The CPSC’s Latest Attempts to Expand Its Enforcement Authority

May 15, 2013

Updated on July 31, 2013

In the wake of 2007–the “year of the recall”–Congress passed the Consumer Product Safety Improvement Act (“CPSIA”), Pub. L. No. 110-314, in order to strengthen the Consumer Product Safety Commission (“CPSC”) and provide it with greater enforcement authority and new enforcement tools.[i]  Since that time, the CPSC has aggressively enforced its governing statute and regulations, repeatedly pushing the limits of its expanded authority. 

Rare Earth Magnets Lawsuits 

The latest example of the CPSC’s new aggressive approach is the series of lawsuits it has filed against manufacturers of rare earth magnets, like Buckyballs and Zen Magnets.

These sets of novelty magnet spheres are a “toy” for adults.  In the past, the manufacturer of Buckyballs had cooperated with the CPSC in an effort to ensure that the product’s warning labels adequately apprised consumers of the need to keep the magnets away from children in order to prevent the types of injuries that could result if children swallowed the magnets.  In fact, the manufacturer required its resellers not to sell Buckyballs in the children’s toys section of their stores, and the manufacturer repeatedly enforced that requirement by terminating resellers’ contracts.  In 2012, the CPSC abruptly abandoned this approach, despite the fact that more than a billion such magnets had already been sold and there were only 24 reported incidents of children swallowing Buckyballs.[ii]  The CPSC initiated a mandatory recall–a relatively rare measure–and even though the administrative law judge has yet to rule on the merits of the recall,[iii] the manufacturer is already out of business.[iv]

After filing suit against Buckyballs’ manufacturer, the CPSC instituted involuntary recall proceedings against Zen Magnets LLC, the maker of another rare earth magnet “toy” for adults.[v]  The CPSC filed this complaint notwithstanding the fact that Zen Magnets LLC had no record of injuries.[vi]  This appears to be the first time that the CPSC has instituted involuntary recall proceedings against a company for a product with no record of injury.[vii]  Shortly after filing suit against Zen Magnets LLC, the CPSC also instituted involuntary recall proceedings against Star Networks–the manufacturer of Magnicube Magnet Balls and Magnet Cubes–based on its general concerns with these types of magnets.[viii]  Both Zen Magnets LLC and Star Networks USA continue to sell their products.[ix]

On May 3, an administrative law judge granted the CPSC’s request to add the former CEO of Buckyballs’ manufacturer to the lawsuit.[x]  For the first time, the CPSC is pursuing individual and personal liability against an executive for a company’s alleged violations of the Consumer Product Safety Act.  Although it remains to be seen whether the CPSC will adopt this approach in other cases, at minimum, this demonstrates just how far the CPSC is willing to push the envelope.

Compliance Requirements

Kolcraft Enterprises, Inc., and Williams-Sonoma have both recently entered into settlements with the CPSC to resolve allegations that they failed to report product hazards, as the CPSC’s governing statutes and regulations require.  In both settlements, the CPSC has imposed specific product safety compliance procedures on the companies.[xi]  In the past, the CPSC has not required that companies settling such allegations adopt specific policies and procedures.  It is likely that the CPSC will continue this trend in future settlements.[xii]

Recent Policy Change Regarding Information Disclosure

At an agency event in September 2012, the CPSC announced that they would begin confirming that product investigations are pending when they receive inquiries from the media or consumers.[xiii]  The CPSC has suggested that it may also disclose investigations without receiving any inquiries.  Typically, the CPSC will disclose merely the fact that an investigation is underway and will also do so only after alerting the manufacturer that the CPSC may make such a disclosure in the future.[xiv]

Because this policy change was not announced in a Federal Register notice, there remains a great deal of confusion about what “investigations” the new policy covers.  The new policy was announced during a discussion of manufacturers’ Section 15(b) reports, and the CPSC specifically announced that manufacturers would be forewarned of potential disclosures in the CPSC’s response to their Section 15(b) reports.[xv]  However, representatives of the CPSC have since made statements that suggest CPSC-initiated investigations may also be disclosed to the public.[xvi] 

Saferproducts.gov Database

The CPSIA called for the creation of a publicly available, searchable Internet database for consumer reports.  To prevent the publication of false and misleading incident reports, the statute requires that reports meet minimum requirements and provides manufacturers with the right to receive timely notice of a report prior to publication, as well as the right to file material inaccurate information or confidential information claims before the report is published.[xvii]  Despite these requirements, critics of the database feared that the database would be a repository for unreliable information that would harm businesses and confuse consumers.[xviii]  Even in the face of these concerns, the database went live on March 11, 2011, and to date, more than 14,500 incident reports have been published.[xix]

Gibson Dunn represents “Company Doe” in the first successful legal challenge to a CPSC decision involving saferproducts.gov.[xx]  The CPSC filed an appeal of the decision but withdrew the appeal before briefs were due;[xxi] the company is continuing to defend an appeal brought by third parties challenging the district court’s order sealing certain litigation documents and permitting the use of the pseudonym “Company Doe.”[xxii]

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.