A new bill introduced in Congress earlier this month could increase litigation risk for the retail industry by leaving companies unable to prevent the Consumer Product Safety Commission (CPSC) from disclosing inaccurate or premature information about potential product hazards. The Safety Hazard and Recall Efficiency (SHARE) Information Act, introduced on January 9, 2020, by U.S. Representative Bobby L. Rush (D-IL), would also increase the maximum civil penalty for violations of the Consumer Product Safety Act (CPSA) from $15 million to $50 million. Largely seen as a response to public criticism over the perceived delays in the CPSC’s disclosure of hazards associated with infant inclined sleepers over the last year, the SHARE Information Act would allow the CPSC to tell the public that a product may pose a safety issue before the hazard has been confirmed.

The SHARE Information Act’s Proposed Rollback of an Important Procedural Safeguard

Currently, the CPSC must give companies at least 15 days’ notice of its intent to disclose any information it has received under the CPSA (for instance, a company’s self-report of a potential issue). More often than not, the CPSC works closely with companies to issue joint statements and coordinate recalls, if necessary. But if a company disagrees with the information the CPSC intends to make public, it has the option of pursuing an injunction to prevent disclosure. Though rarely used, the possibility of an injunction operates as an important check on the CPSC’s power and promotes public safety by encouraging the CPSC to ensure that the information it discloses to the public is accurate. The SHARE Information Act, however, would remove that safeguard.

The SHARE Information Act has been billed by some consumer advocacy groups as a measure to increase public safety, but it may have the opposite effect. The CPSA’s current confidentiality provisions encourage companies to report potential product safety hazards quickly to the CPSC because those reports will not be made public if—as is often the case—they turn out to be false alarms. If the SHARE Information Act passes, however, companies would not be able to prevent the CPSC from immediately and publicly characterizing a reported issue as a safety hazard before it conducts an investigation to confirm the danger. Indeed, given the drastic effect an inaccurate CPSC announcement could have on business, companies may delay sharing information about potential product hazards. Instead, companies may conduct their own independent investigation before reporting to the CPSC—leaving dangerous products on the market undetected and threatening consumers’ safety.

Recent CPSC Actions Show Potential Risks of Unilateral CPSC Reports of Product Hazards

The problems the SHARE Information Act could create have already been previewed in several of the CPSC’s recent unilateral actions, which have left companies uncertain about how to comply with the CPSC’s expectations. Last March, the CPSC announced that clothing storage units that did not comply with a voluntary tip-over safety standard, ASTM F2057-17, would be considered a “substantial product hazard.” This announcement effectively created a mandatory standard without any formal rulemaking. Later in 2019, ASTM issued a revised standard, ASTM F2057-19, which, for the first time, included guidance for determining the appropriate weight for a television placed on a clothing storage unit and revised the required warning label. The CPSC has not clarified its stance on ASTM F2057-19, leaving companies in the dark about what tests their products should meet.

Amid the uncertainty over the CPSC’s approach to the voluntary clothing storage unit tip-over standard, in January 2020 the agency issued a rare unilateral release warning of a “serious tip-over hazard” posed by Hodedah HI4DR four-drawer dressers and identifying four retailers who had sold the dressers. Notably, the warning did not identify which tip-over standard the CPSC used to test the dresser. Instead, the warning stated only that the CPSC tested the dresser and “found that it is unstable and can tip over if not anchored to the wall, posing serious tip-over and entrapment hazards that can result in injuries to children or even death.”

Presumably, given the CPSC’s suggestion that it “intends to continue pressing the case for a recall with Hodedah,” the company was given notice of the CPSC’s intent to disclose this information but chose not to seek an injunction. But the Hodedah experience should be concerning for manufacturers and retailers alike, particularly if the SHARE Information Act passes in its current form. If the threat of an injunction preventing disclosure is eliminated, companies can expect more frequent—and perhaps even bolder—announcements from the CPSC about unconfirmed product hazards.

Potential Consequences for Retail Companies

The SHARE Information Act could create substantial liability for retail companies. This risk is compounded if the CPSC does not provide clarity as to the standards it expects consumer products to meet. It is no secret that the CPSC regularly tests a wide range of products for compliance with its regulations and voluntary standards. Companies, however, will often not be aware that the CPSC has tested their products. Without recourse to prevent the disclosure of inaccurate, misleading or otherwise premature information, an announcement from the CPSC about an alleged product hazard found during testing could cause significant disruption for businesses.

Whether or not the SHARE Information Act passes, the CPSC’s recent actions should encourage retail companies to evaluate their relationships with suppliers and manufacturers to ensure that appropriate indemnification agreements exist. Recall insurance is available and can be an effective tool to defray the costs of recalling a product from the market. Companies should also prepare crisis management plans designed to streamline communication both internally and externally should reports of product hazards be received.

The shadow of an inaccurate public report of a product hazard by the CPSC would loom large over a company. Consumer advocacy groups closely track CPSC activities and recalls and highlight companies whose products are affected, increasing pressure on companies from their customers. That publicity also tends to be fruitful fodder for enterprising plaintiff’s lawyers, who will undoubtedly look to capitalize early and often by filing product liability lawsuits touting any unfavorable CPSC findings. The weight of those findings may be persuasive to juries—even if companies present evidence proving that no hazard existed.