Friday, July 19, 2013

Report, Recall, or Both: Do You Know Your Obligations Under the Consumer Product Safety Act?

Manufacturers, importers, distributors, and retailers of consumer products have a legal obligation to report hazardous or dangerous products to the Consumer Product Safety Commission ("CPSC"). Failing to do so may result not only in large civil penalties, but also criminal prosecution. But, there are many common myths and misconceptions about this reporting requirement and how it relates to the separate question of whether a product recall ought to be commenced. Here are just a few:

Myth One: “I only need to report to the CPSC if someone is injured by a product I sell.”

In truth, a reporting obligation can arise if not a single consumer has been injured. The law requires the reporting of “unreasonably hazardous or dangerous” products that pose a risk to consumers—even if the risk of harm has never been realized. The possibility of harm, alone, triggers a reporting obligation.

Myth Two: “I can avoid the need to report simply by sending a communication to my customers telling them how to avoid being injured by the product.”

Any time you believe that a customer communication is necessary in connection with a possible safety risk to customers—including by providing additional warnings or instructions—the CPSC will inevitably take the position that your should have reported the issue to them and worked with them to determine if the communication adequately addressed the perceived safety issue.

Myth Three: “I don’t manufacture the product, therefore I don’t have to worry about reporting safety concerns to the CPSC.”

The CPSC reporting obligation applies independently to all companies involved in the distribution of a consumer product—from manufacturers to final retail sellers. There are circumstances in which the retailer's reporting obligation can be satisfied by a communication to the manufacturer (with a copy to the CPSC), which is an option that all retailers should explore.  But, the fact remains that a retailer can be penalized for a failure to report on a product it did not manufacture, including one sold by many other companies.

Myth Four: “Industry product safety standards are voluntary, and declining to meet them has no legal consequences in terms of reporting or recalling a product.”

Technically, industry standards are “voluntary.” However, if a company sells products that fail to meet such standards (either intentionally or because it was unaware of them), it may result in a reporting or recall obligation if it can be shown that application of the standard could have resulted in a safer product. In addition, meeting those standards can provide a solid defense to a claim that a product is unsafe.

Myth Five: “I only need to report a product as unsafe if it has a design defect.”

In reality, a product can be unsafe—and thus trigger a reporting requirement—for a number of reasons, including: (1) defective design; (2) defective manufacture; (3) lack of appropriate warnings; (4) poor instructions; and (5) a failure in any of these categories given reasonably anticipated customer misuse.

The obligation to report an unsafe or defective product to the CPSC is a tricky one. Compliance requires that companies establish internal policies and procedures for tracking safety issues from initial product design to post-sale consumer experiences, and understanding that the reporting obligation can arise even in cases where a recall is not required. Separating myth from reality can help to protect a company from a costly–and risky–CPSC investigation, penalty, or prosecution.

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