United States: Doing Business In The USA: Consumer Protection Law

Companies seeking to do business in the United States should be aware that a broad range of U.S. consumer protection laws will apply to any products they manufacture, distribute or sell. The sources of these consumer protection laws include federal and state statutes as well as judicial decisions that interpret these statutes, and also establish judge-made "products liability" law.

Judicial authority in the U.S. imposes liability on manufacturers, distributors and retailers for injuries and damage caused by product defects to users of the product or to bystanders who are proximately injured or damaged by the product. Products liability is usually based on legal theories of negligence, breach of warranty or strict liability.

Under "strict liability," a manufacturer, distributor or retailer may be liable for injuries from product defects regardless of the precautions taken. Generally there are three categories of "defects" for purposes of products liability:

1. A manufacturing defect (when the product departs from its intended design even though all possible care was taken in its preparation and marketing);
2. A design defect (when the harm could have been reduced by a reasonable alternative design); and
3. Inadequate warning (when the harm could have been avoided or reduced through the use of reasonable instructions or a warning).

Although these are the most common means to determine the existence of a defect, state law can vary in its determination of product defects.

The chain of strict liability does not end with the manufacturer of a product. Distributors and retailers who market "defective" products also may be strictly liable. Under certain circumstances, distributors and retailers may be permitted to shift their liability to the manufacturer. Careful contract and purchase order drafting is important in this regard.

Certain defenses may apply even against a strict liability claim. If the consumer misuses or alters the product, this could limit or even preclude recovery under a strict liability theory.

Generally, the term "product" is broadly construed under products liability law. However, services alone are not considered products.

A non-U.S. company may be subject to the jurisdiction of U.S. courts for products liability even though they may only have limited direct dealings within the U.S. Generally, a U.S. court may exercise jurisdiction over a foreign company if (a) the company has "minimum contacts" with the forum, and (b) the exercise of jurisdiction would not offend traditional notions of fair play and substantial justice. Determining jurisdiction pursuant to the minimum contacts test is fact-sensitive and difficult to predict. Essentially, if it is reasonable that a product will end up in a particular jurisdiction, so that a company could avail itself of that jurisdiction’s laws, that company can be sued in such jurisdiction.

A non-U.S. company may have sufficient contact for jurisdictional purposes by merely sending a product into the stream of commerce in the U.S. For example, a non-U.S. company can be held liable for defective products distributed in the U.S. by its wholly-owned subsidiary—even though the parent company has no direct contact with the U.S.

Many federal statutes deal with consumer protection. Each of these "Acts" is generally administered and enforced by a federal government agency. This section describes several of these agencies and some of the Acts under their purview.

The CPSC is an independent federal regulatory agency created by the Consumer Product Safety Act. In that law, Congress directed the Commission to "protect the public against unreasonable risks of injuries and deaths associated with consumer products."

The CPSC has jurisdiction over approximately 15,000 types of consumer products. Not all products fall under the auspices of the CPSC. Some particular products are covered by various other federal agencies, discussed below.

The goal of the CPSC is to reduce the risk of injuries and deaths from consumer products by:

• Developing voluntary standards with industry;

• Issuing and enforcing mandatory standards;

• Banning consumer products if no feasible standard would adequately protect the public;

• Obtaining the recall of products or arranging for their repair;

• Conducting research on potential product hazards; and

• Informing and educating consumers through the media, state and local governments, private organizations, and by responding to consumer inquiries.

Below are several federal statutory schemes governed by the CPSC. While this list is not exhaustive, it should give insight to the overall function of the CPSC and how it relates to the manufacture or distribution of goods for use in the U.S.

2.1.1 The Consumer Product Safety Act. Consumer products are primarily regulated by the CPSC pursuant to federal safety regulations set forth in the Consumer Product Safety Act (CPSA). The CPSA aims to protect the public from unreasonable risk of injury from consumer products by establishing uniform safety standards for consumer products. It applies to consumer products produced or distributed by manufacturers, distributors, private labelers and retailers.

Consumer products, as defined in the CPSA, are those articles or components thereof that are produced for, distributed to, or intended for personal use in and around a permanent or temporary household or residence, or a school, in recreation or otherwise. Products specifically excluded from the scope of the CPSA include aircraft, aircraft engines and appliances, certain boats and vessels, cosmetics, drugs, firearms, food, motor vehicles and motor vehicle equipment, pesticides and tobacco products.

The CPSC is authorized to set safety standards as to consumer product performance, composition, contents, design, construction, finish, packaging and labeling. In general, the manufacturer of a consumer product subject to regulation must issue a certificate announcing compliance with the applicable standards, and must label the product with the date and place of manufacture, the identity of the manufacturer, a certification of compliance with any applicable rule, and a brief description of such rule.

The primary sanction for failure to comply with rules under the CPSA is the denial of entry into the U.S. of the imported goods. In addition, the CPSC may initiate seizure and condemnation proceedings if the product is determined to be imminently hazardous. When the CPSC designates a product as a substantial hazard, the CPSC may require the manufacturer to give public notice of the product’s defect or non-compliance and either make repairs, replace the product, or give refunds to consumers. Also, a manufacturer who knowingly violates any rule and whose product subsequently injures any person may be subject to civil fines and criminal penalties.

It should be noted that compliance with the CPSA will not necessarily insulate a manufacturer from liability to a person injured by its product.

2.1.2 Federal Hazardous Substances Act. The CPSC administers the Federal Hazardous Substances Act (FHSA), which provides for the labeling of substances that may cause substantial personal injury through their ordinary or reasonable use. Such substances include toxic, corrosive, irritant or flammable agents. The FHSA also bans toys that contain hazardous substances or present electrical, thermal or mechanical hazards.

The CPSC may inspect any place where hazardous substances are being manufactured, processed, packaged, or held for introduction to interstate commerce, or held after such introduction, or enter any vehicle being used to transport or hold such hazardous substances, in order to verify conformance with the FHSA. Products that fail to comply with the FHSA labeling requirements are denied entry into the U.S., and if re-labeling will not correct the problem, the substance will be destroyed if not re-exported.

2.1.3 The Flammable Fabrics Act. The CPSC governs the Flammable Fabrics Act (FFA), prohibiting the importation, manufacture, transportation or sale of any wearing apparel, interior furnishings, fabric or related material that fails to conform to applicable flammability standards as determined by the CPSC. Failure to comply with the FFA may result in the product’s seizure and confiscation. Additionally, the CPSC can impose civil penalties or criminal misdemeanor penalties for willful violations of the FFA.

2.1.4 The Household Refrigerator Safety Act. The CPSC also administers the Household Refrigerator Safety Act, which requires that all household refrigerators being transported in interstate commerce have a device that allows the door to be operated from the inside. Violation may result in a civil fine or criminal penalty, or both.

2.1.5 The Poison Prevention Packaging Act. The Poison Prevention Packaging Act of 1970 establishes labeling and packaging requirements for those household products that pose a risk of accidental poisoning or serious injury to children or the elderly.

The FDA ensures that food is safe and wholesome, that cosmetics won’t cause harm, and that medicines, medical devices, and radiation-emitting consumer products, such as microwave ovens, are safe and effective. It also oversees feed consumed by pets and farm animals and regulates drugs that are administered to them. The FDA enforces the federal Food, Drug, and Cosmetic Act (FDCA) and several other public health laws. The agency monitors the manufacture, import, transport, storage and sale of $1 trillion worth of goods annually.

The FDCA prevents admission to the U.S. of any product that (i) has been manufactured, processed or packed under unsanitary conditions; (ii) is forbidden or restricted for sale in the country where the product was produced or from where the product was exported; (iii) has not received approval as a new drug; or (iv) is adulterated or mislabeled. Although the FDA may not determine compliance with the FDCA prior to the entry inspection, companies may submit samples to the FDA and testify before the FDA in order to determine whether a product meets applicable standards.

Sanctions for non-complying products include, besides the denial of admission and seizure, destruction if the products are not re-exported and possible criminal penalties for knowing violations.

The mission of the U.S. Environmental Protection Agency is to protect human health and to safeguard the natural environment, including air, water, and land.

Certain imported products may come within the purview of the EPA, which administers the Toxic Substances Control Act (TSCA) and the Environmental Pesticide Control Act (EPCA).

2.3.1 The Toxic Substances Control Act. The TSCA restricts the import of substances that pose an unreasonable risk to health or the environment. It sets up a national scheme to protect humans and the environment from the dangers of toxic substances. The Secretary of the Treasury will refuse entry into the U.S. of any substance that violates the TSCA. If the importer fails to export the substance, it may be disposed of or stored, with the importer liable to the U.S. for liquidated damages. Violations of the TSCA can result in civil penalties assessed daily and criminal imprisonment for knowing or willful violations.

2.3.2 The Environmental Pesticide Control Act. EPCA provides labeling and packaging procedures for pesticides. Upon importation of a pesticide, the EPA is notified and will receive a sample of the substance. If it is adulterated, misbranded or otherwise violates the EPCA, it will not be admitted. If it is not removed by the importer, it will be destroyed. Penalties range from civil fines to imprisonment for knowing violations

The ATF is a law enforcement organization within the U.S. Department of Treasury with responsibilities dedicated to reducing violent crime, collecting revenue and protecting the public. ATF enforces the federal laws and regulations relating to alcohol, tobacco, firearms, explosives and arson.

The sale, advertising and labeling of alcoholic beverages (liquors, wines, etc.) is governed by the Federal Alcohol Administration Act, administered by the Secretary of the Treasury. Violations can result in civil fines assessed daily. Substantial state regulation typically applies as well to these beverages.

The FTC enforces a variety of federal antitrust and consumer protection laws. In its antitrust role, the FTC investigates evidence of monopoly power in the marketplace, including predatory pricing and price-fixing. The antitrust laws are broadly aimed at controlling anti-competitive business power, including contracts in restraint of trade. The FTC seeks to ensure that the nation’s markets function competitively, efficiently, and are free of undue restrictions.

The FTC also works to enhance the smooth operation of the marketplace by eliminating acts or practices that are unfair or deceptive. In general, the FTC’s efforts are directed toward stopping actions that threaten consumers’ opportunities to exercise informed choice.

Finally, the FTC is in charge of various consumer protection labeling laws, including the Wool Products Labeling Act, Fur Products Labeling Act, and Textile Fiber Products Identification Act. In general, these laws provide specific guidelines for the labeling of the products concerned. The FTC also oversees the labeling of cigarettes according to the Federal Cigarette Labeling and Advertising Act (FCLAA). The FCLAA also requires cigarette manufacturers, packagers and importers to report a list of ingredients to the Secretary of Health and Human Services.

The Secretary of Transportation issues safety standards for the importation of motor vehicles and equipment. Imported motor vehicles must comply with numerous safety standards as a prerequisite to entry into the U.S. In addition, federal law imposes a duty on manufacturers to remedy any subsequently discovered safety standard violation or safety-related defect.

Other types of vehicles, such as mobile homes and boats, are regulated by the National Mobile Home Construction and Safety Standards Act and Subtitle II, Vessels and Seamen, of Title 46 of the U.S. Code.

The National Highway Traffic Safety Administration (NHTSA), under the U.S. Department of Transportation, carries out safety programs under the National Traffic and Motor Vehicle Safety Act of 1966 and the Highway Safety Act of 1966. The NHTSA also carries out consumer programs established by the Motor Vehicle Information and Cost Savings Act of 1972.

The NHTSA is responsible for reducing deaths, injuries and economic losses resulting from motor vehicle crashes. This is accomplished by setting and enforcing safety performance standards for motor vehicles and motor vehicle equipment, and through grants to state and local governments that enable them to conduct effective local highway safety programs. It investigates safety defects in motor vehicles, sets and enforces fuel economy standards; helps states and local communities reduce the threat of drunk drivers; promotes the use of safety belts; child safety seats and air bags; investigates odometer fraud; establishes and enforces vehicle anti-theft regulations; and provides consumer information on motor vehicle safety topics.

The United States Department of Agriculture administers quarantine regulations for the importation of plants and plant products, livestock, meat and poultry, and products produced from animal parts, including bird feathers and animal hides. Imported agricultural produce is subject to size, quality and maturity standards. The importation of live birds and animals, which is highly restricted, is also subject to quarantine regulations. Any live bird or animal is subject to endangered species laws and laws concerning the legality of any such bird or animal’s capture, possession or exportation.

Companies interested in doing business in the United States should also be aware of the Magnuson-Moss Warranty Act (MMWA). The MMWA is designed to make consumer product warranties more understandable and increase consumer warranty protection. For purposes of the MMWA, consumer products are defined as tangible personal property distributed in commerce and normally used for personal, family or household purposes. Any consumer damaged by the failure of a warrantor to comply with a warranty obligation may bring a suit for damages in state or federal court. A successful consumer can seek costs and attorneys’ fees. The MMWA provides an additional layer of protection to state consumer warranty laws.

In many cases an exception to consumer protection laws applies for those products that are only imported for re-export, provided that the products are so labeled and do not place U.S. consumers at an unreasonable risk of injury.

Companies should also be aware that their products will most likely be subject to a multitude of state laws and regulations, which in some instances may be more stringent than corresponding federal provisions. The sheer number of these laws and regulations precludes any substantive discussion here of their impact to foreign manufacturers and distributors. Prior to introducing a product into a particular state, a close examination of that state’s laws is necessary to prevent unnecessary exposure.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.