In one of the most significant developments in product safety law over the past decade, Gree Electric Appliances Inc. of Zhuhai, Hong Kong Gree Electric Appliances Sales Co. Ltd., and Gree USA Inc. (the “Gree Companies”), an appliance manufacturer and two of its subsidiaries, have pled guilty to willfully failing to report to the Consumer Product Safety Commission (CPSC) under Section 15(b) of the Consumer Product Safety Act (CPSA). According to the U.S. Department of Justice (DOJ) and the CPSC, the Gree Companies knew their dehumidifiers were defective, failed to meet applicable safety standards, and could catch fire, but failed to timely report that information to the CPSC. Section 19 of the CPSA makes it unlawful to fail to furnish information required by Section 15(b), and such failures are subject to both civil and criminal penalties. While CPSC civil penalties have become fairly routine—the Gree Companies also paid a then-record $15.45 million civil penalty in 2016—this is the first corporate criminal enforcement action brought under the CPSA, according to the DOJ.  Continue Reading Silence Isn’t Golden: Failure to Report Consumer Product Safety Issues Results in Rare $91 Million Criminal Penalty

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

As businesses brace for anticipated supply chain delays in the coming months, many stores are already offering impressive deals to early holiday shoppers.  Recognizing that numerous popular products contain magnets, we turn our attention to CPSC regulatory actions involving magnets in this month’s installment of “Recalls in Review.”

At least 58 recalls involving magnets have been conducted since 1998, with 56 of those recalls occurring after 2005.  The CPSC began monitoring magnets, magnet sets, and products containing magnets very closely in 2007, recalling eleven products amid reports that children were swallowing magnets and experiencing severe internal injuries.  Similar recalls continued into 2008 and were accompanied by an increase in recalls of magnets for violations of the federal lead paint standard.

Unlike many other consumer products, no mandatory federal safety standard exists specifically to regulate magnets or magnet sets.  The CPSC attempted to promulgate a mandatory federal safety standard to address high-powered magnets and published the regulation on October 3, 2014.  Under the rule, magnets intended for use as part of a magnet set and that fit the CPSC’s definition of a “small part” could not have a flux index above the specified level.  However, the rule was ultimately vacated by a federal court and removed from the Code of Federal Regulations.  Still, the CPSC continues to monitor and recall high-powered magnets.  The CPSC first sued Zen Magnets LLC in 2012 over their high-powered “Zen Magnets Rare Earth Magnet Balls” to force a recall of the products after discussions with the company failed to result in a voluntary recall plan.  The Zen Magnets recall was finally announced in August 2021.

Continue Reading Recalls in Review: Magnet-Related Recalls

On August 20, 2021, China’s national legislature passed the Personal Information Protection Law (“PIPL”), which will become effective on November 1, 2021. As China’s first comprehensive system for protecting personal information, the PIPL is an extension of the personal information and privacy rights enshrined in China’s Civil Code, and also a crucial element of a set of recent laws in China that seek to strengthen data security and privacy. Among other things, the PIPL sets out general rules for processing and cross-border transfer of personal information. A number of provisions, notably various obligations imposed on data processors, restrictions on cross-border transfer, and hefty fines, will have significant impact on multinational corporations’ HR activities, including recruitment, performance monitoring, cross-border transfers, compliance investigations, termination of employment relationships, and background checks.

This alert will highlight specifically how the PIPL will apply to workplace scenarios in China and provide suggestions to help ensure data privacy compliance for multinational corporations’ China labor and employment operations.

Employee Consent and Exceptions to Consent

Under Article 4 of the PIPL, “personal information” is defined broadly as information related to natural persons recorded electronically or by other means that has been used or can be used to identify such natural persons, excluding information that has been anonymized. Specific types of personal information have been noted for additional protection under Article 28 of the PIPL as “sensitive personal information”. Sensitive personal information is defined under the law as personal information that is likely to result in damage to the personal dignity, physical wellbeing or property of any natural person, and includes, among others, information such as biometric identification, religious belief, special identity, medical health, financial account, physical location tracking and whereabouts, and personal information of those under the age of 14. Continue Reading Employee Personal Information Protection in China – Are You Up to Speed?

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

As people increasingly turn to online shopping over traditional brick-and-mortar stores, consumers, safety advocacy groups, and regulators alike have begun to pay more attention to the authenticity and safety of products.  One particular concern is the presence of lead in consumer products, which is toxic if ingested and can cause adverse health issues.

The Consumer Product Safety Commission has regulated lead in consumer products since the 1970s.  However, the Commission’s ability to regulate lead in children’s products was strengthened in 2008 with the enactment of the Consumer Product Safety Improvement Act (“CPSIA”).  CPSIA Section 101 limits lead content in accessible component parts  children’s products (15 U.S.C. § 1278a).  Section 101 and CPSC regulations (16 CFR Part 1303) also govern the use of lead in paints and other surface coatings on all children’s products and certain furniture products.  Movable pieces of furniture that contain surface coatings—such as beds, bookcases, and chairs—are covered by the regulation.

The CPSC very actively regulates and monitors products for violations of the federal safety standards regarding lead.  Nearly four hundred lead-related recalls have been conducted, with 317 of those recalls occurring since 2001.  As you can see from the below chart, the Commission paid great attention to excessive levels of lead in consumer products from 2006 to 2010.  The steep increase in lead-related recalls resulted in the enactment of the CPSIA in 2008.

Shockingly, the issue of lead in children’s products persists despite aggressive Commission action and strong congressional mandates.  In just the first two months of 2021, the CPSC issued 16 notices of violation for excess lead in children’s products.  Most of those actions involved publication of the product at issue as well as an immediate stop sale and agreement to correct future production but did not involve a consumer level recall.

Although not nearly as drastic as the last “enforcement spike,” the Commission may be turning its focus towards lead in consumer products once again.  Nine lead-related recalls were conducted in 2020, which is up from only one such recall in 2019, six in 2018, and four in 2017.  This increase occurred despite a sharp reduction in the overall number of toys recalled in fiscal year 2020—discussed in a November 2020 CPSC News Release.

Lead-related recalls have targeted a wide variety of products over the years.  Unsurprisingly, the most commonly recalls product types include toys (37%) and children’s jewelry (25%).  Other more frequently recalled product types include furniture, clothing, sports equipment, and art supplies.

According to information provided by the CPSC recall announcements, seventy percent of the recalls address violations of standard for lead in paint and surface coatings and thirty percent address violations of the standard for total lead content.  In addition to addressing lead paint violations, one 2006 recall also addresses a laceration hazard and a 2014 recall addresses choking and injury hazards.

The public can monitor children’s product recalls on CPSC.gov or SaferProducts.gov for violations of the federal lead standards.  According to the CPSC recall announcements, the vast majority of products (97%) are recalled despite having no reported incidents involving consumers.  Of the ten recalls that had reported incidents involving consumers, six involved reports of elevated blood-lead levels in children, two involved reports of lead poisoning, and two involved reports of the product breaking.

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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 not 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.

The Federal Trade Commission (“FTC”) is distributing more than $6 million to Fashion Nova customers after the popular retailer did not “properly notify [them] or give them the chance to cancel their orders when [it did not] ship merchandise in a timely manner.” On the heels of a settlement entered into between the FTC and the Southern California-based fast fashion company almost a year ago, the government agency revealed that it “is sending refunds to more than 500,000 people,” noting that in addition to failing to ship products within the “fast shipping” time frame it promised, Fashion Nova further ran afoul of federal law when it “did not offer customers the option to cancel [the delayed] orders, and opted to issue gift cards to compensate customers for unshipped merchandise instead of providing refunds.”

In a statement on Thursday, the FTC asserted that it is “providing more than $6.5 million in payments to 518,552 consumers, including more than 40,000 consumers who live outside the United States in 169 different countries.” The distribution of the refunds – which amount to $12.60 per individual consumer – follows from an agreement between Fashion Nova and the FTC that settled charges lodged against Fashion Nova. Continue Reading The FTC is Paying Out $6.5 Million to Consumers in Connection with Fashion Nova Settlement

The New York State legislature recently passed a bill (S2588A/A3354B), signed into law by Governor Cuomo on March 12, 2021, which amends the New York Labor Law and Civil Service Law to grant private and public employees paid leave time for the COVID-19 vaccination. The law is effective March 12, 2021 and will expire on December 31, 2022. Under the new law, employers are required to provide employees with paid leave of absence for COVID-19 vaccinations for a sufficient period of time, not to exceed four hours per COVID-19 vaccine injection. The four-hour maximum per vaccination does not apply to employees subject to a collective bargaining agreement (CBA) providing a greater number of hours, or as otherwise authorized by the employer, to be vaccinated for COVID-19. Where a CBA explicitly references the law, however, its leave provisions may be waived in their entirety.

Currently, the FDA has authorized the use of three vaccines: the Pfizer Inc. and Moderna Inc. vaccines, which each require two doses, and the Johnson & Johnson vaccine, which requires only one dose. Therefore, employees will generally be entitled to up to eight hours of paid leave, depending on the vaccine. This time must be paid at the employee’s regular rate of pay for the entire leave period. The law also provides that the paid vaccination leave may not be charged against any other leave to which the employee is entitled, such as any paid sick leave or leave pursuant to a CBA. Discrimination and retaliation against employees for exercising their rights under the law are prohibited.

A review of policies and practices applicable to workforces in New York State concerning paid leave should be conducted in order to identify any revisions necessary to comply with this new law. The impact on this new requirement on various wage and hour issues, such as spread of hours/split shifts and amounts to pay tipped employees where applicable, should be considered as well. The new law is silent on what, if any, documentation an employer can request from its employees to verify such paid leave. The Equal Employment Opportunity Commission has, however, previously concluded that employers can request proof of receipt of a COVID-19 vaccination, but should consider informing employees not to provide any related medical information. While this New York State statute does not set forth a notice provision, employers should consider ways to advise employees that they are eligible for paid leave under these circumstances.

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

As winter temperatures continue to drop and we’re all looking for a way to feel cozy, many Americans reach for candles as a way to bring some light into their homes during these dark months.  We don’t need to detail why candles – hi, open flames and hot wax! – regularly attract the CPSC’s attention in their mission to keep consumers safe.  In today’s installment of “Recalls in Review,” we look back at CPSC regulatory actions involving both candles and candle-related products.

The Commission has conducted at least 115 recalls of candles and candle-related products since 2001.  The recall data available on the CPSC.gov website reveals a small enforcement “spike” that occurred between 2005 and 2008, followed by a fairly steady number of recalls nearly every year since 2008.

Three civil penalties relating to candles and candle-related products have been issued by the Commission, the most recent of which was in 2008.  The civil penalty fines ranged from $100,000 to $500,000.

Our analysis found various types of candle-related recalls: only half of the recalls involve concerns with the candles themselves, while the rest are caused by issues with the vessel or container into which a candle is poured, or problems presented by candle accessories such as candle holders or wax warmers.

Most often, candles are recalled due to the height of the candle’s flame.  Problems can also be caused by decorative objects added to the candle wax during manufacturing as well as paint, glitter, or other surface coatings on the candle.

Twenty percent of the relevant recalls involve an issue with the container that the candle was poured into, such as a ceramic or glass bowl or a metal tin.  Twenty-six percent of recalls involve separate holders into which candles can be placed.  For example, taper candle holders were recalled just last month due to a concern that the holders could catch fire if they came into contact with a candle’s flame.  Other recalled accessories include candle lighters, candle charms, and paper candle shades.

Unsurprisingly, nearly ninety percent of the relevant recalls address fire or burn hazards.  The Commission recently published news releases in November and December of 2020 reminding consumers to never leave burning candles unattended.  The other ten percent of recalls address laceration hazards.  The laceration recalls all involve glass candle holders and candles in glass jars, which could crack, break, or shatter.  Only one candle related recall since 2001 was conducted to address a hazard other than fire, burn, or laceration – that 2008 recall was of candle pendants and charms, which had been sold both separately and on candles, due to excessive levels of lead.

The most common remedy offered by recalling firms is a refund or store credit.  Less often, the remedy may be limited to a replacement product or instructions regarding safe use of the product.  However, four of the recalls provided no remedy for consumers.  In those instances, the recalling firms simply urged consumers to dispose of the products.

* * * * *

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.

 

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

“Smart” homes and personal electronic devices are no longer a futuristic ideal.  Millions of internet-connected phones, TVs, wearable fitness trackers, home security devices, home appliances, and digital assistants are in use in the United States today.  The internet of things (“IoT”) is the use of network sensors in physical devices to allow for remote monitoring and control.  These devices have made great strides in making our lives more convenient.  But interconnectivity and data collection can also have serious security and privacy implications.

Despite the dramatic increase in the number of IoT products purchased by American consumers over the past few years, the law is slower in addressing any potential hazards posed by IoT technologies.  However, we expect to see more IoT product-related regulations enacted at the federal level over the next few years. We recently wrote about the new Internet of Things Cybersecurity Improvement Act, which was signed into law on December 4, 2020. The legislation charges the National Institute of Standards & Technology (NIST) with drafting and finalizing security requirements for IoT devices.

Continue Reading Recalls in Review: IoT Products

In the coming weeks or months, the European Commission is expected to table an ambitious set of draft legislation that, if adopted, will have a major impact on the business practices of digital service providers in the EU, including non-EU companies serving European users: the Digital Services Act (DSA) and the Digital Markets Act (DMA). The Commission’s legislative proposals aim to strengthen the responsibilities of online platforms and to support fair competition in digital markets.

1. The Digital Services Act (DSA): increasing responsibilities for digital service providers

The DSA’s main objective is to update the e-Commerce Directive. This is long overdue, as the legal framework for digital services has remained largely unchanged since the e-Commerce Directive was adopted in 2000. The update aims to clarify the liability regime for digital intermediaries active in the EU and to reinforce oversight and enforcement.

The DSA will require digital service providers to take more responsibility for dealing with harmful or illegal content and dangerous or counterfeit products. They will have to put in place clear and simple procedures to deal with notifications about harmful or illegal content or goods on their platforms. They will also have to verify the identity of traders before letting them on their platforms (“know your business customer”). At the same time, they will have to make available simple procedures for platform users to complain if they think the removal of their material was unwarranted. Continue Reading New EU Proposals to Regulate Digital Markets – What to Expect

For the first time in nearly two decades, China is revamping its export control regime and issuing its first unified Export Control Law, which combines concepts from more than a dozen existing Chinese laws and related regulations. This alert summarizes the most significant changes from current Chinese export control practice, highlights what may be included in the pending Export Control Law, and comments on anticipated impact on businesses operating in China. We also provide some recommended approaches for companies with China operations (or rely on third parties in China) to consider in advance of implementation of the Export Control Law.

On August 28, 2020, China’s Ministry of Commerce (“MOFCOM”) and Ministry of Science and Technology released an Amendment to the Catalogue of Technologies Prohibited or Restricted from Export by China (“2020 Export Control Catalogue”).  The original catalogue was released along with the Regulations on the Administration of the Import and Export of Technology effective on January 1, 2002 (“Import and Export Regulations”, amended twice in 2011 and 2019).

In addition to the 2020 Export Control Catalogue, the Chinese government is also in the process of finalizing the draft of the Export Control Law. On December 28, 2019, the Standing Committee of the National People’s Congress (“NPC”) released the draft Export Control Law, a revised version of an earlier draft first published by MOFCOM on June 16, 2017. On July 3, 2020, the NPC published a further revised draft. With three rounds of draft being released, the Export Control Law will likely be finalized and published soon. This will be the first comprehensive national export control legislation in China, and China’s first step towards a unified export control regime.

What are the major changes under the 2020 Export Control Catalogue?

A total of 53 categories of technologies have been deleted, revised, or added to the 2020 Export Control Catalogue. Major changes include:

  • Removing 4 items from prohibited list, including 1) microbial fertilizer technology, 2) caffeine production technology, 3) riboflavin (VB2) production process, and 4) vitamin production.
  • Removing 5 items from restricted list, including 1) new city epidemic vaccine technology, 2) natural pharmaceutical production technology, 3) bioactive functional polymer material preparation and processing technologies, 4) chemical synthesis and semi-synthetic drug production technology, and 5) information security firewall software technology.
  • Adding 23 items to restricted list. Among others, several here captured attention, including “computer service” and “software industry”. For instance, technologies relating to AI are listed, including speech synthesis, voice recognition, interactive understanding technology, print scanning and identification, handwriting photographing and identification, and “personalized information push service technology based on data analysis”. These items, particularly the last one, could have potential impact for multinational clients seeking to leverage the Chinese consumer base. For example, e-commerce or app based business models that rely on data analytics could be covered by the restricted list. This might include international push marketing tools that use market intelligence from Chinese consumers to suggest products for purchase. Similarly, cloud or app-based tools that multinational companies use to analyze marketing and sales data as part of determining the right product mix to sell to Chinese companies could be impacted. In addition, technologies relating to cybersecurity, including cryptographic chips design, implementation technology, quantum cryptography technology have also been added and are now subject to restriction.

What is new under the upcoming China Export Control Law?

Based on the latest draft released on July 3, 2020, the highlights include:

  • Scope of controlled items
    This will cover tangible goods (such as dual-use items, military products, nuclear) and key related technologies and services.
  • Blacklist management system for national security purposes
    For the purpose of “national security interests”, this will include authorization to prohibit export of certain controlled items to any specific destination, country, region, or to any specific entities or individuals. This covers authorization on an ongoing basis to assess destinations, determine the level of risk, and what corresponding control measures are appropriate.
  • Internal Compliance Review System
    This will encourage exporters to establish an internal compliance review system, which once adopted can support the success of their license applications for controlled items.
  • Exporter’s social credit record
    China has imposed a “social credit” system on individuals that grades their contribution to Chinese society. It has extended this concept to companies operating in China across multiple Chinese government agencies. The social credit system helps the Chinese government determine how compliant any given company is to Chinese government regulation, perhaps in a more coordinated manner when compared to other governments. The Export Control Law establishes that companies operating in China will be examined and graded according it its level of compliance or “social credit record.” It authorizes reliance by the export control authorities on “relevant credit records of the exporter”.  A company’s rating can determine, among other things, the level and intensity of the need for government oversight and scrutiny. In this case, it is expected that the export control authorities will also consider the social credit records of the license applicant available in the Chinese social rating systems of other agencies, such as China Customs, foreign exchange, tax and market/competition.
  • Extraterritorial jurisdiction enforcement
    In cases that endanger national security and interests, this will authorize extraterritorial jurisdiction and enforcement. Additional guidance will be needed to answer critical strategic questions, such as how China intends to enforce activity in other countries, such as the United States or UK and EU.

What kinds of activities will be defined as technology export?

According to the Import and Export Regulations, the term “technology export” refers to the transfer of technology from China abroad, through trade, investment, or economic and technical cooperation, including patent assignment, transfer of patent application rights, patent licensing, transfer of trade secrets, technical services, and “other forms of technology transfer”.

The Import and Export Regulations define “technology export” broadly and indicate that the examples of technology export provided above are illustrative and are not meant to be exclusive. We note that the catch-all nature of the definition, (i.e., “other forms of technology transfer”) is vague and provides the Chinese authorities with broad discretion to determine if any given activity would be regulated. Theoretically, the catch-all definition could include disclosing and disseminating technical information to any individuals or organization in any form overseas. Furthermore, it is not clear currently how far China’s jurisdiction will reach. For example, it is not clear how the definition of “technology export” (and exceptions thereto) impacts transfers between and among non-China affiliates or subsidiaries. Similarly, the definition’s impact on the transfer of technology to non-Chinese individuals, whether in China or abroad remains subject to further clarification.

In similar situations, we generally encourage clients to seek additional guidance and determine the relevant Chinese authority’s posture on any given activity. For example, technology that is public, widely-known or of non-Chinese origin could fall under the catch-all definition. It would be prudent in such circumstances to seek input from the relevant Chinese authorities to determine if the Import and Export Regulations would apply.

What are the export control procedures for technology transfer?

Technology is classified into three categories under the draft Import and Export Regulations and each category is subject to different levels of scrutiny.

  • Permitted (free export) Technology
    Permitted technology is eligible for export, subject only to the exporter’s contract registration with the Foreign Economic and Trade Department of China’s State Council (“FETD”). After completing the registration, the exporter may proceed with relevant foreign exchange, banking, tax, and China Customs procedures to effectuate an underlying export transaction by presenting a technology export contract registration certificate issued by FETD. Such registration, however, is not a prerequisite for the exporter to enter into any underlying contract with a non-Chinese buyer.
  • Restricted Technology
    Restricted technology (pursuant to the existing 2020 Export Control Catalogue) cannot be exported before obtaining approval through an application to FETD in what is a two-part process. If the application is approved, the exporter will receive a letter of licensing intent for technology export contract (“LOI”). The exporter may not undertake substantive negotiation or enter into any technology export contract with any overseas party before receiving a LOI. Once a technology export contract has been signed, the exporter must submit an application for a Technology Export License. The technology export contract will become effective when FETD grants the corresponding Technology Export License.
  • Prohibited Technology
    Prohibited Technology (pursuant to the 2020 Export Control Catalogue) is strictly prohibited from export in any way. Violations are subject to warning, confiscation of illegal gains, monetary fines, revocation of foreign trade permit, and even criminal liability.

How should multinational corporations prepare for compliance with the new law?

Given the newly released 2020 Export Control Catalogue which is now in forceand the upcoming Export Control Law, our recommendations for companies with operations in China:

  • Closely monitor ongoing developments in the export control catalogue and implementation rules or industrial guidelines that might be released by the Chinese government;
  • Consider establishing an internal export control review program with an appropriate compliance officer;
  • In the event a company has an affiliate or subsidiary in China contemplating a technology export transaction
    • Establish or strengthen established risk assessment and identification processes for your current products and technology, and classify them into categories of permitted, restricted, and prohibited items;
    • Seek informal opinions or clarifications from Chinese export control authorities during the transaction planning process when any forms of technology transfer are involved;
    • Go through contract registration with FETD for permitted technology even though it is not a prerequisite for an underlying technology export contract to take effect, as the actual enforcement of export control measures might differ from the literal meaning of the law;
    • Provide export control training to employees and add export control related clauses to template export contracts, user terms, and other relevant legal documents as needed.