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On May 3, 2023, the U.S. Consumer Product Safety Commission (CPSC) issued a provisional order with a $15.8 million civil penalty against Wisconsin-based Generac Power Systems, Inc. (Generac) over charges that for more than two years, Generac failed to report serious hazards caused by some of its portable generators. According to the CPSC, from October 2018 to 2020, Generac was aware of defects in 32 models of its portable generators. During that time and prior to Generac reporting to the CPSC in 2020, five consumers reported suffering finger amputations caused by unlocked handles on the generators. On July 29, 2021, a recall of the portable generators was jointly announced by the company and CPSC.

Section 15(b) of the Consumer Product Safety Act (CSPA) requires manufacturers of consumer products to report to the CPSC defects that could create a substantial product hazard. Section 19 of CSPA makes it illegal to delay such reporting, and companies who fail to comply can be liable for both civil and criminal penalties. In addition to the fine, the settlement agreement requires Generac to implement and maintain a detailed compliance program and system of internal controls to ensure compliance with CSPA. Generac must report to CPSC annually for three years on the actions the company has taken to ensure compliance and must retain CPSC compliance-related records for at least five years. The Commission vote to approve the provisional settlement agreement was 4-0, despite disagreement among commissioners over the penalty amount.

Commissioner Richard Trumka warned that “this Commission will use every tool at its disposal to stop bad actors from harming consumers, including maximum civil penalties and, where warranted, criminal referrals.” He was joined in his support for the penalty amount by Chair Alexander Hoehn-Saric and Commissioner Mary Boyle. Commissioner Peter Feldman, while also voting to approve the settlement, disagreed with the amount of the penalty, which was close to the maximum statutory amount ($120,000 for each violation, and $17,150,000 for any related series of violations). He suggested that imposing the maximum fine in failure-to-report cases should be reserved for cases “where a product hazard results in death, poses a significant risk of death from incidents such as fires, or where there are aggravating factors such as a history of misconduct by the company’s senior management.” Commissioner Feldman also voiced concern about what he considers is a lack of consistency in CPSC’s civil penalty structure. He noted that the case did not involve fatalities, and Generac was a first-time offender. He wrote, “A reasonable reading of the evidence in this case could support a conclusion that the initial reporting delay was born out of a failure to appreciate the nature of the hazard rather than a concealment of the problem from CPSC.”

Indeed, CPSC’s penalty calculus has remained somewhat of a mystery in recent failure-to-report cases. For example, on January 25, 2022, CPSC issued a provisional order fining fitness equipment manufacturer Core $6.5 million for failing to immediately disclose 55 incidents tied to defects in Core’s cable crossover machines between 2012 and 2017. While 11 of those injuries involved head lacerations, none resulted in death. More than five months later, on July 5, 2022, the CPSC issued a provisional order fining portable fan and heater maker Vornado $7.5 million – less than half of Generac’s civil penalty – after Vornado did not immediately notify the CPSC of multiple consumer reports of overheating and fire involving their VH101 Personal Vortex electric space heater, including one fire that allegedly resulted in the death of a 90-year-old man.

One possible explanation for CPSC’s decision to seek a much higher (and near maximum) penalty in the Generac matter is that the Commission is making good on Chair Hoehn-Saric’s warning following the Vornado settlement that “while the penalty announced today is significant, companies should be on notice that the agency will be even more aggressive in the future.” Facts, of course, do vary, and there is considerable subjectivity in decisions about whether a product has a “defect” that could create a potential safety risk. The stakes involved in these decisions, however, appear to be increasing.

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The FTC has said it numerous times: If your products – including their components – are not actually “all or virtually all” made in America, marketers should not label them as “Made in USA (MUSA).” The FTC’s latest enforcement action for false MUSA advertising against North Carolina-based motocross and ATV parts company, Cycra, is a reminder of just how seriously the FTC takes failures to comply with its 2021 Made in USA Labeling Rule (MUSA Rule). It’s also a reminder that words matter.

The FTC’s complaint, announced on April 18, 2023, states that since 2019 to at least May 31, 2022, Cycra claimed in its online marketing and on its packaging that its products are made in the U.S. The company’s website and social media accounts featured ads stating: “Proudly designed, developed and manufactured in Lexington, North Carolina,” “Proudly made in the USA,” and “Made in the USA.” On its packaging, Cycra labeled more than 150 products with the words “Made in the USA” alongside an image of the U.S. flag. In reality, however, according to the FTC, Cycra routinely used components imported from Asia and Europe, and on at least two occasions, U.S. Customs and Border Patrol (CBP) officers flagged Cycra shipments of finished products imported from Taiwan bearing MUSA labels. The complaint also alleges that the CEO controlled or had authority to control, or participated in, the alleged violative practices, had direct knowledge of the company’s overseas business dealings, and was the primary point of contact with CBP agents.

The MUSA Rule prohibits marketers from labeling products as “Made in USA” unless:

(1) “the 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.”

A violation of the MUSA Labeling Rule is considered by the FTC to be an unfair or deceptive act or practice in violation of Section 5(a) of the FTC Act.

Under the FTC’s proposed consent order, Cycra and its CEO, Steven James, were fined $872,577. A total of $221,385 is due within 8 days, after which the rest of this penalty is suspended based on financial statements furnished by the company and James; it will be reinstated if either misrepresent the company’s or James’ personal financial condition. Both respondents are barred from representing their products are “Made in the USA,” whether expressly or impliedly, unless:

  • The final assembly or processing of the product occurs in the U.S., all significant processing that goes into the product occurs in the U.S., and all or virtually all ingredients or components of the product are made and sourced in the U.S.; or
  • A clear and conspicuous qualification appears immediately adjacent to the representation that accurately conveys the extent to which the product contains foreign parts, ingredients, or components, and/or processing; or,
  • For a claim that a product is assembled in the U.S., the product is last substantially transformed in the U.S., the product’s principal assembly takes place in the U.S., and U.S. assembly operations are substantial.

Other injunctive provisions include a requirement to identify purchasers so the agency can administer redress, mandatory direct notices to purchasers, plus mandatory reporting on the notification program under penalty of perjury, and a mandatory cooperation clause. The proposed order also includes other customary terms, such as a prohibition on any misleading representation regarding the country of origin, record-keeping obligations, and compliance monitoring annually for 20 years. Both the company and James must submit reports detailing all business activities and how they are complying with the terms of the order.

Promises of “Made in the USA” can be enticing to consumers looking to support businesses that offer homegrown products. But companies promoting their products or services as American-made need to remember that FTC expects them to abide by the MUSA Rule, and that failure to do so can be costly to both companies and executives.

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On April 19, 2023, the U.S Consumer Product Safety Commission (CPSC or Commission) voted to adopt ASTM F2057-23 as a mandatory safety standard to prevent injuries and deaths of children from the tip-over of freestanding clothing storage units (CSUs). The newly adopted standard supersedes a prior CPSC safety standard for CSUs that was due to take effect May 24, 2023, and was passed to meet the requirements of the Stop Tip-overs of Unstable, Risky Dressers on Youth Act (STURDY Act or Act), which was signed into law on December 23, 2022. Adoption of the revised ASTM standard should help eliminate confusion and facilitate compliance by industry and will become mandatory 120 days from publication in the Federal Register (which has not yet occurred as of this writing). That means the likely effective date will be somewhere around the end of August.

The STURDY Act directs the CPSC to examine and assess the effectiveness of “any voluntary consumer product safety standards” for CSUs and promulgate a safety standard pursuant to the Act within one year. The standard applies to all CSUs 27 inches and above and requires testing that simulates the weight of children up to 60 pounds and accounts for real-world use—including the stability of the unit when placed on carpet, with items in drawers, with multiple open drawers, and with dynamic force. Warning labels for CSUs are also required. 

The Commission vote to approve the new standard was 3-1. In statements, Chair Alex Hoehn-Saric and Commissioner Peter Feldman welcomed the new standard, noting it enjoys broad consensus across industry and advocacy groups. Commissioner Richard Trumka, dissenting, issued a statement in which he characterized approval of the new rule as a “grave error” that went against prior advice of CPSC staff. However, Commissioner Mary Boyle noted in her statement approving the vote that the new rule, while different from the prior CPSC mandatory safety standard, is what Congress required under the STURDY Act. Commissioner Boyle concluded “that it is reasonable to determine that ASTM F2057-23 meets the requirements of STURDY” and will “make a meaningful difference for safety.”

CPSC estimates that from January 2000 through April 2022, CSU tip-overs were responsible for the deaths of 199 children and thousands of emergency room visits. The Commission’s vote ended nearly two decades of work and uncertainty on the issue of CSU tip-overs. With a final rule pending, industry and parents can feel reassured that all CSUs covered by the rule will be subject to the same safety standard. Notably, the final rule had the support of both the furniture industry and Parents Against Tip-Overs, an NGO that championed efforts to establish a mandatory safety standard.

Late last week, the Federal Trade Commission (FTC) announced that it had sent a “Notice of Penalty Offenses” on claim substantiation to around 670 companies. While this notice tactic is not a new tool, it has been reinvigorated following the 2021 Supreme Court decision in AMG Cap. Mgmt., which led to the FTC losing its ability to obtain monetary redress directly in federal court in non-civil penalty cases. Since then, through both Democratic and Republican administrations, the FTC has directed enforcement initiatives away from rather clearcut instances of deception, sometimes attacking scientific evidence even in the face of reputable experts on the other side supporting the evidence. 

In her last vote before leaving the FTC, Commissioner Christine Wilson dissented, identifying concerns about the use of Section 13b in cases beyond clearcut fraud, suggesting that the Commission will have difficulty demonstrating that the conduct of individual defendants are sufficiently similar to cited cases to result in civil penalties. However, she also recommended “that marketers review this Notice and the cases it cites, and tailor their claims accordingly.”

To read the full article, click here.

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On December 14, 2022, the Federal Trade Commission (FTC) announced that it would be reviewing its Green Guides for the Use of Environmental Claims (Green Guides) to assess the need for updates and changes to the Guides. First published in 1992, the Green Guides address a number of environmental marketing claims, reflecting the FTC’s interpretation of how it would evaluate the claim under Section 5 of the FTC Act. The FTC’s Request for Public Comments seeks public feedback on the value and ongoing need for the Guides, whether the FTC should issue a rule, among others, and poses questions about several specific claims, including several questions about “recycling” claims. Comments are due on April 24, 2023.

To further flesh out issues related to recyclable claims, on March 1, 2023, the FTC announced that it will host a half-day public workshop, “Talking Trash at the FTC: Recyclable Claims and the Green Guides,” on May 23, 2023. The workshop will explore “the current state of recycling practices and recycling-related advertising in the U.S.; consumer perception of current and emerging recycling-related claims; and the need for any updates or other changes to the Green Guides related to recycling claims.”

The FTC will publish a more detailed agenda in advance of the scheduled workshop. Written comments on this topic must be received by June 13, 2023. More workshops on other environmental marketing topics may be scheduled in the coming months as the FTC considers the issues.

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On February 8, 2023, a majority of commissioners of the Consumer Product Safety Commission (CPSC or Commission) voted to issue a supplemental notice of proposed rulemaking (SNPR) on the CPSC’s procedures for disclosing information to the public under Section 6(b) of the Consumer Product Safety Act (CPSA). The notice follows the publication of a briefing package on January 11, 2023, that indicated the Commission was preparing to vote on a proposed rulemaking in regard to Section 6(b). This is the second time the Commission has sought to revise 16 CFR § 1110, the rule interpreting Section 6(b) (6(b) Rule), since the rule’s promulgation in 1983. In 2014, the CPSC issued its first notice of proposed rulemaking regarding the 6(b) Rule, which was staunchly criticized by industry for proposing to erode important confidentiality and fairness safeguards critical to encouraging businesses to report potential safety issues to CPSC. The 6(b) Rule has remained unchanged since then.

Section 6(b) governs how the CPSC informs the public about product recalls. Under the 6(b) Rule, the CPSC must give manufacturers or private labelers advance notice and opportunity to comment on information the Commission proposes to release if the public can readily ascertain the identity of the firm from the information. The rule specifies that the CPSC must take certain steps “to assure, prior to public disclosure of product-specific information, that the information is accurate; disclosure of the information is fair in the circumstances; and that disclosure of the information is reasonably related to effectuating the purposes of the statutes the Commission administers.” For example, the process gives companies 15 days to comment on a potential recall before the CPSC releases any recall information to the public.

Arguing for 6(b)’s repeal, Chair Alexander Hoehn-Saric said in a statement, “Section 6(b) often prevents the CPSC from issuing timely warnings about dangerous consumer products when the Commission must negotiate with the manufacturer to make any relevant information public.” But businesses point out that the 6(b) Rule ensures that CPSC gathers relevant information from all sides before going public with information that could have serious repercussions for companies. Commissioner Peter Feldman, while voting yes, registered some reservations about the proposed rulemaking, stating, “Our public information sharing must provide consumers with timely, actionable information about safety. At the same time, our process must ensure accuracy and fairness. I hope that the final rule will strike the appropriate balance between these two objectives.” Specifically, Commissioner Feldman urged the public to comment on the third-party content evaluation and selective release of information that the SNPR proposes the CPSC engage in. The lone vote against Commissioner Richard Trumka, stated he was voting no because he felt that the SNPR did not go far enough in removing all restraints to public disclosure.

The proposal includes many changes to the current interpretation of 6(b) that are of importance to all consumer product companies. It is worth noting that Section 6(b)(5) provides an exemption to limits in public disclosure where the CPSC has issued imminent hazard findings under Section 12 of CSPA, as amended by the Consumer Product Safety Improvement Act (CPSIA), so Section 6(b) does not serve as a “gag rule” that prevents the agency from notifying the public about imminent hazards. Additionally, Congress adopted the confidentiality protection of 6(b) to encourage companies to report on potential issues under the provisions of Section 15b of the statute. Without scrutinizing and modifying Rule 15b reporting requirements, significant changes to the 6(b) Rule will disturb the careful balance Congress crafted between giving the public access to important product safety information and safeguarding important confidential business information.

The comment period is 45 days from publication of the SNPR in the Federal Register (which has not yet occurred as of the date of this writing). Businesses that manufacture, import, or sell consumer products should consider sharing their views on this important proceeding.

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At the request of multiple stakeholders, the Federal Trade Commission (FTC) announced today that it is giving additional time for the public to weigh in on proposed changes to its Green Guides for the Use of Environmental Claims (Green Guides). The FTC has extended the public comment period for 60 days, now ending on April 24, 2023.

The extension is good news for organizations who want to raise points about the changes the FTC is contemplating.

Information about how to submit comments can be found in the Federal Register notice.

On January 27, 2023, CalRecycle, the California agency that oversees the state’s waste management, recycling, and waste reduction programs, published a Notice of Proposed Rulemaking regarding amendments to the Recycling and Disposal Reporting System (RDRS). The proposed regulations are intended to update the state’s RDRS to better comply with various state recycling and disposal laws and objectives, including California law SB 343, which restricts recyclability claims by narrowly defining what “consumer goods” and packaging are considered “recyclable” in California.

According to CalRecycle, the proposed amendments would revise RDRS to collect information on what material types and forms are actively recovered by facilities and how that material was collected and to classify exports of mixed plastic waste as disposal if the mixed waste stream excludes the “more recyclable plastics. Stakeholders are asked to weigh in on the proposed changes. Read more here.

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When the California legislature passed the California Age-Appropriate Design Code Act (CAADCA or Act) AB 2273 in September of this year, it generated considerable controversy. Companies, trade associations, and even some non-governmental organizations questioned whether the law’s broad reach was not just counterproductive and likely to invade consumer privacy, but preempted by federal law and unconstitutional. The legal questions are about to be tested in a court case that could have far-reaching repercussions for online platforms and legislators alike. On December 14, 2022, NetChoice, an umbrella organization of tech companies including Amazon, Google, Meta, TikTok, and Twitter, announced that it had filed a complaint against California Attorney General Bonta, alleging that the CAADCA violates the Constitution and is preempted by federal law, including the Children’s Online Privacy Protection Act (COPPA).

For more details, click here. 

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Update: The formal Federal Register notice was published on December 20, 2022, and comments are due on February 21, 2023.

On December 14, 2022, at an open meeting of the Federal Trade Commission (“FTC” or “Commission”), FTC Commissioners voted unanimously to publish a Notice in the Federal Register announcing a Request for Public Comments on potential amendments to the Commission’s Guides for the Use of Environmental Marketing Claims (“Green Guides” or “Guides”). The FTC solicits comments on the ongoing need for the Guides and on specific claims addressed in the Guides, including “recyclable,” “recycled content,” “degradable,” “compostable,” and more. It also asks if it should initiate a rulemaking process and address claims it declined to consider during the last review, such as “organic” and “sustainable.” Importantly, given the growth in some state laws that purport to restrict claims, the FTC asks for input on whether the Guides conflict with federal or state laws. This proceeding is expected to garner significant input, with comments due 60 days after publication in the Federal Register.

For more details, click here.