Latham & Watkins Litigation Department

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1 Number 592 April 23, 2007 Client Alert Latham & Watkins Litigation Department Japanese Authorities Amend Consumer Products Safety Law to Require Manufacturers, Importers and Retailers to Disclose Accident Information The imposition of binding METI regulations are likely to have a significant impact on risk management and corrective actions in Japan and potentially in other countries where the same products are distributed. An amendment to the Consumer Products Safety Law which was promulgated on December 6, 2006 and to be implemented within six months, requires disclosure of accidents involving a wide variety of consumer products. The amendment to the Consumer Products Safety Law (the Amendment) is in response to a recent upsurge of consumer product incidents that resulted in deaths in Japan and criticism of Japan s Ministry of Economy, Trade and Industry (METI) that it had not done more to force companies to take action to warn the public of safety risks. The Amendment requires that every manufacturer and importer of a consumer product report to METI within 10 days if they obtain information concerning a serious product accident caused by a consumer product. Retailers and the companies engaged in the repair or installation of consumer products are also required to make efforts to notify manufacturers and importers of serious product accident information. This Amendment is a significant departure from previous non-binding guidelines which only required companies to provide safety-related information to METI in response to requests for information. The Amendment is binding, requires companies to take the initiative to report consumer product safety-related information, and provides METI with authority to publish accident information, even where a recall is not warranted. Failure to comply with the Amendment could result in penalties of up to 1 million for companies and individuals. Individuals could also face penalties up to one year in prison. Broad Scope of Consumer Products Because the definition of a consumer product is broad, a wide range of products fall within the scope of the new disclosure requirements. The Consumer Products Safety Law defines a consumer product as a product to be supplied mainly for general consumers use for routine life activity with specified exceptions. METI has previously expressed particular concern regarding the following 12 consumer products: gas cooking stoves, paper shredders, lithium batteries, electric floor heaters, photovoltaic system splice boxes, internet modems, bathtub gas water heaters, poorly installed gas Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdom and Italy, where the practice is conducted through an affiliated multinational partnership. Under New York s Code of Professional Responsibility, portions of this communication contain attorney advertising. Prior results do not guarantee a similar outcome. Results depend upon a variety of factors unique to each representation. Please direct all inquiries regarding our conduct under New York s Disciplinary Rules to Latham & Watkins LLP, 885 Third Avenue, New York, NY , Phone: Copyright 2007 Latham & Watkins. All Rights Reserved.

2 appliance exhaust pipes, bathroom heaters, industrial steamers, industrial fryers and industrial air conditioners. Nonetheless, all consumer products, not just those previously cited by METI, fall under the new disclosure requirements. The products that are exempt under the Consumer Products Safety Law include automobiles, drugs and other products such as ships, food, food additives, and poisonous materials that are already regulated pursuant to other safety laws and regulations. Disclosure of Serious Product Accidents Caused by Consumer Products The Amendment requires manufacturers and importers to report to METI if they obtain information that a serious product accident was caused by one of their consumer products. The Amendment and current draft cabinet ordinance define a serious product accident as: (1) an accident that caused danger to a consumer s life or body, namely, (i) death, (ii) injury or sickness, treatment of which lasts at least 30 days or which will have a permanent consequence, or (iii) carbon monoxide poisoning; or (2) an accident that caused a fire. It should be noted that this reporting obligation relies on a threshold that appears to be much higher than the reporting threshold in other countries. For example, in the US, companies must report if they obtain information that a product could pose a substantial risk of injury or creates an unreasonable risk of serious injury or death, rather than if a product has, in fact, caused such injury. The Member States of the European Union also require reporting of safety risks, rather than simply reporting safety accidents, as is the case with the Amendment. Companies Engaged in Retail, Repair or Installation Unlike other product safety regimes, such as those in the United States and the European Union, the amendment to the Consumer Products Safety Law only imposes the disclosure requirements on manufacturers and importers of consumer products. Retailers are not specifically required to report to METI serious product accidents involving consumer products that they sold. However, if retailers of consumer products or companies which repair or install consumer products obtain information concerning a serious product accident associated with one of these products, they must make efforts to notify the manufacturer and importer of the serious product accident. Manufacturers and importers who fail to report serious product accidents to METI or file a false report with METI may be ordered by METI to establish information-collecting systems (as described in subsequent sections) in their companies. Public Notice of Accident Information The Amendment authorizes METI to publish information on the accident on METI s Web site if METI determines that public notice is warranted. If METI makes such a determination, it will publish a notice of the accident as part of a two-step process: Step 1. Within one week after the receipt of the accident report by METI from the manufacturer or importer, METI will publish on its Web site the general name of the product, a summary of the accident, the date of receipt of the accident report and the date of accident. In this first step, the specific name of the product or the manufacturer or importer is not disclosed.

3 Step 2. After analyzing the accident information, if METI determines that it is necessary for additional information to be published in order to protect consumers, METI will: (i) demand the manufacturer or the importer create a plan to prevent accidents, and (ii) publish on the METI Web site and issue a press release announcing the specific name of the product, the specific name of the manufacturer or importer, a summary of the accident, the plan of the manufacturer or importer to prevent future accidents and the steps consumers should take to prevent similar accidents. If METI determines that urgent action is needed, METI may omit the first step and take measures under the second step. As part of this process, METI may also request that the National Institute of Technology and Evaluation (NITE), an independent administrative agency, conduct technological research. Independent Oversight of METI METI s decisions regarding the scope of serious product accidents subject to the disclosure requirements and public announcements will be reviewed by a committee consisting of outside independent members. The purpose of this committee is to minimize any potential excessive discretionary application by METI of the Amendment and to ensure a transparent and accountable system. Corrective Actions The Amendment gives METI broad discretion under the current Consumer Products Safety Law to order a company to recall a product. Under existing law, if METI determines that a recall is necessary, it may require a company to take corrective action, including a recall, and publish notice of the corrective action or recall. The Amendment, however, expressly provides that METI may also issue a danger preventing order. Pursuant to a danger preventing order, METI may order the manufacturer or importer of a consumer product to recall the product or take other necessary action if METI determines that the product contains a defect which caused a serious product accident, created a serious danger or may create imminent danger to consumers. The danger preventing order in substance corresponds to the emergency order under the existing law. If METI issues a danger preventing order, it must publicly announce the order. If the manufacturer or importer conducts a recall subject to the danger preventing order, the retailers are required to cooperate with the manufacturer or importer to implement their recall efforts. However, if the manufacturer or importer voluntarily conducts a recall where METI has not issued a danger preventing order, the retailers are only required to make efforts to cooperate with the manufacturer or importer. Penalties The Amendment provides for penalties relating to a variety of prohibited activities, some of which are part of the existing Consumer Products Safety Law. Specifically, penalties may be imposed where companies: (1) sell products that do not have an indication of fitness to the relevant technological standard filed by the company on their business report to METI, (2) improperly affix an indication of fitness on a product, (3) continue to conduct business after the issuance of the order to cease business, (4) fail to comply with an order by the Ministry to recall or otherwise take appropriate measures to prevent danger to consumers, or (5) fail to comply with an order by the Ministry to

4 establish a system to collect, administer and submit information on serious product accidents (information-collecting systems). As noted earlier, penalties may be imposed on companies and individuals of not more than 1 million and/or, for individuals, of not more than one year in prison. Guidelines In March 2007, METI issued guidelines for complying with the Amendment. The guidelines provide general recommendations for manufacturers, importers, repair and installation companies, and distributors concerning the establishment of voluntary product safety action plans, including the development of risk management systems, the collection, transmission and disclosure of product accident information, and product recalls. The Amendments Are Likely to Have a Significant Impact The imposition of binding METI regulations are likely to have a significant impact on risk management and corrective actions in Japan and potentially in other countries where the same products are distributed. First, the new regulations are likely to increase the focus on consumer safety issues by both METI and the public. This increased focus could result in an increased number of recalls and could cause undue public alarm even where recalls are not warranted. However, the two-step approach and the oversight committee established by the Amendment may minimize this effect. Nevertheless, companies will need to assess diligently potential product safety issues and ensure timely disclosure of any serious products accidents that fall within the scope of the Amendment, as well as orders issued by METI concerning consumer products. Second, companies need to ensure compliance with the regulations to minimize potential enforcement actions and exposure to products liability. Companies must be particularly cautious to ensure that an accident report to METI is not considered an admission of causation or liability. In light of the customs unique to Japan, such as the issuance of public apologies for accidents regardless of legal liability, companies that seek to avoid admissions of causation or liability for legal reasons must carefully and strategically weigh the various legal and customary issues. For example, efforts to avoid admissions of liability in a manner that disregards or offends Japanese customs may result in media and consumer criticism. Third, companies need to recognize that corrective actions taken and information disclosed in one country may have implications for managing product safety risks and interactions with regulators in other countries where the same products are distributed. It should be noted that METI, NITE and the US Consumer Product Safety Commission recently entered a memorandum of understanding to exchange safetyrelated information, subject to information disclosure limitations in the laws of each country. How Latham Can Assist Latham & Watkins LLP has one of the world s leading international product safety practices with attorneys in Asia, the United States and Europe. Latham attorneys counsel clients and handle regulatory and investigative actions, litigation, and worldwide recalls. An international team of Latham attorneys have managed worldwide recalls that have been implemented in more than 40 countries and that have involved numerous regulatory authorities around the world. The Latham international team includes attorneys in Tokyo who have extensive experience with product

5 recalls and regulatory authorities in Japan. Latham will continue to monitor regulations under development by METI. If you have any questions, or if you would like more information on how to ensure compliance with relevant regulations in Japan, please contact: Takashi Matsumoto Daiske Yoshida If you have questions relating to product safety issues in the United States or more generally world-wide, please contact our global co-chair of our Product Liability and Mass Torts practice group: Peter L. Winik Laura Neuwirth in our Washington, D.C. office. For EU product safety issues, please contact: Jean Paul Poitras in our Brussels office John Colahan in our London office.

6 Office locations: Barcelona Brussels Chicago Frankfurt Hamburg Hong Kong London Los Angeles Madrid Milan Moscow Munich New Jersey New York Northern Virginia Orange County Paris San Diego San Francisco Shanghai Silicon Valley Singapore Tokyo Washington, D.C. Client Alert is published by Latham & Watkins as a news reporting service to clients and other friends. The information contained in this publication should not be construed as legal advice. Should further analysis or explanation of the subject matter be required, please contact the attorneys listed below or the attorney whom you normally consult. A complete list of our Client Alerts can be found on our Web site at If you wish to update your contact details or customize the information you receive from Latham & Watkins, please visit to subscribe to our global client mailings program. If you have any questions about this Client Alert, please contact Takashi (Teddy) Matsumoto or Daiske Yoshida in our Tokyo office, Peter L. Winik or Laura H. Neuwirth in our Washington, D.C. office, Jean Paul Poitras in our Brussels office, John Colahan in our London office or any of the following attorneys. Barcelona José Luis Blanco Brussels Jean Paul Poitras +32 (0) Chicago Janet Malloy Link Frankfurt Bernd-Wilhelm Schmitz Hamburg Ulrich Börger Hong Kong Joseph A. Bevash London John Colahan Los Angeles Daniel S. Schecter Madrid José Luis Blanco Milan David Miles Moscow Any Goldin Munich Jörg Kirchner New Jersey Alan E. Kraus New York James E. Brandt Blair Connelly Robert J. Gunther, Jr Northern Virginia Eric L. Bernthal Orange County Jon D. Anderson Paris Christophe Clarenc Patrick Dunaud +33 (0) San Diego Michael J. Weaver San Francisco James K. Lunch Peter A. Wald Shanghai Rowland Cheng Silicon Valley Patrick E. Gibbs Singapore Mark A. Nelson Tokyo Takashi (Teddy) Matsumoto Daiske Yoshida Washington, D.C. Peter L. Winik Laura H. Neuwirth