Product Safety and Recall in the U.S. and EU

This article considers the different approaches that lawmakers in the European Union and the United States have taken to ensuring the safety of consumer products put on the market in their jurisdictions. We address the obligations placed on manufacturers and others in the supply chain in the EU and U.S. (including obligations to recall dangerous products), and penalties for failure to comply, including litigation consequences.

Product Safety and Recall in the European Union

The General Product Safety Directive (2001/95/EC) (or GPSD) sets EU level rules on safety of consumer products, which the governments of each member state are required to implement in national law. The GPSD defines what products are “safe,” orders manufacturers and distributors not to place unsafe products on the market, and requires them to take corrective steps if they find they have done so.

Some categories of products are regulated by sector specific rules on safety (e.g., food and pharmaceuticals). Those specialist safety regimes are outside the scope of this article, although in many cases the concepts and processes involved are very similar to those found in the GPSD.

The GPSD is due to be replaced in March 2015 by a new EU Regulation on Consumer Product Safety, which is expected to introduce a number of changes.

What Products Are Covered?

“Product” is broadly defined under the GPSD to include not only products intended for consumers, but also those that they are likely to use (e.g., tools intended for professional use but subject to use by amateur DIY enthusiasts).

The Directive only applies to products supplied in a commercial context, but there is no need for monetary consideration and so covers, for example, free offers. It applies to used and reconditioned products as well as new ones (although it will not apply to second-hand products sold on the basis that they need to be repaired or reconditioned prior to use). It also covers products made available to consumers in the context of providing a service.

The new Regulation is expected to extend the definition even further to include products to which a consumer is exposed in the context of a service being provided. This would bring products used, for example, in the beauty and dental sectors, among others, within its scope.

Who Is Affected and What Are They Required to Do?

The primary obligations under the GPSD fall on “producers,” which means the manufacturer if it is in the EU (or its EU representative or the importer if it is not), as well as any person who presents himself as the manufacturer, by putting his trademark on the product, and any other professional in the supply chain whose activities may affect product safety.

This definition will often catch a number of different businesses involved in developing and marketing a single product. So, for example, if a business outsources the manufacture of its proprietary products to another business, both will be caught by the Directive.

The most important obligations imposed on a producer are:

• Not to put on the market any product that is not safe. (We address herein what is meant by “safe” in this context.)
• To provide consumers with relevant information to assess the risks inherent in a product (via labeling and instructions etc.).
• To take appropriate steps enabling it to withdraw products if necessary (for example, by marking products with batch numbers and monitoring their distribution).
• To notify the competent authorities immediately if it finds it has marketed an unsafe product.

The GPSD also imposes more limited obligations on “distributors” (businesses in the supply chain whose activities do not affect product safety). They are effectively required to assist with compliance by, for example, keeping and making available documentation necessary to trace the origin of products they have distributed, notifying the national authorities of an unsafe product (although in practice this will usually be done by the producer), and cooperating with producers and national authorities in the event of product recall.

The Concept of Safety

A producer must, therefore, determine whether a product is “safe” before putting it on the market, and must revisit this in the event that further information emerges ' via consumer complaints or batch-testing ' that may indicate a product already on the market is unsafe and may need to be recalled.

A safe product is one that, under normal conditions of use, “does not present any risk or only the minimum risks compatible with [its] use, considered to be acceptable and consistent with a high level of protection for the safety and health of persons.” In determining whether this is the case, producers need to consider the characteristics and presentation of the product (e.g., packaging, instructions and warning notices) and the categories of consumers at risk when using the product.

A product is deemed to be safe if it complies with any applicable rules (at the EU or national level). If there are no such rules, producers should consider factors including, for example, any non-binding guidance or codes of practice, the state of the art and technology, and reasonable consumer expectations.

If a producer discovers that it has placed an unsafe product on the market, it must “immediately” notify the competent authorities in the member state, and provide full details on the product, the risk and the corrective action the producer proposes to take. The appropriate level of corrective action will depend on the severity of the risk. Recalling the products is described in the Directive as a “last resort.” Less drastic measures would include communicating additional warnings to consumers.

When (and if) to make a notification can often be a difficult judgment call. There is an inherent tension in the rules where, on the one hand, the Directive requires “immediate” notification but, on the other, it requires notification to be made with a reasonable level of detail of the safety issue and the proposed corrective action. Guidance from the European Commission has clarified the timing requirements somewhat, providing that “immediate” means “without delay, as soon as the relevant information has become available” ' in the case of “serious risks” within three days, and in the case of other risks within 10 days.

Deciding when to notify will involve discussions between the producer's commercial and technical teams (who need to determine whether there is a notifiable safety issue and, if so whether or not it is “serious”). The European Commission's guidance sets out a detailed risk assessment methodology to assist in determining the level of risk by looking at the severity of injuries that could be caused by the product, and the likelihood of such injuries occurring. Despite the detailed guidance, this will always be a judgment call made under strict time pressure, usually with imperfect information.

It is almost always advantageous for a producer making a notification to be able to provide as much information as possible. If the producer is able to reassure the authorities that it knows the exact scale and nature of the problem and has a robust plan for corrective action, it is more likely the authorities will allow the producer to handle those measures itself without excessive interference. However, breaching the Directive by failing to notify “immediately” has consequences.

Penalties for breach of the Directive requirements vary between member states. In the UK, for example, failure to notify is a criminal offence (albeit one with relatively low penalties). Producers in the UK may also be subject to separate criminal proceedings under health and safety legislation. In some other member states, the penalties for breaching the Directive requirements are more serious, including substantial fines and, in some cases, forced business closure. In general, we have not seen producers criticized for waiting a few days in order to provide an appropriate level of information to the authorities.

Where the product notified to the competent national authority presents a serious risk and is marketed in more than one member state, the notified member state must inform the Commission and the other member states via the Rapid Information System for Dangerous Products (RAPEX). In practice, we usually recommend also making direct contact with the authorities in each member state where the product is on the market. Without direct dialogue, it is much more difficult for the producer to persuade each authority to allow it the flexibility to handle the recall and any other measures itself.

Claims

Producers of unsafe products are also at risk of claims from consumers. Consumers are likely to have claims in contract and tort (or the equivalent), although the rules will vary between member states. Some member states will have procedures for consumers to bring class actions.

In addition, the Product Liability Directive (85/347/EEC) requires all member states to implement legislation imposing strict liability on producers of defective products for damage caused by those products. “Defective” in this context means the product not providing the safety that consumers are generally entitled to expect, taking into account all relevant circumstances, including how the product is presented and its expected use.

Consumers in the EU can, therefore, bring claims without needing to show that the producer was at fault or even where in the supply chain any problem arose. This only covers personal injury and damage to personal property (not business property) above a minimum value (approximately EUR500). The strict liability standard is also subject to a “development risks defence,” meaning that the producer will not be liable if it can show that the state of scientific and technical knowledge at the time the product went into circulation was not such as to enable the existence of the defect to be discovered.

Consumer Product Safety and Recall in the U.S.

In the United States, the Consumer Products Safety Commission (CPSC) has primary responsibility for ensuring the safety of consumer products and for overseeing the recall of unsafe or defective products. Established in 1972 via the Consumer Product Safety Act (CPSA), the CPSC administers and enforces the CPSA (as amended by the Consumer Product Safety Improvement Act) and other federal statutes that address product safety issues. The following briefly reviews salient features of certain of CSPC's reporting and corrective action regimes for purposes of comparison with the EU approach, but is not a comprehensive review of all of CPSC's enforcement authority and procedures.

The CPSC's Mandate

The CPSC enforces a wide array of general and product-specific regulations, as well as a panoply of standards applicable to specific products or types of products. Under 15 U.S.C. ' 2052, and subject to exclusion of products covered by other federal government agencies, the CPSC has jurisdiction over thousands of “consumer products,” defined as any article or component thereof produced or distributed for sale to a consumer and for a consumer's personal use, consumption or enjoyment in or around the home, in schools, at recreation or elsewhere. As under the EU regime, entities regulated by the CPSA include not only manufacturers (which the CPSA defines to encompass importers), but also distributors, and retailers).

Product Safety Reporting Requirements

Broadly speaking, under the CPSA, a manufacturer, distributor and retailer must advise the CPSC if it obtains information that reasonably shows that its consumer product: 1) fails to comply with an applicable consumer product safety rule or voluntary safety standard under 15 U.S.C. ' 2058; 2) fails to comply with any other rule, regulation, standard, or ban under any statute enforced by the CPSC; 3) contains a defect that could create a substantial risk of injury to the public; or 4) creates an unreasonable risk of serious injury or death. See 15 U.S.C. ' 2064(b). As in the EU, the obligation is to notify the authorities “immediately” on becoming aware of the safety issue.

The CPSC evaluates these reports to determine if corrective action is appropriate. In the absence of a regulation addressing a specific risk of injury, remedial action is not warranted unless the product contains a defect that creates a substantial risk of injury. See, e.g. , CPSC, Recall Handbook (available at http://1.usa.gov/1ttlLsG) (March 2012). A defect may result from, among other things: 1) a manufacturing or production error; 2) a defect in the product's design; or 3) the product's contents, construction, finish, packaging, warnings or instructions. See 16 CFR ' 1115.4. If the CPSC finds that a defect exists, it next assesses whether the defect presents a “substantial risk of injury to the public” due to the “pattern of defect, the number of defective products distributed in commerce, the severity of the risk, or otherwise.” See 15 U.S.C. ' 2064(a)(2); see also 16 CFR ' 1115.12(g)(1)(i)-(iv). In making its preliminary determination ' subject to final approval by the full Commission ' that a product creates a substantial product hazard, CPSC staff will categorize the severity of the hazard and then determine the course of corrective action.

Corrective Action and the CPSC

A “corrective action plan” or “CAP” includes any type of remedial action taken by a company, including but not limited to, return of a product to the manufacturer or retailer for a refund or replacement, repair of a product, or public notice of the product hazard. See Recall Handbook at 5. The goal of any CAP, which the CPSC generally refers to as a “recall,” is “to retrieve as many hazardous products from the distribution chain and from consumers as is possible in the most efficient, cost-effective manner.” Id.

The vast majority of product recalls in the U.S. are voluntary, and initiated by the company, not the CPSC. That said, and as is true in the EU, the CPSC expects a company to develop a plan to locate and remove defective products as quickly as possible while also communicating clear, accurate information about the defect, the hazard, and the corrective action. Id. at 18. After the CPSC approves the particular course of corrective action, it will work with the company to develop an appropriate plan for implementing the recall, with the means of providing public notice dependent upon the type of hazard at issue.

The CPSC generally will first issue a recall. Companies are then encouraged to make use of electronic communications, website postings and social media, in addition to traditional mailings to known consumers, distributors and retailers, and notices in selected newspapers and magazines. The CPSC generally must approve any notice prior to dissemination, and the recall itself must be monitored by both the CPSC and the recalling firm. While the recall process can move quite efficiently, companies also can elect to use CPSC's “fast track” recall program, by which an approved CAP can be implemented within 20 days of the initial report's filing, without need for a preliminary determination that the product has a defect involving a substantial product hazard. Id. at 15-16.

New Rules

Of note, the CPSC recently promulgated proposed rules that would change significantly how voluntary recalls are conducted. See 78 Fed. Reg. 69793 (Nov. 21, 2013). Of major interest to manufacturers are provisions that would make voluntary corrective action plans legally binding and hence judicially enforceable, ostensibly to address companies that in the CPSC's view deliberately delay CAP implementation. Such a change would effectively convert CAPs into consent orders, which in turn will require more detailed review by in-house and external legal teams and thus potentially slow down the recall process. Various regulated entities cautioned against the potential downsides of the proposed rule during the consultation process, and to date the rules remain under CPSC consideration.

Potential Effects of'a Product Recall

Unlike the EU, a product recall in the U.S. can set off a frenzy of both individual and aggregate litigation. In addition to reputational harm and the specter of increased product liability claims based on publicity surrounding a recall, firms are likely to face claims by consumers for economic damages sounding in theories of tort, warranty or contract on a nationwide and cross-border basis. Claims may also arise under state consumer protection statutes, which allow a consumer, and in most cases a class of consumers, to pursue economic claims against manufacturers as private attorneys general ' in many cases with the inducement of reduced burdens of proof and the potential for enhanced (typically trebled) damages as well as attorneys' fees. Companies in the distribution chain might at the same time face coordinated claims by state attorneys general on a nationwide basis.

A recent example of a product recall leading to substantial litigation costs is the $18 million settlement of class-action claims relating to a pressure-assisted toilet-flushing system that allegedly caused toilets in which it was installed to explode. In June 2012, the CPSC (along with Health Canada) announced a voluntary recall of the product. By that time, the company had received over 300 reports of the product bursting, resulting in property damage and several injuries. Two months later, in August 2012, a nationwide class action was filed in California federal court, alleging a raft of common-law and statutory claims against the manufacturer. See United Desert Charities, et al. v. Flushmate, a/k/a Sloan Valve Company, et al., Case No. 12-cv-06878 SJO (C.D. Cal. filed Aug. 9, 2012). Related actions were subsequently filed and more defendants added. In late January 2014, a settlement agreement resolving the class claims was reached, which received preliminary court approval in February 2014. While as of this writing the settlement is pending final approval, it shows where a product recall can ultimately lead in the U.S. court system.

Conclusion

Regulations in both the European Union and the United States impose various obligations on firms with respect to product safety and recall, as outlined above. Enforcement of those regulations in one region, however, may have cross-border implications for companies with global operations. In today's business environment, for example, a company required under the EU regulatory regime to undertake corrective action with respect to a product may well find itself facing the need to coordinate corrective action obligations on a multinational basis and, in the U.S., follow-up product liability litigation.

Joseph G. Falcone is a partner in Herbert Smith Freehills New York LLP. Howard Watson is a partner in the firm's product liability team, based in its London office. This article was prepared with the assistance of David Bennett, an associate in the London office.

This article considers the different approaches that lawmakers in the European Union and the United States have taken to ensuring the safety of consumer products put on the market in their jurisdictions. We address the obligations placed on manufacturers and others in the supply chain in the EU and U.S. (including obligations to recall dangerous products), and penalties for failure to comply, including litigation consequences.

Product Safety and Recall in the European Union

The General Product Safety Directive (2001/95/EC) (or GPSD) sets EU level rules on safety of consumer products, which the governments of each member state are required to implement in national law. The GPSD defines what products are “safe,” orders manufacturers and distributors not to place unsafe products on the market, and requires them to take corrective steps if they find they have done so.

Some categories of products are regulated by sector specific rules on safety (e.g., food and pharmaceuticals). Those specialist safety regimes are outside the scope of this article, although in many cases the concepts and processes involved are very similar to those found in the GPSD.

The GPSD is due to be replaced in March 2015 by a new EU Regulation on Consumer Product Safety, which is expected to introduce a number of changes.

What Products Are Covered?

“Product” is broadly defined under the GPSD to include not only products intended for consumers, but also those that they are likely to use (e.g., tools intended for professional use but subject to use by amateur DIY enthusiasts).

The Directive only applies to products supplied in a commercial context, but there is no need for monetary consideration and so covers, for example, free offers. It applies to used and reconditioned products as well as new ones (although it will not apply to second-hand products sold on the basis that they need to be repaired or reconditioned prior to use). It also covers products made available to consumers in the context of providing a service.

The new Regulation is expected to extend the definition even further to include products to which a consumer is exposed in the context of a service being provided. This would bring products used, for example, in the beauty and dental sectors, among others, within its scope.

Who Is Affected and What Are They Required to Do?

The primary obligations under the GPSD fall on “producers,” which means the manufacturer if it is in the EU (or its EU representative or the importer if it is not), as well as any person who presents himself as the manufacturer, by putting his trademark on the product, and any other professional in the supply chain whose activities may affect product safety.

This definition will often catch a number of different businesses involved in developing and marketing a single product. So, for example, if a business outsources the manufacture of its proprietary products to another business, both will be caught by the Directive.

The most important obligations imposed on a producer are:

• Not to put on the market any product that is not safe. (We address herein what is meant by “safe” in this context.)
• To provide consumers with relevant information to assess the risks inherent in a product (via labeling and instructions etc.).
• To take appropriate steps enabling it to withdraw products if necessary (for example, by marking products with batch numbers and monitoring their distribution).
• To notify the competent authorities immediately if it finds it has marketed an unsafe product.

The GPSD also imposes more limited obligations on “distributors” (businesses in the supply chain whose activities do not affect product safety). They are effectively required to assist with compliance by, for example, keeping and making available documentation necessary to trace the origin of products they have distributed, notifying the national authorities of an unsafe product (although in practice this will usually be done by the producer), and cooperating with producers and national authorities in the event of product recall.

The Concept of Safety

A producer must, therefore, determine whether a product is “safe” before putting it on the market, and must revisit this in the event that further information emerges ' via consumer complaints or batch-testing ' that may indicate a product already on the market is unsafe and may need to be recalled.

A safe product is one that, under normal conditions of use, “does not present any risk or only the minimum risks compatible with [its] use, considered to be acceptable and consistent with a high level of protection for the safety and health of persons.” In determining whether this is the case, producers need to consider the characteristics and presentation of the product (e.g., packaging, instructions and warning notices) and the categories of consumers at risk when using the product.

A product is deemed to be safe if it complies with any applicable rules (at the EU or national level). If there are no such rules, producers should consider factors including, for example, any non-binding guidance or codes of practice, the state of the art and technology, and reasonable consumer expectations.

If a producer discovers that it has placed an unsafe product on the market, it must “immediately” notify the competent authorities in the member state, and provide full details on the product, the risk and the corrective action the producer proposes to take. The appropriate level of corrective action will depend on the severity of the risk. Recalling the products is described in the Directive as a “last resort.” Less drastic measures would include communicating additional warnings to consumers.

When (and if) to make a notification can often be a difficult judgment call. There is an inherent tension in the rules where, on the one hand, the Directive requires “immediate” notification but, on the other, it requires notification to be made with a reasonable level of detail of the safety issue and the proposed corrective action. Guidance from the European Commission has clarified the timing requirements somewhat, providing that “immediate” means “without delay, as soon as the relevant information has become available” ' in the case of “serious risks” within three days, and in the case of other risks within 10 days.

Deciding when to notify will involve discussions between the producer's commercial and technical teams (who need to determine whether there is a notifiable safety issue and, if so whether or not it is “serious”). The European Commission's guidance sets out a detailed risk assessment methodology to assist in determining the level of risk by looking at the severity of injuries that could be caused by the product, and the likelihood of such injuries occurring. Despite the detailed guidance, this will always be a judgment call made under strict time pressure, usually with imperfect information.

It is almost always advantageous for a producer making a notification to be able to provide as much information as possible. If the producer is able to reassure the authorities that it knows the exact scale and nature of the problem and has a robust plan for corrective action, it is more likely the authorities will allow the producer to handle those measures itself without excessive interference. However, breaching the Directive by failing to notify “immediately” has consequences.

Penalties for breach of the Directive requirements vary between member states. In the UK, for example, failure to notify is a criminal offence (albeit one with relatively low penalties). Producers in the UK may also be subject to separate criminal proceedings under health and safety legislation. In some other member states, the penalties for breaching the Directive requirements are more serious, including substantial fines and, in some cases, forced business closure. In general, we have not seen producers criticized for waiting a few days in order to provide an appropriate level of information to the authorities.

Where the product notified to the competent national authority presents a serious risk and is marketed in more than one member state, the notified member state must inform the Commission and the other member states via the Rapid Information System for Dangerous Products (RAPEX). In practice, we usually recommend also making direct contact with the authorities in each member state where the product is on the market. Without direct dialogue, it is much more difficult for the producer to persuade each authority to allow it the flexibility to handle the recall and any other measures itself.

Claims

Producers of unsafe products are also at risk of claims from consumers. Consumers are likely to have claims in contract and tort (or the equivalent), although the rules will vary between member states. Some member states will have procedures for consumers to bring class actions.

In addition, the Product Liability Directive (85/347/EEC) requires all member states to implement legislation imposing strict liability on producers of defective products for damage caused by those products. “Defective” in this context means the product not providing the safety that consumers are generally entitled to expect, taking into account all relevant circumstances, including how the product is presented and its expected use.

Consumers in the EU can, therefore, bring claims without needing to show that the producer was at fault or even where in the supply chain any problem arose. This only covers personal injury and damage to personal property (not business property) above a minimum value (approximately EUR500). The strict liability standard is also subject to a “development risks defence,” meaning that the producer will not be liable if it can show that the state of scientific and technical knowledge at the time the product went into circulation was not such as to enable the existence of the defect to be discovered.

Consumer Product Safety and Recall in the U.S.

In the United States, the Consumer Products Safety Commission (CPSC) has primary responsibility for ensuring the safety of consumer products and for overseeing the recall of unsafe or defective products. Established in 1972 via the Consumer Product Safety Act (CPSA), the CPSC administers and enforces the CPSA (as amended by the Consumer Product Safety Improvement Act) and other federal statutes that address product safety issues. The following briefly reviews salient features of certain of CSPC's reporting and corrective action regimes for purposes of comparison with the EU approach, but is not a comprehensive review of all of CPSC's enforcement authority and procedures.

The CPSC's Mandate

The CPSC enforces a wide array of general and product-specific regulations, as well as a panoply of standards applicable to specific products or types of products. Under 15 U.S.C. ' 2052, and subject to exclusion of products covered by other federal government agencies, the CPSC has jurisdiction over thousands of “consumer products,” defined as any article or component thereof produced or distributed for sale to a consumer and for a consumer's personal use, consumption or enjoyment in or around the home, in schools, at recreation or elsewhere. As under the EU regime, entities regulated by the CPSA include not only manufacturers (which the CPSA defines to encompass importers), but also distributors, and retailers).

Product Safety Reporting Requirements

Broadly speaking, under the CPSA, a manufacturer, distributor and retailer must advise the CPSC if it obtains information that reasonably shows that its consumer product: 1) fails to comply with an applicable consumer product safety rule or voluntary safety standard under 15 U.S.C. ' 2058; 2) fails to comply with any other rule, regulation, standard, or ban under any statute enforced by the CPSC; 3) contains a defect that could create a substantial risk of injury to the public; or 4) creates an unreasonable risk of serious injury or death. See 15 U.S.C. ' 2064(b). As in the EU, the obligation is to notify the authorities “immediately” on becoming aware of the safety issue.

The CPSC evaluates these reports to determine if corrective action is appropriate. In the absence of a regulation addressing a specific risk of injury, remedial action is not warranted unless the product contains a defect that creates a substantial risk of injury. See, e.g. , CPSC, Recall Handbook (available at http://1.usa.gov/1ttlLsG) (March 2012). A defect may result from, among other things: 1) a manufacturing or production error; 2) a defect in the product's design; or 3) the product's contents, construction, finish, packaging, warnings or instructions. See 16 CFR ' 1115.4. If the CPSC finds that a defect exists, it next assesses whether the defect presents a “substantial risk of injury to the public” due to the “pattern of defect, the number of defective products distributed in commerce, the severity of the risk, or otherwise.” See 15 U.S.C. ' 2064(a)(2); see also 16 CFR ' 1115.12(g)(1)(i)-(iv). In making its preliminary determination ' subject to final approval by the full Commission ' that a product creates a substantial product hazard, CPSC staff will categorize the severity of the hazard and then determine the course of corrective action.

Corrective Action and the CPSC

A “corrective action plan” or “CAP” includes any type of remedial action taken by a company, including but not limited to, return of a product to the manufacturer or retailer for a refund or replacement, repair of a product, or public notice of the product hazard. See Recall Handbook at 5. The goal of any CAP, which the CPSC generally refers to as a “recall,” is “to retrieve as many hazardous products from the distribution chain and from consumers as is possible in the most efficient, cost-effective manner.” Id.

The vast majority of product recalls in the U.S. are voluntary, and initiated by the company, not the CPSC. That said, and as is true in the EU, the CPSC expects a company to develop a plan to locate and remove defective products as quickly as possible while also communicating clear, accurate information about the defect, the hazard, and the corrective action. Id. at 18. After the CPSC approves the particular course of corrective action, it will work with the company to develop an appropriate plan for implementing the recall, with the means of providing public notice dependent upon the type of hazard at issue.

The CPSC generally will first issue a recall. Companies are then encouraged to make use of electronic communications, website postings and social media, in addition to traditional mailings to known consumers, distributors and retailers, and notices in selected newspapers and magazines. The CPSC generally must approve any notice prior to dissemination, and the recall itself must be monitored by both the CPSC and the recalling firm. While the recall process can move quite efficiently, companies also can elect to use CPSC's “fast track” recall program, by which an approved CAP can be implemented within 20 days of the initial report's filing, without need for a preliminary determination that the product has a defect involving a substantial product hazard. Id. at 15-16.

New Rules

Of note, the CPSC recently promulgated proposed rules that would change significantly how voluntary recalls are conducted. See 78 Fed. Reg. 69793 (Nov. 21, 2013). Of major interest to manufacturers are provisions that would make voluntary corrective action plans legally binding and hence judicially enforceable, ostensibly to address companies that in the CPSC's view deliberately delay CAP implementation. Such a change would effectively convert CAPs into consent orders, which in turn will require more detailed review by in-house and external legal teams and thus potentially slow down the recall process. Various regulated entities cautioned against the potential downsides of the proposed rule during the consultation process, and to date the rules remain under CPSC consideration.

Potential Effects of'a Product Recall

Unlike the EU, a product recall in the U.S. can set off a frenzy of both individual and aggregate litigation. In addition to reputational harm and the specter of increased product liability claims based on publicity surrounding a recall, firms are likely to face claims by consumers for economic damages sounding in theories of tort, warranty or contract on a nationwide and cross-border basis. Claims may also arise under state consumer protection statutes, which allow a consumer, and in most cases a class of consumers, to pursue economic claims against manufacturers as private attorneys general ' in many cases with the inducement of reduced burdens of proof and the potential for enhanced (typically trebled) damages as well as attorneys' fees. Companies in the distribution chain might at the same time face coordinated claims by state attorneys general on a nationwide basis.

A recent example of a product recall leading to substantial litigation costs is the $18 million settlement of class-action claims relating to a pressure-assisted toilet-flushing system that allegedly caused toilets in which it was installed to explode. In June 2012, the CPSC (along with Health Canada) announced a voluntary recall of the product. By that time, the company had received over 300 reports of the product bursting, resulting in property damage and several injuries. Two months later, in August 2012, a nationwide class action was filed in California federal court, alleging a raft of common-law and statutory claims against the manufacturer. See United Desert Charities, et al. v. Flushmate, a/k/a Sloan Valve Company, et al., Case No. 12-cv-06878 SJO (C.D. Cal. filed Aug. 9, 2012). Related actions were subsequently filed and more defendants added. In late January 2014, a settlement agreement resolving the class claims was reached, which received preliminary court approval in February 2014. While as of this writing the settlement is pending final approval, it shows where a product recall can ultimately lead in the U.S. court system.

Conclusion

Regulations in both the European Union and the United States impose various obligations on firms with respect to product safety and recall, as outlined above. Enforcement of those regulations in one region, however, may have cross-border implications for companies with global operations. In today's business environment, for example, a company required under the EU regulatory regime to undertake corrective action with respect to a product may well find itself facing the need to coordinate corrective action obligations on a multinational basis and, in the U.S., follow-up product liability litigation.

Joseph G. Falcone is a partner in Herbert Smith Freehills New York LLP. Howard Watson is a partner in the firm's product liability team, based in its London office. This article was prepared with the assistance of David Bennett, an associate in the London office.