GHTA White Paper                                                                                                           Proposition 65

                       
Consumer Safety Issues in the Gift Industry
(California's Proposition 65)

Introduction

If you're in the gift industry, you probably don't spend a lot of time thinking about drinking water legislation in the State of California.  In fact, unless you've been contacted or named in a lawsuit, you may have never heard of California's Proposition 65 and/or the many similar regulations popping up nationwide including the new federal ban on lead and phthalates in children's products adopted by Congress and signed into law on August 14, 2008 (Consumer Products Safety Improvement Act of 2008 "CPSIA").

Do you know if all of your products are Proposition 65 compliant? 

If you can't answer that question affirmatively and with confidence, and/or if you've always assumed Prop 65 doesn't apply to you, then please read on.  Here are some common misconceptions about Proposition 65 and similar legislation (referred to as "Prop 65"):

• Prop 65 doesn't apply to my products:  This is not a safe assumption unless you've actually tested your products for compliance.  Prop 65 affects a HUGE array of consumer products.  Past lawsuits have targeted candles, brass darts, christmas lights, hammers, mineral oil, billiard cue chalk, picture frames, french fries, chocolate, jewelry, ceramics, glass bottles, apparel, lunchboxes, and many, many other types of products.
• I don't sell into any states with this legislation: Prop 65 is the first example of what now appears to be a national trend toward state-level enforcement of product safety standards.  That means that literally every single state could have its own safety standards, and vendors will be expected to comply with those standards or face a lawsuit.  It is well worth understanding this trend as it is sure to impact your business in the years ahead.
• If Prop 65 was a "big deal" I would already be hearing about it in the industry: Most defendants quietly settle their lawsuits to avoid a highly public defense, which can be a PR disaster.  Dozens of small-to-midsize gift industry vendors have already settled significant Prop 65 lawsuits.  Most large vendors have been named in multiple lawsuits.  But almost nobody wants to discuss their lawsuits publicly.
• My products have never hurt anyone! The plaintiff in a Prop 65 lawsuit is not someone who has been injured or harmed by your product.  Prop 65 offers a major financial incentive for "bounty hunter" attorneys to find products that violate the legislation and to prosecute those violators accordingly.  The nature of the violation is usually related to labeling, not the danger posed by product itself.

If you sell consumer products in the United States, then Prop 65 is something you will want to be aware of.   If you sell consumer products intended for children or having play value your products are covered by the new CPSIA.  This GHTA White Paper provides an overview of Prop 65 and the CPSIA, describes how they are and will be affecting companies in the gift industry, and provides some additional sources of information.

Prop 65 Lawsuit: a Gift Industry Case Study

A GHTA member describes his experience with Prop 65:

The whole mess started in 2006 when I got a package from a small, California-based law firm saying that my company had violated a Drinking Water law.  My initial response was: that makes NO sense since our products have nothing to do with drinking water!!  The letter said I was about to be sued.

The people suing me had a non-profit group called the Center for Environmental Health (CEH) and they were represented by a lawyer.  I looked up the CEH website and learned that they were funded from the proceeds of these lawsuits.  Their lawyer was an "expert" in this kind of thing.  If I settled, he was going to get most of the money.

I got in trouble because the CEH bought one of my items in a store, tested the item in a laboratory, and found a trace amount of lead.  They were actually out in stores buying products and taking them home for testing!  My item did not have the required Prop 65 warning label, so they sued me.  Please keep in mind that in 30+ years of continuous operations nobody has ever claimed to be hurt by one of my products.

I checked my accounting system and it turns out the item generated less than $100 in total sales in the State of California!  After more than a year of arbitration and legal costs, I've invested $75,000+ in cash expenses to say nothing for hundreds of hours of my time and my employee's time to reach a settlement. 

Ouch!!  Needless to say, I'm going to be MUCH more careful about the testing and labeling going forward.  I hope my story can help alert other vendors out there who aren't prepared.  This issue was completely off my "radar screen" until I was actually named in a lawsuit!

This story is not uncommon.  Between 2000 and 2006 the California Attorney General reported 1,309 Prop 65 settlements totaling $81 million.  Since 2000, Prop 65 violations have generated over $52 million in legal fees for prosecuting attorneys.   These "bounty hunter" attorneys capitalize on small to midsize companies who prefer to reach a negotiated settlement rather than engage in a protracted legal defense.  The gift industry is a rich target for these lawsuits.

Even though Proposition 65 is a California regulation, it is an important topic for everyone in the gift industry.  Illinois recently passed the 2006 Illinois Lead Poisoning Prevention Act, which is similar to Proposition 65.  Other states are proposing similar regulations.  Many observers believe this is the beginning of a national trend toward state-level regulation of consumer safety standards. 

Proposition 65 Overview

What is Proposition 65?

California's Proposition 65, also known as the "Safe Drinking Water and Toxic Enforcement Act of 1986," is a voter approved initiative designed to protect California residents from exposure to harmful substances.  The basic elements of the Act are as follows:

• The state maintains a list of substances that cause cancer, birth defects, and/or reproductive harm.  There are about 775 substances currently on the list.
• The acceptable level of a particular substance is based on the risk it poses to humans.  For example, it can cause no more than 1 additional cancer case per 100,000 people over a 70-year exposure period.
• Businesses are required to provide notification before they expose consumers to an unacceptable level of any substance.  Notification might include:

o A warning label on a product
o A newspaper advertisement
o A posting at an apartment complex

• If a business exposes California residents to more than an acceptable level of a named substance and the business fails to provide adequate warning, the business is in violation of the act.
• The California Attorney General is responsible for enforcing the act.  However, anyone can bring suit in civil court as long as they provide at least 60 days' notice to the Attorney General.

This last point is critical: anyone can bring suit in civil court.  The State Attorney General, due to its limited resources, is not capable of enforcing the regulation alone.  Instead, the regulation provides a "bounty" for non-governmental organizations who successfully prosecute the cases on behalf of consumers.  As a result, the majority of Proposition 65 suits and settlements are made by private law firms representing small, non-profit consumer advocacy groups.

What does Proposition 65 mean for gift vendors?

Stated simply: if you sell a product into the state of California and that product contains more than the allowed amount of any listed substance, you must provide a warning label on the product.  An example of a warning label is provided below:

WARNING:  This product contains chemicals known to the State of California to cause cancer and birth defects or other reproductive harm.

If your product contains more than the allowable amount of a listed substance and you do not provide this warning label on the product, you are in violation of Prop 65 and you are risking a lawsuit.  Penalties can range up to $2,500 per day per violation, and can add up very quickly.

How do I know if my products contain more than the allowed amount of a listed substance?

The California Office of Environmental Health Hazard Assessment (OEHHA) publishes "Safe Harbor Numbers," which provide guidelines for the allowable amounts of the most common listed substances.  If your products contain less than the safe harbor amount, they are determined to pose no significant risk to consumers and therefore do not require labeling.

Certain product categories (such as ceramics, tableware, and jewelry) receive unique treatment under Proposition 65.  Check to see if your products are included in one of these categories.  It is not safe to assume that because your products comply with federal safety standards they will also comply with state standards.

I've been named in a Proposition 65 lawsuit, what should I do?

First, determine whether you are exempt from Proposition 65 labeling requirements.  Small businesses with fewer than 10 employees are exempt, as are Government Agencies and Public Water Utilities (and if you're reading this, you're probably not one of them!).

If you are not exempt and you are named in a lawsuit, contact an attorney who specializes in Proposition 65 matters.  A California attorney with significant experience in this area may achieve a more favorable result than your general corporate attorney.  Most defendants opt to settle without going to court.  In some cases, defendants band together and hire a single attorney to minimize expenses and achieve a more favorable result. 

The new federal law applies its lead and phthalate bans to all children's products, toys and child care articles respectively across the country.  It also requires that manufacturers, importers, and private labelers certify that their covered products are tested for compliance with the standards contained in the Act as well as certain types of products require testing and certification from third-party CPSC accredited laboratories.  Both types of certificates are required to accompany a product at customs and be furnished to the retailer.  The ASTM Toy Safety Standard (F963) is adopted as a federal safety rule under the CPSIA and all covered products will have to be permanently marked with the name and address of the manufacturer, the date of manufacture and the batch or run number under the new trackability standards.

The  GHTA will post more specific information about the CPSIA on its website.  In addition, the CPSC website is http://www.cpsc.gov/.

For More Information

Office of Environmental Health Hazard Assessment
http://www.oehha.ca.gov/prop65.html

Wikipedia
http://en.wikipedia.org/wiki/California_Proposition_65_(1986)

General Information
http://www.calprop65.com/prop65.html

Proposition 65 Enforcement Reporting
http://ag.ca.gov/prop65/

Example of a Non-Profit Proposition 65 Plaintiff
http://www.cehca.org/

Testing & Compliance Company
http://www.bureauveritas.com/

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