Overview. Introduction To The Revised GPSD

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1 KELLER AND HECKMAN LLP Serving Business through Law and Science The Revised EU General Product Safety Directive ( GPSD ) and the EU Product Liability Directive: Considerations for Global Consumer Product Manufacturers Overview Companies today operate in an increasingly complex and interconnected global environment. With computer-aided design capabilities, product development and design can occur almost anywhere. Raw materials, components and finished products are sourced globally and may end up being sold in every corner of the world. Regulators increasingly recognize the reality of globalization, and legislative and regulatory instruments are proliferating. The rise of the Internet, which has helped advance more globalization, also makes possible increased information-sharing and cooperation between regulators, something that the U.S. Consumer Product Safety Commission (CPSC) has actively promoted for the past few years. We examine here some of the differences and similarities between U.S. and EU approaches to product safety of interest to international manufacturers, importers and sellers of consumer products. Introduction To The Revised GPSD On January 14, 2004, a revised General Product Safety Directive ( GPSD )(Directive 2001/95/EC) came into force in the EU. It replaced the earlier GPSD (Directive 92/59/EEC) aimed at ensuring the safety of consumer products placed on the EU market. Under the revised GPSD, producers of products intended for consumers have a general duty to place only safe products on the market. The GPSD also puts in place a system of notification (rapid alert system or RAPEX ) by Member States to the EC Commission and other Member States. The RAPEX system has some parallels to CPSC procedures, but there are significant differences between the U.S. and the EU regulatory structure and enforcement authority, beginning, of course, with the need for companies to be cognizant of regulatory obligations under Member State law. Any national measures restricting unsafe products (or requiring a product recall) on the market must be reported by Member States to the Commission. The GPSD may be viewed as a natural extension of the Product Liability Directive, Directive 85/374/EEC. That Directive adopted strict liability principles under which manufacturers and sellers of products can be found liable for damages caused by product defects even in the absence of proof of fault. Nevertheless, given significant legal and practical differences in the litigation environment between the U.S. and EU, product liability litigation exposure remains significantly higher in the U.S. PAGE 1 of 8

2 Scope of the GPSD The GPSD applies only to consumer products placed into the EU marketplace. Consumer products covered under the GPSD must be: intended for or made available to consumers; likely, under reasonably foreseeable conditions, to be used by consumers; and supplied in the course of commercial activity. This means, for example, that products intended for professional use, but which foreseeably might be used by consumers, would be considered consumer products for purposes of the GPSD. The GPSD also applies to products provided in the context of some services, e.g., machine rental, but not others that are more indirect, e.g., escalators in shopping centers or grocery stores carts provided by a supermarket. Further, the GPSD applies, albeit only partially, to consumer products that are more comprehensively treated under EU sector or product-specific Directives. In addition, several product categories, like pharmaceuticals, certain medical devices, and food and feed products, are not included at all under the RAPEX system. Whether a product covered by specific provisions of other Directives still may be subject to the GPSD is a difficult test that must be made on a case by case basis. For example, a food contact material that meets the additive migration provisions of EU food contact Directives may nevertheless be unsafe under the GPSD to the extent that a piece of the package could be swallowed by children, or the package itself posed other hazards. 1 What Producers and Distributors Must Do Under the GPSD The GPSD is designed to ensure that consumer products distributed within the EU are safe. Manufacturers have a general duty to place only safe products on the market. All producers or distributors of consumer products must take steps to: Be informed of risks posed by products placed on the market; Take measures to prevent such risks; 1 Similar to the GPSD, for example, with respect to food packaging, the US Food and Drug Administration (FDA) has jurisdiction over issues related to migration of additives into food, while the US Consumer Product Safety Commission (CPSC) has jurisdiction over the physical hazards associated with the package under a Memorandum of Understanding between the agencies. PAGE 2 of 8

3 Have the ability to trace dangerous products on the market in the event of a recall; Provide consumers with relevant information about risks; Producers must identify themselves on all packaging to give the purchaser a point of contact; Provide adequate warnings and instructions to consumers; Take steps after the product has been marketed to ensure safety (e.g., sample-testing, reporting complaints, distributing information to distributors); Keep adequate records of all safety measures taken; Establish a policy for handling consumer complaints and incidents involving defects or potentially unsafe products; Notify Member States about dangerous products and actions taken to prevent risk; Work and cooperate with EU authorities; Not export to non-eu countries any product that is subject to an emergency ban or recall; Establish a policy to handle enforcement actions; and Know the laws of individual Member States and review and comply with industry standards governing product safety. U.S. and EU Product Safety Reporting Requirements In the U.S., under the Consumer Product Safety Act (CPSA), importers, manufacturers, distributors, and retailers of consumer products are required to report to the CPSC about product risks. Specifically, these entities must report immediately to the CPSC any information which reasonably supports the conclusion that a product a) does not comply with CPSC safety regulations; b) contains a defect which creates a substantial product hazard; or c) creates an unreasonable risk of serious injury or death. Firms must report on product defects to the CPSC if evidence on similar products sold outside the U.S. is relevant to actual or potential hazards created by products sold in the U.S. If firms do not report to the CPSC in a timely manner, they are subject to penalties of $7,000 per product in commerce, currently capped at $1.65 million per product line. Firms also have duties to report to the CPSC about incidents involving children choking on small balls, balloons, and small parts in games and toys, as well as to report about product lawsuits under certain circumstances. Similar penalties also apply for failure to report in these circumstances. Firms are not responsible for reporting to individual state authorities in the U.S., a significant contrast to the situation in the EU, where reports of product safety issues initially go to Member State authorities. PAGE 3 of 8

4 Under Article 5(3) of the GPSD, producers and distributors must immediately inform their individual Member State authorities, not the EC directly, when they know, or ought to know, that a product they placed on the market poses risks to the consumer that are incompatible with general safety requirements or when they have taken any actions to prevent risks to the consumer regarding a particular product. There are two significant substantive differences between the GPSD and CPSC reporting requirements. The GPSD does not specially require producers or distributors to report product-related choking incidents involving children, or lawsuits involving consumer products. Moreover, unlike the CPSA and its implementing regulations, the GPSD itself does not prescribe detailed guidance on when to report or impose specific penalties for failure to comply with Article 5(3). The GPSD does, however, provide that Member States must adopt rules on penalties applicable to infringements, and that penalties must be effective, proportionate, and dissuasive. Member States will determine their own individual penalties for failing to report. Producers and distributors should be familiar with the individual laws of Member States and published industry safety standards on product safety. Under Article 3 of the GPSD, products are deemed safe if they comply with Member States product safety laws. Products are presumed safe if they comply with voluntary national standards for product safety. The GPSD also establishes a special rapid exchange system ( RAPEX ) for sharing information between the Member States and the Commission on measures and actions taken with regard to product safety. Member states evaluate the information provided by producers or distributors to determine if there is a serious risk to consumers. If so, they are required to notify the Commission of any voluntary measures taken by the manufacturer or distributor. Member States are expected to supply the following information (and thus Member States will have to obtain this information from the producers): Information to identify and trace the product or batch of products; Description of the risk; Identification of the producers and distributors; Action taken by producers and distributors to avoid risks to consumers; Final destination of the dangerous product; Follow-up actions taken by Member States to monitor effectiveness of the voluntary measures taken; Actions provided for in other Member States by the producers or distributors. Guidelines for RAPEX notifications identify a conceptual approach that may be used by enforcement officials to determine if a specific hazardous situation constitutes a serious risk under the GPSD. It involves first categorizing the severity of the hazard as slight, serious, or very serious, and then evaluating the probability of an adverse impact on health and safety. PAGE 4 of 8

5 The assessment of the risk level must be adjusted based on whether or not the consumer product will be used by vulnerable people (e.g., children and the elderly). Under the RAPEX system, Member States must notify the Commission as soon as possible (within 10 days) of decisions or measures relating to products presenting a serious risk to consumers. When a consumer product sold both in the EU and the U.S. is subject to a RAPEX notification because of a safety problem in the EU, chances are that the manufacturer will have information requiring a report to the CPSC before the RAPEX notification occurs. Consequently, EU obligations and actions taken within the EU under the RAPEX system must be a consideration for U.S. manufacturers operating under the GPSD. Cooperation and Information Exchanges The CPSC and the European Commission Directorate-General Health and Consumer Protection entered into an information-sharing agreement in February, The Roadmap for U.S.-EU Regulatory Cooperation announced at the June, 2004 U.S.-EU Summit identified enhanced regulatory cooperation on consumer product safety matters as an important objective. The agreement indicates that CPSC and the Directorate-General would cooperate and exchange information on: scientific, technical and regulatory information to help ensure consumer product safety; emerging issues of significant health and safety relevance; standardization activities; market surveillance and enforcement; risks identified and measures taken with respect to products originating within the respective territories; major withdrawal/recall operations of mutual interest; and risk assessment and product testing. The CPSC has entered into similar agreements or memoranda of understanding with other jurisdictions, including Canada, Mexico, India and China. Given the fact that an increasing percentage of recalled products are made in China (the CPSC signed an MOU with China in 2004), the CPSC has stepped up its focus on the safety of products made in China. Improving both the product safety and quality of Chinese-made products is a key goal of both U.S. and EU regulators. U.S. and EU Product Liability Laws: A Brief Comparison Apart from the differences between the regulatory notification processes in the EU and the U.S., there are some other distinctions between EU and U.S. product liability law in implementing product safety strategies. Distinctions include: Defining a safe product; The role of compliance with mandatory and voluntary standards in defenses or presumptions about safety; Obligation to consider foreseeable use and foreseeable misuse ; Burdens of proof in determining safe products; PAGE 5 of 8

6 Different presumed useful life of products on the market; Different rules on joint and several liability; and Differences in the basic legal systems with regard to filing suits, litigation costs, discovery, etc. Some important distinctions between U.S. and EU product liability law, and general product liability principles to consider in implementing a global product liability strategy are summarized in the table below. In brief, while both jurisdictions have embraced the legal theory of strict liability, product manufacturers, distributors, importers and sellers generally face more extensive liability in the U.S. than in the EU. Table 1: EU and U.S. Product Liability Law: A Brief Comparison Applicable Laws Covered Entities Statute of Limitations Statute of Repose EU Product Liability EU Product Liability Directive ( PLD ) 85/374/EEC, amended by Directive 1999/34/EC. GPSD 2001/95/EC. Directives must be implemented via national legislation, so national legislation must be consulted. Covers producers, defined as any participant in the production process; the importer; any person putting their name or trademark on the product; or the supplier of a product whose producer cannot be identified. Plaintiff must begin court action within three years of the date he became aware or should reasonably become aware of the damage, the defect and the identity of the producer. Ten years from the date the producer put the product into circulation. United States Product Liability No general federal product liability statute. Common law theories apply, including, e.g., negligence, strict liability, and breach of warranty. State laws vary from jurisdiction to jurisdiction; may offer caps on damages, other restrictions. Manufacturers, sellers, distributors, raw material suppliers. Varies from jurisdiction to jurisdiction. Typically between two and five years. Varies from jurisdiction to jurisdiction. Some states do not provide for a statute of repose. Where state statutes exist, protection may be limited to capital PAGE 6 of 8

7 EU Product Liability United States Product Liability Plaintiff s Elements Defenses Damages Cap Varying Procedural Injured party must bring evidence of (i) a damage (i.e., death, injury, property damage in excess of ECU 500); (ii) a product defect; (iii) causal relationship between the defect and the injury or damage. No proof of the producer s negligence or fault is required. Six defenses specified by the PLD: did not put the product into circulation (e.g., because it was stolen or the defective product is a counterfeit), or scientific and technical knowledge at time could not discover existence of defect ( development risk defense ); defect due to compliance with mandatory regulations; defect in component due to product design or instructions provided by product manufacturer; defect causing damage developed after the product was put into circulation; product not manufactured for profit-making sale; and product was not manufactured or distributed in the course of business. Member States may cap damages at no lower than ECU 70 million. No contingency fee suits in general. Loser pays attorney fees. equipment. Specific tests vary among the 50 states. General elements of a strict liability claim include: (i) damage (i.e., death, injury, property damage); (ii) product defect (unreasonably dangerous for intended use); (iii) defective at time leaves control of manufacturer or distributor, (iv) causal relationship between defect and injury. No requirement to show negligence or fault under strict liability theory. Common law defenses vary in each jurisdiction. Possible defenses include assumption of risk. Contributory negligence by Plaintiff is generally not an available defense for strict liability claims. No national caps on damages, but caps exist under some state laws. Contingency fee suits are permitted. PAGE 7 of 8

8 EU Product Liability Rules Restricted discovery rules. Class-action suits generally not permitted. United States Product Liability No loser pays rule for attorney s fees. Lenient discovery rules Class-action suits permitted. Conclusion In today s global environment, consumer product manufacturers must comply with the product safety regulations and reporting requirements of the regions in which they are selling their products, and should adopt regulatory compliance and risk management strategies reflecting those requirements. As a practical matter, the U.S. requirements are more stringent in both application and enforcement, but care must be taken to understand and comply with both U.S. and EU requirements. Additional Materials Information on the revised GPSD is available at: Information on the RAPEX program is available at: Information on the EU Product Liability Directive is available at: Information on CPSC rules and regulations is available at: For more information on product safety and liability, in the U.S., please contact Sheila A. Millar at (202) or by at millar@khlaw.com; J.C. Walker at (202) or by at walker@khlaw.com; or Jeremy W. Brewer at (202) or by at brewer@khlaw.com. In Brussels, please contact Jean Savigny at or by at savigny@khlaw.be; Rachida S at or by at s @khlaw.be; or Cyril Jacquet at or by e- mail at jacquet@klhaw.be. PAGE 8 of 8