Consumer Product Safety Commission (CPSC) related enforcement cases continue to make headlines in 2018. These headlines provide us with important insight into what to expect from the CPSC going forward. Put simply, civil penalty amounts may grab your attention, but don't let them distract you; CPSC-imposed compliance undertakings are the real story. These requirements appear to be a cautionary warning. Companies lacking adequate internal record keeping and compliance monitoring systems and controls, including clear channels of communication regarding consumer complaints, risk attracting CPSC attention.
The CPSC has been quite active in 2017, and, at least as 2018 begins, there does not appear to be a let up. Enforcement activity, which has brought affirmative litigation from the Department of Justice (DOJ), typically involved allegations that a company violated Section 15(b) reporting requirements (15 U.S.C. § 2064(b)).
Historically, such enforcement cases result in the imposition of civil penalties. That history held true in 2017, and into 2018. But a new trend is emerging. In several recent actions, the government has not been content with simply imposing a penalty for a failure to report. Rather, DOJ and the CPSC have concluded that fines alone are not enough. They have targeted the companies' improper or inadequate compliance controls and mechanisms, and have imposed on these companies requirements that they modify their internal operations.
The trend to impose operational changes on companies, in addition to civil penalties, is a significant development. Remember, the CPSC is undergoing leadership changes. Conventional wisdom holds that past practice with respect to civil penalties will change. Look no further than the acting chairwoman of the CPSC, Ann Marie Buerkle, who has been vocal in her skepticism toward the effectiveness of high civil penalty amounts in increasing product safety.
Given the expressed skepticism toward high penalties, these required compliance measures gain in significance, for at least three reasons. First, penalty amounts may pale in comparison to the costs and resources needed to assess, revise, and implement appropriate and relevant CPSC compliance polices and internal controls. Second, it is telling that the measures required in recent cases were substantially similar, a pattern that would suggest that the CPSC is settling on a policy that it will regularly impose such measures going forward. And, third, as noted above, there does not appear to be the same level of skepticism toward these measures as has been expressed toward civil monetary penalties. Put another way, we expect that the relatively new CPSC leadership will continue to impose these substantial compliance measures going forward.
For consumer products companies, then, the CPSC is sending a clear signal that the companies must have robust compliance structures in place to prevent late reporting and other CPSC-related violations. Companies should heed this signal, review current compliance measures, and ensure that they are effective.
To design an effective compliance program, companies should look to some of the enhanced measures that the CPSC has required. Such measures include:
- Maintaining written standards, policies, and procedures designed to ensure that relevant product safety information is conveyed effectively to personnel responsible for reporting to the CPSC.
- Assigning oversight of the company's CPSA compliance and accountability to a senior management position, such as general counsel, chief compliance officer, or regulatory compliance manager
- Communicating CPSA compliance policies and procedures to all applicable employees in risk management, legal, regulatory, or compliance related roles, through regular training programs.
- Providing a mechanism, such as an anonymous hotline, for confidential employee reporting of CPSA compliance-related questions or concerns to the chief compliance officer, regulatory compliance manager, or other officer.
- Regularly tracking product safety information, including product return rates, call center data, and ratings by consumers on various websites, and evaluating the information to see if it reflects on the product quality and safety issues.
- Documenting calls and written communications regarding potential and actual incidents and injury information.
- Collecting products that are the subject of reports by consumers or retail partners of safety issues, analyzing those products, and bringing the results of the analysis to the attention of the relevant senior company officials and others as appropriate, to determine whether there is an obligation to report to the CPSC.
- Implementing a formal "request for corrective action" procedure whereby quality engineers and product safety managers can make a request to change a product based on various factors, including consumer complaints and incidents.
- Maintaining a "product hold process" (or its equivalent) through which the manufacture and distribution of products can be placed on hold for reasons of design, manufacture, performance, or safety, including any and all such products that may be returned by a warehouse, distributor, or customer or otherwise to prevent the sale of recalled products.
- Implementing procedures that provide for the retention of relevant records for at least five years and the forwarding to CPSC's Office of Compliance personnel of records reasonably related to the company's compliance with the CPSA.
It is important to note, too, a recent development in the ongoing litigation involving Spectrum Brands, Inc., which is now on appeal. In this case, the government went one step beyond the measures outlined above. Under the terms of the January 19, 2018 Order, Spectrum is now required to retain, at its own expense, "an independent expert" to review and recommend changes, as necessary, to "Spectrum's comprehensive safety program for CPSA compliance, with particular emphasis on compliance with section 15(b) reporting requirement and procedures necessary to prevent future sales of recalled products." 3:15-cv-371, Doc. No. 256 (W.D. Wis. 2017). In an unprecedented move, the court agreed to the government's request for an independent expert to ensure Spectrum's adequate implementation of enhanced compliance measures.
Manufacturers, importers, and retailers of consumer products are now sufficiently on notice. Although the CPSC penalty amounts may not be a foregone conclusion, the need to ensure adequate internal compliance is undeniable.
In light of CPSC's recent activity, companies under CPSC jurisdiction should review and correct their internal compliance programs and mechanisms related to consumer product safety. Doing so may help to insulate you from any missteps and, should problems arise, mitigate the impact of a CPSC investigation or action.