While the dollar amounts of the civil penalties issued by Consumer Product Safety Commission (CPSC) enforcement cases may be eye-popping, don’t let them distract you. The requirements of recent CPSC-imposed compliance undertakings are the real story.
Enforcement activity, which has brought affirmative litigation from the Department of Justice (DOJ), has typically involved allegations that a company violated Section 15(b) reporting requirements. Historically, these enforcement cases result in the imposition of civil penalties. However, a new trend is emerging: in addition to imposing a penalty, DOJ and the CPSC have targeted companies’ improper or inadequate compliance controls and mechanisms, and have imposed requirements to modify internal operations.
The prevalent thinking among CPSC watchers is that past practice with respect to civil penalties will change as the Commission undergoes leadership changes. Ann Marie Buerkle, acting chairwoman of the CPSC, has been vocal in her skepticism toward the effectiveness of high civil penalty amounts in increasing product safety.
Given this, required compliance measures gain in significance for at least three reasons. First, penalty amounts may pale in comparison to the resources needed to assess, revise, and implement appropriate compliance polices and internal controls. Second, the measures required in recent cases were substantially similar, suggesting the CPSC is settling on a policy that it will regularly impose going forward. And, third, there does not appear to be the same level of skepticism toward these measures as has been expressed toward civil monetary penalties.
To design an effective compliance program, companies should look to some of the enhanced measures that the CPSC has required, including:
- 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 Consumer Product Safety Act (CPSA) compliance and accountability to a senior management position.
- Communicating compliance policies and procedures to all applicable employees in risk management, legal, regulatory, or compliance related roles.
- Providing a mechanism for confidential employee reporting of CPSA-related questions or concerns to chief compliance, regulatory compliance, or other officers.
- Tracking product safety information and evaluating it to see if it reflects on product quality and safety issues.
- Documenting calls and written communications regarding incidents and injury information.
- Collecting products that are the subject of reports of safety issues, analyzing them, and bringing the results to the attention of the relevant senior company officials.
- 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.
- Maintaining a “product hold process” through which the manufacture and distribution of products can be placed on hold for reasons of design, manufacture, performance, or safety.
- Providing for the retention of relevant records for at least five years and the forwarding to CPSC’s Office of Compliance records related to the company’s compliance.
It is also important to note a recent development in ongoing litigation involving Spectrum Brands Inc., which is on appeal. Under the terms of the 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.” 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 on notice. 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.
Michael S. Blume and Heather Capell Bramble are partners in Venable’s Advertising, Marketing, and New Media and Consumer Product Safety practice groups. Sameer P. Sheikh is an associate in the groups. They may be reached at (202) 344-4000.