CPSIA – How to Know if the CPSC is Going to Pull a "Daiso" on You

Read more here:
CPSIA – How to Know if the CPSC is Going to Pull a "Daiso" on You

CPSIA – How to Know if the CPSC is Going to Pull a "Daiso" on You

Read more here:
CPSIA – How to Know if the CPSC is Going to Pull a "Daiso" on You

CPSIA – Anyone Care about Penalties Yet?

Cassandra here . . . .

Let me try you out on a hypothetical. What would you recommend as “consequences” for the following fact pattern? A company exhibits a pattern of safety incompetence over a period of time. Owing to agency vigilance, they are told multiple times to shape up, which they never get around to doing. No one is injured, but several minor recalls result. As we live in a time of political correctness and hyper-concern over trivial matters, the recalls not surprisingly involve only a few units of numerous products (less than 1000 units over two years). No injuries are reported. Numerous letters go back and forth, and theoretically, some of the culprit’s safety violations could have resulted in injuries.

So what penalty do you hit them with to get your message across?

For perspective, Mattel paid a fine of $2.3 million for about 2 million units recalled. This was national headline news. Mattel also recalled many millions more in other recalls in the same time period. RC2 paid $1.25 million for their recalls of 1.7 million units of Thomas the Tank Engine, a series of recalls that included an embarrassing recall of “thank you” gifts sent to people returning lead-laden Thomases. Target paid $600,000 for its “sins” in three relatively large scale recalls (545,500 total units). And I fully agree, respect and attentiveness to the details of the law are mandatory. Everybody needs to take these issues seriously.

And the answer is . . . . Try $2.05 million. Cash.

You wonder why I say that the CPSC leadership has blood lust . . . .

Oh yeah, I forgot, the CPSC also sicced the U.S. Attorney on ‘em, hitting the company with an injunction, a cease importation order and a mandatory plan of remediation.

Of course, I am alluding to the case of Daiso, the Japanese dollar store chain with a small U.S. presence. I have written about this company in the past, noting that they recalled 40 inflatable baseball bats for phthalates violations. For this and other unpardonable sins, this company was subjected to regulatory horrors on an incomprehensible scale. Here are their five recalls for your consideration:

May 12, 2008: 48 units, two skus
June 3, 2008: 50 units, two skus
July 25, 2008: 40 units, two skus
October 6, 2009: 430 units, four skus
October 6, 2009: 130 units, nine skus

Total over two years: five recalls, 698 units, 19 skus.

I have no personal knowledge of these people or this case. I also agree that the facts suggest that this company was recalcitrant or possibly incompetent. In any event, it’s their responsibility to take our laws seriously. Nevertheless the CPSC press release and the injunction both portray a far more serious situation than the facts seem to demonstrate. This is hardly a case of ingested super-magnets and millions of units in circulation. And the penalty, of course, is so far beyond the pale that I consider it incomprehensible. It is also extremely worrisome.

Today’s CPSC is about sound bites and putting you “on notice”. Whether their tactics are fair or appropriate seem to be a secondary concern. Note this quote from Japan Today: “‘This landmark agreement for an injunction sets a precedent for any firm attempting to distribute hazardous products to our nation’s children,’ commission Chairwoman Inez Tenenbaum said. ‘We are committed to the safety of children’s products, and we will use the full force of our enforcement powers to prevent the sale of harmful products.’ . . . CPSC spokesman Scott Wolfson said the company had been warned several times about violating safety standards.” In other words, this is entirely justified because the company had been warned and laws had been broken. I see.

There is a concept in Anglo-American jurisprudence of a punishment to fit the crime. I wish the CPSC knew something about proportionality in administering justice. Unfortunately, this CPSC seems to think that the importance of public messaging allows them to justify whatever they want to do. There seems to be no constraints, whatsoever. As Mr. Wolfson intones, after all, Daiso had been warned several times. Ergo, it’s fair to whack them with a penalty almost as great as imposed on Mattel. For less than 1,000 units sold.

Have you ever sold less than 1,000 units of something? Has anything ever gone wrong in your business? Uh-oh. Start saving up!

If you are having trouble grasping the point, consider the recent case of the man caught stealing a $3.99 bag of cheese in California. The judge went easy on him, only sentencing him to 7.7 years in jail. Nothing wrong with that, right? As the defendant’s lawyer noted in her closing remarks, “She concluded that his most recent thefts were petty. ‘We’re talking about a pack of cheese,’ she said.” Good thing the judge was listening . . . . This kind of justice brings to mind Midnight Express, the nightmarish story about Turkish jails. We’re not that kind of country, right? Right???

But in this environment, with the pack of jackal consumer groups egging them on, this CPSC is prepared to lower the boom to squish anyone who dares be incompetent. Here’s Consumer Reports on the case: “Our take: This is more evidence that the CPSC has been reinvigorated and that the new leadership at the Commission, plus the new powers under the CPSIA, mean good things for consumers.” In other words, it’s not only okay, it’s a sign of returning “health” in our U.S. government. Yippee.

I agree some sort of penalty may be merited in a case involving a pattern of violations. A large company like this one might need a large-ish penalty to “get the message”. [I wonder about that. Is it certain that this company would not have changed its behavior for a penalty of $50,000 or $150,000? The CPSC never tried smaller penalties first, as escalation seems to not be part of their vocabulary.] Nevertheless, this penalty lacks any rational relationship to the trivial problems cited in the recalls. In other words, it is completely arbitrary.

And for those of us destined to have to deal with the CPSC on resolving problems in the future, the Daiso case in your warning. Under this Commission, the agency has no apparent intention or need to be reasonable. They are unfettered in their ability to punish and exhibit no self-restraint. You won’t be able to fight them, they print their own money. It must be nice to be both judge and jury.

This is what our country has turned into. I CAN’T WAIT TO VOTE AGAIN. November can’t come fast enough for me.

Read more here:
CPSIA – Anyone Care about Penalties Yet?

CPSIA – You Can Add 43 Pages to the Heap

The CPSC published its Civil Penalty Factors today. It’s only 43 pages long. Get reading . . . .

Read more here:
CPSIA – You Can Add 43 Pages to the Heap

CPSIA – Schylling Agrees to a $200,000 Fine for Lead in Paint

What is the principal goal of the CPSC – to protect consumers from unsafe consumer products, or to punish legal transgressors? If consumers haven’t been harmed, how should this aftect the agency’s decision to punish?

These questions come to mind when considering the most recent punishment meted out by the CPSC. In particular, on February 4th, Schylling Associates (”Schylling”) agreed to pay a $200,000 fine for lead-in-paint violations disclosed in 2007. How does this fine affect the CPSC’s mission?

Background: I have no personal knowledge of this situation, although I know the company and some of its principals, and I have had no contact with anyone associated with the fine. My summary of L-I-P recalls from 2007 shows five Schylling recalls, although the CPSC press release does not relate to all of them. The recalls total about 80,000 pieces sold from June 2001 to May 2003. The fine works out to about $2.50 per unit for violations almost seven years old or older. No injuries were reported since the sales began almost nine years ago.

Schylling apparently promptly recalled one of the items upon discovery of the infraction in March 2002 and also terminated the factory. Here is Jack Schylling’s letter to his dealers describing this incident. This item comprised a relatively small portion of the defects. Schylling apparently (mistakenly) believed that the other L-I-P problems had been resolved and therefore did not recall them until 2007 (see below).

In August 2007, a Chicago Tribune article featured a defective Schylling top purchased in an online auction; consequently, several additional L-I-P violations dating back to 2001-2003 were uncovered, promptly disclosed to the CPSC and recalled properly.

Judging from the press release and the settlement agreement, this is a messy fact pattern with some poor judgments. bad operational execution and some violations of serious rules. Schylling was a repeat offender, albeit by all appearances not because of bad intentions. No one was hurt.

That Schylling was in the wrong is only part of the story. Was the fine the right move by the CPSC?

The Schylling Fine is Excessive and Unrelated to the CPSC’s Mission to Protect Consumers. The CPSC is not the Department of Justice. They are the Consumer Product Safety Commission – the agency “is charged with protecting the public from unreasonable risks of serious injury or death from thousands of types of consumer products under the agency’s jurisdiction.” I do not believe this fine is consistent with their mission.

In this case, the fine is removed from the protection mission, as all defective pieces were recalled from the market voluntarily and pursuant to voluntary disclosure. This is “good behavior” since the company sought to mend its ways and fix the problem. In addition, because the offenses lasted two years ending almost seven years ago, this matter is old and cold. Addressing it now seems to unfairly reach back in time. Finally, the amount of the fine is arbitrary and therefore unfair. The size of the fine cannot be related to other fines for similar offenses.

Manufacterers Are Likely to React Badly to Fines Intended to Make Examples. If the mission of the agency is to protect consumers, all of its activities must be judged against that mission. In this case, the fine for Schylling would need to make consumers safer to be consistent with the mission. Ironically, I think it is quite possible that this excessive fine may endanger consumers by discouraging manufacxturer cooperation.

The striking thing about this fine is not simply its excessive size – it is that the fine seems motivated by retribution, not consumer protection. This company appears to have tried, perhaps ineptly or even improperly, to do the “right thing”. They turned themselves in voluntarily. The product was removed from the market voluntarily, although not with all the required CPSC disclosure or as timely as possible.

Ultimately, to be successful, the CPSC needs manufacturers to come forward. The trust factor is crucial. When the CSPC acts to squish people who turn themselves in, perhaps to set an example, businesses may conclude that they cannot afford to throw themselves on the mercy of the CPSC. The Schylling action reinforces the notion that the CPSC is not a trustworthy partner. And this is a very damaging notion for consumers.

Here at the Nuremberg Toy Fair, the tradeshow is abuzz with several examples of companies who suffered grievous losses by disclosing problems to the CPSC. These issues were never of a life-threatening nature. However, the CPSC defaulted to remedies that placed the maximum risk on the manufacturer. Now, to make matters worse, the CPSC is adding large, arbitrary penalties for companies that come forward. Do the math – manufacturers may well see disclosure as a bad deal. Highly publicized punishments like Schylling destroy trust. While some manufacturers may be “scared straight”, many others may simply drop off the radar altogether.

Other agencies in the U.S. government see things more clearly. Customs, for instance, grants full immunity from penalties if you confess your sins before official notice of an investigation. While this too is painful, at least you control you control your own fate and pay no penalties. Customs’ policy encourages disclosure, which is what Customs wants. I contend that disclosure is what the CSPC should want, too – it needs to know what defectivce products are “out there” to protect the public.

A big fine was not the agency’s only possible remedy here. It did not have to hit Schylling with a huge penalty, or any penalty at all. Schylling could havc agreed to implement new safety procedures or to conform to certain standards for future behavior. The CPSC also could have agreed with Schylling on some sort of public service. These options would have sent a strong message to Schylling about the consequences of future infractions, while encouraging openness and cooperation with the manufacturing community.

Unfortunately, a reasonable approach would not satsify a ravenous pack of Democratic members of Congress, consumer groups and newspaper editorial boards who are demanding blood. Giving in to populist outrage buys the CPSC time . . . but at a high cost. A punishment-oriented CPSC will be defeated by its own shortsightedness. As more and more people slink into the shadows, this CPSC might accuse the manufacturing community of venality and launch even stronger actions against bad behavior. A safety police state is possible. Is that what we want?

If the CPSC persists in this approach, it will soon eat its own cooking. It’s time for the mania and blood lust to end, and for rationality to return to safety administration. Fear does not have drive regulation of these markets.

Read more here:
CPSIA – Schylling Agrees to a $200,000 Fine for Lead in Paint

CPSIA – Another Big Fine for L-I-P: What Does It Mean?

The CPSC today lashed out at RC2 Corp. for significant lead-in-paint violations on its Thomas & Friends wooden toys in 2007. The fine totalled $1.25 million. The facts of the case are relatively simple – an original recall in June 2007 of 1.5 million pieces was quickly followed by an additional September 2007 recall of 200,000 units. You can read all the details in the provisional agreement between RC2 and the CPSC. The agreement, however, doesn’t mention the really famous bit, namely that the second lead-in-paint recall included some of the “bonus gifts” that RC2 sent out to people who returned items in the first recall. Not a real confidence builder, apparently . . . .

We probably owe the CPSIA to RC2 and Mattel, who together so shocked and motivated Congress (and my hometown newspaper, the Chicago Tribune) that nothing could stop that runaway train. Since Thomas the Tank Engine was such a beloved traditional toy, the public’s sense of betrayal was understandable. Unfortunately, it is hard to believe that RC2 didn’t see this coming. The law on lead-in-paint was clear and unambiguous. The righteous outrage and the perceived need for retribution eventually led not only to the awful new law but also to this fine.

Let’s try to put it in perspective.

First, RC2 Corp. is a big company and won’t feel much pain from today’s action. It has peak sales of over $500 million and peak earnings of over $80 million. It has generated over $100 million in annual cash flow at least twice. In other words, they have pretty deep pockets. This fine is basically “walking around money” for them. They are even projecting earnings this year in excess of $25 million and cash flow of over $40 million – and 2009 was an awful year for the toy industry. As if that weren’t enough evidence of the symbolic nature of the fine, RC2 recently raised almost $60 million in a stock offering. In no sense will this fine imperil or even perturb the business over at RC2 – as an official “big business”, they seem structurally exempt from the pain we ankle-biters might feel.

That said, hasn’t RC2 paid quite a bit for its folly already? According to their 2008 year end financials, they incurred recall-related costs of $28.3 million in 2007, $14.3 million in 2008 and a further $13.9 million in 2009 year-to-date. Those are total costs of $56.5 million, excluding the new CPSC fine. Arguably, the CPSC recalls induced or precipitated these costs. These costs presumably also take into account the impact of RC2’s $30 million settlement of a class action lawsuit and related legal expenses.

[According to the provisional settlement agreement, in the wake of the publicity of the recalls, RC2 was hit with a number of allegations of injuries and claims from lead-in-paint, leading to lawsuits. I have no way of estimating the financial impact of these claims on RC2. The validity of the claims is also unknown. Welcome to America.]

These losses exceed RC2’s typical annual earnings – most people would call that a pretty high price paid, something that gets your attention.

And as the CPSC slams the barn door long after the horses got out, the company must now reiterate that it learned its lesson . . . three years ago. The press, however, will frame this case as a remedy much needed: “Toymaker’s fine in lead case tops $1 million. Oak Brook-based RC2 sold Chinese-made toys that were later recalled” [Headline from print edition].

With all this as background, I think the fine looks a bit different:

a. The fine cannot be justified as punishment, as the CPSC’s previous actions induced a very high stream of costs for the company. It cannot be justified as an inducement to behavioral reform, as better safety practices at RC2 began in 2007. What is the purpose of the fine then? I think the fine is intended for political purposes, to make the CPSC look “active” and “tough”. It hardly matters that the fine is opportunistic and coercive. [CPSC fines under the CPSIA are also arbitrary and hard if not impossible to negotiate.] Apparently, the RC2 recalls were not enough to satisfy the personified “Congress” – it wanted pecuniary revenge. This allows the Chairman and her fellow Commissioners to look “tough” to Congress and it allows the RC2 company to look “contrite”. Two needs met, neither of which should be part of our law.

b. The fine (the supposed punishment for the “crime”) is so detached from the time of the infraction that it has no actual connection as a “remedy”. The passage of time sacrificed any moral high ground for the regulators – its fine is only a gratuitous penalty now.

c. By waiting three years to impose a high profile penalty like this, the CPSC deals the company a cruel blow to its market. The fine makes it look like RC2 needed more correcting three years after the fact – isn’t that what any rational person would think? Yet RC2 already paid for its failings to the tune of more than $50 million out-of-pocket. [This does not include the significant loss of goodwill from the recalls, a tangible loss to RC2 business managers.] They also changed their safety practices, presumably quite significantly. The defective goods are long off the market. Yet, with the imposition of this high fine now, the company looks like a creep, again – even though there is no sign that it is anything but a good citizen today. As a consequence of the CPSC’s action, RC2 must again counter with more PR to attempt to preserve its good name.

Even more outrageous, to squeeze in the fine under the wording of the CPSIA, the CPSC asserts that the RC2 violation was made “knowingly”. [See par. 16 of the provisional settlement agreement.] I highly doubt that it was “knowing” in the plain meaning of the word and naturally, the company denies it, too. It’s a ridiculous contention. However, the law defines “knowingly” to include imputed knowledge; if the CPSC deems that RC2 should have never let this happen (duh), they can assert the imputed knowledge of a reasonable man to convert the infraction into a “knowing” violation. Prest-o, change-o! Incompetence or organizational failure can thus be given the appearance of ill intent. Since virtually any violation can be deemed “knowing” with the aid of 20/20 hindsight under this terrible law, the CPSC now has an unwritten strict liability penalty policy at its disposal. That’s sweet for an agency that is part legislature, part judge, part jury. As for companies cited for “knowing” violations, denials ring hollow. Frankly, it’s a set-up . . . and when this happens to you, it will feel the same way.

d. The CPSC’s apparent indifference to these factors will have a chilling effect on the children’s product market. There is no question that business people tend to look at these cases as “there, but for the grace of G-d, go I”. If RC2 can be hammered this way, what will happen to us if we make a mistake? There is just no way to tell. But, the RC2 and Mattel fines make it clear that “over” isn’t “over” with the CPSC until the statute of limitations passes. This fine came more than three years after the recalls. When are you allowed to move on from your mistakes? Seems like never. The recent fines levied against Excelligence for $25,000 are of a similar vintage, so this can happen to small companies with small infractions, too. This is randomness run amok. The fact that the agency has been unable to issue final penalty factors in more than a year does not help matters.

Finally, of course, we private business people can’t just stick our palm out to Wall Street for more money whenever we need to restock the coffers. The RC2 capital raise restores 100% of their losses from the recalls. Nice for them! Small private businesses have to go to their banks or our personal bank accounts to fund remediation of these problems. And let’s hope your bank sticks with you after bad publicity. . . .

Could the CSPC be so myopic that it doesn’t know how these risks affect the thinking and planning of small businesses? I can only conclude that the answer is yes.

Let’s hope that the RC2 fine helps the agency and its leadership build up a suitably tough image. And for their sake, one can only hope that the architects of this law and the agency’s penalty strategy are long gone, onto their next glories, before the cumulative impact of the CPSIA and its implementation are felt. And for the rest of us . . . good luck!

Read more here:
CPSIA – Another Big Fine for L-I-P: What Does It Mean?

CPSIA – Learning Curve Begs for Common Sense (What a Joke)

On Friday, the CPSC Commission docketed a decision on a request for exclusion under Section 101(b) filed by Learning Curve Brands, Inc. Learning Curve (a company owned by RC2) is famous for its Thomas The Tank train sets, which had a little recall problem back in 2007 but we don’t need to go there right now . . . . In any event, among other things, they make die-cast vehicles like this and want permission to use brass bushings on the wheels.

In a sane world, no one would need to ask the government a question like this. Thanks to Mr. Waxman, that’s not our world anymore. Wacky or not, they must plead their case. As Learning Curve notes (their filing is not apparently public, or at least I cannot find it on the “easy to use” CPSC website): “1) CPSC has already granted an exemption for brass and other lead containing alloys in electronics where the material is necessary for the function of the product; 2) the brass is required to ensure that the products pass the necessary use and abuse tests by preventing the wheels from separating from the axles; 3) children are not likely to be exposed to the lead in the product; 4) other household products, including plumbing fixtures are allowed to contain lead at levels that exceed the CPSIA limits; and 5) a study conducted by RAM Engineering, a division of Intertek, determined that lead exposure to a child would be minimal, less than the amounts allowed in food.”

It’s sort of cute that LC attempts to reason with the CPSC. Darling, really. I applaud them for stating sensible reasons to exclude brass bushings. Of course, their common sense falls on deaf ears. The staff responded this way: “In this case, given the assessment provided by the requestors, the staff likely would have concluded that the estimated exposure to lead from children’s contact with the die-cast toys would have little impact on the blood lead level. Accordingly, based on the staffs assessment, the staff would have recommended that the Commission not consider the product to be a hazardous substance to be regulated under the FHSA. However, the CPSIA establishes the standard by which the staff evaluates the materials submitted with a request for exclusions. . . . Since contact with the toy could result in absorption of lead, however small the absorbed amount, the staff concludes that the statutory standard has not been met.”

I feel like humming the tune that they used to play on Bozo’s Circus when you missed the last bucket on the Grand Prize Game. Wah-wah-wah, too bad! Too bad, indeed.

Why on Earth do I care about this? The unfairness of the application of this law to Learning Curve affects all of us. We don’t happen to make brass bushings, but then again, we do use connectors of various kinds, like staples, screws, nuts and bolts. Many people use these items in their products innocently enough. Connectors are not regulated EXCEPT for their inclusion in children’s products. I would note that I have NEVER seen a single article directly or referenced that suggested that connectors present a HEALTH DANGER to anyone. Likewise, any deaths or injuries attributable to poisoning from brass in any form. Don’t stick connectors in your eye or eat them, and I think you are going to be fine.

Some connectors have brass content in them (horrors!). Does this matter? Only under the awful CPSIA. Why do I care? Some random and terrible results are possible when connectors become the subject of CPSIA disputes. Let’s not forget that the CPSIA criminalizes any “intentional” violation of the law. Thus, it is now IMPOSSIBLE to work out any issue between supplier and customer, no matter how trivial. The law incentivizes customers to turn in their suppliers. [When I consider this dynamic under the CPSIA, I always think of historical precedents where governments turned one part of the society against another, with terrible results. I am sure you are aware of the parallel. Why isn't anyone bothered by this besides me?]

The law also incentivizes the CPSC to not forgive these “transgressions”. Why won’t the CPSC just overlook these issues, using “enforcement discretion”? The reason: apparently, the CPSC has no taste for “defiance” these days. They defend their practices (off-the-record) by noting that they are only imposing a “no-sale” requirement on such inventory. [Remember the Potato Clock?] This “innocuous” position is usually accompanied by a demand that suppliers notify their dealers of the “no sale” requirement. [In the case of the Potato Clock, I believe the company felt it might incur liability if it didn't tell dealers to stop sale. More of the same.] While this is short of a full-scale recall, it is tantamount to financial Armageddon for many small companies, and has the potential to kill brands.

Am I just a worrywart? Well, this is same CPSC that just allowed or demanded a recall of 40 inflatable baseball bats for a phthalate violation. Good thing they stopped short of a house-to-house search, that showed GOOD JUDGMENT. You can hold 40 inflatable toy bats in one hand (if uninflated). So nothing is apparently beneath their scrutiny. In this case, they can shrug off the consequences of their actions. After all, they are “just doing their job”. How satisfying for them!

In any event, the Learning Curve exclusion request is a loser. Get ready for more rationalizing from some Commissioners and hand-wringing from others. We should have a pool for when the new Democratic leadership of the CPSC will stand up publicly and call for needed change in this law. Your guess is as good as mine.

Read more here:
CPSIA – Learning Curve Begs for Common Sense (What a Joke)

CPSIA – Target Gets WHACKED for Old L-I-P Violations

Target Corporation was assessed a $600,000 penalty today for old Lead-in-Paint violations (2006-2007). Makes you wonder when these matters close, doesn’t it? There were three recalls, two of which were self-reported by Target based on its own internal auditing activities. There were no injuries, either. Target’s good faith didn’t matter at all. In fact, consider this quote from the Settlement Agreement: “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.” Although the CPSC could not pin a “knowingly” violation on them (or impute knowledge, apparently), they had no trouble assessing blame: “[Target] failed to take adequate action to ensure that none [of the recalled items] would bear or contain lead-containing paint. . . .” That’s rather self-evident, isn’t it? The Target penalty is essentially a strict liability penalty, and was not (apparently) mitigated by Target’s good faith or good efforts. Failure to prevent a L-I-P violation is apparently now deemed a bad act whether or not there is credible evidence that the incident could have been avoided – which is a strict liability standard for L-I-P penalties. The CPSC does not want to announce a strict liability penalty policy so they persist in twisting words to create the impression that something “bad” took place. Yes, something bad happened – there were three undiscovered L-I-P violations but there is also considerable mitigating evidence of Target’s good faith efforts to control quality. This means that a defect occurred, which is a risk of any manufacturing business. Elimination of risk from the world around us is a fantasy for the likes of Henry Waxman but for the rest of us, risk is a permanent attribute of our reality. Target can clamp down on quality as much as it wants, but risk cannot eliminated, just controlled. They will fail again, and perhaps the CPSC will be waiting with their bill. The consequences of these high and arbitrary fines will be bad for small businesses. Let me explain. If you sell on a make-to-order basis to large retailers, then the economic consequence of tighter compliance rules is minimal and the law incentivizes the lowest risk behavior (testing for that order to ensure compliance). You can lay off the costs on the large runs for the make-to-order customers. Everything’s fine and prices don’t even go up noticeably. Everybody’s happy. Perhaps this is why you don’t hear Hasbro or Mattel screaming, what do they care? As for the rest of us, we live in a make-to-stock world. What does this mean? Companies in a make-to-stock model order new inventory to store in their warehouse for later sale to customers who haven’t made a forward commitment to buy. Make-to-order means (not surprisingly) that you produce inventory only when you make a sale. If Wal-Mart buys 50,000 units of your widget, you make 50,000 widgets in a single run and send them directly to Wal-Mart. Who needs a warehouse?! We make-to-stock folks need warehouses. Make-to-Stock is almost obviously for lower volume items. If you were selling higher volumes, you would make-to-order, right? Make-to-stock is also riskier, as we buy the inventory before we sell it (again, different than make-to-order). With lower product volumes to absorb the high cost of testing, make-to-stock inventory is at considerable economic risk under the CPSIA. That means all of us small businesses. It also threatens markets depending on make-to-stock products (like schools, specialty retail, special needs, and so on). When Target raises its quality and testing requirements into the stratosphere to avoid paying those annoying $600,000 penalties, it likely means that their door will be closed to small businesses that sell low volume items. Target’s array of children’s products will shrink and the ability of small businesses to grow by selling through major retailers will be limited to high volume, make-to-order items. Thus, your relationship with Target could be in one item per year, rather than the 25 you might get them to pick up for a planogram. This will make the mass market by-and-large the playground of large businesses. Small businesses will be left scraps in the specialty market. Unfortunately, the Target penalty will make even the specialty markets unfriendly for small businesses. First of all, the larger and more sophisticated outlets in specialty will know about Target and will raise their requirements up to a level making low volume items unprofitable to avoid the large and arbitrary fines. These outlets will become like mass market retailers in their practices and assortments. As for the rest of the market, small businesses will also have a difficult time selling there because with so much shrinkage in the available market, the cost per unit for the testing and other CPSIA costs will make it impossible to make money. Many small businesses will either have to shut down, commit to the mass market over the specialty business, or make products that avoid the CPSIA lead and phthalate restrictions (exit the children’s market). It’s unremittingly depressing. I wish I could tell you that I see a weakness in this argument. I invite my readers to dialogue on where the flaw is in my reasoning. Every time I read a press release from the CPSC, read one of their rules or find about one of their enforcement actions, I feel more and more certain in my views. Please set me straight.

Original post:
CPSIA – Target Gets WHACKED for Old L-I-P Violations

CPSIA – Crain’s Says We’re About to Get Sued

In this week’s Crain’s Chicago Business, the news periodical speculate on which mass tort action could succeed asbestos as the next gravy train for plaintiff’s attorneys. And guess who makes a guest appearance??? Asbestos and the legal black hole By: Steven R. Strahler September 28, 2009 Asbestos has lived up to its Greek origin — “inextinguishable” — on legal and medical landscapes alike: Mass tort actions involving asbestos have bankrupted more than 60 makers and users of the once-widespread insulating material, starting with Johns-Manville Corp. in 1982 and claiming Chicago’s USG Corp. in 2001. Odds are, corporate defendants won’t see another mass tort topic like it: more than 700,000 claims pending against 8,000-plus defendants and estimated costs exceeding $250 billion. Because asbestos-related symptoms can take 30 years or more to manifest, the litigation is expected to last until mid-century. . . . . “No, there is no asbestos-like gravy train pulling up in front of the American Bar Assn.,” says Robert Hartwig, president of the Insurance Information Institute. Still, he says, “there are great unknowns, like climate change and latent manifestation of occupational disease.” Among the most likely post-asbestos targets for plaintiffs’ attorneys: . . . . Product liability The Consumer Product Safety Improvement Act of 2008 requires independent testing of children’s products, including cribs and metal jewelry, empowers state attorneys general to file federal actions and increases penalties, all of which will boost opportunities for mass-tort suits.

See the rest here:
CPSIA – Crain’s Says We’re About to Get Sued

CPSIA – Too Much of a Good Thing? Nah!

The CPSC’s notorious Resale Roundup was greeted with more “acclaim” by Fox News this week. I don’t know whether to laugh or cry. Be sure to check out the article (”New Government Policy Imposes Strict Standards on Garage Sales Nationwide”), the slideshow (”Ridiculous Recalls?”) and the video . Each is worth your time. For those who are not familiar with this novel new program, the CPSC is fanning out to save you from “evil” resellers who might be foisting off recalled items on you. This includes spying on local garage sales, visiting your local resale shop and poking around on eBay and Craigslist.com. The CPSC has apparently given up on education and individual responsibility as a way to protect against harm – instead, they are redoubling their effort to be the Cop On The Beat, like it or not. In this case, they have chosen to make up a fake crisis, the resale of recalled items, to justify becoming an active protector of the public safety. To get the flavor of this article and the basic problem, here are a few quotes: 1. “The [strict CPSIA] standards were originally interpreted to apply only to new products, but now the CPSC says they apply to used items as well. ‘Those who resell recalled children’s products are not only breaking the law, they are putting children’s lives at risk,’ said CPSC Chairman Inez Tenenbaum. ‘Resale stores should make safety their business and check for recalled products and hazards to children.’” RW – Note that Ms. Tenenbaum justifies this massive incursion into people’s lives by the claim that recalled items “[put] children’s lives at risk”. While I concede SOME recalled items might in fact endanger children’s lives, please check out the slideshow for perspective on the mortal danger posed by many recalled items. Hmmm. A little hyperbole, perhaps? There are ways to deal with the limited problem of certain dangerous items circulating without resorting to the claim that there’s a Five Alarm Fire burning. 2. “CPSC spokesman Scott Wolfson says the fines are intended for large companies with serious infractions. ‘CPSC is an agency that has used its penalty powers over its 30-year history against companies,’ Wolfson told FOXNews.com. ‘CPSC is not seeking to pursue penalties against individuals hosting a garage sale or yard sale, we are encouraging them to take the right steps to not resell recalled products.’ But FOX News Legal Analyst Bob Massi says the law makes no distinction for families and small resellers. . . . Don Mays, senior director of product safety planning at the publisher of Consumer Reports, says the hefty penalties are necessary to have an impact. ‘The former civil penalty limit of $1.87 million was too small to be an effective deterrent to large companies who flagrantly violated the law,’ Mays told FOXNews.com. ‘Mattel and its subsidiary Fisher-Price, for example, recently paid a $2.3 million penalty for importing about 2 million toys that violated the CPSC 30-year-old lead paint ban — that amounts to just over one dollar per toy.’” RW – CPSC says they won’t hit you with big penalties, but the law permits it. The Fox video shows that people are afraid. It’s hard to trust a regulatory agency out looking for “bad guys” in your garage with a BIG stick and no checks, balances or controls on how it will use it. Yes, they claim to be all sweetness and light – but what happens if they change their minds? The consumer groups are all for hefty fines, as Mr. Mays confirms, and nowadays, they seem to be passing notes to Congress and to the CPSC. So, is it any surprise that many people are quite alarmed? Side note: Don’t worry, the CPSC says they won’t be coming into your home (yet): “Scott Wolfson, a spokesman for the agency, said it wouldn’t be dispatching bureaucratic storm troopers into private homes to see whether people were selling recalled products from their garages, yards or churches. ‘We’re not looking to come across as being heavy-handed,’ he said. ‘We want to make sure that everybody knows what the rules of engagement are to help spur greater compliance, so that enforcement becomes less of an issue. But we’re still going to enforce.’” Aha. Personally, I feel SO much better now. 3. “‘It is scary to think that there could be such hefty fines imposed on unsuspecting households,’ another garage sale organizer, Patti Lombardi, told FOXNews.com. ‘I think I speak for many people when I say that the government spends too much time interfering in the individual citizen’s personal life and this is almost bordering on the ridiculous … what if it opens up a Pandora’s box of litigation brought by the purchasers of items at garage sales?’” RW – Ms. Lombardi hits the nail on the head for the business community. We all KNOW that litigation will follow in the wake of this law. There is a reason why the trial bar-supported consumer groups are all so gung-ho on this law. Everything’s illegal now (check out your reporting requirements under Section 15(b) of the CPSIA – you have a generous 24 hours to report ANY violation of ANY term of ANY law, regulation or rule enforced by the CPSC (they don’t even publish a list, btw) – super!). Litigation by public attorney generals, State attorney generals and the Feds is expected by everyone. Given that it is inevitable that everyone will have violated something, and with the imputed knowledge standard of the CPSIA, probably deemed to have done so “intentionally”, the choice of when and who to sue will favor the government rather substantially. The law was written to terrorize – and mission accomplished, it has. 4. “‘If I’ve got a wirebound notebook, the lead content in that wire binding is now under scrutiny, even though the chance of ingesting lead in any amount from something like that is virtually non-existent, [TimetoPlayMag.com content director Chris Byrne] said. ‘It’s a level of political grandstanding to say ‘we’re taking care of everything,’ but the science clearly demonstrates that the transference is not really possible — I mean, a child who eats the wire binding from a notebook is going to have significantly worse health problems than lead.’” Perhaps you get the idea. I wonder if the CPSC and Congress will EVER get the idea.

More:
CPSIA – Too Much of a Good Thing? Nah!

Next Page »