented a number of measures limiting the ability of distributors to sell outside the territory allocated to them, including requirements to:

  • advertise and market only within their territory; and
  • sell only to end users (i.e., not to potential exporters).

What do we learn from this?

Various features of the case are worth pausing on. First, as well as creating a new per se violation of EU antitrust rules, the Guess case widens the gap between EU and US policy on verticals. While the FTC has also taken action against restrictions on the use of brand names in online advertising (in the 1-800 Contacts case), the FTC’s action related to agreements between competitors, not agreements between a supplier and its distributors.

Second, in Europe, the focus on this form of restriction is not limited to the EC. The German national competition authority has already taken enforcement action in the Asics case, and the French and UK national authorities have issued reports condemning them. Combined with public statements from EC officials that there are “quite some” such restrictions out in the market, further cases seem inevitable.

Third, Guess managed to adopt three of the four established per se violations identified as priority concerns by the EC in its e-commerce sector inquiry report (in addition to the new brand advertising restriction). Engaging in multiple per se violations is always likely to increase your enforcement risk.

Finally, the decision underlines the importance of taking care when generating internal documents. Guess made the EC’s job particularly easy by being so frank about the unlawful objectives of its restrictions on distributors.

 

  • Is an escalator in a shopping mall a consumer product? The Consumer Product Safety Commission thinks so; here’s their recommendation on escalator safety and the use of soft soled shoes.
  • Does the CPSC regulate the Internet of Things? To the extent networked products present safety risks, you bet they do. CPSC Commissioner Kaye has issued his own paper outlining a framework for the safety of IoT products.
  • What about an industrial use product now widely available for sale to consumers in home improvement stores and on the internet? Probably; read on to learn more!

It can often be difficult for companies to determine whether a product is a “consumer product” for regulatory purposes. Determining whether a product is a consumer product is an important first step in understanding the potential applicability of federal and state product safety rules and regulations to your product. Whether you are a manufacturer, importer, distributor, or retailer, this post is intended to provide a brief overview of the basic jurisdictional considerations for companies in the consumer products space–particularly those companies who also distribute industrial-use products.

What is a consumer product?

The Consumer Product Safety Act (“CPSA)” defines “consumer product” as “any article, or component part thereof, produced or distributed (i) for sale to a consumer for use in or around a permanent or temporary household or residence, a school, in recreation, or otherwise, or (ii) for the personal use, consumption or enjoyment of a consumer in or around a permanent or temporary household or residence, a school, in recreation, or otherwise…” Although the statute does not provide specific examples of “consumer products,” it does set forth particular categories of products which are not included the definition. This list includes the following types of products which are regulated by other federal agencies:

  • Any article which is not customarily produced or distributed for sale to, or use or consumption by, or enjoyment of, a consumer
  • Tobacco and tobacco products (Food and Drug Administration)
  • Motor vehicles or motor vehicle equipment (National Highway Traffic Safety Administration)
  • Pesticides (Environmental Protection Agency)
  • Firearms and ammunition (Bureau of Alcohol, Tobacco, Firearms, and Explosives)
  • Aircraft, aircraft engines, propellers, or appliances (Federal Aviation Administration)
  • Boats (U.S. Coast Guard)
  • Drugs, devices, or cosmetics (Food and Drug Administration)
  • Food (Food and Drug Administration)

The U.S. Consumer Product Safety Commission (“CPSC”) publishes a list of regulations, mandatory standards, and bans to assist industry and consumers with navigating which rules apply to specific consumer products. However, even if there is not a specific mandatory regulation in place for a product, the CPSC may still have jurisdiction over that product.

Are all hardware and home improvement items covered by the CPSC?

As a rule of thumb, if you can buy it at the hardware store or on an online retail site, a DIY home improvement product would be covered as a consumer product. But the analysis is somewhat more nuanced in determining the CPSC’s jurisdictional reach when products become part of customized systems that operate together in the home environment, such as electrical wiring, solar installations and security systems. A defect may not exist in those products as sold, but instead arise because of the way they are installed or otherwise incorporated into the home. Home systems, as opposed to distinct articles in a home, are traditionally regulated by building codes that can take into account important local considerations such as temperature, humidity and even geographic fault lines.

The CPSC has jurisdiction over products that are distinct articles in commerce enjoyed by consumers in and around the home. 15 U.S.C. § 2052(a)(1); see Consumer Product Safety Commission v. Anaconda Co., 593 F.2d 1314, 1320 (D.C. Cir. 1979) (holding that CPSC assertion of jurisdiction over wiring or plumbing systems “would seem to ignore a contrary congressional intention and potentially raises significant problems of federalism in areas of building construction currently regulated extensively by local jurisdiction”). But when the performance of an article in commerce necessarily depends on the design, installation and operation of that product in an integrated system, the jurisdictional analysis can change and an argument can be made that these systems are not consumer products. Id. Electrical wiring or plumbing systems discussed in Anaconda are classified there as involving “housing,” and not regulated as a consumer product. Id. at 1320 but see Kaiser v. Consumer Product Safety Commission, 574 F.2d 178 (3d Cir. 1978) (distinguished by Anaconda in holding that jurisdiction depends on CPSC findings on jurisdictional fact as to whether a component part of system is distributed to consumers as a distinct article in commerce).

What is an industrial or institutional product as opposed to a consumer product?

While most of the “non-consumer products” fall into one the categories listed above and are easily recognizable, one less-obvious exclusion is a product “which is not customarily produced or distributed for sale to, or use or consumption by, or enjoyment of, a consumer.” The CPSA’s legislative history, general counsel opinions, and subsequent cases address and consider this provision in terms of whether the product is produced or distributed primarily for industrial or institutional, as opposed to consumer, use. In general, even if a product is sold primarily to industrial or institutional buyers, it is nevertheless a consumer product within the CPSC’s jurisdiction so long as it is produced and distributed for ultimate consumer use, or otherwise advertised and marketed for consumer use.

On the other hand, a product is likely to be considered an “industrial or institutional product,” if it is not only not customarily sold to or bought separately by consumers, but also is not produced for the purpose of their use and/or enjoyment, General Counsel Opinion 55 (1973); Hughes v. Segal Enterprises, Inc., 627 F. Supp. 1231, 1240 (W.D. Ark. 1986); Consumer Prod. Safety Comm’n v. Chance Mfg. Co., 441 F. Supp. 228, 232-233 (D.D.C. 1978) (finding an amusement park ride was a consumer product because, while not distributed directly to consumers, it was produced to be used for recreational purposes by consumers). How the product is advertised is also important. For example, the D.C. Circuit has held that to be a consumer product, “sales or distributions [to consumers] must be more than ‘occasional’ and there must be ‘significant marketing of the product as a distinct article of commerce for sale to consumers or for the use of consumers.” Anaconda, 593 F.2d at1319-22. A product may be considered an “industrial or institutional product” if one or more of the following factors apply: (a) the weight and cost of the product exceed those of usual consumer products of the same type; (b) the manufacturer did not sell directly to retailer dealers; (c) distributors and dealers did not advertise the product in consumer publications; (d) advertising for the product was only placed in special interest publications for commercial or industrial users; or (e) distributors believe that the product is being sold commercially, not to consumers. General Counsel Opinion 297 (1982)

It is also important to keep in mind that any doubts will be resolved in favor of finding jurisdiction of the CPSC, General Counsel Opinion 134 (1974), and the onus is on the manufacturer “to determine the distribution and use patterns of its products and to act accordingly.” General Counsel Opinion 107 (1974). Moreover, even if a product is originally produced or distributed for industrial or institutional use, if the product becomes “broadly used by consumers” or the distributor “facilitates its sale to or use by consumers, the product may lose its claim for exclusion if a significant number of consumers are thereby exposed to hazards associated with the product.” General Counsel Advisory Opinion 134 (1974); House Report No. 92-1153, 92d Cong., 2d Sess. (1972).

Conclusion

Looking for more information? In addition to relying on the laws described above, the CPSC list of regulated products and advisory opinions, the CPSC has a “Regulatory Robot” to help small businesses determine what safety rules apply to their product.