E-Vapor Industry Coalition Formally Opposes CPSC Novel Interpretation of CNPPA that Immediately Requires Flow-Restricted Packaging for E-Liquids

By Azim Chowdhury, Sheila Millar and Boaz Green on June 13, 2019 Posted in Product Safety

As previously reported on Keller and Heckman’s “The Continuum of Risk” blog, earlier this year, the U.S. Consumer Product Safety Commission (CPSC) announced that it was now reading the Child Nicotine Poisoning Prevention Act (CNPPA) to require nicotine e-liquid bottles to meet the “restricted flow requirement” in 16 C.F.R. § 1700.15(d), in addition to having child-resistant closures. A wave of enforcement actions soon followed. CPSC issued Notices of Violations to numerous e-liquid companies alleging that e-liquid bottles (specifically glass bottles) without flow restrictors rendered the e-liquid a “misbranded hazardous substance” pursuant to section 2(p) of the Federal Hazardous Substances Act (FHSA). CPSC ordered these companies to initiate a number of “corrective actions,” including to immediately stop sale and distribution, notify all known retailers and consumers, and destroy and dispose of returned units and any remaining inventory. Such actions may drive companies, including many small businesses that make up the backbone of the vapor industry, out of the market.

In response to CPSC’s demands for immediate action, a coalition of national and state vapor trade associations (the “E-Vapor Coalition”) came together to express their strong opposition to CPSC’s new reading of the CNPPA. In a letter to the CPSC Acting Chair and Commissioners, the E-Vapor Coalition lays out in detail the flaws in the CPSC’s new reading of the statute, which neither the plain language nor the legislative history support. Moreover, this recent interpretation is inconsistent with three years of previous guidance from the Commission. The E-Vapor Coalition letter also raises concerns about flaws in CPSC’s hastily drafted testing protocol for flow restrictors, which appear to be suitable only for testing plastic packaging. The letter also highlights the potential conflict with the Food and Drug Administration (FDA) rules prohibiting changes to e-liquid packaging without FDA premarket approval.

As the E-Vapor Coalition letter points out, while industry disagrees that the CNPPA requires flow restrictors as part of its special packaging requirements, or that packages without flow restrictors are “misbranded hazardous substances,” coalition members share CPSC’s desire to safeguard children from potential hazards of accidental ingestion of nicotine-containing e-liquids. While instances of accidental ingestion are fortunately extraordinarily rare, the E-Vapor Coalition does not object to an orderly transition to restricted flow packaging, in coordination with FDA. It is vital that this be done in a manner that will not unduly burden manufacturers, distributors and retailers, or deprive adult consumers of less risky alternatives to combustible tobacco by forcing existing producers who switch to flow-restricted packaging to seek pre-market authorization from FDA. Associations comprising the E-Vapor Coalition and their respective members look forward to working with both CPSC and FDA to achieve these goals.

To keep track of CPSC’s latest guidelines for liquid nicotine containers, see its Liquid Nicotine Packaging Business Guidance website.

If you have any questions regarding CPSC requirements, contact Sheila Millar (millar@khlaw.com) or Boaz Green (green@khlaw.com). For more information about our Product Safety Practice in general, visit https://www.khlaw.com/Product-Safety. For more information about our Tobacco and E-Vapor Practice, contact Azim Chowdhury (chowdhury@khlaw.com) and visit https://www.khlaw.com/evapor.

Will NAS Report Prompt CPSC to Reconsider OFR Stance?

By Sheila Millar and Boaz Green on June 4, 2019 Posted in Product Safety

In 2015, a group of NGOs filed a petition with the U.S. Consumer Product Safety Commission (CPSC), asking CPSC to ban additive, non-polymeric organohalogen flame retardants (OFRs) in four product categories: infant, toddler, or children’s products; upholstered furniture; mattresses; and plastic electronics’ casings. The petitioners argued that the entire chemical class is toxic and poses a risk to consumers and that the CPSC should ban them under the Federal Hazardous Substances Act (FHSA). However, a new report report from the National Academies of Sciences, Engineering, and Medicine (NAS) offers the latest scientific assessment: OFRs “cannot be treated as a single class for hazard assessment although they can be divided into subclasses based on chemical structure, physical and chemical properties, and predicted biologic activity.”

As we previously reported in 2015, after reviewing the petition and evaluating the available data, CPSC staff submitted a detailed briefing package to the Commission recommending that it deny the petition for lack of evidence. The FHSA does require evidence-based rules as a statutory matter (15 U.S.C. §1262(f)-(i)). However, the Commission majority rejected staff’s recommendation to deny the petition. A majority of Commissioners instead initiated a rulemaking and attempted to overcome staff’s objection by proposing a chronic hazard advisory panel, or CHAP, to study OFRs as a class and make recommendations for rulemaking. A majority of the Commission also voted to issue “non-binding guidance,” warning consumers about the hazards it believed may be associated with OFRs.

The NAS was asked to first develop a scoping plan for the OFR CHAP to assess the potential hazards of some or all OFRs. This report concludes the first step in this process.

Rulemaking under the FHSA must be science-based, but, as the NAS report notes, evaluating chemicals one by one is a common frustration for scientists:

One of the biggest challenges for the risk-assessment community is how to move from traditional chemical-by-chemical approach to analyses that evaluate multiple chemicals together. The primary problems with this approach are that chemicals on which data is insufficient are typically treated as not hazardous, that untested chemicals are often substituted for hazardous chemicals, and that cumulative exposure and risk are often ignored … the number of chemicals in use today demands a new approach to risk assessment, and the class approach is a scientifically viable one.

Thus, while NAS felt that grouping chemicals by class may be appropriate in certain circumstances, the groupings must make sense based on chemical structure, function, and other factors.

NAS first studied whether OFRs could be treated as a single class “by identifying known OFRs and other structurally related organohalogen compounds.” OFRs cannot be lumped into a single category for hazard assessment, the NAS report says, since OFRs cannot be distinguished from other physically similar chemicals. In addition, OFRs do not have a common chemical structure or predicted biologic activity and therefore cannot be treated as a single class. However, they can be assessed and regulated on the basis of shared properties into groups. In this case, the NAS identified 14 subclasses of OFRs that may be evaluated as separate groups, but rejected the premise that all OFRs should be treated identically.

The thoughtful approach of the NAS report reflects a welcome return to a focus on facts and science as the underpinning of potential chemical regulation, as required under the FHSA. The report should be thoroughly evaluated by CPSC staff and Commissioners before proceeding with a CHAP. The NAS report’s findings confirm CPSC staff’s earlier view that the available science they reviewed several years ago still does not support viewing all OFRs as a single class. From this perspective, it would be appropriate for the current Commission to review and consider rescinding its previous OFR guidance.

Website Hacks Result in FTC Actions for Lax Security

By Sheila Millar and Tracy Marshall on May 17, 2019 Posted in Privacy

After hacks of two websites, i-Dressup.com and ClixSense.com, resulted in the compromise of personal information for millions of users – including, in the case of i-Dressup, hundreds of thousands of children under 13 – the Federal Trade Commission (FTC) issued complaints against the websites and their operators for lax security and other privacy violations. Notably, in addition to requiring beefed-up security and third-party monitoring programs in the settlement agreements, all five FTC Commissioners took the additional step of holding senior management personally responsible for data security in the future. In a separate statement, the Commissioners wrote:

The orders obtained in these matters contain strong injunctive provisions, including new requirements that go beyond requirements from previous data security orders. For example, the orders include requirements that a senior officer provide annual certifications of compliance to the Commission, and explicit provisions prohibiting the defendants from making misrepresentations to the third parties conducting assessments of their data security programs.

i-Dressup allows users to design their own virtual outfits and try on different looks. The FTC complaint against i-Dressup claims the website and its operators violated the Children’s Online Privacy Protection Act (COPPA) on several grounds: (1) failing to provide reasonable security, which resulted in a hacker stealing the personal information of 2.1 million users, including 245,000 children; (2) failing to obtain parental consent before collecting personal information from children under 13; and 3) continuing to collect children’s personal information even when parents refused to give consent.

ClixSense pays users to view ads and take online surveys. Users who registered with the site were required to provide personal information, including names, addresses, passwords, user names, and (in some cases) Social Security numbers. Despite assurances that “ClixSense utilizes the latest security and encryption techniques to ensure the security of your account information,” the FTC complaint charges that the company failed to protect the website from commonly known or reasonably foreseeable vulnerabilities and attacks from third parties and failed to perform vulnerability and penetration testing. This lax security led to a data breach in September 2017 in which hackers downloaded the personal information of 6.6 million users worldwide. The hackers then published and offered for sale the personal information of 2.7 million users, including names and addresses, user names, passwords, email addresses, and Social Security numbers.

Under iDressup’s agreement with the FTC, the company will pay $35,000 in civil penalties and is required to implement a comprehensive data security program that is subject to independent third-party monitoring. Under its settlement with the FTC, ClixSense’s owner is barred from misrepresenting the company’s security and data collection practices, and like iDressup, must also implement a comprehensive information security program that is subject to independent monitoring.

Imposing personal responsibility on senior management demonstrates the seriousness with which the FTC views data privacy and data security obligations. The Commissioners’ statement ends with a presage for the future: “the announcements today reflect the beginning of our thinking, but we anticipate further refinements, and these orders may not reflect the approach that we intend to use in every data security enforcement action going forward.” Online businesses, take note.

EDPB Advises on Overlap Between the ePrivacy Directive and GDPR

By Sheila Millar and Tracy Marshall on May 9, 2019 Posted in Privacy

The European Data Protection Board (EDPB) has weighed in on the interplay between the General Data Protection Regulation (GDPR) and the ePrivacy Directive in response to questions from the Belgian Data Protection Authority (DPA). Addressing how and when each set of rules applies to processing data, the EDPB stated that “these questions concern a matter of general application of the GDPR, as there is a clear need for a consistent interpretation among data protection authorities on the boundaries of their competences, tasks and powers.”

The ePrivacy Directive, also known as the “cookie directive,” governs electronic communications whether or not they contain personal data. The GDPR, which took effect nearly a year ago, regulates the collection and protection of personal data of EU residents.

The EDPB’s Opinion on the interplay between the ePrivacy Directive and the General Data Protection Regulation, adopted on March 12, examines three circumstances:

Where there is no interplay between the GDPR and the ePrivacy Directive because the matter falls outside of the scope of the GDPR;
Where there is no interplay between the GDPR and the ePrivacy Directive because the matter falls outside of the scope of the ePrivacy Directive; and
Where there is an interplay between the GDPR and the ePrivacy Directive because the processing triggers the material scope of both the GDPR and the ePrivacy Directive.

The opinion states that “although an overlap in material scope exists between the ePrivacy Directive and the GDPR, this does not necessarily lead to a conflict between the rules.” However, it does identify the circumstances in which one set of rules will prevail over the other and the competence and task of DPAs in relation to those circumstances:

Where “special rules” of the ePrivacy Directive apply (e.g., the requirement for processors to get consent before using cookies under article 5(3)), the ePrivacy Directive trumps GDPR;
In all other cases, where the processing of personal data is not specifically governed by the ePrivacy Directive (or where the ePrivacy Directive does not contain a “special rule”), GDPR takes precedence;
The powers of DPAs to oversee data processing under the GDPR are not affected by the ePrivacy Directive “special rules”; and
When processing personal data falls under both the GDPR and ePrivacy Directive, DPAs may take into account the provisions of the ePrivacy Directive if the violation also breaches national law implementing the ePrivacy Directive.

On a related note, the EDPB also called on the European legislators to finalize the ePrivacy Regulation to replace the ePrivacy Directive. If enacted, the ePrivacy Regulation would take direct effect without necessitating new implementing legislation in Member States. The EDPB’s statement urges that a new ePrivacy Regulation build on existing protections and complement the GDPR.

FTC Continues Focus on “Made in America” Claims

By Sheila Millar on April 24, 2019 Posted in Advertising

Making the same false country-of-origin claims that initially resulted in a Federal Trade Commission (FTC) consent order is a good way to land a company with substantial civil penalties and corrective advertising obligations. iSpring Water Systems LLC found this out the hard way. Instead of complying with its earlier promise not to falsely advertise its products as made in the USA, the water filtration systems company breached a 2017 administrative order. Ispring is now on the hook for $110,000 in civil penalties.

Sold online and in major retailers, iSpring water filtration systems were marketed as “Designed and crafted in USA” and “Proudly Built in the USA.” The problem with this advertising, however, is that the product was actually being manufactured in China. In 2017, the company settled an FTC complaint, agreeing not to make such claims unless it could provide evidence that all significant processing was USA-based and that nearly all components were made here. That promise went down the drain.

The proposed settlement contains an admission of liability after the company’s owner and officer admitted falsely advertising that the filtration systems were USA-made In addition to paying the civil penalty, the new order imposes a corrective advertising remedy: iSpring must identify and notify all consumers who purchased iSpring products between March 10, 2018 and July 15, 2018 that the company made misleading claims about country of origin. This is the type of corrective advertising remedy used in a series of false “VOC-free” claims we previously described. The company is also required to submit to compliance reporting and monitoring for 20 years.

The FTC also approved final consent orders in two other “Made in America” cases we reported on last year, involving hockey puck manufacturer Patriot Puck and recreational gear companies Sandpiper and PiperGear USA, Inc.

The orders prohibit Patriot Puck, Sandpiper and Piper from making misleading or deceptive Made in the USA statements. To make a “Made in the USA” claim the advertiser must show that:

The product’s final assembly or processing occurs in the United States, all significant processing occurs in the United States, and all or virtually all ingredients or components of the product are made and sourced in the United States; 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. To make an “Assembled in the USA” claim the advertiser must show that the product is last substantially transformed in the United States, its principal assembly takes place in the United States, and its U.S. assembly operations are substantial.

The FTC continues to target companies that make misleading or unsubstantiated Made in the USA claims. Businesses making US-origin claims would do well to consult the FTC’s Enforcement Policy Statement on U.S. Origin Claims to avoid winding up in hot water with the Commission.

FTC’s 2018 Data Privacy and Security Update Highlights Enforcement

By Sheila Millar and Tracy Marshall on April 1, 2019 Posted in Cybersecurity, Data Security, Enforcement

The Federal Trade Commission (FTC) recently released its annual report highlighting its work on privacy and data security during 2018. The FTC initiated five enforcement actions arising out of data breaches and nine data privacy enforcement actions in 2018, including cases against online payment system Venmo and mobile phone maker BLU for misrepresenting their privacy protections and providing inadequate security. One of the most high-profile enforcement actions of 2018 was the FTC’s expanded settlement with Uber, which stemmed from a major data breach in 2016 that the company failed to report for over a year. The FTC also launched an investigation into whether Facebook violated its consent decree with the agency when it shared the personal information of its users with political research firm Cambridge Analytica.

On children’s privacy issues, the FTC settled with two companies for violations of the Children’s Online Privacy Protection Act (COPPA), including the agency’s first case involving connected toys, against toy manufacturer VTech, and another case against talent agency Explore Talent. The FTC alleged that both companies failed to obtain parental consent before collecting personal information from hundreds of thousands of children under 13 and failed to provide the required notice of their privacy policies. The FTC also sent letters to two watch manufacturers, Gator Group Co., Ltd. and Tinitell, Inc., warning them that their children’s smart watches must comply with COPPA. The agency alleged that the companies failed to provide proper notice about their personal information collection practices and obtain verifiable parental consent before collecting personal information of children under 13.

In November of last year, the FTC launched a series of public hearings on Competition and Consumer Protection in the 21st Century which are ongoing and examine the intersection of big data, privacy, and competition. The FTC also held its third annual PrivacyCon, which brings together a range of stakeholders to discuss trends and developments in consumer privacy and security.

On the policy front, several FTC commissioners testified before the Senate Commerce Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security, the House Energy and Commerce Subcommittee on Digital Commerce and Consumer Protection, and the Senate Banking, Housing and Urban Affairs Committee. Recurrent themes in their testimony included a push for greater rulemaking and enforcement powers for the FTC and the need for national data privacy legislation. FTC staff submitted a comment to the Consumer Product Safety Commission (CPSC) on the potential safety risks and hazards related to connected consumer products in which the FTC which recommended that: (1) CPSC consider how companies might better communicate with customers regarding notifications and recalls for Internet of Things (IoT) devices; (2) CPSC’s approach should be technology-neutral and flexible; and (3) any certification requirements for IoT devices should require manufacturers to publicly set forth the standards to which they adhere.

With COPPA under review following the recent introduction of a bill to modify its provisions and the debate over national privacy and data security legislation raising the possibility of greater FTC powers, 2019 is shaping up to be a very busy year for the agency.

Significant Changes Ahead for COPPA?

By Sheila Millar and Tracy Marshall on March 27, 2019 Posted in Cybersecurity, Privacy

As expected, 2019 is shaping up to be the year for privacy reforms, including possible amendments to the 20-year old Children’s Online Privacy Protection Act (COPPA). Senators Edward Markey (D-Mass) and Josh Hawley (R-MO) have introduced legislation that would expand COPPA’s scope to offer new protections to minors age 13-15, establish new limitations on collecting personal information on children and minors, and create a new division within the Federal Trade Commission (FTC) charged with overseeing marketing directed at children and minors, among other things.

For insight into the COPPA Amendments see Keller and Heckman’s March 25, 2019 Client Alert “Senators Markey and Hawley Introduce Bill to Expand COPPA” authored by Privacy Partners Sheila Millar and Tracy Marshall.

California Consumer Privacy Act: Your at-a-glance guide to key business obligations

By Sheila Millar and Tracy Marshall on March 25, 2019 Posted in Privacy

The California Consumer Privacy Act of 2018 (CCPA) gives California residents new rights and imposes new obligations on companies doing business in California, effective January 1, 2020. Keller and Heckman LLP Privacy and Security Partners Sheila Millar and Tracy Marshall have provided an overview to help businesses understand the new requirements.

Since publication of the guide, the California Attorney General and State Senator Jackson proposed an amendment to the CCPA that would (1) extend the private right of action to any individual whose rights are violated, and not just individuals whose information is subject to a data breach, and (2) remove the 30-day period for businesses to cure an alleged violation before the private right of action can be exercised. Additional amendments are possible before the new law takes effect next year.

Download a copy of the Guide here.

Company Settles “Natural” Class Action Claims for $1.5 Million

By Sheila Millar on March 19, 2019 Posted in Advertising, Labeling

A recent class action lawsuit that claimed a manufacturer misrepresented its laundry detergent products as “all natural” when they, in fact, contained synthetic ingredients, has resulted in a $1.5 million settlement. A New York federal court gave preliminary approval to the settlement, which also requires the company to add qualifying language that states “contains naturally derived and other ingredients” and to add a “USDA Certified Bio-Based” label. The company must modify its website content to reflect the labeling changes and refrain from selling products that do not adhere to the new labeling mandates. Importantly, the settlement does not constitute an admission of liability by the company.

With the increase in interest in environmental claims, it is a useful time to briefly review the Federal Trade Commission (FTC) Green Guides. First published in 1992 (the guides were updated and revised in 1996, 1998, and 2012), the Guides provide guidance on ways to properly structure many specific environmental claims so that they are not deemed misleading to consumers under Section 5 of the FTC Act. The Green Guides provide guidance on 1) general principles that apply to all environmental marketing claims; 2) how consumers are likely to interpret particular claims; and 3) how marketers can substantiate and qualify their claims to avoid deceiving consumers.

While “natural” claims are not specifically addressed by the Green Guides, the FTC has made clear it will vigorously pursue businesses that do not substantiate such claims, as it did when it took enforcement action against four companies for misrepresenting their products as “All-Natural” or “100% Natural” when they contained man-made ingredients. In a response to a submitted comment on the proposed orders settling those actions, the FTC rejected the suggestion that the term “natural” means the same thing as “all natural,” but the agency also stated:

…the order protects consumers by prohibiting “natural” and other composition claims unless they are true and not misleading. For example, if an advertisement states that a product is “natural,” and if reasonable consumers would interpret that advertisement as a whole to imply that the product is “all natural,” this claim would violate the order unless it is true and not misleading.

Certain claims, such as “organic,” “all-natural,” and “x-chemical-free” resonate with consumers seeking products that they think might be healthier or better for the environment. Generally, claims that are material to a consumer’s decision to buy a product – including environmental claims – must be supported by competent and reliable evidence and qualified to the extent necessary. As FTC enforcement actions and court and self-regulatory challenges illustrate, regulators, competitors, and class action lawyers are taking aim at green claims, and advertisers are well-advised to take note.

Sheila Millar and Boaz Green Author Law360 Article “CPSC Is Shifting Toward Voluntary Standards”

By Sheila Millar and Boaz Green on February 7, 2019 Posted in Cybersecurity, Privacy, Product Safety

Sheila Millar and Boaz Green discuss CPSC’s activities in 2018 and give their predictions on possible agency actions in the coming year in the Law360 article “CPSC Is Shifting Toward Voluntary Standards” (Feb. 6). Law360 featured the article in its newsletter sections for Consumer Protection, Cybersecurity, and Product Safety. To read the full article, click here. For a pdf version of the article, click here.

Partner Sheila Millar is a frequent contributor to Law360 and an authority in consumer protection law, including product safety, privacy, data security, cybersecurity, and advertising matters. Before joining Keller & Heckman as Counsel, Boaz Green was Chief Counsel to Commissioner Marietta Robinson at the CPSC where he advised on rulemaking, policy, and other agency matters.

For more information, contact:
Sheila A. Millar at millar@khlaw.com or +1 202.434.4143
Boaz Green at green@khlaw.com or +1 202.434.4267.