Enforcement Update: U.S. and Canadian Developments Georgia C. Ravitz, Esq., Partner Arent Fox LLP Washington, DC | New York, NY | Los Angeles, CA

2 Enforcement Focus: Update on U.S. Developments

3  Historically, the Commission considered the following factors in determining the amount of a civil penalty (and will continue to do so):  Nature of the product defect;  Severity of the risk of injury;  Occurrence or absence of injury;  Number of defective products distributed; and  Appropriateness of such penalty in relation to the size of the business of the person charged.  The CPSIA authorized the Commission to also consider how to mitigate undue adverse economic impacts on small businesses and other factors as appropriate.

4  September 1, 2009: CPSC published an Interim Final Interpretative Rule on Civil Penalty Factors to provide immediate guidance to industry and to offer a comment period prior to issuing a final rule.  Depending on the situation, CPSC may consider the following additional factors in determining an appropriate penalty amount: –Whether the violator had a safety/compliance program or system in place at the time of the violation; –History of noncompliance; –Economic gain from noncompliance; and/or –Failure of the violator to respond in a timely and complete fashion to the Commission’s requests for information or remedial action.  Both the Commission and the violator may raise any other factors they believe are relevant in determining an appropriate penalty amount.

5  Do penalties require companies to have actual knowledge?  No. The CPSA defines “knowingly” as actual knowledge or presumed knowledge attributed to a reasonable person acting in the circumstances.

 CPSC Enforcement Activities Have Increased over Past Year  CPSC is accelerating its penalty enforcement process. –Example: A company recently received a pre-penalty notice alleging a failure to file a timely report only two months after announcing and implementing a recall. In the past, penalty cases would typically be issued after a recall was concluded.  CPSC is accelerating its recall verification process. –Example: A company recently received notice that a CPSC field investigator would conduct an on-site audit of recall effectiveness and verification of recordkeeping within the first month of the recall. 6

7 Penalties Increased Under Section 217 of the CPSIA  Civil Penalties: Increased from $8,000 to $100,000 per violation and from $1,825,000 to $15,000,000 for series of violations.  Increased penalty amounts took effect on August 14, 2009; Likely only applies to violations that occur after that date.  CPSC is required to issue a final regulation providing its interpretation of the statutory civil penalty factors to be considered in determining the amount of a penalty.  Criminal Violations: Increased imprisonment terms from 1 to 5 years for knowing and willful violation; increased maximum fines from $50,000 to an amount to be determined pursuant to factors specified in 18 USC 3571; and, authorizes forfeiture of assets.

8 Enforcement Focus: New, Additional Specific Prohibitions Under the CPSIA

9  Selling, distributing, manufacturing, or importing a product subject to a voluntary or CPSC-ordered recall or a “banned hazardous substance” as defined in the Federal Hazardous Substances Act.

10  Failing to issue a General Conformity Certificate (GCC) or to furnish a GCC to each distributor or retailer of the product or, upon request, to the Commission (if not currently stayed).  Furnishing a false GCC if the person, when exercising due care, has reason to know that the GCC is false or misleading.

11  Failing to affix tracking labels to a children’s product (effective August 14, 2009).  This applies to all “children’s products”, not just toys.

12  Selling, distributing, or importing any consumer product containing an unauthorized third party certification mark.  Example: Affixing a “UL” certification mark where UL certification was not obtained.

13  Misrepresenting to Commission officers or employees about the scope of consumer products subject to a recall or making a material misrepresentation during a CPSC investigation.  Important: CPSC is becoming more vigilant about verification of representations made by companies in recalls and other CPSC matters.

14  Exercising, or attempting to exercise, undue influence on a 3 rd party conformity assessment body with respect to the testing, or the reporting of test results, for children’s products.

15  Exporting from the U.S. for purposes of sale any product that is subject to a voluntary or court- or CPSC-ordered recall or that is banned under the FHSA.  Permission to export is required for any recalled product, and must be obtained from CPSC prior to making export arrangements.  CPSC has recently designated an address for companies involved in recalls to request exportation or other disposition of recalled products.  CPSC may refuse to permit exportation in some cases, or if foreign country refuses to allow re-importation.

16 Enforcement Focus: Bill C-6 – Canadian Consumer Product Safety Act

 Biggest impact of proposed Canadian legislation  Imposes an affirmative obligation on manufacturers and importers to report to Health Canada within 10 days after becoming aware of an incident or defect that resulted, or could result, in a death or serious injury.  A general prohibition against the manufacture, importation, advertisement, or sale of consumer products that pose an unreasonable danger to human health or safety.  Legislation covers the manufacture of consumer products, not just the sale and importation.  Ministerial orders for test and study results – Requires manufacturers or importers to provide information on products requested by the government.

 Biggest Impact of proposed Canadian legislation  Packaging and labeling – Provides prohibition on deceptive and misleading labeling or advertising as it relates to health or safety.  Document retention requirements that facilitate product tracing throughout the supply chain.  Authority for inspectors and government to order corrective action, including a recall.  Increased fines and penalties (e.g., CAD$250,000 (approx. US $240,000) and/or prison sentence of 6 months for 1 st offence and CAD$500,000 (approx. US $480,000) and/or prison sentence of 18 months for subsequent offense on summary conviction)

 Definition of “danger to human health or safety” been changed to read “any unreasonable hazard – existing or potential – that is posed by a consumer product during or as a result of its normal or foreseeable use…and that may reasonably be expected to have an adverse effect on that individual’s health – including an injury…

 What type of incidents will industry have to report under the new proposed legislation?  Any occurrence that resulted or could reasonably be expected to have resulted in death or serious adverse health effects;  Any defect or characteristic that may reasonably be expected to result in death or serious adverse health effects;  Inadequate labeling or instructions with such results; or  Recall order or other corrective measures initiated for human health or safety reasons elsewhere (including outside of Canada).

21  February 17, 2010 recall of Quercetti™ “Fanta Color Junior” toy by Pierre Belvedere  Hazard: Health Canada testing determined that the product contains small components.  February 12, 2010 recall of Vancouver- themed decorative glazed ceramic wall plates  Hazard: Health Canada’s sampling and evaluation program revealed excessive lead and cadmium used in the glaze.

22 Enforcement Update: When International Product Standards Differ

 While U.S./Canadian statutory frameworks harmonize intent, problems occur because they have not harmonized the standards.  What’s a company to do?  Follow Best Practices  Global consumer product company should design its products to meet the most stringent, mandatory safety standards that apply wherever their products are sold.  This means that products must be designed with these requirements in mind, as retrofitting may not be possible.

 What could happen if different standards not followed for each jurisdiction the product is marketed in?  Recall in one country but not another (e.g., hairdryers, certain toys) but information about corrective action in one jurisdiction may be reportable to another  Additionally, there may be product liability implications if a standard is followed in one location but not in another.

25 LeadPhthalates U.S.Surface coatings: 90 ppm Substrates: 300 ppm 1000 ppm for 6 specified phthalates CanadaSurface coatings: 600 ppm Proposed: 90 ppm for toys for children under 3 and certain items designed to go into the mouth; 600 ppm total and 90 ppm migratable for all other toys No current restrictions Proposed: Limit of 1000 ppm for 6 specified phthalates in soft vinyl children’s toys and child care articles

26  Hairdryers  U.S. requires an immersion protection device to protect against potential electrocution if the product is dropped in water.  Canada does not require this device.