On July 1, 2021, the Federal Trade Commission’s (FTC) finalized a new Made in USA labeling rule that becomes effective August 13, 2021. The new rule codifies the FTC’s “all or virtually all” standard for unqualified “Made in USA” claims.  The rule is intended to “crack down on marketers who make false, unqualified claims that their products are Made in the USA.” Until now, the FTC has primarily enforced Made in USA claims under its Section 5 authority, issuing hundreds of closing letters.  In recent years, the FTC has pursued penalties, for example obtaining a $1.2 million settlement in a follow-on action against a  glue manufacturer and  a consent decree resolving allegations the company falsely claimed novelty products were “Made in USA.”

The FTC conducted this rulemaking under Section 45a of the FTC Act, which authorizes the Commission to issue rules governing ‘‘Made in the U.S.A.” claims on “labels,” which the FTC defines as including advertisements disseminated electronically, including by e-mail and on websites. The new rule applies not only to product labeling, but to any “mail order catalog” or “mail order promotional material” that includes a seal, mark, tag, or stamp that labels a product as having been made in the United States. The FTC defines mail order catalogs and promotional material as “any materials, used in the direct sale or direct offering for sale of any product or service, that are disseminated in print or by electronic means, and that solicit the purchase of such product or service by mail, telephone, electronic mail, or some other method without examining the actual product purchased

The final Rule provides that “labels” may not contain unqualified “Made in USA” claims unless:

(1) Final assembly or processing of the product occurs in the United States;

(2) all significant processing that goes into the product occurs in the United States; and

(3) all or virtually all ingredients or components of the product are made and sourced in the United States.

The Rule does not cover qualified claims, which will remain subject to the FTC’s general authority to police deceptive and unfair claims under Section 5 of the FTC Act. The FTC has said that, even if certain components of a product cannot be sourced from the U.S., and must be imported, they still must be included in the analysis of whether a product was made in the United States.

The Rule outlines a procedure for partial or full exemption where an advertiser can sufficiently demonstrate that their Made in USA claims are not deceptive. The rule also allows the agency to seek civil penalties of up to $43,280 per violation and expands the FTC’s remedial options.

One of the FTC Commissioners, Rohit Chopra, explained that this is a restatement rule that is intended to affirm past FTC guidance and legal precedent. Apparently, the final Rule does not significantly deviate from the one proposed nor from the FTC’s 1997 Enforcement Policy on U.S. Origin Claims, and, more importantly, the Rule does not appear to impose additional requirements on advertisers.

Following the issuance of FTC’s Made in USA Rule, Agriculture Secretary Tom Vilsack released the following statement “the Federal Trade Commission took important steps to enhance its ability to enforce the Made in USA standard….USDA will complement the FTC’s efforts with our own initiative on labeling for products regulated by FSIS, an area of consumer labeling where USDA has a long tradition of protecting consumers from false and misleading labels.”

Last month, U.S. Representative Grace Meng (D-NY) announced that she has reintroduced legislation—the Total Recall Act—to change the way that businesses notify the public about recalls.  The text of the legislation can be found here.

H.R. 3724, entitled the “Total Recall Act,” requires firms engaged in a product recall to post recall notices on their websites and all social media accounts, and also spend a defined amount of money on publicizing the recall depending upon whether it is mandatory or voluntary.  For a mandatory recall, which is an incredibly rare event, businesses would be required to expend a sum of money that equals at least 25% of what the firm spent on marketing the product prior to its recall.  On the other hand, for common voluntary recalls, firms would be required to use at least 25% of the product’s original marketing budget as well as 100% of the product’s social media marketing budget on publicizing the recall.  The bill would also mandate that the U.S. Consumer Product Safety Commission provide an annual report to Congress on participation rates for each recall. Continue Reading Product Recall Notification Legislation Reintroduced in Congress

The July 4th holiday weekend started a tad late for those of us who practice in the field of consumer product safety.  Late Friday afternoon, the White House announced that President Biden has nominated two new commissioners to serve on the U.S. Consumer Product Safety Commission (CPSC)—Alexander Hoehn-Saric and Mary Boyle.  Both are Democrats and, once confirmed, will shift the balance of power at the Commission to a 3-2 split between Democrats and Republicans.  This development is significant to say the least—the Democrats have not held three seats on the Commission since May 2018 and there has not been a permanent chairman of the agency since President Trump removed then-Chairman (and now Commissioner) Elliot Kaye in February 2017.

If confirmed, Mr. Hoehn-Saric will become the new—permanent—chairman of the Commission, while Ms. Boyle will replace Commissioner Kaye who is currently serving in his “hold-over” year as his term expired last October.  Current Acting Chairman Robert Adler will remain on the Commission as the third Democratic commissioner until his term expires in October and he retires from the agency as previously announced.  These three will be joined by current Republican Commissioners Peter Feldman and Dana Baiocco to give the five-member Commission a full complement of commissioners.  Of course, if these nominations stall and/or current members of the Commission depart the agency in the coming months (e.g., Adler), other possibilities with respect to the balance of power are conceivable. Continue Reading Breaking: Hoehn-Saric and Boyle Nominated to CPSC; Democratic Majority in Sight

On June 23, 2021, Brussels-based Judith Bussé spoke at the International Consumer Product Health and Safety’s (ICPHSO) North American Workshop. ICPHSO is an international, neutral forum for product safety stakeholders to learn, network and share information.

In her presentation, Judith explored new EU Environmental, Social, and Governance (ESG) related measures and their practical consequences for product design, particularly focusing on product safety and the entire product life cycle as well as considerations of environmental justice.

Judith provided insights into European regulators’ efforts to devise a comprehensive set of environmental, social and governance (ESG) disclosure metrics, which will involve both new obligations of disclosure as well as substantive obligations to address ESG issues connected to companies’ businesses. She addressed their implementation, and the likely effects for both companies domiciled in the EU as well as companies registered elsewhere. Besides companies operating within the EU, the so-called “Brussels effect” might imply that the new ESG-framework in the EU would even affect companies without any business in the EU.

Click here to read more on ESG from a European Perspective.

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

Although members of the House and Senate don’t agree on everything lately, they have come together in efforts to ensure safety of products intended for use by infants and small children.  In today’s installment of “Recalls in Review,” we look back at CPSC regulatory actions involving Pacifiers and Pacifier Accessories.

A pacifier rule was first proposed by the Food and Drug Administration in 1972 before the Federal Hazardous Substances Act was transferred to the CPSC.  The CPSC has regulated pacifiers and pacifier accessories regularly since 1976, when the Commission proposed a substantially revised regulation after investigations by CPSC staff revealed at least eight infant deaths associated with pacifiers.  Pacifiers must now comply with the Federal Safety Standard for Pacifiers, 16 CFR Part 1511, and the U.S. Toy Standard, ASTM F963-17.  And although pacifier clips do not fall under the definition of “pacifiers” in the safety standard, they must still meet separate children’s product safety requirements, such as the Small Parts regulation (16 CFR Part 1501).  Additionally, pacifiers may not be sold with any ribbon, string, cord, or similar attachment.

At least sixty-six pacifier-related products have occurred to date, with thirty-two of the recalls occurring since 2001.  Enforcement has been roughly consistent over the years; the largest number of recalls in any single year totaled six recalls in 2009.

Pacifier-related recalls have targeted pacifiers (80% of all pacifier-related recalls), pacifier clips (9%), paired pacifiers and clips (2%), pacifier holders (6%), and other children’s products that incorporate pacifier clips (3%).

According to information provided by the CPSC recall announcements, the approximately eighty-two percent of pacifier-related recalls address the risk of an infant choking on the pacifier.  Pacifier-related recalls have also been conducted to address strangulation hazards (8%), suffocation hazards (6%), excessive levels of lead, excessive levels of nitrosamines, and injury posed by safety pins.

The most common remedy offered by recalling firms is a refund of the purchase price (68% of the recalls).  Less often, the remedies offered may include replacement with a compliant product (20% of the recalls), choice between a refund or replacement product, or mere instructions to discard the noncompliant product.

Despite the consistent regulation of pacifiers since the 1970s, the only civil penalty that has been issued involving pacifiers occurred in 1998.  The pacifiers at issue could allegedly crack, permitting the nipple to detach from the shield, which posed a choking hazard to children.  The recalling firm agreed to pay a penalty of $150,000 to settle allegations that it obtained information sufficient to conclude that the pacifiers contained a defect that could create a substantial product hazard but failed to report the defect to the CPSC as required by the Consumer Product Safety Act.

The CPSC has also issued at least twenty-eight notice of violations (“NOV”) to manufacturers and retailers relating to pacifiers since 2013.  The vast majority of the notices cite violations of the Federal Safety Standard for Pacifiers, although some cite tracking label violations, children’s product certificate violations, small parts violations, and violations of the federal limits on lead in children’s products.  The most frequently requested corrective action is a stop sale (68%), followed by correct future production (29%), and consumer level recall (3%).

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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.  We share our observations with you through Recalls in Review.

Note: Judith Bussé will be presenting on this topic at the ICPHSO 2021 North America Virtual Workshop on June 23, 2021 at 9am ET.

The COVID-19 pandemic has made it clearer than ever that there is a pressing global need for a coherent, sustainable, social and climate-friendly business and governance model for both private and public companies. In line with the UN’s Sustainable Development Goals (2015) and the Paris Climate Change Agreement (2015), Europe set itself the ambitious target to reduce its emissions by at least 50% by 2030 and achieve climate neutrality by 2050.

Recent EU initiatives have repeatedly showcased a willingness to allow ESG a central role within the legislative process. Examples include the EU Action Plan of Sustainable Growth (March 2018), the Green Deal (December 2019), the Proposal for a European Climate Law (March 2019), the Circular Economy Action Plan (March 2020), the Farm to Fork Strategy (May 2020), the Climate Pact (December 2020) and the EU Regulation on Sustainability-Related Disclosures (March 2021).

Most recently, on April 21, 2021, the European Commission presented its new Sustainable Finance Package. This ambitious package is intended to help improve the flow of money towards sustainable activities across the European Union, and it includes proposals for an EU Taxonomy Climate Delegated Act, a new Corporate Sustainability Reporting Directive (CSRD) revisiting the rules introduced by the Non-Financial Reporting Directive (NFRD), and six Amending Delegated Acts updating the existing rules on sustainability assessments for investment and insurance products.

ESG from a European perspective

While the concept of “ESG” is now broadly understood, some confusion remains regarding which environmental, social and governance factors should count towards the EU’s sustainability target, and which legislative instruments should regulate the different aspects of ESG. Moreover, a lack of transparency, accountability and comparability makes it difficult for investors to fully understand the financial risks resulting from the various sustainability-related crises we face, and to proactively look for investment opportunities addressing environmental and social problems.

The 2019 Communication on the European Green Deal is the EU’s response to our current climate and environment-related challenges. This Communication proposes a series of measures and legislative instruments that are intended to transform the EU by 2050 into a modern, resource-efficient and competitive economy, with no net emissions of greenhouse gases, and where economic growth is decoupled from resource use. It also aims to protect, conserve and enhance the EU’s natural capital, and to protect the health and well-being of citizens from environment-related risks and impacts. The Green Deal is looking to achieve a socially-just transition to a sustainable economic system by providing a Just Transition Mechanism and Fund, focusing on the regions, sectors and citizens most at risk from this transition.

One of the means to achieve the objectives relating to climate neutrality is the transformation of industry towards a circular economy. With a focus on resource-intensive sectors (like textiles, construction, plastic and electronics), the Circular Economy Action Plan will include a “sustainable products” policy to support the circular design of all products based on a common methodology and common principles, as well as a “right to repair,” and measures to empower consumers to make informed decisions and play an active role in the ecological transition. By prioritizing the reduction and reuse of materials before recycling them, and by fostering new business models with innovative products / services, the Circular Economy Action Plan aims at preventing environmentally harmful products from being placed on the EU market.

As significant investments are required to achieve the climate and energy targets that have already been set for 2030, public and private funding will need to be explored and facilitated. Hence, as one of the first steps in the strategy towards sustainable growth, the European Commission has reviewed the Non-Financial Reporting Directive (2014/95/EU, see below for more details). The disclosure of non-financial information should contribute to the measuring, monitoring and managing of undertakings’ performance and their impact on society. In turn, this should allow investors to direct financial and capital flows to green, social and overall sustainable investments.

To further incentivize ESG commitments, investments and sustainable growth, the European legislator has developed a common language and definition of what is considered “sustainable” in the EU Taxonomy Regulation (2020/852). This Regulation, which established a framework to facilitate sustainable investment, will be amended, updated and completed in the course of the coming months and years. Currently, it sets out a classification system for environmentally sustainable activities in relation only to climate change mitigation and climate change adaptation objectives. In the near future, the Regulation will be amended to cover other objectives as well – relating to pollution prevention, the transition to a circular economy, the sustainable use and protection of water, and the protection and restoration of biodiversity and ecosystems.

The Recent Sustainable Finance Package

Sustainable finance is about re-orientating investment towards sustainable technologies and businesses, by decoupling as far as possible economic growth from the use of resources, so as to minimize ESG-related damage. With the launch on April 21, 2021 of the Sustainable Finance Package, the European Commission announced its aim to adopt the legal fundaments and framework to create a sustainable financial EU ecosystem, focused on increased transparency and providing tools for investors to identify sustainable investment opportunities. Such opportunities have a key role to play in channeling private investment (as a complement to public funding) for the successful transition to a climate-neutral, climate-resilient, fair economy.

The Sustainable Finance Package, with its different proposals for legislative instruments (detailed below), represents another critical step in the European Commission’s ongoing efforts to influence investment preferences towards more sustainable financial strategies.

As a main game-changer, the Sustainable Finance Package introduces the EU Taxonomy Climate Delegated Act (supplementing the EU Taxonomy Regulation, described above), which makes it clearer which economic activities most contribute to meeting the EU’s environmental objectives and which categorizes the activities strongly contributing to preventing and responding climate change. It aims to help investors in their decision-making process and incentivizes sustainable solutions using science-based criteria. The Delegated Act was officially adopted by the EU at the end of May 2021.

Secondly, companies will be required to provide accurate and valid sustainability information following the implementation of the Commission’s proposal for a Corporate Sustainability Reporting Directive. One of the aims of this proposed directive is to expand the existing reporting rules for public-interest entities, introduced by the Non-Financial Reporting Directive (2014/95/EU) and in force since 2018, and extend them to private companies. The Commission will now further discuss the proposal with the European Parliament and the Council.

Furthermore, to minimize the risks to the financial system and markets, six proposed Amending Delegated Acts on investment and insurance advice, fiduciary duties, and product oversight and governance, would require that investment companies (including advisers, asset managers, and insurers) refer to sustainability matters in their protocols and investment advice to clients (for example, by highlighting the impact of potential natural disasters on the value of investments).

These Amending Delegated Acts would include the requirement that financial advisers obtain information about their clients’ sustainability preferences and provide a statement explaining the additional requirements financial firms are subject to in order to assess their own sustainability risks. The amendments would introduce adjustments to important existing legislative instruments on investor protection, namely the second Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD). These amendments, among several other financial services rules, would constitute a major step in the battle against greenwashing and are expected to be in force as of October 2022.

Booted and spurred towards a more sustainable future

Although many steps still need to be taken, and time will certainly reveal legal gaps that still need to be tackled, these various EU action plans already show that ESG has become one of the most important new concepts for all those conducting business and investing in the EU’s internal markets.

The EU had already emphasized its commitment to implementing the UN Sustainable Development Goals in a variety of ways. The recent COVID-19 pandemic has further galvanized it in its aims, by providing an urgent need for Europe to re-boost its economy and therefore the ideal opportunity for this to be done in the most sustainable manner possible.

From an international point of view, the long awaited “sustainable finance taxonomy” will most likely become a global standard for green investment. The past has proven that EU standards often generate a global impact – a phenomenon called the “Brussels Effect.” In this way, third countries / international companies demonstrate a strong interest in aligning with EU standards, and adjust their operations to abide by EU regulatory requirements (this happened, for example, in the case of the GDPR). The Brussels Effect shows the EU’s capacity to influence global governments and operations through its policy making. Not only is it to be expected that global financial companies will follow the EU’s taxonomy in order to enter the world’s largest ESG market, it is also likely that the EU will ring its ideas on ESG-friendly investment to the table when negotiating international trade and other multilateral agreements, thereby further expanding its role globally and speeding up a world-wide roll-out of sustainable development.

On May 21, 2021, the U.S. Consumer Products Safety Commission (“CPSC”) published a report on artificial intelligence (AI) and machine learning (ML) in consumer products. The report highlights recent CPSC staff activity concerning AI and ML, proposes a framework for evaluating the potential safety impact of AI and ML capabilities in consumer products, and makes several recommendations that the CPSC can take in identifying and addressing potential hazards related to AI and ML capabilities in consumer products.

Concerning staff activity, CPSC recently hired a Chief Technologist with a background in AI and ML to address the use of AI in consumer products. The CPSC also recently established an “AI/ML Working Group” and held a virtual forum on AI and ML in March 2021.

Informed by the discussions held with various stakeholders at this forum, the CPSC staff has proposed a framework in the report for evaluating the potential safety impact of AI and ML in consumer products. The framework’s first step involves screening products for AI and ML “components.” The CPSC and stakeholders have identified the following components to be essential to producing an AI capability: data sources, algorithms, computations, and connections. Likewise, the CPSC and stakeholders have found the following components to define ML capabilities: assessing and monitoring outputs, analyzing and modeling changes, and adjusting and adapting behavior over time. The framework’s second step involves assessing the functions and features of consumer products’ AI and ML capabilities. The third step involves understanding how products’ AI and ML capabilities may impact consumers, which can be accomplished by studying the nature of the technology, how it is implemented in the product, and how the consumer might use the product. The final step involves ascertaining if, and to what extent, AI and ML capabilities may transform the product and/or its use over time. Continue Reading CPSC Publishes Report on Artificial Intelligence and Machine Learning

Earlier this year, the Attorney General Alliance (AGA) conducted an important webinar highlighting the risks of organized retail crime (ORC) to retail organizations, employees, and customers. ORC presents substantial dangers in both the online and brick-and-mortar settings, necessitating cooperative efforts between businesses and government actors to combat this illicit activity. Retail clients should be aware of pandemic-driven upticks in ORC, increased safety risks to employees and customers, and proposed solutions like the INFORM Act that may impose new business obligations in the effort to prevent ORC.

An Increase in ORC

ORC refers to acts of theft by professional criminals both in-store and online. ORC is much more serious than casual shoplifting and is closely linked to dangerous crimes like human trafficking and money laundering. Participants in ORC are generally extremely well-organized and intentional. In stark contrast to the casual shoplifter who likely engages in his or her crime of choice no more than a few times per week, organized retail criminals can easily hit several stores in a single day. Moreover, because their aim is resale, rather than personal use, these criminals tend to target in-demand products. These include cosmetics, fragrances, allergy medications, razor blades, designer clothing, batteries, drills, over-the-counter drugs, and baby formula.

While ORC has existed for decades, shifts in purchaser behavior during the coronavirus pandemic appear to have dangerously increased its felt effects; retailers, for one, are taking a substantial financial hit. Scott Draher, an asset protection and safety executive for Lowe’s, noted that while maybe 25% of all Lowe’s losses in 2015 resulted from ORC, that number is now around 60%. Although the exact cause of this spike in ORC activity is unclear, it may be that pandemic-era buyers, in their efforts to avoid in-person shopping, are more willing to purchase products from questionable sources, creating increased resale opportunities for ORC participants.

The increase in demand for certain goods—even from uncertain sources—has also fueled another troubling ORC trend: An increase in violence. It appears that ORC criminals are becoming more brazen and aggressive. Many will do anything to get out the door with their stolen goods, including harming people in their way. Employees, in particular, have been regularly threatened with mace and other weapons. According to Ben Dugan, part of the ORC investigations team for CVS Health, the key driver of this increased aggression is the desire to meet escalating demand; the recent increase in online sales of the products targeted by ORC criminals, about 30%, roughly mirror the increase in theft.

ORC also creates troubling consumer safety risks apart from the risk of altercation with a fleeing criminal. Consider an organized retail criminal who steals and resells baby formula. This sensitive product may not be stored the right way prior to resale, or the thief may tamper with the contents or change expiration dates on the packaging. More generally, third-party sellers are simply not held to the same product integrity and safety standards that would otherwise apply. These risks are particularly high in the context of online sales, where consumers have less information about the product and the seller—and thus less opportunity to obtain legal redress. Continue Reading AG Alliance Highlights New Trends in Organized Retail Crime

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

As more communities lift pandemic-based restrictions on travel and social gathering sizes, Americans will increasingly begin moving homes and renovating furnished rental and guest rooms—which often includes replacing older mattresses.  Historically, mattresses were highly flammable and contributed significantly to house fires, leading Congress to address the safety concern through its enactment of the Flammable Fabrics Act (FFA) in the 1970s.

Through the FFA, the Consumer Product Safety Commission has authority to regulate mattresses and mattress pads, including setting a federal flammability standard (16 C.F.R. § 1632), which was promulgated in 1973 to require ignition resistance of mattresses and mattress pads to smoldering cigarettes.  The standard applies to mattresses—including traditional mattresses of all sizes, crib mattresses, futons, mattresses in sleeper sofas and campers, and water bed and air mattresses containing upholstery materials—and mattress pads and covers.  The federal Standard for the Flammability (Open-Flame) of Mattress Sets (16 C.F.R. § 1633), which became effective in 2007, was designed to increase the time that consumers have to discover and escape bed fires by limiting the size of the fire generated by a mattress set.  Mattresses must meet the performance, labeling, and record keeping requirements of both standards as applicable before the products can be entered into commerce in the United States.

Continue Reading Recalls in Review: Mattress Recalls

Shortly after taking office, President Biden announced an “all of government” approach to achieving environmental justice. In Executive Order (E.O.) 14008, “Tackling the Climate Crisis at Home and Abroad,” President Biden stated that his administration would secure environmental justice for all Americans by addressing the disproportionately high and adverse health and environmental impacts in minority communities. In the several months that have passed since E.O. 14008 was issued, federal agencies, including the U.S. Consumer Products Safety Commission (“CPSC”), have begun implementing the administration’s policy by prioritizing equity and evaluating cumulative impacts in their policymaking.

In March 2021, CPSC Acting Chairman Robert Adler released an unprecedented statement emphasizing the CPSC’s “strong and ongoing commitment to diversity and equity.” The first of CPSC’s two-part 2021 Mid-Year Plan seeks to address the disproportionate safety risks that minority communities face with respect to consumer products. Under the plan, the CPSC will conduct safety equity studies to “determine whether there are specific areas of risk within ethnic, racial, socioeconomic, and other diverse populations” that face more danger from high-risk products. Specifically, the study will evaluate safety risks amongst different demographic groups, particularly in falls, drownings, and poisonings. The agency will use this data to inform future outreach and develop equitable safety standards. In addition, the CPSC has allocated funding to safety campaigns that highlight the unique risks and needs of diverse and vulnerable communities. Campaign messaging will include topics such as poison prevention, consumer product chemical safety, and other safety education information targeted to vulnerable communities. Continue Reading Biden’s Environmental Justice Push and its Impact on Retailers’ ESG Considerations