CPSIA – Answers to Supplemental House Questions (Hearing of Feb. 17th)

This is my Response for the Record to questions posed by Rep. Mike Pompeo after the February 17th hearing held by the Subcommittee on Commerce, Manufacturing and Trade:

February 17, 2011
Commerce, Manufacturing, and Trade Subcommittee:
“A Review of CPSIA and CPSC Resources”

Congressman Mike Pompeo

1. Did your company have to buy a copy of the F-963 standard? Why? How much did that cost?

Our company has purchased several copies of ASTM F963 over the years. According to the ASTM International website (http://www.astm.org/Standards/F963.htm), the current cost of F963 is $62, or $74 (redline version). [This means that the ASTM literally charges companies EXTRA to figure out what changed in this legally-mandated standard.] To my knowledge, this standard is only available from the ASTM. Ironically, even the CPSC is unable to provide access to this document (as acknowledged in this CPSC Powerpoint presentation http://www.cpsc.gov/BUSINFO/intl/toyweb2_en.pdf) which casts doubt on its ability to guide companies attempting to comply with the law. The lack of access and cost of access to this standard certainly makes compliance burdensome for small businesses.

The F963 standard has been updated regularly over the years, and we need to have access to the current version of the standard at all times. Until the CPSIA was enacted, the F963 standard was the tacit equivalent of a mandatory standard because the toy industry adopted it as a “voluntary” standard with the encouragement of the CPSC. At one time, voluntary standards were the preferred way the agency regulated many industries, including our industry. We have always used the F963 standard as a reference in product development and safety administration and frequently tested for compliance with the standard.

2. You’ve been dealing with all of the agency’s rules for the last few years. By my reckoning, an entrepreneur with, say, a good idea for a board game would have to pay to buy a copy of F-963 from ASTM (not a small price to pay for some small or start-up toymakers). Then, because the standard is literally dozens of pages long of densely spaced text, he’d have to hire a lawyer to tell which parts of the standard apply to his product. Then, he’d have to find a third-party test lab to test and certify a random sample of his actual production line for compliance with all of the F-963 requirements. And, if any product fails, you are basically back to the drawing board. And, of course, he’d have to do all this before ever selling a single toy. Do you think the next board game entrepreneur (e.g., Trivial Pursuit) might have a hard time getting off the ground under this regime? Has this agency effectively killed entrepreneurship in the toy market? Does a start-up company stand any chance of being able to navigate the CPSC’s new rules and regulations on its own?

The CPSIA has had the effective of creating new barriers of entry in the children’s product market, once one of America’s most entrepreneurial industries. The burdens are heavy in the toy industry but even worse in related industries like juvenile products. Large companies with steady cash flow enjoy considerable and valuable advantages over entrepreneurs who must put large sums of money at risk in their initial investment in compliance costs before receiving their first dollar of revenue. The effect of the CPSIA is one of picking winners and losers in affected markets. I question whether this is the appropriate role of the federal government in our markets.

We believe that these heavy costs will discourage investment in new products, by new entrants, by existing players and especially by small businesses. Recently, at the CPSC’s hearing on the looming 100 ppm lead standard, representatives of the bicycle industry noted that in the wake of the 300 ppm lead standard, many small bicycle manufacturers have already left the market and large companies cut their product lines considerably. I have long predicted a reduction in product diversity as a necessary consequence of the CPSIA. Other evidence of market contraction exists, as well. At this year’s ICPHSO, CPSC Acting Director of the Office of Compliance and Field Operations Robert (“Jay”) Howell noted the CPSC’s challenge in identifying a test lab that has or will agree to equip itself as a certified test lab for ATVs. Why? So many ATV manufacturers have stopped producing youth model ATVs under the effective ban by the CPSIA’s lead standards that testing labs can’t justify the capital investment to provide CPSIA compliance testing. Product diversity is declining all over the children’s product market.

Toymakers will experience the same depressing effect and yes, that means that the next Trivial Pursuit inventor may be washed out. We may never know because the absence of a new toy or novel game will be hard to detect in the ad-driven, promotional toy market. It is clear, however, that entrepreneurs are free to deploy their capital wherever they want – they are seeking returns on their capital – so the combination of high CPSIA compliance costs, high regulatory risk, high legal costs and a generally hostile regulatory environment seems unlikely to attract new entrants to the toy market. War stories will also discourage new entrants – the well-known experience of toymakers who have suffered under this regulatory regime.

As a practical matter, the rules and regulations put out by the CPSC to implement the CPSIA for toys are incomprehensible, not to mention incomplete. We are now 31 months into the CPSIA era, yet the CPSC has yet to promulgate a final phthalate standard or certify even one phthalates testing lab. EACH and EVERY toy must be “phthalate-free” but the CPSC has yet to tell us how to know it has achieved this goal. This means we are subject to the risk that they will invalidate all the work we have done since 2008. While this regulatory delay is simply outrageous, it is more likely proof of the defects in the CPSIA than a sign of failure by the CPSC. Even the largest companies have complained to the CPSC about the blizzard of rules and interpretations. One of great frustrations in attempting to comply with the new rules is that many CPSC legal interpretations have been given in private letters, orally in speeches or even in the form of voicemails. Access to such information may be critical but is obviously inaccessible to anyone not obsessively watching every minute of every video, reading every letter, attending every meeting or hearing and talking to every stakeholder in an attempt to master the breadth of this ever-morphing regulatory scheme.

3. Does the existence of a small business ombudsman at the agency solve the compliance problem?

The office of the Small Business Ombudsman serves a useful purpose as a friendly point of contact and possible advocate for small business within the agency. That said, there is no evidence that the office has power to make decisions, change policy or offer its own definitive interpretation of rules. For small businesses totally at a loss, the ombudsman is a good place to turn to for plain English answers to basic questions about rules. Notably, the office is not permitted to make decisions on behalf of the agency. The Ombudsman does not have the authority to make problems “go away”. For this reason, the ombudsman function appears to be the regulatory equivalent of a shoulder to cry on. The current ombudsman, Neil Cohen, has been a good friend to the small business community, but unfortunately, he doesn’t write the rules.

4. What problems do you anticipate occurring as a result of the public database?

We know that the public database will be administered on a post-it-and-forget-it basis. Based on our dealings with the agency, I believe that the agency will post all incidents unless a mistaken identity can be proven. As a consequence, we anticipate that the database will be allowed to be filled up with “incidents” that are conjectural, misleading or even proven WRONG. In the first and only filing against our company, an anonymous complaint accused one of our products of posing a small parts hazard. That accusation was based on an image viewed on a website – there is no indication that the filer had ever handled our product. Consequently, the filer had no reasonable basis for the small parts claim. As a matter of fact, we routinely test for small parts and have done so for years, and when we presented a valid CPSIA test report under F963 (and EN71, the European standard), we were told by the General Counsel of the CPSC that the claim would nevertheless be eligible to be published under current rules. Thus, we KNOW that the false and misleading filings will KNOWINGLY be published by the CPSC even if PROVEN false. We believe this flagrantly violates our basic right to due process and creates the potential for damaging “feeding frenzies” that can consume our products and brands.

Other claims may relate to “hazards” which affect a wide swath of products already well-known by regulators and industry. This presents many risks to industry and to brands. What will a consumer make of a “report of harm” relating to a general hazard and only one particular product? Is this a minor incident or a harbinger of a real risk? Should they stop using the product? Should they stop using the particular model or brand which is subject of the complaint? Given that many products may present the same hazard (for instance, that an electrical cord could pose a strangulation hazard), how does this information help consumers? Will consumers actually understand the issue and be able to put it into some sort of perspective? And when incidents accumulate, as they are likely to do, presumably the brands and models with the largest numbers in distribution will have more incidents even though, ironically, they may be better constructed and “safer” than the alternatives. Will consumers falsely conclude that the models with more incidents are less safe and turn to something that really is?

Responding to this type of complaint obviously creates a new and terrible dilemma for manufacturers. Should they expend resources to respond? Do they need to lay out “a brief” about the nature of the failure and why their product is named? Will people just view whatever they say as unreliable, self-serving information or will they really be able to internalize the data? As noted above, most people will not be able to put these incidents in any kind of perspective. The only thing we know for certain is that brands and companies will be the losers.

The public portrayal of the database belies the unverified nature of the filings. Notwithstanding the disclaimers made by the agency, even esteemed media outlets like The New York Times refer to the database as a “database of unsafe products”. Unsafe? That label presumes some kind of judgment or filter prior to filing, which even The New York Times must assume is being provided by the CPSC. Ironically, the CPSC is doing everything possible to avoid providing that service. The result may be disastrous for American manufacturers, importers, private labelers and retailers of children’s products. It will be yet another self-inflicted economic injury.

5. What can Congress do to return the agency to one that regulates on the basis of risk?

Congress should mandate that the CPSC use principles of risk assessment to make all decisions relating to regulation of children’s products. The legislatively-mandated use of judgment and proportionality will likely lead to better rulemaking and more regulatory common sense. It is the legislative banishing of the exercise of judgment that led to the devastation of the bicycle industry, the elimination of youth model ATVs from the market (even though those products owe their very existence to a concerted effort by the CPSC to protect children from injury on adult-sized ATVs), the banning of all products made of brass, the senseless and almost neurotic banning of rhinestones as embellishments on children’s clothing, shoes and jewelry, and so on. NONE of these changes in rules have been tied to even ONE avoided injury.

Congress should also mandate the use of principles of cost-benefit analysis by the agency in its rulemaking processes. Under the CPSIA, all considerations of economics have flown out the window with predictably disastrous results. We can operate our government better according to basic common sense notions of cost-benefit analysis.

Read more here:
CPSIA – Answers to Supplemental House Questions (Hearing of Feb. 17th)

CPSIA – Waxman Amendment, Tenenbaum and “Openness”

Everyone knows that the CPSC under Chairman Inez Tenenbaum is all about openness and transparency, right? She told us about her closely held principles of open government again and again. [If there is any doubt, see below for her many public statements on this topic. I probably missed more than a few, too – please forgive me.] Apparently, this is part of her plan to restore confidence in the CPSC.

Let’s not obsess over her vote with the self-proclaimed “Prince of Darkness”, Commissioner Bob Adler, to prevent a public discussion by the five CPSC Commissioners of the controversial January 15 report to Congress. I am sure she was really trying to be open, but I must be too dumb to understand it.

And then there is the Waxman Amendment 2.0. The anti-business sleight of hand in the pending law has been much discussed in this space. The Waxman Amendment is quite provocative. Many groups have submitted comments to Waxman’s staff, as well as two Commissioners (Nord and Northup). Or is it four Commissioners?

I have reported that Tenenbaum and Adler submitted joint comments on the Waxman Amendment. Their letter was apparently not signed. The only place you can find it, to my knowledge, is in my blog. I believe that senior CPSC officials who asked Ms. Tenenbaum’s office for a copy of it were REFUSED. Is that “open” and “transparent”? You be the judge. By the way, you weren’t supposed to see it, either.

I am told Ms. Tenenbaum previously submitted a secret list to Waxman of 20 changes she wanted in the law, but this document never surfaced. On March 23, I submitted a Freedom of Information Act request to disclose this and other documents relating to these Commissioners’ interactions with Congress on this bill and finally received an acknowledgement from the CPSC on April 1. No joke. Yet I have not received any documents to date. The Tenenbaum and Adler letter is still a thing of mystery.

And now I understand that in response to press inquiries about the mystery comment letter, the CPSC is admitting the authorship of the two Democrats. No explanation is being given for the secrecy, nor for its absence from the CPSC website.

How very transparent. Is this building your confidence in fairness and openness at the CPSC? Perhaps this is the new Washington Mr. Obama is installing. No more business as usual!

Mr. Nixon would be so proud. I wonder if there is an enemies list, too. . . .

In chronological order, the remarks of Ms. Tenenbaum on transparency and openness (emphasis added):

[I particularly like nos. 6 and 12, btw.]

1. [This one is from the agency itself, but it's a good warm-up.] U.S. CONSUMER PRODUCT SAFETY COMMISSION INFORMATION QUALITY GUIDELINES :

“CPSC also achieves transparency through wide dissemination of its information. Most reports and other data products are available both as printed and electronic documents. They are announced on the CPSC web site and most electronic versions can be accessed and downloaded directly from the web site.”

2. Inez Tenenbaum Sworn In As New Chairman of U.S. Consumer Product Safety Commission, July 9, 2009:

“Ms. Tenenbaum identified three major areas of focus for her common sense approach to serving as Chairman. ‘First, I want CPSC to be more accessible and transparent to parents and consumers. By creating an electronic database of product incident reports that consumers can search and by collaborating with state and local agencies and consumer groups, we can give the public confidence that CPSC is working openly and in their best interest,’ she stated.”

3. Testimony of Inez M. Tenenbaum Committee on Commerce, Science and Transportation United States Senate, June 16, 2009:

“Consistent with the President Obama’s approach to governance, if confirmed as Chairman, I will ensure that the Commission is operated in an open, transparent, and collaborative way and in a manner worthy of the American people. . . . If confirmed, I commit to you that under my leadership the Commission will operate in an open, fair, and evenhanded manner and will invite participation by the public, consumer advocacy organizations, and industry.”

4. Remarks of Chairman Inez Tenenbaum at APEC Regulator Dialogue on Toy Safety, August 1, 2009:

“Enforcement is actually one of my three top priorities as Chairman, along with government transparency and consumer education and advocacy.”

5. Statement of Inez Tenenbaum Chairman U.S. Consumer Product Safety Commission Before the Subcommittee on Commerce, Trade, and Consumer Protection “The Consumer Product Safety Commission: Current Issues and a Vision for the Future”, September 10, 2009:

“In my first two months leading the CPSC, I have focused on three key goals: transparency and openness to those we serve; a renewed focus on education and advocacy to all American consumers; and fair, but firm enforcement of the product safety laws we oversee.”

6. Chairman’s Welcome for CPSC 2.0 Press Releases # 09-346, September 22, 2009 (transcript):

“Hello, I’m Inez Tenenbaum, Chairman of the Consumer Product Safety Commission. In my first hours as Chairman, I spoke frankly to families and consumers across the country. I said that as the leader of this important safety agency, I was committed to creating an open and transparent CPSC. We have kept our word.“

7. Chairman Tenenbaum’s Speech at AHAM’s Product Safety and Liability Conference, Washington, DC, October 12, 2009:

“I have said this previously and I want to be clear with all of you – I support the creation of the database, as I believe it furthers the vision of creating a more transparent CPSC and a more informed consuming public.”

8. Chairman Inez Tenenbaum’s Keynote Address, 3rd CPSC-AQSIQ Safety Summit, Wuxi, China, October 21, 2009:

“The spirit of cooperation and dialogue with which we are opening this Summit reflects the philosophy that I have as a regulator. I embrace open government, information sharing with all stakeholders, and a commitment to finding mutual interests.”

9. Chairman Inez Tenenbaum, Keynote Address, ICPHSO/International Cooperation on Product Safety, Toronto, Canada, October 28, 2009:

“With the passage of CPSIA, the proposed product safety legislation introduced here in Canada, , it is more important than ever for industry, consumer groups, and government to work together. We must assure that there is a transparent and fair handling of the vast responsibilities we are being given. Serving as the Chairman of the Consumer Product Safety Commission puts me in a position to oversee a reshaping of consumer product safety issues affecting the global community, and I take my responsibilities seriously.”

10. CPSC Chairman Inez M. Tenenbaum Keynote Address via Video Recording, APEC Toy Safety Initiative Open Dialogue on Toy Safety, January 12, 2010 – Hong Kong:

“I am as committed to transparency as I am to enforcement and as we go forward, I hope all of you will work closely with us through our comments process and open proceedings. It is essential that we find common ground through dialogue on ‘building safety into toys and children’s products.’”

11. CPSC Chairman Inez M. Tenenbaum TIA International Toy Fair, February 15, 2010 – New York:

“I am as committed to transparency as I am to enforcement and as we go forward, I hope all of you will work closely with us through our comments process and open proceedings.”

12. Chairman Tenenbaum ICPHSO Keynote Address, February 17, 2010 – Washington, DC:

“As many of you have heard me say before, I am a believer in open government. It is integral to the Administration’s efforts to change the culture in Washington, and I believe it is integral to changing perceptions of the CPSC. Over these past months, I have made the Commission as accessible to the public as any time in its history. At the same time, I have made myself accessible to both industry and consumer groups. I will continue to have an open door in the years ahead.”

13. Chairman Tenenbaum JPMA Summit Keynote Address, March 9, 2010 – Washington, DC:

“After a tumultuous 2007 and 2008, we made 2009 a year of change at CPSC:
• change that brought new staff and new thinking,
• change that brought new partners and a return to openness, and
• change that has brought renewed confidence to parents.”

14. Chairman Tenenbaum Consumer Federation of America Keynote Address, March 11, 2010 – Washington, DC:

“After a tumultuous 2007 and 2008, we made 2009 a year of change at CPSC:
• change that took us from having only 385 employees in 2008 to having more than 500 in 2010 – and we are still hiring – our goal is to reach 530,
• change that brought new powers and a return to openness . . . .”

15. Chairman Tenenbaum AAFA Executive Summit, Friday, March 12, 2010 – Washington, DC:

“After a tumultuous 2007 and 2008 – we made 2009 a year of change at CPSC:
• change that brought new staff and new thinking as we grow from 385 employees in 2008 to 530 by the end of this year,
• change that brought new partners and a return to openness . . . .

Over these past months, I have made the Commission as accessible to the public as any time in its history. Our public meetings are online – you can watch our Commission meetings every Wednesday morning, — we have hosted public workshops to collect input from the public on major issues and our staff members are presenting useful information to groups like this around the country. At the same time, I have made myself accessible to associations like AAFA and to consumer groups. I will continue to have an open door in the years ahead.”

Read more here:
CPSIA – Waxman Amendment, Tenenbaum and “Openness”

CPSIA – Tenenbaum/Adler Comments Revealed

A little birdie dropped off what are purportedly the comments of Chairman Inez Tenenbaum and Commissioner Bob Adler on the Waxman Amendment. This is one interesting document. First of all, it’s quite secret (but not anymore). You can’t find it on the CPSC website. Other members of the CPSC community haven’t seen it and have been refused a copy. It also doesn’t have Tenenbaum’s or Adler’s name on it so it has appropriate deniability. Oddly, it speaks in sentence fragments. Hmmm. In an era of greater “transparency”, this secrecy is something of a shock. Perhaps the Prince of Darkness is at work here.

Among the “highlights”:

• The comments recommend incorporation in the legislative report of the consumer group belief system assertion that there is no safe level of lead. If enacted, this change would enable, if not instruct, the Commission to reason from this “principle” and presumably ban many safe products. The hypocrisy of this position (or its obliviousness) in light of the permitted lead in our air, water and food is part and parcel of the CPSIA.
• The suggested report language clarifying the “no measurable adverse effect on public health and safety” will perpetuate the exemption morass confronting the Commission and regulated community. The comments state explicitly that anything that can be empirically measured will be impermissible, the exemption process will remain a hollow shell, a phantom provision. Why not just delete the exemption process and save everyone a lot of time, money and aggravation?
• Tenenbaum and Adler seem to miss the point that requiring a warning label for a product deemed safe is fatally inconsistent. Why warn for something determined to be safe in an exemption process? They ask for more discretion – to do what? What exactly is the risk here?
• The Commissioners note an openness to using a different term than “low volume manufacturer”, such as “small batch manufacturer”. This is apparently important to the HTA but seems to connote nothing of substance as both phrases are just terms or labels. I am stumped.
• The Commissioners basically go along with the definition of “low volume manufacturer”. As if to dispel any notion that they favor relief for small business, they note simply that the $200,000 revenue limit should be restricted to manufacturing or importing revenue. The fact that this revenue level is both absurdly low and that the provision itself is designed to be useless to almost everyone did not garner comment from Tenenbaum and Adler.
• Their comment about the need to “assure” compliance by LVMs confirms my reading of the Waxman Amendment that it is NOT designed to change testing requirements on small companies – they must ALL “assure” compliance through a reasonable testing program. The “assurance” will require third party testing. Here is the comment offered by Tenenbaum and Adler: “At this time, CPSC staff believe that reasonable testing methodologies meeting this criterion could be developed for only a few of the CPSIA testing requirements and that third party testing will still be required in many instances. However, this provision could provide greater relief in the future as new technologies develop that the agency may be able to recognize as capable of ensuring compliance through reasonable testing methodologies.” I guess LVMs can lump it . . . .
• The comments clarify that “imminently hazardous consumer products” incorporate the definition in Section 12 of the CPSA. Here is the definition from the CPSA: “[The] term ‘‘imminently hazardous consumer product’’ means a consumer product which presents imminent and unreasonable risk of death, serious illness, or severe personal injury.” The comments simply remove any reference to “being made aware of” – perhaps to avoid the implication that the CPSC has to act before it has “identified” the risk, whatever that may mean. Remember, current law requires going to court – the new language merely requires that the agency “identify” the risk. That’s quite a change – especially if you are on the receiving end. Think baby slings.

The comments by Tenenbaum and Adler did not comment on the perils of the “technical” provisions in the Waxman Amendment previously documented in this space. As I have noted, Rumorville has it that some or all of these changes appeared on a mysterious and secret document sent by Tenenbaum to the Hill with her 20 requests for changes to the CPSA and CPSIA. This secret document has not been revealed yet. It is therefore no surprise that her comments would endorse the approach of the Waxman Amendment (as in the foregoing tweaks). Perhaps Rumorville is right that these changes were made at her request or with her consent.

Consider the noxious changes to Section 6(b) of the CPSA – Tenenbaum and Adler apparently see nothing to comment on. Did you realize that the Waxman changes permit release of information based on a phone call? Say you make a Section 15 report, the CPSC does some interviews, creates internal documents, sends letters and emails back and forth to you – and a plaintiff’s attorney calls for disclosure of these confidential exchanges and papers. The CPSC may simply ask how quickly the lawyer needs them. Did you also know that this release can be done without notice or even the knowledge of the parties affected by the information release? Did you know that the new language even permits the CPSC to release information it knows to be FALSE? Due process doesn’t matter when you are protecting kids!

Can you believe that Tenenbaum and Adler had no comments on this terrible provision?

Or, how about the problems associated with damage to physical evidence subpoenaed by the CPSC which are also the subject of a civil suit? There is apparently substantial risk that this would be held against the defendant (you) under a principal called “spoliation of evidence“. What might happen? If the evidence is damaged, “[the] finder of fact can review all evidence uncovered in as strong a light as possible against the spoliator and in favor of the opposing party.” Ouch – that means you lose, big.

To judge by their comments, it appears that Tenenbaum and Adler don’t believe we deserve any procedural protections here.

It would appear that the “governing principle” demonstrated by yesterday’s passage of the health care bill applies here. There is little need for Democrats to try to build a consensus. They have control, so bipartisan support will only be achieved when those with opposing views capitulate or are outvoted. Brave New World, I feel so safe now. . . .

Very disappointing.

Read more here:
CPSIA – Tenenbaum/Adler Comments Revealed

CPSIA – What Constitutes "Safe"?

One of the tragedies of the CPSIA melodrama is that the consumer groups have completely hijacked the concept of safety, turning it utterly away from concepts of risk assessment. To what, you say? Away from management of identifiable risks to avoidance/elimination of perceived risks. In other words, Congress and our regulators now ignore the data on risk and focus instead on the possibility of risk. The POSSIBILITY of injury, not the actuality of injury.

How much of a difference is this? Pretty big, to judge by the frenzy over cadmium in jewelry. Seven Senators have sponsored a bill called the Safe Kids’ Jewelry Act. This law would ban the use of cadmium in kids’ jewelry. Is this “good”? I am not sure how to answer that. To my knowledge, no one has identified a single injury from cadmium in children’s jewelry. It is undeniable that cadmium is a bad element and has the potential to harm. Ergo, jewelry with cadmium is “bad”? I can imagine circumstances where cadmium in jewelry might hurt a child. Then again, if it were so dangerous, where are all the victims?

If this is going to be the new standard, whether a product MIGHT harm someone, I think we are cooked. Assuming that “prevention of possible injury” is to be used as the standard to evaluate products or components of products, let me ask a few questions to see if I understand the “new rules of the road”:

• How certain must the prospect of injury be?
• How specific must the circumstances of the prospective injury be?
• Are we talking about probable injury (more than 50%) or possible injury (odds greater than 0%)? How are those odds to be measured – by unit sold, by contact, by owner, by year, by lifetime use? What’s “reasonable”? [Does anyone care what's reasonable?]
• Are all things that could possibly injure a child now illegal on the same basis?
• If the answer is yes, when will all those other products be banned and/or recalled? Is equity in the treatment of all products “important”?
• If the answer is no, then where do we draw the line?
• How relevant is it that no injuries have been reported?
• How many incidents are required before we declare a product or substance illegal or recalled? How many newspaper articles, editorials or CEH lawsuits are required?
• What responsibility do we have to be consistent in the administration of these rules?

Consistency, that’s important, don’t you think? If cadmium is now tacitly illegal because it might harm a child, do we have to make everything with the possibility of injury to children illegal?

Presumably, since no injuries to children from cadmium has been reported and the Washington Post confirms that doctors do not perceive cadmium as a serious risk (perhaps because it was not prevalent in house paint or in gasoline, hmmm), then anything with the same level of prospective risk would be illegal. That’s more or less everything from water to chicken bones to lead to ruthenium. [Pardon me, ruthenium, one of the world's most expensive and dangerous elements, is a-okay to include in children's products.] Why then aren’t we closing swimming pools which cause more than 250 deaths each year? What about water – you can drown in two inches of water. No more showers?

Is there something special about cadmium, besides that it has appeared in an Associated Press article?

The mania over the prevention of possible injury has turned the business environment into a feeding frenzy that will drive the business community down, down, down. Is that in anyone’s interest? Will we all be safer if we have nothing to buy?

Please consider that the House Energy and Commerce Committee has today weighed in on the Toyota recall. Yes, the same Henry Waxman who is torturing our industry has now turned his talons and sharp teeth on Toyota. Toyota enjoys one of the finest reputations for quality and service in the world. It is renowned as a business leader – and proactively took strong medicine in its gas pedal recall. This is not enough for the venomous Democrats who hate businesses. They need to dig deeper and perhaps damage Toyota enough to help GM and Chrysler, owned by the U.S. government and unions. Bringing the great low, that’s the new American way of the Democrats. It makes me SICK.

I want to close with a note about cows – did you know that cows are killers, too? Yes, they are – the New York Times reports:

“The image of cows as placid, gentle creatures is a city slicker’s fantasy, judging from an article, published on Friday by the Centers for Disease Control and Prevention, reporting that about 20 people a year are killed by cows in the United States. In some cases, the cows actually attack humans — ramming them, knocking them down, goring them, trampling them and kicking them in the head — resulting in fatal injuries to the head and chest.”

COWS kill 20 people a year, cadmium has apparently killed ZERO. We are running pell-mell to ban cadmium from jewelry because a misguided newspaper article fueled panic. Are cows next? Should they be? If cadmium jewelry goes away and cows stay unregulated, will respect for our laws remain?

Respect for Congress, that’s another thing.

Read more here:
CPSIA – What Constitutes "Safe"?

CPSIA – Tracking Labels Answer Received Today

The CPSC answered my letter of September 18 regarding tracking labels today. In a nutshell, my question was about how small businesses are supposed to ascertain “cohort information” from fungible products if we are permitted to not use lot markings. The answer to that question was not clear (to me) from the Tracking Labels Guidance.

In today’s response, the CPSC seems to indicate more flexibility than I had read into the Guidance. Tony Cook of the Office of General Counsel states: “Your letter suggests that the manufacturer lacks flexibility regarding information that must be ‘ascertainable’. As with the ‘marking’ requirement, the manufacturer’s reasonable judgment and consideration of the manufacturer’s particular circumstances, are guiding issues.” He carries on helpfully: “Without such an approach, an absolute requirement to have ascertainable all required information would in effect swallow the Commission’s considered course with respect to marking.” This is the conflict that motivated my concern.

On the other hand, Mr. Cook states “. . . what can be marked and what can be ascertainable are separate questions”. This is the rub, of course. This means that even if you can’t mark the item, you might still have to be able to ascertain the cohort information. How do you do that? Well, you can’t.

It all boils down to what is considered “reasonable judgment”. In fact, I have never found this a challenging standard to meet in our business but that was before there were huge penalties and possibly jail time to consider.

In an environment where the regulators want us to exercise sound judgment, there needs to be some recognition that the incentive to take the risk of exercising judgment only makes sense when that judgment is PROTECTED. No one wants to risk huge fines for doing their job (or let their teammates incur this risk). Thus, I think the CPSC needs to look at the question about ascertainability again. The CPSC needs to say flat out that it will respect the judgment of manufacturers on how they determine which information, if any, can be ascertainable, as long as the decision on marking was deliberate, consistent and made on a good faith basis.

In the case of our business, tracking labels serve no particular purpose except to slow us down and waste our money. We have recalled 130 pieces since 1984 (out of an estimated one billion shipped, all units believed recovered) so the risk to consumers, at least thus far, seems controlled. I would like the authority to decide how much to spend on tracking labels and information retention/accessibility, based on my knowledge of our products, our market, our track record and our legal obligations. Then, if we exercise good faith and are reasonable and consistent in our approach to markings and cohort information, the CPSC should respect our decisions. thus, a failure to mark or ascertain would not be held against us unless our balancing of the equities is demonstrated to be unreasonable.

None of this would be necessary except for the ridiculous penalties and fines possible under the CPSIA. The indiscriminate manner of penalizing under the law makes minor issues (even inconsequential errors) into potentially serious problems. In addition, given that the CPSC recent practice of doling out penalties for long ago settled disputes, the long tail of 20-20 hindsight makes this dilemma particularly uncomfortable.

I appreciate the CPSC’s effort in replying to me, and look forward to working with them to bring more clarity to this very important point.

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CPSIA – Tracking Labels Answer Received Today

CPSIA – Missing the Point

I hate to beat a dead horse but something is amiss in the debate over safety policy in the community interested in the CPSIA debacle. As readers of this space know, Sean Oberle and I have engaged in a spirited exchange of views lately. In his latest short reference to me and my opinions, he criticizes my choice of words: “I stand by my criticism. I believe that certain words — visceral terms like terrorist, rapist, murderer — should be reserved for the actual perpetrators of heinous and brutal acts of violence. I believe that using them otherwise, no matter how justified the user’s anger, is inexcusable.”

I wanted it noted for the record that I have not used the terms “rapist” or “murderer” in this blog to my knowledge. “Terrorist”, certainly, but not those other terms.

Frankly, if I can dish it out, I have to be able to take it, so I have no problem with Sean having his own views on the subject of my diction. However, whether or not my words are offensive, the big issues in my blog do not relate to how I express myself. In this case, the issue I raised was the behavior of self-appointed public representatives (the consumer advocates) who wreak too much harm IMHO. To counter my clear argument with a continuing attack on my choice of words is to miss the point entirely.

I think the debate over safety and over the way we govern ourselves is just too important to be trivialized by arguments over whether I used a “bad” word. Let’s stick to the issues and try to resolve them. In this case, the consumer groups are misbehaving, seriously misbehaving. You have CEH turning in sandals for lead in the insoles, GoodGuide turning in Zhu Zhu Pets for failing an invalid test (and hyping an imaginary health risk that presents virtually no chance of causing harm to anyone), Illinois PIRG criticizing toys with lead levels above ZERO, and Kids in Danger promoting the notion that small companies are “the Trojan Horse” of big business and big chemical companies who are poised to swoop down and gut the law for their own benefit. The coordinated hype of these groups, irresponsible individually and collectively, is terrorizing the public, whether Sean Oberle likes the term or not. THAT’S the issue.

Feel free to ignore my words . . . but please heed my message.

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CPSIA – Missing the Point

CPSIA – Learning Resources Testifies About Internet Privacy

My associate Michelle Bougie was invited to testify at the November 19 hearing held by a joint session of subcommittees of the House Committee on Energy and Commerce on the subject of Internet privacy. In a re-run of last year’s feeding frenzy on toy safety, consumer groups are promoting paranoia about the collection and use of consumer data on the Internet. As a result of the building pressure to regulate the use of data both online and offline, the interests of small businesses are again threatened. Michelle gave insightful testimony on the current direct marketing practices online and offline and showed how legislation has the real potential to not only stunt the growth of the Internet (a huge job creator) but also to give a federally-sanctioned monopoly to large businesses over the availability and use of consumer data.

It is worth noting that Michelle’s testimony provides evidence that considerable infrastructure exists now – widely-adopted voluntary standards designed to protect consumer privacy and to make visible the practices of direct marketers. Michelle argues that the empowerment of consumers online makes these good practices a market necessity.

In fact, consumer data is rarely if ever sold (to my knowledge, we have never purchased it). Consumer data is RENTED for one-time uses typically and is not disclosed to the company renting the data. For instance, if we mail a catalog, we define the kind of names we want to rent, but never SEE them – they go directly to the mailing house and do not become our property. This makes perfect sense because the compiled lists are the intellectual property of the company that rents them out – and if they SOLD the names once, they could never sell them again. They would be out of business after one sale. Thus, we never get to see the names we rent. In fact, it is highly likely that we have rented many of the same names over and over for different mailings or email blasts. Privacy cannot be violated by uses that do not involve disclosure!

Michelle’s statement is found below (sorry, the audio is a bit tinny). Media coverage of the hearing highlighted Michelle’s testimony.

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CPSIA – Learning Resources Testifies About Internet Privacy

CPSIA – My Comment Letter on Civil Penalty Factors

October 1, 2009 Todd A. Stevenson Director, Office of the Secretary Room 502 U.S. Consumer Product Safety Commission 4330 East West Highway Bethesda, Maryland 20814 Re: Docket No. CPSC–2009–0068 Civil Penalty Factors Dear Mr. Stevenson: I am hereby submitting comments in response to the Solicitation of Comments on Civil Penalty Factors (.Docket No. CPSC–2009–0068) dated September 1, 2009 (the “Factors”). I have previously submitted comments on December 17, 2008 regarding Section 217(b)(2) Civil Penalty Criteria which are posted online at the CPSC website. The Civil Penalties Factors are Especially Significant for an Administrative Agency. Because the CPSC is an independent federal agency (15 U.S.C. §2053), enormous governmental power is held by the agency. As noted by some commentators, “[independent] agencies typically exercise all three constitutionally divided powers within a single bureaucratic body: That is, agencies legislate (a power vested solely in the legislature by the Constitution) through delegated rulemaking authority; investigate, execute, and enforce such rules (via the executive power these agencies are typically organized under); and apply, interpret, and enforce compliance with such rules (a power separately vested in the judicial branch).” [Footnotes omitted.] See http://en.wikipedia.org/wiki/Fourth_branch_of_government . With one agency standing essentially as judge, jury and legislature and with fewer checks-and-balances in place, penalties imposed by the CPSC under the Factors have the potential to be abusive. The unchecked authority to punish can be damaging to markets regulated by the CPSC. Problems arising out of self-oversight or a possible lack of due process can be anticipated, as well. Without placing clear limits on the CPSC’s authority or process to impose penalties, the agency’s enforcement activities may become economically depressing. The CPSC may believe that large penalties will simply spur the market to uphold its compliance responsibilities: “’These highly publicized toy recalls were among many that helped spur action last year to impose even stricter limits on lead paint on toys,’ said CPSC Chairman Inez Tenenbaum. ‘This penalty should remind importers and retailers that they have always had the same obligation to meet the strict lead limits as the manufacturers.’” [CPSC Press Release dated October 1, 2009.] While that effect will certainly be felt, other less positive impacts will also be generated. Applying the rule of “once burned, twice shy”, we anticipate that retailers will clamp down tightly on compliance, making the sale of low volume items unprofitable and triggering a Darwinian “survival of the fittest” selection in children’s markets. For instance, implementation of new compliance rules at Toys R Us make it difficult or near impossible for small businesses to sell through that retail outlet (16% market share in the U.S. toy market). In addition, other market participants may conclude that the CPSC is now enforcing a strict liability standard and just exit the market altogether, abandoning their customers. The effects will be both direct and indirect. Arbitrary results are already noticeable. Recent penalties announced for lead or lead-in-paint follow no apparent pattern, are “round numbers” and equate to per-unit penalties ranging between $.01 and $2.17 (July 7 press release). Likewise, recent penalties for drawstring violations have ranged as high as $10.63 per unit (and up to a breathtaking 60% of revenue), again without apparent pattern. These widely varying penalties appear to be arbitrary. A fear of arbitrary penalties is certain to depress markets by discouraging investment in new products or new markets. The penalty imposed on Target today in the amount of $600,000 provides another chilling example. The Target penalty is the equivalent of $1.10 per unit recalled. The October 2009 penalty applies to sales made between May 2006 and August 2007, and two of the three voluntary recalls resulted from Target’s unprompted, good faith self-reporting. The Settlement Agreement and Order even states: “Target’s quality assurance procedures were reasonable and satisfied the standard of care. Target’s knowledge when the subject products were imported and offered for sale was that they complied with the lead paint standard. Notwithstanding satisfactory pre-production test results, certain units were subsequently found to contain impermissible levels of lead paint.” [Emphasis added] Notably, no lead-in-paint injuries were reported from the Target sales. The agreement also indicates that Target had begun to implement a new multi-stage testing and quality assurance initiative BEFORE the recalled items were manufactured, further confirming Target’s good faith and absence of presumed knowledge. Yet the company was forced to pay a $600,000 penalty for this unfortunate and regrettable incident. I also understand that many (if not all) penalties were imposed without negotiation, exposing the violative companies to an extended, expensive, highly public and risky investigation (with possible referral to the Department of Justice) if the settlement agreements were not signed. The inherently coercive nature of such demands, with appeal a practical impossibility for all but the largest violators, makes the CPSC’s penalty determination essentially final and non-negotiable. The power of the CPSC to impose penalties needs to be restricted to assure that the threat of penalties will not adversely affect the operation of markets and to eliminate abuse. In the current proposal, the ability of the CPSC to impose penalties is for all practical purposes unfettered. This is neither necessary nor desirable. In Order to Preserve Flexibility, the Factors Fail to Discount ANY Possible Penalty Scenario. The Discussion has repeated instances where the agency declined to take a common sense position, ostensibly because circumstances exist where a penalty might possibly be merited. For instance, the Discussion states: “Some commenters stated that the Commission should reserve seeking penalties only for the most egregious and dangerous situations and that most violations do not involve bad intentions or ill will. . . . Since the knowledge requirements in the CPSA, FHSA, and FFA include presumed knowledge, as well as actual knowledge, the Commission declines to follow the commenters’ suggestion to seek a penalty only where there is evidence of bad intentions or ill will.” [Another similar formulation is found in the Discussion on Section 1119.4(a)(4).] I interpret this verbiage to mean that under circumstances where the conduct is NOT egregious (no ill will or bad intentions) and where the hazard is NOT dire, the Commission anticipates that circumstances may exist where a penalty may still be called for. This could occur, for instance, where the company is persistently in violation of law (perhaps because of inadequate operational controls) or had repeated recalls for the same violation. In my opinion, the right way to word the Factors would be to state that the absence of egregious conduct or substantial product hazard would be considered as a significant mitigating factor to be weighed against the presumed knowledge built into the “knowingly” definition (see below). This formulation would lend much greater clarity to the rules and Discussion set forth in the Factors. Unfortunately, if the CPSC wishes to preserve total flexibility, it will eventually act arbitrarily in setting penalties and hence unjustly. In the same vein, the Factors do not place enough emphasis on consideration of positive factors. While the bad behavior or failures of an offending company should be considered in setting penalties, so should mitigating factors without limitation. For instance, the long term record of compliance should be considered when a violation is up for penalty. The investment in good faith safety practices and supply chain management should mitigate against evidence of non-compliance. The consideration of mitigating factors needs to be explicitly added to the process to ensure that mitigation is part of every penalty deliberation. The Factors Fail to Recognize the Potential for Myriad Technical Violations of the CPSA, as amended. The Discussion states: “Two commenters suggested that the Commission should evaluate violations of regulatory standards by distinguishing those that do not involve actual risk of harm, but rather the potential risk of harm, differently than those that do involve real potential for significant injury. The Commission declines to accept the suggestion that it distinguish any violations of regulatory standards, rule, or bans in this manner. The promulgation of a mandatory regulation by the Commission, or by Congress when they enact statutory bans and standards, carries with it a corresponding determination that the standard is necessary to address an unreasonable risk of injury presented by the product included within its scope. Violations of such a statutory provision or Commission regulation presents a risk to consumers that has previously been determined to be addressed by compliance with the statute or regulation. If the commenters’ suggestion were followed, the Commission would be classifying certain mandatory standards as more important than others. In addition, the comment does not account for the fact that the Commission can seek penalties for other prohibited act violations (in addition to knowing violations of mandatory rules, standards or bans).” As noted above, the Factors seem to seek flexibility without acknowledging the common sense reality of the regulated community’s situation. Regulated companies certainly recognize and respect that the entirety of the law must be observed. Nevertheless, because the CPSIA imposes so many tiny, hyper-technical obligations that can be the cause of (multiple) violations, penalties for repeated technical violations is a realistic possibility for almost all companies. If, for instance, a company has 50 violations of the advertising rules because of missing warning labels in catalogs or on a website (out of 10,000 relevant catalog listings), should they be subject to penalty? In my opinion, the Factors should clearly set out that some kind of violations are IN FACT different in nature and that the presumption will be AGAINST penalties in such circumstances. This preserves the ability of the agency to seek penalties for technical violations if the rare circumstances arise that merit such action. Clear statements of a presumption against penalties for technical or other low risk violations avoids terrifying the regulated community with the implicit threat that every violation could be subject to heavy penalty. [Consider the value of this change on the current trend among resale shops to refuse children’s goods.] For regulated companies, this clarification will significantly raise comfort levels and thereby strengthen the healthy operation of the marketplace. The Definition of “Knowingly” Should Not Expand the Use of Penalties under the CPSIA. The definition of “knowingly” under Section 20 of the CPSA introduces yet another opportunity for penalty abuse by the agency and should be restrained in the Civil Penalties Factors guidance. Under Section 20 of the CPSA, a “knowing” violation of the law by someone other than a distributor, manufacturer or private labeler will not result in a penalty unless the offender had ACTUAL knowledge. However, for distributors, manufacturers or private labelers, the definition of “knowingly” includes imputed knowledge, allowing virtually unlimited 20-20 hindsight by the CPSC. The potential for penalty abuse is demonstrated by the penalties announced for lead-in-paint in July. In the publicly-released documents relating to the first nine cases, each offender was apparently forced to sign an agreement admitting a “knowing” violation of the law, despite the fact that the agreements do not document actual knowledge. It appears to me that the imputed reasonable man standard could be described as “woulda, coulda, shoulda” (also known as 20-20 hindsight). Under the imputed knowledge standard, virtually any presumed knowledge can be imputed, especially when determined ex parte as is the practice at the CPSC. In the case of lead-in-paint, all the CPSC needs to do is impute a failed test report to create the illusion of a “knowing” violation (a test that may or may not have been run, even if not legally required). Even a manufacturing error could be subject to a “knowing” violation on this basis (as in, a reasonable man would have controlled for that error). We believe that a lead-in-paint violation backed up with PASSING test reports could also be considered a “knowing” violation since a reasonable man would have (obviously) run a more careful test on the right units to reveal the problem. [Target was cited for a “[failure”] to take adequate action to ensure . . . .”] The opportunity to assess penalties based on imputed knowledge verges on a strict liability standard, which is NOT what the law imposes. If the CPSC wants to impose strict liability penalties, it should say so in plain language. The issue of how to administer the definition of “knowingly” is especially important in light of the mind-boggling array of possible violations under the law. I would direct your attention to the Discussion section of the Factors in which the prohibited acts are described. ONE example of the new scope of the prohibited acts is set out thus: “The new amendments expand the acts prohibited under the CPSA and give the Commission the ability to enforce violations of the FHSA and FFA as prohibited acts under the CPSA. Thus, the amended CPSA now prohibits the sale, offer for sale, distribution in commerce, or importation into the United States of any consumer product, or other product or substance that is regulated under the CPSA or any other Act enforced by the Commission, that is not in conformity with an applicable consumer product safety rule under the CPSA, or any similar rule, regulation, standard, or ban under any other Act enforced by the Commission. 15 U.S.C. 2068(a)(1). ” [Emphasis added] For perspective on the breadth of these requirements, please note that at the ICPHSO conference in February 2009, I asked in a public Q&A session for a list of these requirements and was instructed by a senior CPSC staff person (in front of an audience of several hundred people) to hire a lawyer. No list of these requirements exists to my knowledge. As a member of the regulated community, I fear imputed knowledge of an ever-changing and evolving set of rules, regulations, standards and laws that have not been listed clearly by the regulatory agency. The CPSC Commission has an obligation to issue clearer guidelines that sets out precisely how imputed knowledge penalties will be assessed. While the Commission may prefer to retain full authority and flexibility for all possible fact scenarios, the ultra-flexible guidelines may create new and unintended victims. The Definition of “Defect” Needs to be Reconsidered. In the Discussion section of the Factors, the distinction between a product defect and an act of non-compliance has been extinguished. This is very unfortunate and needs to be reversed. While non-compliance can be controlled (at least in theory), product defects cannot always be anticipated, even by appropriate risk management practices. Despite the holding of the Factors on this point, the CPSC is well-aware of this problem and has admitted that it is no better than the regulated community at anticipating the unknown and the unknowable. On May 12, at the CPSC Tracking Labels panel discussion (Second Panel video, beginning at 58:40), John “Gib” Mullan, Assistant Executive Director, Office of Compliance and Field Operations, made the following statement during Q&A: “It’s hard though to predict risk sometimes. I mean, we do this. We don’t always see it coming. If you’d asked me a couple years ago, how safe is that drywall in your house, I would have said, you know, really safe. Man, that’s all safe stuff! But right now we’re dealing with drywall in a big way and that’s something that’s a brand new thing.” This analysis by Mr. Mullan essentially concedes that product defects cannot be equated with non-compliance since compliance can be planned for but latent product defects cannot be easily anticipated. If the CPSC cannot foresee latent safety issues in familiar products like drywall, the regulated community cannot possibly be held to a higher standard. Presumably, if the CPSC intends to impose unrealistic standards on the regulated community by allowing penalties for product defects, the agency would accept sanctions for its failure to anticipate the drywall problem in Florida and Louisiana. Of course, drywall sanctions would not be fair to the agency, and equating unanticipated product defects with non-compliance under the Factors would be no less unfair. Given Mr. Mullan’s observation of the difficulty of anticipating certain product defects or product problems, it is hard to comprehend why the agency chose to allow consideration of the complexity of identifying a particular product hazard ONLY IF the business had filed in a timely fashion under Section 15. This is a remarkably inflexible position, given that a business is required to file “immediately” under Section 15(b) (interpreted to be 24 hour notice) if it “obtains information which reasonably supports the conclusion that such product . . . contains a defect which could create a [a product defect which (because of the pattern of defect, the number of defective products distributed in commerce, the severity of the risk, or otherwise) creates a substantial risk of injury to the public] . . . .” In other words, a business has only 24 hours to report information that reasonably supports the conclusion that a serious product defect exists. If the incident is a highly complex situation, it might be difficult or ill-advised to report that quickly (further research might be needed, among other things). Of course, due process reasons may underlie a failure to file in the 24-hour time window, too. For hidden or emerging hazards, this formulation of the Factors is tantamount to saying that NO extenuating circumstances will be considered to mitigate penalties for unanticipated, highly-complex hazards. If that’s the intention of the CPSC, I think the rule would state it directly so that the regulated community can familiarize itself with the policy. Small Business Impact Guidelines Are Too Vague. The guidance provided by the Factors on the appropriateness of penalties on small businesses is in this author’s opinion so vague as to permit and support any conceivable outcome. The Factors as written seem to express a view that only the size of a penalty will impact small business. I do not agree with this as penalties may have a greater indirect impact on the small business community. In my opinion, the intent of this provision is to ensure that a rational and clearly stated policy on penalties will be designed to encourage the continued investment of the small business community in children’s products. These indirect or collateral impacts can also be regarded as “undue” under the statute. Small businesses are the economy’s most vulnerable participants. They are the most likely Darwinian victim of any shake-out in the marketplace. The CPSC’s Civil Penalty Factors will form base expectations for small businesses and will certainly affect their decision-making. Small businesses, facing an incomprehensible blizzard of requirements under this ultra-complex law, can be anticipated to fail in substantial ways. [However, it does not follow that small businesses will fail their customers or endanger consumers in general or in greater proportion than large companies.] Small businesses recognize their disadvantage in this new highly complex legal environment and will look to the agency for clues on their likely treatment in the event of regulatory problems. The outpouring of small business protests over the CPSIA in the past two years is evidence of the real fear in this community. For this reason, the vagueness of the Factors in defining the exposure and limits on penalties will ITSELF depress the small business environment. If a small business has exhibited good faith and its non-compliance does not lead to injury or reasonably foreseeable exposure of the public to risk of injury, the Factors should indicate that there is a presumption against penalties . If a pattern of non-compliance emerges in a series of interactions with the CPSC (e.g., a company clearly is informed of its legal obligations but persists in violating the law), then perhaps penalties can be used to bring the company into compliance. The selective use of penalties makes the issue of protecting small business much easier to administer. Thus, a clear statement of presumptions in setting penalties for small businesses would go far in limiting the impact on this fragile community. Lack of Focus on the Purpose of Penalties Will Lead to Arbitrary Results. The Discussion in the Factors makes clear that the agency will not take into account the materiality of risk caused by violations or restrict its penalties to egregious conduct. In not restricting penalties in this way, the CPSC opens up all violations to possible assessment of penalties. By considering virtually unlimited options for penalties, the ability of the agency to administer rational, consistent and predictable imposition of penalties will greatly decline. As noted above, penalties assessed this year seem arbitrary. The consequence of arbitrariness could be quite damaging to the regulated markets. These consequences deserve deep consideration by the agency. Once doubt about the fairness, consistency or rationality of “justice” under the civil penalties provision creeps into the mindset of the marketplace, investment decisions will start to be made differently. Business people prefer stable and predictable returns on their investments. If they perceive random justice, fairly or not, in children’s product markets, businesses may choose to shift their investment elsewhere to obtain more certain returns, or take other measures to protect their limited capital (such as draining resources from the company, significantly reducing product development investment expenses or restricting other business innovations). A useful change in the Factors would be a formalized appeal process which can independently and efficiently consider the merits of objections to penalties. While an independent appeal process may have the effect of limiting the authority of the agency to assess penalties, this process will also build confidence in the fairness of the process and in the agency itself. In the long run, a closer relationship with industry will lead to better safety outcomes, so this investment in mutual satisfaction with fair penalty administration will accrue to the benefit of the agency and consumers at large. Business Judgment, if Properly Exercised, Should be a Factor in Civil Penalties. I want to reiterate the point I made in my December 17 comment letter that the exercise of business judgment needs to respected by the CPSC and included as a factor in the setting of penalties. The exercise of reasonable business judgment is necessary to administer any operating business. The complexity of the CPSIA and CPSA is well-known and well-documented. Thousands of business questions remain unanswered by the CPSC since passage of the CPSIA almost 14 months ago, leaving open a vast array of legal or factual ambiguities and forcing critical business decisions to be made with great uncertainty. The fact that violations of the CPSIA can create civil or even criminal liability only exacerbates the problems faced by business managers today. Given that circumstance, it would be unfortunate if the CPSC were permitted to exercise 20-20 hindsight on reasonable decision-making. Notably, the Business Judgment Rule was developed to help corporate boards deal with basically the same issue, namely that managers will not exercise judgment if all decisions are subject to liability. A reasonable safe harbor would be a constructive addition to the Factors. The CPSC needs to recognize that only by cultivating the cooperation of the business community can safety gains be made and held. A fear-based enforcement system will lead to market dropouts and possibly bad behavior to avoid detection. Other federal agencies have long taken the approach of rewarding conscientious behavior and responsible decision-making. The Factors should take into account and respect the exercise of sound business judgment. The Factors Should Also Take into Account the Actions and Inactions of the CPSC. The Civil Penalty Factors betray a one-sided view of violative behavior under the CPSA and related statutes. While the Factors carefully document a variety of factors in the behavior of the offending company for consideration, it omits extenuating factors such as the behavior of the regulatory agency itself. For instance, right now there are thousands of unanswered questions in the possession of the CPSC, many of which are many months old. What if those unanswered questions relate to a penalty case? What if the pendency of an unanswered question forced a company to make a business judgment that is later deemed violative – is this entirely the company’s fault? There is no Factor enumerated which would introduce the behavior of the CPSC into consideration as a mitigating factor. Mitigating factors that might be relevant include (a) the investment made by the agency in education of a particular subgroup in the regulated community (Did the CPSC give seminars at trade shows or reach out to trade show participants regularly?), (b) the outreach effort made by the agency (Was a liaison office formed? Did the CPSC contact members of the regulatory community for counseling or Q&A? Did it attempt to run seminars on site for regulated companies to help broaden understanding of the complex new laws? Did it answer reasonable questions on a timely basis?), (c) the availability of programs to reward good compliance efforts, (d) the existence of prior disclosure options to eliminate penalties, (e) the rational and consistent pattern of penalties imposed by the CPSC, (f) the ability to appeal penalties to a neutral third party on a reasonable basis (In other words, has the agency attempted to relieve the coercive nature of the current penalty process?), and so on. Compliance is a two-way street. The idea that compliance is entirely the responsibility of the regulated community and that the regulatory agency has no influence over or any responsibility for compliance results, will not likely stand the test of time. The CPSC can anticipate and address this problem by building a fairer and more equitable penalty system upfront, something that will accrue to the benefit of the agency over time. We Support the Factors Which Evidence Bad Faith or a Pattern of Non-compliance. The inclusion of factors which reflects the consistent bad behavior of certain companies is long overdue. It is hard to not believe that we owe the existence of the CPSIA in part to repeat offenders of the past. While the purpose of penalties and even a regulatory agency itself could be debated, there is no doubt that these cases involve unnecessary risk to the public and demonstrate an intolerable disrespect for the law. That said, I do not believe that all infractions demonstrate disrespect for the law or operational incompetence. Careful and balanced factual inquiry is necessary to properly administer justice under the CPSA and to maintain a safe marketplace. I do not think that this factor should be over-played, however, as a market administered with an unrealistic expectation of perfect compliance with an ultra-complex law will be as self-defeating as lax treatment of repeat offenders. Some middle point will produce the best results for all concerned, including consumers. Thank you for considering my views on this important topic. Sincerely, Richard Woldenberg Chairman Learning Resources, Inc. 380 North Fairway Drive Vernon Hills, IL 60061

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CPSIA – My Comment Letter on Civil Penalty Factors

CPSIA – Brace for It, Things Are About to Get WORSE

CPSIA Testing Costs . . . Tracking Labels . . . Retroactivity . . . Civil Penalties . . . Criminal Penalties . . . Phthalates ban . . . State AG enforcement . . . Market Chaos . . . It’s bad, bad, bad right now. Could it REALLY get worse? Consider Section 102(d)(2)(B) of the CPSIA, the latest horror story to smack you in the kisser: “(d) ADDITIONAL REGULATIONS FOR THIRD PARTY TESTING . . . (2) COMPLIANCE; CONTINUING TESTING.—Not later than 15 months after the date of enactment of the Consumer Product Safety Improvement Act of 2008, the Commission shall by regulation . . . (B) establish protocols and standards— (i) for ensuring that a children’s product tested for compliance with an applicable children’s product safety rule is subject to testing periodically and when there has been a material change in the product’s design or manufacturing process, including the sourcing of component parts; (ii) for the testing of random samples to ensure continued compliance . . . .” Nice and obscure, buried deep in the CPSIA. Never heard of it? Ayyy! Haven’t I told you that you must ALWAYS read the fine print??? This rulemaking, which has been giving CPSC Bar attorneys sleepless nights but has otherwise escaped the attention of the business community, is due in about seven weeks (November 14 deadline). It has the potential to be the final nail in our coffin, guys. Right now, there are no rules on frequency of safety testing. We are free to negotiate with our customers or establish our own testing plan. This has worked rather well for many, many years – after all, less than 0.01% of all children’s products are EVER recalled. But no longer. The CPSC is going to tell us how to assure safety and quality now. The premise is that we are incompetent to do so without government involvement. In our company’s case, the 130 pieces we recalled in 25 years (one incident) out of perhaps a billion pieces sold is no proof that we know what we are doing, apparently. Thank heavens we will finally have someone qualified to oversee our processes! The speculation is that the CPSC is going to specify testing every X pieces or Y lots, or at least annually. In addition, the requirement to have random testing suggests that we cannot be allowed to supply testing samples directly. The “idea”, as simple-minded and insulting as it may be, is that manufacturers might somehow pull the SWITCHEROO after a test report is issued. After all, we are SO EVIL ! The CPSC does, actually, worry about the “switcheroo”. They have mentioned it repeatedly as one of the impediments to the long-promised component testing rule that is aging like fine wine somewhere. NEVER has anyone pointed to a SINGLE recall that involved a “switcheroo” to my knowledge, but whatever – laws don’t need any basis in reality anymore. Hence the CPSIA. Math Interlude Begins Here . . . . I have submitted information to Congress on testing for one of our telescopes. We recently obtained a new quote on testing – it now costs about $11,500 all-in (including the 23-24 samples). Our annual revenue for this item before the econony crashed was about $30,000 per annum. Assuming gross margins of 33%, typical for the toy industry (and easy for illustration purposes), our annual gross profit (not NET profit) would be $10,000. The cost to test this item is MORE than our annual GROSS PROFIT. This means that the telescope dies – even IF we can set our own reasonable testing program. If testing on this item is conducted annually, our COMPANY dies, too. Let’s look at it another way. Say your testing cost (including samples and so on) is $3,000 for a particular product. How much profit do you require to make it worthwhile to sell that item? If you need a gross profit 33% to make 5% on the bottom line, presumably you cannot afford an annual testing cost of even 5% of the total revenue of the item. If you accept breakeven as the tipping point for this illustration, then the math is also simple: $3,000/5%, or $60,000 in annual revenue. Ideally, you would want more than that so you aren’t just “trading dollars”. You would be marginally profitable at $80,000 in annual revenue for this ONE item. In the specialty market, a product producing $80,000 per annum is pretty darned good. The profit you would earn on this $80,000 item would be 5% net profit or $4,000 less the testing cost of $3,000, or a grand total of $1,000. Sell $80,000 in telescopes, make a thousand bucks. Nifty, that must be how Bill Gates got so rich. Remember, this also means that the prospective revenue hurdle for any NEW item is ALSO $80,000 per annum revenue. AND you would have to front $11,500 before you sell dollar one of the new item. Hmmm, that might cut your product development pipeline down a LOT. In fact, this annual testing requirement will send many companies scurrying into other markets, such as the mass market or into other businesses, in any event far, far away from the CPSC and this law. I do not see how the education market would survive. Honestly, virtually every manufacturer serving the NSSEA market (educational dealers) is a small company. Even the bigger small companies still do insufficient revenue on the vast majority of products to justify this expense. I know that this rule ALONE could many companies to shed at least two-thirds of their product line. That’s too horrible to contemplate. Math Interlude Ends Here . . . . It is another irony of this rule that by formalizing the requirement to retest when you change components, you actually provide a negative incentive to become more efficient or more safe. There is no incentive to change factories if you save less than the new testing costs. It will take our factories about two seconds to realize that this gives them dominion over their customers. American businesses will be tied to their sources irretrievably even as costs rise, and will thus be at a cost disadvantage outside the U.S. to more efficient European and other competitors. In addition, the law punishes companies for improving their products by imposing a testing penalty on any change. Thus, your incentive to change a product to, for example, make it better or safer is greatly reduced – you will pay (literally) for your good deed. As these innovations are often voluntary, it will be impossible for the government to know how you might have improved your products had they not meddled in your business. You save money, and your products are more expensive, uncompetitive and less safe. What a great way to run an economy! Given everything that has happened to date, we shouldn’t expect a Knight in Shining Armor to emerge from the CPSC to save us. After the double-speaking phthalates standard and tracking labels guidance , plus the truly stupefying rules on exempt materials , I find it hard to believe they will do the right thing here. The lip service by Commissioners about recognizing the needs and legitimate concerns of the business community has been just that – lip service. How could disaster be averted? It would take unprecedented bravery and character by Inez Tenenbaum. Democratic leadership in Congress has thumbed its nose at the children’s product industry. It would be overly kind to call their attitude a calculated indifference to our fate. That leaves us in the hands of Chairman Tenenbaum. Thusfar, Ms. Tenenbaum has chosen to kiss the pinkie rings of Mr. Waxman and Mr. Rush and with Southern charm, coo about the “good statute”. She has done nothing to stand up for the moral, law-abiding, crucial businesses serving the children’s market despite overwhelming documentation of the senseless damage being done by the terrible CPSIA. Ms. Tenenbaum needs to have a change of heart. If she takes the route of least resistance and issues guidance requiring frequent testing and other unnecessary but expensive similar requirements, it is probably game over for everybody . On the other hand, she could rise to the call of history and tell Mr. Waxman to drop his pretense that this law is somehow workable. Frankly, there is no data available to justify Section 102(d)(2)(B). The assertion that the government must, for the first time in history, tell us how often to test to assure quality has no basis in fact. It’s just a Congressional staffer’s (or consumer group’s) lunkheaded idea. Ms. Tenenbaum, it’s your call. You can save us and be a hero, or you can send us down the river and be remembered as the one who committed this mortal sin. You won’t be afforded the opportunity to blame this one on Congress – you can act, and you know it.

See the article here:
CPSIA – Brace for It, Things Are About to Get WORSE