Staying Silent Can Cost You
In the Fall of 2002, Ann Brown, head of the U.S. Consumer Products Safety Commission (CPSC), proclaimed that San Francisco-based Williams-Sonoma was “leading the way on recall effectiveness” as she honored the company with her prestigious Chairman’s Commendation. “Williams-Sonoma has demonstrated their commitment to consumer safety, by ensuring that customers were properly notified of a dangerous recalled product.” Unfortunately for this upscale retailer, Ms. Brown is no longer at the Commission and it is not 2002. This May, in a stunning reversal of fortune, CPSC has smacked Williams-Sonoma with a whopping $987,500 civil penalty for failure to timely report a product defect. Draconian as it seems, this stunning and eye-popping penalty may soon seem modest. Well-informed sources predict it is only a precursor of much larger penalties in the works. The message of the 2013 Commission is clear: Follow the letter of the law or be prepared to pay an astronomical penalty and then be compelled to follow the law with a costly CPSC-imposed mandatory compliance program.
So what can distributors and suppliers in the promotional industry learn from this case that they can use to protect their businesses?
Williams-Sonoma ran afoul of the critical Section 15(b) reporting requirements of the Consumer Product Safety Act. Among other obligations, Section 15 requires manufacturers, importers, distributors and retailers of consumer products to notify the Commission immediately whenever the company has information that one of its products contains a defect which could create a substantial hazard or creates an unreasonable risk of serious injury or death. Strategy #1: Assign a senior person in your company to learn the Section 15 reporting requirements.
Change a few details and the story of what happened to Williams-Sonoma could have happened to any company in our industry – promotional products suppliers who import product and distributors who sell it. In this case, William-Sonoma did both. In 2003 they began importing wooden hammock stands to sell through their Pottery Barn division. From 2003–2008, Pottery Barn sold 30,000 units. According to CPSC, when the hammock stand is used outdoors its metal brackets can trap moisture causing the wooden beams to rot over time behind the bracket and giving no outward sign until someone sits in the hammock and the beam breaks. During this five-year span the company received 45 complaints of which 12 incidents required some medical attention. The Commission claims that Williams-Sonoma knew by late 2006 – after it had received eight complaints – that the product had a defect which created a substantial product hazard, however Williams-Sonoma did not file a Section 15 report with CPSC until September 2008 – two years later!
If this case was typical, Williams-Sonoma most likely learned about the defective hammocks through a variety of customer interactions that may not have been passed on to one central repository. Some customers might have placed warranty claims and only mentioned the bumps and bruises in passing. Others might have come in to a store for a refund, written a letter, called an 800 number, complained via a Web contact form or even posted on CPSC’s new “Safer Products” site. Whether a company is large or small, information – even bad news – can permanently reside in silos when the people receiving the information don’t appreciate its implication or aren’t aware of related incidents. Without specific training and a robust initiative, employees in the field might receive a customer complaint—perhaps over the phone or in passing during an unrelated conversation—and dismiss it as insignificant, not their responsibility or not serious enough to report. Teach your team that every product complaint is potentially significant. Every complaint, claim, or incident report should be relayed to a central repository, logged and followed-up on thoroughly. Be sure to have a trained individual call the consumer to discuss what happened and to make sure your incident report is accurate and that no details have been sugarcoated. Ask for the product to be returned so you can see for yourself what went wrong and determine whether the issue constitutes a substantial product hazard. Strategy #2: Educate employees to communicate every product related complaint to one person or department knowledgeable about Section 15 requirements, who has the authority to report to CPSC or to quickly raise the reporting issue to someone who does. Investigate every incident thoroughly and get first-hand information about what happened whenever you can. Ask for the product back to carefully evaluate what went wrong and whether further action is required.
A common myth, and why some companies may not report, is the fear that Section 15 reports will automatically result in a costly “corrective action”, a term CPSC uses to refer to any remedial action taken by a firm, including recalls. CPSC denies this myth in an FAQ on its website: “Reporting a product to the Commission under section 15 of the CPSA does not mean that the Commission automatically will conclude that the product creates a substantial product hazard or that corrective action is necessary.” Instead, CPSC contends that aside from helping the Commission to identify substantial product hazards that Congress established the Section 15 reporting requirements to encourage “widespread reporting…. to help identify risks that the Commission could address through voluntary or mandatory standards, or information and education.” I posed this myth question to a prominent product safety attorney who regularly practices before the Commission. He confirmed that many Section 15 reports result in no action and advised that companies should err on the side of “over-reporting.” Indeed, the risks inherent in a Williams-Sonoma-sized civil penalty alone should inform any company’s consideration of whether or not to report. Strategy #3: Err on the side of “over-reporting” when you learn of a product defect that could create a substantial hazard. If the risk is not substantial, CPSC will not likely take action. If the risk is substantial and you do not report, the potential civil penalties can be massive. This Commission has already shown in the Williams-Sonoma and Kolcraft matters that it will not hesitate to invoke stiff penalties for late reporting.
CPSC allows Section 15 reports to be filed through it’s SaferProducts.gov website, by mail, or by telephone, and can be submitted by the reporting company or its attorney. The most important thing is to file the report timely, however it is always advisable when dealing with regulatory agencies to do so with the advice of an experienced attorney who specializes in that area of the law. Reporting companies should be prepared with the information that CPSC staff will need to evaluate the product hazard and determine if further action is required. The more organized and complete a company’s records are, the easier time it will have responding to Commission staff queries. The initial questions are what you would expect: What is the product? Who is the manufacturer or importer? Where is the product sold? What is the defect, injury or risk? How many units have been sold? How many complaints or incidents involving the product have been reported? Were there any injuries reported? If the investigation continues beyond an initial stage, the information requested by CPSC can get much more detailed. Strategy #4: Keep complete and accurate records about the products you sell. This should include such product related items as sales and purchasing records, test reports, history of complaints, warranty claims, returns, and any other relevant information you may have. The information should be stored in a database and easily searchable by the individual you empower to evaluate product defects and make Section 15 reports.
It is very easy – actually tempting – to read about someone else’s misfortune and assume for one reason or another that it can’t happen to you. But if you sell consumer products – and our entire industry does – it can happen to you and maybe easier than you think. Product defects that that have the potential to cause injury can happen to any company that makes or sells products. Consider this: Williams-Sonoma has a long history of managing recalls – so much so that CPSC recognized its outstanding systems a decade ago. Yet even with a compliance staff, a sophisticated database tracking system and a history of managing recalls effectively, a serious product defect fell through the cracks and cost the company dearly. Take the time to evaluate your company’s system for evaluating products, for logging and monitoring complaints, returns and claims, and for determining whether any product related issue has the potential to create a product hazard substantial enough to warrant a Section 15 report. Strategy #5: Just as you would monitor any other Key Performance Indicator, establish KPIs for monitoring your systems for tracking product related issues to ensure that no potential product hazard falls through the cracks to later become an albatross for your company.
 In March 2013, two months before the Williams-Sonoma civil penalty, Kolcraft Enterprises Inc. of Chicago agreed to pay a $400,000 civil penalty for failure to timely report defects involving faulty latches on the sides of several of the play yard products it manufactured for Carter’s, Sesame Street and others. In both the Kolcraft and Williams-Sonoma Settlement Agreements CPSC imposed mandatory compliance programs.
This article appears in the August 2013 issue of PPB Magazine