CPSIA - CPSC Says "Ahhh, Don't Worry About It!"

What me worry?!

In a TV piece called "Mom Outraged Over Lead in Baby's Toy" (watch the video here), a Georgia mother found "an ominous warning" on a toy drum she purchased for her 16 month old from Toys R Us (one of the toughest retailers on legal compliance and quality control, btw). The label read: "Warning: contains lead. May be harmful if eaten or chewed. May generate dust containing lead."

Uh-oh.

And I was wondering why anyone would buy a drum for a 16 month old . . . .

Mom was not happy: "Even if it's just a little bit of lead, I think lead in anything for a child is just insane."

When consulted, the CPSC assured her that it didn't mean anything. It's all about a California law that requires labels for lead levels that have nothing to do with safety. Scott Wolfson, who can really turn a phrase, intoned: "We respect California law, but parents should know that the safety of their children is not necessarily at risk if they see that label."

This is so rich on so many levels.

First, the CPSC is prohibited from assessing risk under the CPSIA. How is it that their spokesman is allowed to assess risk? I thought Congress decides what's risky now. The CPSC can't be trusted, right? As usual, particularly when Mr. Wolfson is involved, the CPSC's position is whatever is best for THEM. To heck with you. For purposes of this story, they magically regained the ability to assess risk.

Let's review - as a matter of law, the CPSC's job is to enforce the standards. They are literally prohibited from considering whether compliant products pose a risk. They are just measurers now, the "cop on the beat", determining whether products are inside the circle or outside the circle but never whether the circle is in the right place. So how can they fashion a judgment that lesser levels of lead aren't risky? The best they can say is that Congress didn't apparently think those lead levels deserved attention.

I am thinking of Sargeant Schultz from "Hogan's Heroes" . . . .

Second, the CPSIA is loaded with superfluous labels. The philosophy of warning consumers through labels pasted over labels is central to the precautionary principle that drove this law. How Mr. Wolfson can advise consumers to ignore a warning label without blushing is beyond me.

I believe the reason they try this stuff is because they think we're so stupid that we won't notice. Or that we're so docile we won't say anything. In any event, it hardly matters because they sure aren't going to listen to us.

Third, this situation proves beyond a shadow of a doubt what I have been saying for three years - that lead labels are a tacit ban. I have long resisted lead labels on any of our products. [Please NOTE - this is only happens under technical application of these stupid rules (gotcha's), such as labels for rocks, light bulbs, coated electrical cords, etc., and only on educational products.] If you put a label like the Georgia label on your product, it will die and you will have to drop it. Plain and simple - listen to the Georgia Mom. She's normal and has some common sense - if the company is warning you about lead, don't ask any questions, just don't use the product. Why else would they be warning you? Duh.

A tacit ban.

So the Illinois law and the California law that require these labels are not only violations of Constitutional protection of interstate commerce, but they are also preempted by federal law. The States are not allowed to ban products that are permitted to be sold by Federal law - they are preempted from taking that step. When you put a label on a product that causes consumers to not buy the product, you destroy the economic viability of the product, thereby killing it. This is a tacit ban, a ban in as many words. It is illegal.

Scott Wolfson apparently doesn't see the problem. Consumers should know that this label isn't serious, he says. I assume he thinks consumers should know that the other labels they should know are serious. If they have any questions, perhaps they should call him. He knows-it-all.

Or maybe Moms everywhere should get better at reading Scott's mind. That's the ticket. Fuggedaboutit.

CPSIA - RW on The Laura Ingraham Show re CPSIA

789 days have passed since ANY Democrat in Congress did ANYTHING to help us on the CPSIA. There are only 21 days left until Election Day.

I was interviewed today on The Laura Ingraham Show. To listen to this interview, just click HERE.

CPSIA - WSJ Radio Interview of RW re CPSIA

789 days have passed since ANY Democrat in Congress did ANYTHING to help us on the CPSIA. There are only 21 days left until Election Day.

The WSJ today released a radio interview in which I discussed my opposition to the CPSIA and my recent political awakenings. I hope you will give it a listen: Click HERE.

[PLEASE NOTE - if you have trouble opening this mp3 file, you can "right click" on the link and save it to your hard drive. You will easily be able to open from there.]

CPSIA - WSJ Profiles RW in Article on Business Backlash

POLITICS
OCTOBER 12, 2010


Business Backlash Grows


By ELIZABETH WILLIAMSON

VERNON HILLS, Ill.—Rick Woldenberg runs an educational-products company from a suburban Chicago office stacked with brightly colored toys. He supported President Barack Obama in 2008. But he has turned on Democrats this year.
















Sally Ryan for The Wall Street Journal

Rick Woldenberg, chairman of Learning Resources in Chicago, backed President Barack Obama in 2008 but is now raising money for Republicans.

Mr. Woldenberg is angry that Congress and the Obama administration won't revise expansive new rules on lead testing in children's products that he says will kill his business, Learning Resources Inc. So he is raising money for Republicans among Chicago business owners to help the GOP—so much money that he is rattling the incumbent in what has been one of the safest Democratic seats in Mr. Obama's home state.

"If Democrats are going to put me out of business, I'm going to put them out of business first," he said.

Disaffected business owners like Mr. Woldenberg have emerged as a potent force in the 2010 campaign. The U.S. Chamber of Commerce, which plans to spend $75 million in this election cycle, says it has exceeded its targets for raising money from small businesses every quarter this year, despite the poor economy. More small-business candidates are running for public office than at any time in a generation, say officials at the National Federation of Independent Business, the capital's chief small-business lobby.

Business contributions are fueling campaign efforts by conservative and business groups, which are gearing up to spend as much as $300 million to help Republicans this fall.

Mr. Obama and Congressional Democrats have wooed small-business owners with a series of tax breaks and a $30 billion lending program that was the centerpiece of a Small Business Jobs Act Mr. Obama signed last week at a White House ceremony attended by a group of supportive entrepreneurs.

But many small-business owners still fault Mr. Obama and Congressional Democrats for what they see as a costly explosion of new rules and regulations.

"I think Obama ran as more of a moderate, and business people here are now realizing that this huge expansion of government is not sustainable," said Leo Dombrowski, an attorney at Wildman, Harrold, Allen & Dixon LLP in Chicago, whose clients are fighting new environmental rules.

Mr. Woldenberg has helped raise more than $470,000 for Joel Pollak, a 32-year old Harvard Law School graduate who is challenging Rep. Jan Schakowsky in Chicago's 9th district, a friend of Mr. Obama who is an author and ardent defender of the new children's-product lead law. That's 20 times more than any Republican has ever raised for a run against Ms. Schakowsky, who won 75% of the vote in the last election and is vying for a 7th term.

"This is a war," he said. "Individuals can make a difference, and I want my kids to see it."

Over the past few months, Mr. Pollak said, he and Mr. Woldenberg have been trying to tap into "donors residing outside the district with a strong business or personal motivation." The Pollak campaign scored a fundraising appearance by Republican economic policy star Rep. Paul Ryan of Wisconsin. Mr. Pollak took the podium and pointed out Schakowsky campaign manager Alex Armour, who was in the crowd videotaping the event.

Ms. Schakowsky is polling at slightly more than 60%, according to her internal polls, a solid lead but narrower than in the past. The campaign has hired four field staffers for the first time, and is sending less money to Democrats in closer races.

"I'm not worried about it, but I'm taking it seriously," she said. Ms. Schakowsky said Mr. Woldenberg's success as a fundraiser, is proof that "very cynical … special interests are highly engaged in the campaign."

As for the lead law, she said she was proud of it. "The goal is to save children from toys that are toxic."

Mr. Woldenberg's efforts include addressing 130 people in a Holiday Inn ballroom in suburban Skokie, Ill., during Mr. Pollak's "Chicagoland Business Breakfast" in late September.

He held up a "box of rocks," the company's igneous rock collection kit, and read its new consumer warning.

"Caution: federal law requires us to advise that the rocks in this educational product may contain lead and might be harmful if swallowed,'" he read, to laughter.

"This is humiliating," he said, ticking off the costs of the law. "I'm hoping Joel can help us."

Two dozen attendees took the microphone, voicing concerns with health-care, tax, environmental and workplace rules. They included Jay Stieber, vice president of restaurant chain Lettuce Entertain You Enterprises Inc., and chairman of the Illinois Restaurant Association, who has his headquarters in the 9th district. He and his family have contributed the maximum $4,800 to Mr. Pollak.

"The hospitality industry is the biggest employer in Illinois, and my partners and I have been lifelong Democrats," he said, but changed sides because "I can't stand here and tell you what health-care is going to cost."

Write to Elizabeth Williamson at elizabeth.williamson@wsj.com

CPSIA - Schylling Penalty Update

788 days have passed since ANY Democrat in Congress did ANYTHING to help us on the CPSIA. There are only 22 days left until Election Day.

You may recall that I expressed outrage over the mega penalty imposed on Schylling Associates earlier this year (see my posts on February 6, June 8, June 9, and June 10). There were many troubling aspects to this penalty, such as an expired statute of limitations and its arbitrary and massive size. This penalty was quite scary, especially in light of Bob Adler's remark at the March 3rd Commission meeting: "I personally wouldn't want to tie our hands by saying that the only time we can hit you with a big civil penalty is when there was a death or a serious injury. There may be an immense potential for death and serious injury which just through fortuity did not occur." There were no injuries in this case. No one has clarified the "immense potential for death and serious injury" in this ordinary and minor lead-in-paint case.

When you read on, don't forget - you could be next.

I submitted a FOIA request for documents relating to this penalty on June 9th.

Four months later, I received a very partial disclosure of documents from Schylling. The CPSC has not disclosed anything to me directly yet - they routed documents to Schylling who routed them to me, redacted for confidential financial information.

I don’t intend to belabor the inadequacy of the CPSC's disclosure right now, except to note that failure to provide full disclosure is against the explicit policy of the agency. Not that policy or the law matters at the CPSC these days if they want to do something else. It’s great to be King, ain’t it? My original FOIA filing included this paragraph:

“In making this request, I note the following statement in 16 CFR §1015(b): ‘The Commission's policy with respect to requests for records is that disclosure is the rule and withholding is the exception. All records not exempt from disclosure will be made available. Moreover, records which may be exempted from disclosure will be made available as a matter of discretion when disclosure is not prohibited by law or is not against the public interest.’”

Enough whining. I will pursue the missing documents with the CPSC but for now, want to give you a clue on how penalties are being imposed by this agency. Quick summary: my original blogposts above were pretty accurate (we're all screwed).

I was given four documents that were not previously available publicly:

1. Letter of March 5, 2010 to CPSC from Patton Boggs LLP, counsel to Schylling.
2. Letter of March 5, 2010 to Patton Boggs from Cheryl Falvey, General Counsel, CPSC
3. Letter of April 21, 2010 to CPSC from Shook, Hardy & Bacon LLP, counsel to Schylling (missing attachments, see below)
4. Email exchange between Trial Attorney, Office of Compliance and Patton Boggs, counsel to Schylling, from September 4-9, 2009.

Schylling also provided me with the letter dated August 10, 2009 from late Senator Ted Kennedy to the Commission protesting the original suggested penalty of $600,000. The penalty was later to reduced to $200,000, approved, rescinded and then doubled to $400,000 by an angry Commission. [Why they got so angry remains a mystery, but their anger oddly is only tangentially related to this discussion today. All permutations of the penalty were unreasonable - before, during and after the Commission got angry.] Finally, Schylling also provided me with missing attachments from the April 21 letter – hate mail they received.

Here’s what I learned about this penalty:

a. There are few apparent constraints on the CPSC when it comes to arbitrary penalty assessment. That's how Schylling got zinged for $400K and probably explains how Daiso got whacked for $2.05 million.

The big issue confronting the CPSC in deciding on this penalty appears to be the profitability of the company and whether the owners collected too much money from the company. It is worth noting that the CPSC chose to weigh in on owners' salaries and bonuses and ALSO on whether the company DISTRIBUTED too much money to the owners. Cash distributions from a S Corp is a RETURN OF CAPITAL - in other words, that cash is the property of the owners. They are legally free to remove it without corporate law or tax implications (as long as the distribution doesn't bankrupt the company, not an issue in this case).

Do you think it is any business of this federal agency whether YOU take YOUR money out of YOUR company? Apparently it is the CPSC's concern and equally, they assert that they can approve or disapprove such transfers after the fact.

Is there a law somewhere that gives them this power?

There is no evidence in the papers that the CPSC weighed ANY mitigating factors, including the lack of injuries.

The CPSC requested the following documents to assess their penalty:

• Federal tax returns for one entity from 2005-2009 and for another entity for 2008-2009
• Federal tax returns for the three family members employed as executives at the company for 2007-2009.
• Federal tax returns for a family trust over 2007-2009 plus financial statements for such entity.
• Information about ownership structure, all affiliated entities with "explanations as to how each relates to [the others]".
• Consolidating and individual financial statements for each entity for full year 2009 (this request is not entirely clear, but this is my interpretation of what the CPSC requested).

The CPSC said it was trying to assess "Schylling's ability to pay a civil penalty." Was all this information necessary to make that determination or was this an over-reaching fishing expedition into private affairs outside a federal agency's purview?

Hmmm.

The March 5th Patton Boggs letter states "When you informed me on February 24 that the Commission had rescinded its provisional approval of the Schylling settlement, you indicated that there was concern that Schylling had misled the Commission regarding the financials, and/or had made exorbitant payments to its owners. Any such allegation is false."

I find this dialogue chilling. Please consider that the CPSC might have been talking about YOU. And might be talking about you soon.

The Patton Boggs letter pleads "Submitted herewith [is] a chart showing the annual salaries and distributions of the three owners of this S-Corp, 2007-2009 . . . . As this shows, the compensation paid to the owners is well within the reasonableness zone for companies of Schylling's size" and continues "salaries paid to the three owners are reasonable and have not increased - except for modest cost of living adjustments - over the past 4 years." [Emphasis added]

Intrusive? Over-reaching? Humiliating? Ready to do this yourself when the time comes???

Does this agency have too much power? What do you think, Commissar?

[Btw, the fact that the company's testing budget ballooned from $144K in 2006 to $645K in 2009 didn't save them. It was noted in the letter, but the Commission still whacked them with the $400K penalty.]

In the April 21 Shook Hardy letter, counsel to Schylling makes even clearer what was going on here: "The inference appears to be that Schylling could have afforded to pay a higher civil penalty had its principals not taken excessive compensation or that Schylling and its principals attempted to hide the assets of the business prior to action by the CPSC. This view does not reflect the facts."

To judge by these letters, the agency's goal was to hit Schylling as hard as possible without killing it, and so the debate turned to whether Schylling could withstand the blow. The agency questioned owner compensation because Schylling's disclosure might frustrate the plan to hit them with an epic penalty. To defend the mega penalty, the CPSC actually needed to prove that Schylling was playing games with its disclosure, something their lawyers hotly contested. The issue of safety is lost in the hunt for retribution. How far the CPSC has fallen . . . .

My mind wanders . . . might this CPSC also want a big headline? Hold that thought for a little while.

Don't forget, NO ONE was hurt by the products Schylling recalled. The recalls were YEARS OLD by the time the CPSC decided to make an example of Schylling, arguably past the statute of limitations (for those of you who are small-minded enough to care about the Rule of Law). The company's conduct, good or bad, seems irrelevant to the discussion in these pages.

Can you imagine what it would like to defend yourself against this kind of foe? How can you protect yourself against a vengeful government agency unconstrained by checks-and-balances? I can tell you - Schylling was scared "witless". They had no practical ability to litigate, despite the injustice of this excessive and unfair penalty. In the face of undocumented government threats, the ugly reputation of this agency's tactics whispered among practitioners these days, who would face them down? Bet the company - good idea until it's your company.

Let me know when you figure out what you would do.

b. Schylling's ancillary losses or penalties were substantial. The CPSC was also not accountable for its torts or mistakes. Buyer beware!

Can you trust the CPSC today? I think one can form a better opinion of the trustworthiness of this federal agency after reading the Schylling case documents.

Here are a few additional Schylling punishments and penalties noted in the papers:

• They were forced to withdraw from an important acquisition in May 2009 when threatened with a $600,000 cash penalty (which was later cut by two-thirds).
• They incurred massive legal bills, not to mention costs relating to the recalls.
• The highly-publicized remarks of a CPSC spokesman to the Chicago Tribune in which he discussed the "diminished financial condition" of Schylling led to problems with Schylling's lender. This comment to the press violated the confidentiality of discussions between Schylling and the CPSC - but I guess confidentiality that doesn't apply when the Chicago Tribune calls. I am not aware of any apology from the CPSC about this flagrant violation of trust.

The adverse publicity which resulted from the recall, and fed by a publicity-hungry agency desperate to appease the media and Congressional overlords, led to hate mail like this:

"Being Untruthful about lead in paint has cost you our business. We will tell everyone we know that none of your products can be trusted. This will be painful for your bottom dollar sales. The lack of leadership in your company and caring about the bottom dollars is evident. We hope your made in China policy is worth it!"

and

"Actually, This isn't about the RECENT recall, this is about the SNOW JOB recall you never reported. You people are REAL pieces of sh*t, I lived up there when you distributed these toys, you're about to have you ASS sued off. In case you forgot, I'll help you remember that you are MORTAL ! Maybe you need someone to bring some lead into your life you piece of sh*t. I hope you make the right choice as to just what to do with yourself. Technically, this isn't the same damn email XXX got. btw, you people soon enough won't even BE in the toy business."

[Emphasis added]

Do you get mail like this? What do you think about a federal agency engaging in conduct that produces this kind of extreme response . . . for what is essentially a dispute about administrative procedures involving a no-injury recall of a small number of toys several years ago? Did I mention that there is no way to bring this agency to account? Remorseless pursuit of scary headlines leading to threats of violence against toymakers - I guess this is that famous "change you can believe in".

Yes, we can.

Senator Kennedy noted that the penalty was "disproportionate to penalties recently assessed against other substantially larger companies for the same type of violations." Arbitrary and capricious, perhaps? Kennedy provides DATA to back up his assertion, noting CPSC penalties against Family Dollar Stores, Hobby Lobby Stores, First Learning Company, Ltd., Michaels Stores, A&A Global Industries, Raymond Geddes & Co., Downeast Concepts and Mattel (oh, Mattel . . . ) - ranging between 0.001% and 0.316% of sales. The proposed penalty on Schylling - 2% of sales, ultimately reduced to 1.33% of sales.

This letter may be the reason Anne Northup revoked her vote in favor of the $200,000 penalty., even though Kennedy's letter proceeded the decision by almost six months and referred to a penalty THREE TIMES the size presented to the Commission.

Have you done the math in your head about what you would be paying if the CPSC got pissed off at you? Do you have a fund set up to finance this kind of setback? Hmmm.

It's a shame that our legal system provides no way for a company to defend itself against government gone MAD without taking fantastic financial, regulatory or business risks. I fondly remember the days when we had a working legal system in this country and when decisions were subject to review, you know before government power was expanded so dramatically and individual rights were extinguished.

I know, I know, we have to protect the CHILDREN! That makes everything okay. The agency can do no wrong. . . .

I remember those days fondly. I will be thinking of them on November 2nd, too.

In the meantime, I will see if I can get the CPSC to cough up a few more documents for the public to see. They have a policy on this, you know . . . .

CPSIA - In Memory of Harrison Bergeron

One of my great frustrations with the CPSIA is its presumption that all children's product manufacturers are identical and none can be trusted to operate responsibly without vigorous government oversight. The CPSC, under the direction of the CPSIA and Congressional zealots from the Democratic Party, are developing identical safety and business administration processes for all businesses making children's products, notwithstanding an absence of data confirming hazards (think books, bikes, ATVs, pens, educational products). This lowest common denominator approach is one of the main sources of increased expense for businesses like ours. And, unfortunately, this offense of government intrusiveness adds no value to our safety efforts despite the self-congratulations of the Democrats leading the charge in Congress and at the CPSC.

Why don't I want to be like everyone else? Why don't I want the government to tell me how to run my business "better"? Of course, the CPSC has absolutely no idea how to effectively operate our business. Even more importantly, the CPSC's voluminous new rules misappropriate the value of our innovations and know-how. We taught ourselves how to efficiently assure the quality of our products - that's how we achieved our enviable safety record over a quarter century. The fact that we can do it at a low cost does not make us bad people - this is an economic advantage we should be entitled to capture and use. The CPSC has written rules to take that advantage away. This policy is un-American and profounding anti-small business. We are no longer able to compete with larger companies by being smarter or fleeter-of-foot.

By making everyone "equal" (forcing adoption of government-designed and government-approved procedures), Democrats like Inez Tenenbaum and Bob Adler now prohibit our company from prospering from hard work, innovation and investment in productivity and efficiency. The Dems' justification is that they know what's best for us and for all American consumers. Other than bravado, this assertion has no basis in fact. Even the very existence of the "crisis" they seek to avert (with our money) is very much in doubt.

If I am wrong, someone should show me DATA to prove it.

To protect the public from imaginary crises, our government just wants everyone to be equal. Kurt Vonnegut addressed this approach to government regulation in his dark short story "Harrison Bergeron". The set-up for the tragic story of Harrison Bergeron is simple - and familiar:

"THE YEAR WAS 2081, and everybody was finally equal. They weren't only equal before God and the law. They were equal every which way. Nobody was smarter than anybody else. Nobody was better looking than anybody else. Nobody was stronger or quicker than anybody else. All this equality was due to the 211th, 212th, and 213th Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper General."
The CPSC seems eager to be our industry's U.S. Handicapper General, driven by the CPSIA and the Waxmanis.

In "Harrison Bergeron", all individuality has been eradicated by law. Those who by the grace of G-d or through their own efforts crafted some form of advantage were reduced to the lowest common denominator by the H-G. Resentment of successful people is called the Tall Poppy Syndrome in some countries. Ironically, people in the U.S. tend to admire the successful and seek to emulate them. The CPSIA takes an opposite tack - Mother Government knows best and safety innovation must be illegal. We need "standards". The Tall Poppies can't be trusted.

I hate to feel like Harrison Bergeron. The bad feelings sting all the worse because I know that the "crisis" is imaginary and has been coopted for political and populist advantage. This is an awful justification for destroying our lives' work. Even more demoralizing, we have already proven our expertise in supply chain management and quality control/compliance over many years. No matter. The CPSC knows best.

Something's VERY wrong here. Is it any wonder that there is anti-incumbency rage in this country now?

CPSIA - More Details on Bogus Zhu Zhu Pet Scare

Forbes.com published a fascinating article about the Zhu Zhus by the editor of STATS.org, an affiliate organization of George Mason University. In this article, Trevor Butterworth thoroughly debunks the fear mongering of the so-called "GoodGuide" in their inept scientific "analysis" on Zhu Zhu Pets. Among other things, he compares the levels of antimony on the nose of the Zhu Zhu Pet with that of a mattress (antimony is found in certain flame retardants and has been carefully studied by the CPSC for this reason). His conclusion: "You would need to upgrade Mr. Squiggles from a hamster to a pet Ox and sleep on him for 8 hours a day for a decade to simulate [the] negligible exposure [in mattresses]." So the fact that "[d]epending on the level of exposure, antimony can lead to cancer, lung and heart problems and impacts on fertility" oft-repeated by an uncomprehending media in reporting on Zhu Zhu Pets is completely inappropriate. It has been put out there just there to scare you . . . or else the consumer advocates (protecting you!) have absolutely no idea what they are doing. Let me see, which makes more sense to me . . . that's a tough call, frankly.

For the record, I believe the Zhu Zhu Pets scam was first exposed by the TheSmartMama.com in this post. Isn't it ironic that a "green" activist is the one to expose the lousy work of the so-called "GoodGuide"? Jennifer Taggart has been an active and useful participant in the debate on the CPSIA. Apparently, the politics of keeping everyone so, so, so safe does not prevent her from standing with the victims of this law. Hmmm. Mr. Waxman, are you listening (or do you even care)?

To close this politically-incorrect essay, I want to again quote from Mr. Butterworth's article in Forbes:

"In the face of unreasoning, unjustified terror, there is, perhaps, only humor. When the story broke about Mr. Squiggles in the United Kingdom, one American from Jacksonville, Fla., posted the following comment after a related news story: 'Dear England, I must apologize for my idiot brethren in San Francisco. You see, in San Francisco they are afraid of everything. There is absolutely nothing that doesn't terrify these people.'"

Can't top that!

CPSIA - CPSC Clears Zhu Zhu Pets . . . But The Damage Can't Be Repaired

Last week, in the heat of the post-Thanksgiving holiday buying crush, yet another unscrupulous or incompetent consumer group, so the so-called "GoodGuide" out of San Francisco chose to launch an attack on a high-profile toy, the "Zhu Zhu Pet", specifically "Mr. Squiggles". The Zhu Zhu Pet product line is this year's Must-Have Toy, a perfect target for selling papers and promoting fear. Mr. Squiggles' "crime" was purportedly the presence of microscopic amounts of tin and antimony above the absurdly cautious CPSIA standards for those elements. GoodGuide (for purposes of this blogpost, let's call them "MisleadingGuide") cited Mr. Squiggles for having "elevated levels" of the elements in its hair and on its cute little nose. The offending levels: tin (I can't find the data anywhere) and antimony, 93 ppm on the hair and 103 ppm on the nose. The federal limits under the CPSIA is 60 ppm.

The MisleadingGuide report was issued on Saturday Dec. 5, and to the CPSC's credit, it acted promptly today by announcing its intention to swiftly investigate, and later (on the same day), cleared the toys. In response to the storm over its accusations, MisleadingGuide acknowledged that it used a XRF gun to test the surface and did not use the federal wet test methods. Oopsie-daisy! MisleadingGuide apparently regrets its error. Interestingly, the retraction/correction of MisleadingGuide is nowhere to be found on its review of Mr. Squiggles. The MisleadingGuide rating is also unchanged as are the misleading results that MisleadingGuide says it "regrets" but hasn't gotten around to correcting. Notably, in the small print of one of its disclaimers, MisleadingGuide notes that much of its data comes from consumer group luminaries regularly heralded in this space such as HealthyToys.org and the ever-present Center for Environmental Health. Now that's some fine company!

This very sorry and sickening episode is the latest instance of consumer group terrorism playing up to an easily panicked and understandably rattled American public. Using the imprimatur granted by their self-appointed role as protectors of public welfare, consumer groups nowadays shoot first and ask questions later. An unskeptical media republishes their garbage without comment, other than to whip up the flames of fear. The cost and the consequence is the random devastation of businesses for "crimes" that are very often imaginary. In this case, the tiny company responsible for this monster hit has only 16 employees. Not exactly a Mattel with a large in-house legal department or the other resources of a mega-company accustomed to being kneecapped by Naderites. A real U.S. success story - brought low by consumer group incompetence and irresponsibility. As everyone knows, there is no recourse for these entrepreneurs as their franchise is damaged mid-Christmas selling season. Dreams dashed, and the consumer groups hardly even blink. Of course, MisleadingGuide does "regret" its error. A bit of cold comfort for the 16 employees at Cepia as they examine the lumps of coal in their Xmas stockings.

Part of the consumer group M.O. is to stoke fear by tossing around figures that no one understands. In this case, they chose some new, unfamiliar elements to create the illusion of irresponsibility by a toy company. Tin? Antimony? I thought the culprits these days were lead and phthalates? No, when those items fade, new threats are manufactured to spread fear and distrust. I should point out that MisleadingGuide is arguing about being 33 and 43 PARTS PER MILLION over the new federal limit.

Tin and antimony are not radioactive, these ultra-amounts are basically undetectable. There is no indication anywhere that exposure to an incremental amount of these elements at this level would be dangerous. However, the new standard is misleadingly portrayed by these unscrupulous or unsophisticated consumer groups as a human health exposure limit, reasoning that anything above the limit is a sign of DANGER. The press is all too willing to make their claims seem legitimate: "Tests in animals have attributed a series of ailments large-scale consumption of antimony, the Department of Health and Human Services’ (DHHS) Agency for Toxic Substances and Disease says. Yet the DHHS also says it does not 'know what other health effects would occur to people who swallow antimony.'" Ah, the seeds of doubt! Notably, unless you gorge on Zhu Zhu Pets regularly, large-scale consumption of antimony is irrelevant in this case. This kind of reporting hands a "win" to the consumer groups. The losers outnumber the winners by a wide margin.

I think there are many damaged parties in this pathetic episode. Let me list them:

• You. The American consumer loses EVERY TIME as confidence in our neighbors and in our stream of commerce is nicked again and again by nincompoops who spread salacious gossip and commercial slander without a full and thoughtful investigation.
• Science. The abuse of science will eventually lead to a mistrust of science. Science misused for the purposes of raising contributions or gathering proceeds from fines or contingent legal fees discredits it as a source of understanding of our world. Our country will lose out to countries not as obsessed with small-minded paranoia.
• Specialty Markets and Small Business Interests. What kind of crazies want to do business in this environment where consumer group terrorists rule the planet? Business people read these articles and feel an injury to themselves. We all know we could be next. It's random and unpredictable, since junk science can be deployed anywhere and anytime by the evil tandem of an unquestioning press and unscrupulous consumer advocates.
• Our National Competitiveness. By allowing consumer groups to pick innocent victims without recourse for the tortious devastation they cause, the incentive to innovate or even trade is sharply curtailed. Businesses seek exits, not growth - some jobs program, huh? The costs imposed on healthy businesses to stay ahead of the maniacs will further cripple competitiveness. As a nation, we will gradually sink into an abyss of irrelevance.

How long must we tolerate consumer group terrorists? I think it's time for Congress to create a new cause of action against this kind of irresponsible behavior. Someone needs to be accountable for the spreading of misinformation, damaging innocent and honest American businesses trying to create jobs and provide needed products and services to American families and schools. The torts of the consumer group creeps need a remedy. Let's turn the tables on these fronts for plaintiff's attorneys and take back our country.

CPSIA - News Round-up

What a day for news on our favorite subject!

a. A sad, almost pathetic, illustration of the ill-effects of the CPSIA is found here: "Police Switch To Handing Out Books To Children" (WISC-TV, Channel3000.com). Be SURE to check out the embedded video, too. In this article, this Wisconsin television station shares the news that police cannot give out teddy bears anymore to children who witness traumatic events like a robbery or the arrest of a parent. For years, the police had been trying to soften those blows with comforting teddy bears. But no more! The CPSIA straightened them out: "The new Consumer Product Safety Improvement Act . . . has law enforcement officers rethinking handing out stuffed animals because of the chemicals they might contain. . . . Mueller said that he used to hand out Teddy bears or other stuffed toys to children. Now, Middleton police are using the books to make sure they're in compliance with new federal regulations."

The local police are scared of the consequences of breaking this law: "'One of the reasons for that is we get older toys that come in and they're perfectly fine to give out, but we don't know if they were made under the new requirements,' [Middleton police Sgt. Don Mueller ] said. . . . The new federal law is retroactive so the departments like Middleton are no longer using any stuffed animals as they can be held liable."

How charming! The CPSIA is actually taking teddy bears away from traumatized children, nice. At least we know the kids will be so, so safe now.

Btw, as you all know, our company makes educational products, including readers, so I am hardly opposed to giving books to kids. I would observe, however, that there are a couple obvious issues here. First of all, it's an odd message to a kid that just saw a parent being arrested to receive a book. Hey, kid, go read this book and try not to think about where we're taking your folks. Not much solace in that, certainly compared to a teddy bear. A second objection is, here's a shocker, not everyone speaks English. Giving a book in English to a traumatized child who does not speak English or has poor reading skills could even be seen as a kind of insult.

b. For a view from the scary people behind the law, check out: "Toxic Toy Law Criticized For 'Lack Of Enforcement" (WBZ Boston). In this alarming article full of inaccuracies, fear of the unknown is given a great deal of unquestioning credibility. "'They don't really know if lead or phthalates are in their products, so we don't know either,' said [Environmental activist Laura Spark]. Her daughters have a playroom full of toys that she can only hope are free from lead and other toxic chemicals." In other words, Ms. Sparks doubts everything about everyone, and feels free to spread this doubt among the populace. The grounds for this latest libel of the toy industry: HealthyStuff.org's recent spot check of pet products, automobiles and women's handbags.

HealthyStuff.org (formerly known as HealthyToys.org) has been the subject of criticism in the past for its shoddy field work. Among other things, the Wall Street Journal published an article entitled "Guerrilla Toy Testers Take Aim at Lead" on December 16, 2008 documenting their maligning of a toy company. Now the presence of "dangerous chemicals" in pet products is enough to convince a TV station that the entire children's products industry can't be trusted?

To compound the sense of fear, the article also completely misstates the Target fine, asserting that it was a "knowing" lead-in-paint violation, which is patently untrue. See my recent blogpost on Target.

c. For a glimpse of the future of litigation under the CPSIA, check out "Mattel Settles Suit Over Lead in China-Made Toys " (WSJ). Mattel has already paid big settlements in California and Arizona, as well as a serious CPSC fine, and paid many millions more for the expense of its mega recall. It's not enough, apparently: "Co-plaintiff lead counsel Whatley Drake & Kallas said in a statement the settlement provides 'tens of millions of dollars in monetary relief as well as significant injunctive relief.'" That'll teach ya!

While my heart does not bleed for Mattel ("The world's largest toy maker previously recorded charges to reserve for the litigation. The company, based in El Segundo, Calif., said final settlement won't be material to its operating results. . . . Mattel shares were up 2.9% to $19.41 in recent trading amid a broad market rally."), this case is at the heart of one of the worst risks embedded in the CPSIA - the possible onslaught of litigation opened up by recalls under the new law.

This problem will continue to bite the children's product industry HARD. My previous blogpost highlighted the snarling lawyers poised at the gate, eyeing us eagerly. Oh joy.

CPSIA - Clarification on the Jewelry Decision

I understand that the CPSC Commission believed it was effectively giving relief to the fashion jewelry industry by limiting its enforcement activities on crystals, glass beads and rhinestones to products for children aged six years or younger. I would like to clarify my previous comment on the effectiveness of this "relief". While the Commission's intentions were commendable, their decision provides no relief at all. Why?

First and most signficantly, the Commission has now removed all doubt - ALL subject stones (glass beads, crystals, rhinestones) are violative if they exceed the lead standards and if included in a product intended primarily for or designed for children twelve years of age or younger. In other words, these products are ILLEGAL. To sell them is to "knowingly" violate this law (CPSA Section 20(d)(2) - "the presumed having of knowledge deemed to be possessed by a reasonable man who acts in the circumstances, including knowledge obtainable upon the exercise of due care to ascertain the truth of representations"). That means penalties, even if you turn yourself in under Section 15(b). To sell such materials INTENTIONALLY (as might be induced by CPSC's highly-publicized policy to not enforce on products for children seven years of age or older) would be grounds for a felony charge. That would be perceived as a problem by most people. . . .

Most business owners and operators would take aggressive action to extinguish the possibility of any felony charge. Think of the shame that comes with this territory - felonies are serious crimes and might involve jail time and asset forfeiture (as though you were a drug kingpin). Felonies are easily avoided if you are good, law-abiding person. Have you ever committed a felony by mistake? No, I imagine not. Have you ever gotten close to the fuzzy line defining a felony? Again, probably not - most felonies are sharply defined. It's fairly easy to tell if you have murdered someone, for instance, and easy to avoid if you haven't already done the deed. How will businesses deal with this problem? They will stop selling rhinestones, etc., perhaps altogether, to avoid this risk of civil or criminal liability.

My experience with retailers, particularly publicly-held retailers (notably subject to the invasive and highly-risky Sarbanes-Oxley disclosure), is that they do not like take to take financial risks. Risk is decided against suppliers. If you have any doubt about this, consider TRU's new requirement that suppliers meet a 100 ppm lead-in-substrate standard as of January 1, 2010, almost two years ahead of any determination by the CPSC that it is required. TRU has taken the most conservative, risk-averse approach to "safety" since the lead-in-paint recalls of 2007-8. Their financial industry owners made a highly leveraged bet on TRU and don't want to blow it with uncontrollable liability risks. They would rather lose suppliers than take risk. Retailers dealing with the jewelry decision will simply insist on safety tests for all jewelry and apparel/shoes containing the stones, and the CPSC-certified labs will fail them all. It's a lock that these items will disappear from store shelves, notwithstanding the CPSC's promise to not enforce.

Another terrible implication of this decision is that possession of the now-illegal stones will mean significant and immediate inventory losses. Determining which stones are for which age child will be challenging or impossible. Products containing the stones are therefore likely considered contraband now, worthless in their present form. Who wants to be stuck with that loss? This is the classic "hot potato" problem highlighted in last November's Journal of Commerce article. Whoever has this inventory gets whacked with a total loss so a war will break out over its rightful owner. This is also the painful interaction of the Commission's decision with the Proposition 65 settlement and other correlated state laws - somebody's going to eat a lot of inventory (starting yesterday). To avoid this kind of risk, retailers will dump the goods back on makers, and the makers will have few options for the goods returned under this cloud (remember, felonies?).

Let's also not forget that products that are illegal under the CPSIA are not eligible for export to ANYWHERE. In other words, illegal here . . . illegal EVERYWHERE. The losses are total and irrevocable, courtesy of this decision. Who would want to get in the middle of that?

The fashion jewelry decision came as a shock to starry-eyed (non-cynical) optimists who held onto inventory from February without writing it off in the hope that the Commission would somehow preserve the stones' value. No such luck for them. With the Commission's decision, massive write-offs are now certain. In my original letter to Cheryl Falvey on retroactivity (here and here), I explained that inventory turning overnight into contraband would lead to widespread loan defaults, among other evils. It is not hard to imagine that among CIT's problem loans today are a few contraband jewelry and apparel/footwear cases arising from or related to this decision.

To add to the fun, the CPSC's new best friend, their partner U.S. Customs Service, is said to be impounding these goods as they are imported. I understand that numerous shipments are being delayed over these stones. What's the defense of the importer? "Hey, I know it's illegal but the CPSC says they don't care. . . well, they CARE but they won't enforce . . . right, no enforcement but still illegal, yes, can I have my inventory? . . . I can't give you a test report, the stones are over the limit but the CPSC says they won't be looking . . . but you ARE looking? . . . should I put my lawyer on the phone to explain???" Yeah, that might work . . . on Mars.

It's a royal mess but frankly, the CPSC and the Commission did as much as the words of the law allows. The law is very poorly-written and was even more poorly-vetted, and must be changed. The Commission will have more trying days ahead as it tries to make sense of a law that makes no sense. It's self-destructive legislation causing widespread harm but Congress stands passively on the sidelines, ready to point fingers. I think we as a country can achieve more. Now somebody has to prove it.

CPSIA - Penalties (You Can't Say You Weren't Warned)

Cassandra that I am, I have been warning of many problems with the CPSIA for many months. It's a long list, I won't bore you. Among my bitter complaints are the CPSIA's wild penalty provisions and open-ended liability provisions. [Others have also written about the penalty provisions.] I have gone further and noted that since the law is so complex and overarching, the CPSC will be accumulating claims against everyone and will be able to pick and choose who to penalize, when and how. This process won't necessarily be fair or even-handed. The possibilities for coercion and abuse in assessing liability are rampant and obvious. At ICPHSO, Gib Mullan warned that penalties would be expanded significantly. Yeah, yeah, blah blah blah, right? Worrywart . . . .

Well, you decide. In recent days, the CPSC began to announce its penalty assessments for past lead-in-paint recalls. First, Mattel was forced to pay $2.3 million in penalties (95 items, 2 million units, @$1.15 per piece in penalties). [Of course, Mattel also previously paid millions of dollars in penalties to California and to a consortium of 39 States for the same recalls, but who's counting . . . .] Then OKK Trading was cited and paid a penalty of $665,000 (repeated violations over several years for several reasons). Earlier this week, the CPSC resumed its activities, citing nine companies ($530,000 in penalties, 13 recalls total). I understand there are more penalties in the hopper right now.

Here are a couple facts before we dive into the merits of these cases. First, did you know the CPSC has a FIVE YEAR WINDOW to impose penalties? Yessiree, that's the statute of limitations. It doesn't MATTER that they imposed a recall on you or even that the case is CLOSED. Nope, the penalty window remains open. Second, it's the Legal Department, not the Enforcement folks, who set the penalty numbers. My understanding about these last nine cases is that the penalty numbers were NOT negotiable, and if you protested, you were told that a mega investigation would ensue with subpoenas and a risk of referral to the Department of Justice (you know that that means). Of course, any idiot would realize that legal fees ALONE would eat up the proposed penalty in mere days if you were to choose to fight, and then you would still be left with a potentially yawning legal mess. In other words, the CPSC's deal is "Pay or else". That's due process under the CPSIA nowadays.

Before we overreact, let's see what these latest penalty assessments are all about. Perhaps there is a pattern here.

Cardinal Industries: One recall of a toy jewelry sold in vending machines, 900,000 units, penalty of $100,000 ($0.11 per unit). NO INJURIES.

Cardinal was turned in by a consumer. They were cited for a "knowing" violation of the CPSIA under Section 20(d) because they "failed to take adequate action to ensure" that their products were lead-free. [Congress' confusion, or worse, over the meaning and possible use of the term "knowingly" in Section 20(d) has been highlighted in this space previously. And ignored.]

Dollar General Corp.: Three recalls (1, 2 and 3), 494,000 units, penalty of $100,000 ($0.20 per unit). NO INJURIES.

Dollar General was turned in by the University of Ashland on one recall, and turned itself in on the other two recalls - as is required by law and by good corporate citizenship. Dollar General was cited for the same "knowing" failure under Section 20(d) for the same reason - "failed to . . . ensure". [Consider this quote from the Settlement Agreement: "Thus, Dollar General neither knew, nor should have known, of any potential problems with these products. However, as a result of industry changes and in an abundance of caution, Dollar General voluntarily commenced validation re-testing of toys to confirm initial test results. Dollar General tested hundreds of samples and, of those, discovered that two, the Sunglasses and Toy Cars, did not meet applicable standards. Dollar General notified the CPSC of the results and promptly initiated a voluntary recall of the items." Obviously, an excellent candidate for the CPSC to teach a lesson!]

Family Dollar Stores, Inc.: One recall, 142,000 units, penalty of $75,000 ($0.53/unit). NO INJURIES.

It's not clear from the Settlement Agreement how FDS's problem was discovered. Same "knowing" citation on the same grounds.

Hobby Lobby Stores, Inc.: Two recalls (1 and 2), 23,000 units, penalty of $50,000 ($2.17 per unit). NO INJURIES.

It's not clear how HLS's problems were discovered. Same "knowing" citation on same grounds.

First Learning Company, Ltd.: Two recalls (1 and 2), 24,400 units, penalty of $50,000 ($2.05 per unit). NO INJURIES.

The CPSC found one of the recalled items in a retail sweep. The means of discovery of the other problem is not clear. Same "knowing" justification.

Michaels Stores, Inc.: One recall, 310,000 units, penalty of $45,000 ($0.145 per unit). NO INJURIES.

Michaels was turned in by the University of Ashland. They were cited for the same "knowing" violation, same justification.

A&A Global Industries, Inc.: One recall of bracelets sold in vending machines, 4,000,000 units, penalty of $40,000 ($0.01 per unit). NO INJURIES.

A&A was turned in by a customer. They were cited for the same "knowing" violation, same justification. [From the Settlement Agreement: "A&A specifically denies that it failed to take adequate action to ensure that the Bracelets did not bear lead-containing paint exceeding the permissible limits set forth in the Ban. A&A's compliance program, at the time of the subject recall met or exceeded industry standards for ensuring compliance with the permissible lead limits set forth in the Ban. Likewise, A&A asserts that it acted responsibly and reasonably to respond to the Commission's concern regarding the Bracelets, including its prompt and voluntary implementation of a successful product recall of the Bracelets in cooperation with the Commission."]

Raymond Geddes & Co.: One recall of a pencil pouch with lead paint on the zipper pull, 84,000 units, penalty of $40,000 ($0.48 per unit). NO INJURIES.

RG may have turned itself in (not entirely clear). Same "knowing" citation, same justification.

Downeast Concepts Inc.: One recall, 18,000 units, penalty of $30,000 ($1.67 per unit). NO INJURIES.

DCI self-reported this problem as required by law and by good corporate citizenship. Same "knowing" violation, same justification.

Every one of the companies denied the "knowing" violation, for whatever good that did them. Not ONE of these companies was hit with the minimum penalty (that is, the lowest penalty above refraining from imposing any penalty), even the ones who turned themselves in or the one with a dab of paint on a pouch's zipper pull.

To me, these cases seem like "ordinary" breaches of the L-I-P ban. There is no indication from the publicly available facts that these are "bad" companies or that any of the cases show a pattern of abuse or disregard of the law. Several of these companies clearly were actively trying to make amends for their own errors. The penalties do not seem to correlate to corporate behavior nor do they suggest a formula for determining penalties. The amounts seems random and capricious to me. As noted above, the companies were effectively denied the right to negotiate a penalty on any basis (such as presenting mitigating factors).

It appears that the philosophy of these penalties is one of absolute liability (you are liable for a penalty if you violate the L-I-P ban, regardless of reason or circumstance). This is an an entirely new way for the CPSC to administer this law (and excessive, unrealistic and unfair in my opinion). It also seems clear that mitigation for acting promptly and cooperatively or for the absence of injury is no longer relevant in the determination of these penalties. NONE of these cases involved injuries or death. As I have previously noted on several occasions, only ONE recall for L-I-P in 2007-8 resulted in an injury (one injury only) and NO deaths. The good faith cooperation of several of these companies is described in their Settlement Agreements.

Can you begin to connect the dots here?

In my comment letter on the CPSIA penalty provisions (linked above), I opened with this suggestion: "We strongly urge the CPSC to reserve the imposition of penalties for only the most egregious and dangerous situations. Penalties under the CPSIA should NOT be to punish but instead to motivate better legal compliance. This is consistent with the mission of the CPSC - to protect the public. Notably, the CPSC does not have a mission to mete out 'justice' so the use of penalties should be purposeful and not motivated by retribution. . . . We are fearful that the power to impose high penalties will be used coercively by the CPSC, ending any notions that law-abiding companies can work openly and in partnership with the CPSC. At present, the CPSC encourages a practice of 'when in doubt, file'. In a regulatory environment where minimum penalties are $100,000, how many companies will take up the CPSC's suggestion to file 'when in doubt'? " This letter was submitted to the CPSC on December 17, 2008.

Now we know where the CPSC stands on my advice.

Near the end of my comment letter, I made the following observation: "All in all, the CPSC must be very careful to not create a menu of 'gotcha' penalties. The CPSC's penalty policy or rules will be part of the 'game play' between the regulators and the regulated companies. If the rules encourage cooperation, the CPSC has a chance to partner with industry to improve safety. If industry believes that penalties are viewed as a revenue source or are being handed out in a way disproportionate to the infraction, then interplay between industry and the CPSC will change for the worse. If the penalties are too great, companies will exit the business (find something less regulated to do) or start hiding infractions as a survival technique. This outcome would not contribute to the safety of American children, and must be carefully considered in crafting the CPSC's penalty policies."

The dark clouds are gathering, guys. I am not sure how much more evidence is needed to prove that the cards are stacked against industry under the CPSIA - notions of "common sense", fairness or equity seem to have no place in a CPSIA world. If you think this is a great development for your business or your market, then rub your hands in glee - you are getting your wish. If you think the CPSC is going to too far or the rules empower the agency too broadly, I think you may want DO SOMETHING ABOUT IT. The few of us engaged in pushing back on this law CAN'T DO IT OURSELVES - we need your help. Get out there. Before you get whacked by a vengeful government . . . .

CPSIA - Kafkaesque

I find myself thinking of the writings of Franz Kafka. Kafka's iconic novels, including The Metamorphosis and The Trial, are disorienting and nightmarish. I have read several of his novels and found them disturbing and provocative. I never felt I truly understood Kafka until it was pointed out to me that he is considered a "Jewish writer". Seen in the context of history, The Metamorphosis (1915) (the story of Gregor Samsa, a traveling salesman who overnight turns into a giant cockroach) and The Trial (published posthumously in 1925) (the story of Joseph K. who is arrested and charged with unspecified crimes to be tried by an unspecified court and judge on an unknown date) can be seen as eerily foretelling the dark events of the 20th Century to follow in the coming years, including the Holocaust and the secret purge trials of Joseph Stalin. Arguably, Kafka was also a legal commentator, anticipating how laws and the rules of society were on a downward trajectory in the 20th Century, imperiling the role of the individual in society. Kafka's three younger sisters died in the Holocaust, but Kafka himself never lived to see it - he died in 1924 of tuberculosis.

The disturbing metaphors of these novels ring in my ears. When you think about what followed Kafka's death, the novels take on a power that is beyond their words. The world he was describing incredibly, shockingly, came to pass years later.

I feel like a cockroach myself these days. Having worked for almost two decades to build our education company, and having done so responsibly, I find that we have been labeled a cockroach by our government for imagined transgressions. Actually, thousands of companies have been labeled cockroaches for the same unjustifiable reasons. Not unlike the experiences of Gregor Samsa, I find that we are being isolated, prevented from earning our living, and are shrinking from our former size. Samsa ended up bug-sized and incommunicado.

It is also true that I feel like we have been charged with unspecified crimes by an unidentified tribunal to be tried on a date unknown to me. I cannot figure out what we have done wrong or how we can repair the damage. Like Joseph K., I am looking for someone to defend us against charges that must be wrong - I have scoured my business life and cannot find the crime. Joseph K. ends up being convicted and is executed at the end of the novel. Joseph K.'s last words: "Like a dog."

The Trial in particular is a stunning metaphor for the dilemmas we face. The laws that underlie Joseph K.'s arrest and the unspecified charges are nowhere to be found. He cannot read them, he cannot rebut them. The "laws" exist only by the assertion of the mysterious people who have charged him with crimes. Using the same authority that enabled them to charge him with unspecified crimes, the unnamed court also convicts and sentences him. Unnamed people execute him. He has no recourse and dies alone.

Unwritten laws are subject to abuse. Kafka described the "legal system" of a totalitarian regime. Joseph Stalin used a similar "legal system" to his advantage in the decade following Kafka's death, engineering quick trials in the 30's to convict his enemies of vaguely described crimes, followed by execution within 24 hours. He was clever - he maintained the appearance of a legal system (there were charges, a court, a judge, lawyers, a "trial", even confessions) to preserve the illusion of individual rights. In fact, the system was designed to be manipulated to whatever ends he determined. He could assert he was motivated by justice and protection of the People.

The CPSC's ATV enforcement stay, justified by the agency's supposed "enforcement discretion", makes a mockery of the Rule of Law in children's product safety. If the "law" is not the one available on the CPSC website, then I must conclude it's a secret law present I know not where. The Commission's actions go far beyond exercise of discretion and far beyond their own precedent and statements on the operation of the law. While we certainly don't live in a totalitarian society, the activity of the CPSC in the ATV stay erodes the operation of law and is on a slippery slope. Tell me where it ends - I do not know.

This is a SERIOUS issue, and I hope both the CPSC and Congress takes it seriously. I do not wish to be subject to the risks Mr. Kafka highlighted, and further believe that the U.S. Constitution protects me from that possibility.

A quick side note: In a world with unwritten laws and secret enforcement stays known only on the whisper circuit, it will be impossible to administer your business. Let's not forget that the CPSC's stays (explicit or implicit) have NO effect without the cooperation of all 50 SAGs. Those SAGs were empowered to enforce the CPSIA as they see fit. Think of 51 secret laws now, not just one at the CPSC. In addition, thanks to the CPSIA, violations of any of a number of (unspecified) laws require 24 hour notice to the CPSC under Section 15 of the CPSA. For instance, this obligation would cover one missing warning label on your website. Yes, 24 hour notice for every violation, regardless of how trivial. AND any "knowing" (actual or imputed) violation of law may constitute the basis of a felony charge. How's that for coercive power for 51 different, independent regulators?

The final "gotcha" is the whistleblower provision. You cannot even THINK OUT LOUD about the most minor violations of the law in your office for fear of being turned in. Yes, cockroaches, the government has filled your office with spies to encourage you to toe the line. If you make a mistake or put something off until after your vacation, you are theoretically exposed to a disgruntled employee going "State's Evidence" against you and sticking around to collect a paycheck. The "relief" being offered in the guise of "enforcement discretion" will provide no relief whatsoever.

The imaginary law, the one in the heads of the CPSC as evidenced by the ATV enforcement stay, won't help us run our businesses. Rub your hands with glee, Congress, we are stuck with your awful bill EVEN IF the CPSC exercises its "enforcement discretion". I know you won't like the comparison, but I think Mr. Stalin would be impressed, guys. Like a dog. . . .

I don't care how desperate the 28 Senators are. Fix the damn law.

CPSIA - Contesting the Higher Ground

I find it tedious, and a little insulting, to have to assert my "devotion" to safety when discussing the CPSIA. As a professional in the education business since 1990, I believe our company's record of achievement in safety and corporate responsibility speaks for itself, and besides, who on Earth is not for "safety" and injury avoidance? I have yet to meet anyone who values money more than lives or health, and do not believe such people exist in any appreciable number in the United States. In fact, to love money over health and safety make you a psychopath. Consider this quote from the article on "Psychopathy" in Wikipedia: "Lack of a conscience in conjunction with a weak ability to defer gratification and/or control aggressive desires, often leads to antisocial behaviors. Psychopathy does not necessarily lead itself to criminal and violent behavior. Instead, psychopaths high in social cognitiion may be able to redirect their antisocial desires in a different, non-criminal manner." (see http://en.wikipedia.org/wiki/Psychopathy). Can I ask your indulgence - let's assume I am not a psychopath. . . . With that established, you can perhaps appreciate the strangely irritating feeling that overcomes me when I periodically feel the need to reassert my sanity, that is, my concern over the safety of our products.

Nonetheless, the debate over the CPSIA seems to revolve around competitive virtue, over who occupies the High Ground of Caring The Most About Safety. The group staunchly defending the defective CPSIA implies that they alone value human life and health, and spares no effort to slam anyone who dares disagree with their views or, heaven forbid, criticize their sainted "groundbreaking" law. This has led to some rather shocking incivility by public officials. One example that relates to me personally was an attack by Rep. Jan Schakowsky (D-IL) at the March 12 Consumer Federation of America conference. In her speech to the CFA group, she (apparently) referred to me by name, called into question my integrity for calling a Rally to protest the CPSIA and then wondered aloud if I have children (yes) or grandchildren (no) - as if that was the only possible explanation for my supposedly inexplicable view of the law. Of course, the implication is that she and her CFA supporters alone are capable of arbitrating good consumer protection. I find it shocking that attack dogs like Schakowsky have nothing more to offer than smears in defense of their law. What does that tell you about the Higher Ground?

A more recent example of stunning self-justifying discourtesy, also from a representative of my own Land of Lincoln, is the March 27 letter of Senator Dick Durbin shredding Acting Chairman Nancy Nord of the CPSC for having the nerve to not bow down to the CPSIA in her March 20 letter to Rep. John Dingell. See http://durbin.senate.gov/showRelease.cfm?releaseId=310660. How dare she! Durbin's letter, riddled with errors, is a new low water mark in the vicious attacks by the folks who brought you the CPSIA. These street brawling tactics are intended to work your emotions, and to skirt the legitimate issues raised by opponents to the law, presumably because the supporters of the CPSIA have no answers.

In his letter, Durbin chooses to attack Nord for a letter explicitly prepared by the CPSC staff (http://www.cpsc.gov/about/cpsia/dingell032009.pdf), and on one hand, tears into Ms. Nord for the letter's (inconvenient) view that the law takes away the authority of the CPSC to do its job ("You accused a law that significantly strengthens the Commission’s hand as having 'taken away our responsibility to look at the risks and make judgments about what is or isn’t safe for American consumers.'”) while complimenting the staff at the same time ("I commend the Commission for its hard work so far in implementing the law’s provisions, especially the job performed by the career staff who have responded heroically to the new workload. We can only hope that these career staffers will help make a clean break from failed policies of the past."). The purpose of Durbin's letter is quite clear - it is just a venal, personal attack on a Commissioner who chooses to disagree with the CPSIA to turn her into Public Enemy Number One. Obviously, this distraction works much better than actually reading the law and answering the chorus of complaints. Maybe if Durbin and his cohorts can convince the public that Ms. Nord is "the problem", they can claim that they solved the invisible national health crisis with a new Democrat-appointed Chairman who would break with the so-called "failed policies of the past."

Contesting possession of the Higher Ground is counter-productive. It doesn't matter who is most saintly, since the real object here is to create a workable legal mechanism for safety administration. If we must deal in emotions, rather than facts, there is no chance to create good law. Unfortunately, Mr. Durbin seemingly must resort to distortions and untruths to make his point: "Over the last two years, tens of millions of toys were recalled by your agency because they posed a serious threat to consumer safety. These recalls included wooden trains covered in lead paint and poorly produced magnetic toys. Ordinary families paid the price for weaknesses in the Commission’s oversight. Their children suffered life-threatening injuries or, in the most tragic cases, death. Yet you have referred to these problems which led to the law as 'what Congress perceived to be this hysteria over recalls.'" Having personally reviewed every single recall notice on the http://www.cpsc.gov/ website, I am not aware of any deaths from lead-in-paint since January 1, 2007. Of the 125 lead-in-paint recalls between January 1, 2007 and the end of January 2009, there was ONE claim of injury from lead-in-paint on a recalled item and no deaths reported. There was one documented death from a lead bangle on one bracelet in that time period - that's it. I do not discount the suffering of these families (there I go again . . .), but I have a simple question - is this enough of a problem for our society to turn over the entire economy? It takes little effort to come up with ten more urgent situations that we have choosen not to address. Frankly, it is hard to argue with the CPSC staff's assertion of "hysteria over [toy]recalls", given these FACTS.

As long as politicians debating the issues relating to the CPSIA place a priority on whipping up public emotions, presumably to cast themselves in a better light, we will have a hard time working out a proper and balanced solution to the obvious problems with the CPSIA. In the meantime, many good Americans will suffer breathtaking economic losses at the worst possible time. I hope it will not come as a shock to hear the OBVIOUS - the people who are taking the low road, the ones who will NOT listen and have a policy of asserting legislative infallibility, are DEMOCRATS. Safety is NOT a partisan issue, at least it wasn't until this group of Democratic legislators made it into a partisan issue. I can only hope that they will rise to a higher state of leadership, acknowledge the need for further FAIR, OPEN AND OPEN-MINDED INQUIRY, and stay this legislation long enough to allow for that deliberate consideration. If they persist in holding the line, we will all suffer from the awful impact of the shockingly misguided CPSIA. If the law persists unchanged, our company will have to reorganize to survive in a highly-distorted marketplace, consumers will have to do without many essential products (in our case, important educational products) - and with my new-found free time, I think I will work on getting new representation in Washington.

Have we had enough yet, America???

Rick

CPSIA - If We Can Meet the Standards, Why Do I Still Hate This Law?

An interesting question comes up from time to time: If our company can easily meet the new lead and phthalates standards, why am I so uptight about the CPSIA? It is true that our products will be basically unchanged under the new law, and the few products which we will modify slightly are being changed mainly to avoid ambiguities in the law. My strong position against this law has apparently given some people the impression that we are having trouble with the standards. This was demonstrated most recently at the ICPHSO meeting when I asked a question about reporting compliance, and received a response that implied that my concern must be based in the "difficult nature" of our products. Not so. If we don't perceive a serious issue with complying with the standards for our company, why am I kicking up a fuss?

a. The New Law Changes the Economics of Our Products. Under the new law, we will incur tremendous new costs over time. Each of the following costs will materially affect the economics of each product we sell: (i) testing costs (and we don't even know the required frequency of such testing yet), (ii) tracking label costs on both packaging and product, (iii) administrative costs incurred to monitor legal compliance with a myriad of rules, plus advertising requirements, labelling requirements and reporting requirements, and (iv) legal risks including enforcement actions by State Attorney Generals and the risk of large fines for non-compliance. Risk equals cost (think of sub-prime loans) so even uncertain future expenses must be included in our calculations on some discounted basis. When we calculate the profitability of each item, we must account for all of these (and other) costs. Since the perceived value of our products is inelastic (little pricing power), profitable revenue is very dependent on selling at the right price for us. In addition, having reduced our operating costs significantly to survive the current severe economic downturn, our ability to absorb these additional costs through productivity gains and efficiencies is rather limited. Many items will go from profitable to unprofitable in a blink as this law phases in. This is a non-mass market phenomena, of course. Companies selling in high volumes will not experience many of the problems that we face. Their economics are more favorable since they spread costs over many more units. Companies like ours will be beset with a major Darwinian process devouring their product lines.

b. The New Law Changes the Economics of our Business. The complexity and risk of this law creates new and irresistable incentives to change our business model. The legal risks/costs under this law tend to rise exponentially with the complexity of the tasks one must take on. In other words, the more you try to do (in our case, products we offer for sale), the more likely you are to violate the law. Why? Because of the sheer number of requirements for each item to be compliant, FULLY-COMPLIANT, with the law, the odds of properly complying with the law goes to ZERO with a big product line. And, as the number of tasks rises, focus on what's important will certainly be lost (remember the old saying, when everything's important, NOTHING'S important) which suggests that serious safety issues will RISE even as resources devoted to compliance increase exponentially. A surprising result? No, the more complexity, the more predictable (the more likely) is spectacular failure. This is essentially a statistical argument, which cannot be countered by good intentions, great organization or legions of saints working on your team. "Cops on the beat" won't matter, either (thanks, David Arkush). In another delicious irony of this law, owing to overarching complexity, legal infractions will rise, which consumer groups and regulators will chalk up to low character among children's product companies and call for tougher enforcement . . . . Yes, this will be a self-fulfilling prophecy.

The risk of failure, and the SEVERE (and ridiculous) penalties possible for failure under the law, makes it foolhardy to stick with a model requiring thousands of items to be sold. Again, the economics won't support that model. The CPSIA wants our company to sell 50 items, not our current 2,000, and wants us to sell them in lots of 50,000 units, not 500-10,000 as we do currently. The longer we defy the CPSIA and its economic incentives, the worse we will do financially. This will also create real disincentives against being a distributor of children's products. It's only a matter of time before these incentives work their magic - the market always responds. Wal-Mart should love it!

c. The New Law Turns Our Business Into A Tedious Bureaucracy - And We Don't HAVE To Do This. Under the CPSIA, we must undertake a number of urgency, zero-tolerance activities that are essentially bureaucratic in nature. For instance, we need to monitor warning labels in our catalogs and on our websites, manage test reporting on multiple standards and posting of such material on a ftp site, manage the perpetual changing of tracking labels on product and packaging throughout the year (estimated to be not less than 20,000 product changes per year at our company - and that could be a low estimate), train and re-train dozens of people annually on a long list of crucial compliance issues, closely manage the evolving regulatory environment (with ever-changing rules, regulations, laws, FAQs, interpretations, seminars, webinars, postings, requests for comments, etc.), and so on. Please note that none of this has anything to do with designing our products, maintaining their basic saleability or safety (yes, safety), marketing our brands or products, investments in infrastructure or people, etc. It's a major diversion of resources to pure paper-pushing.

Why do you think we work so hard at being a great educational company? Why do you think we get up early and stay late, work weekends, go to tradeshows, take calls late into the night? It's not so we can keep busy. Our mission is not to stack paper to the Moon - we want to make the world a better place. I can tell you - the prospect of turning our company into a big CETA project, a bureaucractic branch of the U.S. government, is repellent to me. This vision of our company leaves me feeling short of breath. Can we be expected to keep working as hard or with as much commitment if this happens? I think we would find better things to do with our time and capital. Nothing is more chilling than the thought that our business would be ruined by this terrible diversion of resources and mission.

d. I Cannot Abide the Lack of Trust Implicit in the Law. The CPSIA brands all children's product companies as untrustworthy. We must prove that we comply with law before we enter the chain of commerce, and are never paroled from this over-reaching and terrible requirement. Put into a different context, that's like requiring all American businesses to be audited for compliance with labor laws before being allowed to transact business. Why stop there? Why not require that Starbucks have each cup of coffee tested before handing it over at the drive-through window? There is simply, plainly no reason to be so distrustful basically of ourselves. Who do you think the Children's Product Industry is? It's Wal-Mart and Target, it's Toys R Us, but it's also the local clothing store, the shoe store, the bike store, the ATV rental facility, the jeweler, the schools, the electronics store, many restaurants, the office supply store, the school supply store, and all of their suppliers, and many more institutions. Have I named the employer of 60% of your block yet? The Children's Product Industry is . . . YOU and ME and ALL OF YOUR NEIGHBORS. Are we all really that untrustworthy? I find this insulting and illogical. I bristle under the burden of that slur.

The impact of the CPSIA is far-reaching. The sound bites that sum it up neatly miss the point entirely. There is nothing neat about the law. It's impact will be felt for years in devastation that only slowly manifests itself. This is not an episode of CSI-Miami that gets resolved in 60 minutes. It's more like the slow destruction of an eco-system. That eco-system is your community. It's time to stand up for our rights - this can't happen on our watch!


See you at the April 1 Rally in Washington, D.C. You can get all the details on www.AmendTheCPSIA.com. We also hope to have online streaming if you can't join us in person.

Rick

CPSIA - The Significant of Recent Correspondence by Rep. Schakowsky

From: Rick Woldenberg

Sent: Sat 2/28/2009 3:32 PM

To: 'Christian.Fjeld@mail.house.gov'; 'robin.appleberry@mail.house.gov'; andrew_grobmyer@pryor.senate.gov; james_reid@rockefeller.senate.gov

Cc: 'brian.mccullough@mail.house.gov'; 'shannon.weinberg@mail.house.gov'; 'william.carty@mail.house.gov'; 'mjg@brown-gidding.com'; Etienne Veber; 'challengeandfun@gmail.com'; 'kathleen@fashion-incubator.com'; 'Stephen Lamar (slamar@apparelandfootwear.org)'; 'Nancy Nord (nnord@cpsc.gov)'; 'Joe Martyak (jmartyak@cpsc.gov)'; 'Mary Toro (MToro@cpsc.gov)'; 'tmoore@cpsc.gov'; 'Patrick Magnuson (patrick.magnuson@mail.house.gov)'; 'Carter Keithley (ckeithley@toy-tia.org)'; 'Rick Locker (fblocker@LockerLaw.com)'; 'Desmond, Edward'; 'David Callet (calletd@gtlaw.com)'; 'ravitz.georgia@arentfox.com'; 'Pamela Gilbert (pamelag@cuneolaw.com)'; 'Robert Adler'; 'Dan Marshall (dan@peapods.com)'; 'erik.lieberman@mail.house.gov'; 'cfalvey@cpsc.gov'; Judy Bailey (judith.bailey@mail.house.gov); adele@narts.org; kmchugh@astratoy.org; richard.goldberg@mail.house.gov; matthew.abbott@mail.house.gov; 'Brian_hendricks@hutchison.senate.gov'; 'david@commerce.senate.gov'; 'Cathy.hurwit@mail.house.gov'; pweller@cpsc.gov; mgougisha@cpsc.gov; bridget_petruczok@boxer.senate.gov; michael_daum@cantwell.senate.gov; bill_ghent@carper.senate.gov; hap_rigby@demint.senate.gov; frannie_wellings@dorgan.senate.gov; david_quinalty@ensign.senate.gov; james_chang@inouye.senate.gov; jonathan_becker@klobuchar.senate.gov; michelle_schwartz@lautenberg.senate.gov; lee_dunn@mccain.senate.gov; sonya_wendell@mccaskill.senate.gov; matthew_hussey@snowe.senate.gov; brendan_plack@thune.senate.gov; hugh_carroll@wicker.senate.gov; elissa.levin@mail.house.gov; christopher.schepis@mail.house.gov; theresa.lavery@mail.house.gov; greg.louer@mail.house.gov; brian.diffell@mail.house.gov; amy.ingham@mail.house.gov; laura.vaught@mail.house.gov; matt.johnson@mail.house.gov; saul.hernandez@mail.house.gov; aaron.shapiro@mail.house.gov; rick.axthelm@mail.house.gov; steve.plevniak@mail.house.gov; scott.cleveland@mail.house.gov; jonathan.smith@mail.house.gov; pat.cavanagh@mail.house.gov; rachelle.wood@mail.house.gov; michael.gaffin@mail.house.gov; angela.manso@mail.house.gov; dana.lichtenberg@mail.house.gov; derrick.ramos@mail.house.gov; elizabeth.stack@mail.house.gov; lori.pepper@mail.house.gov; david.bahar@mail.house.gov; mark.bayer@mail.house.gov; Neeta.Bidwai@mail.house.gov; kyle.victor@mail.house.gov; chris.debosier@mail.house.gov; morgan.jones@mail.house.gov; matthew.dockham@mail.house.gov; tuley.wright@mail.house.gov; cade.king@mail.house.gov; betsy.christian@mail.house.gov; chris.herndon@mail.house.gov; Mike.Ward@mail.house.gov; laura.abshire@mail.house.gov; randi.meyers@mail.house.gov; Greta.Hanson@mail.house.gov; liz.muro@mail.house.gov; jamie.euken@mail.house.gov; jon.oehmen@mail.house.gov; brad.schweer@mail.house.gov; michael.beckerman@mail.house.gov; valerie.henry@mail.house.gov; Becky.Claster@mail.house.gov; tiffany.guarascio@mail.house.gov; jeff.mortier@mail.house.gov; Christopher_day@billnelson.senate.gov; john_phillips@kerry.senate.gov; Kerrie Campbell (kcampbell@manatt.com); bryan_hickman@hatch.senate.gov; Ben.Kershaw@mail.house.gov; tom_jones@commerce.senate.gov; Lisa Brown (lbrown@who.eop.gov); csunstein@who.eop.gov; stacy_ettinger@jec.senate.gov; csunstei@uchicago.edu; rpalmieri@nam.org; dbrown@muchshelist.com; Lyndsay Austin (Lindsay.Austin@mail.house.gov)

Subject: CPSIA - The Significance of Recent Correspondence by Rep. Schakowsky

On February 12, Representative Jan Schakowsky wrote Kathleen Fasanella to complain about the design of her websites and to attempt shame Kathleen by linking child deaths to the origins of the CPSIA. See http://designer-entrepreneurs.com/blog/illustrations/Letter_to_Kathleen_Fasanella.pdf and http://www.fashion-incubator.com/phpbb/viewtopic.php?t=4875. Incredibly, Ms. Schakowsky resorts to emotional manipulation and intimidation in response to the exercise of Kathleen's Constitutionally-guaranteed Freedom of Speech. I believe Freedom of Speech was once considered a sacred right in America. Perhaps the debate over the CPSIA has become too leaden for Ms. Schakowsky.

Ms. Fasanella's answer to Ms. Schakowsky deserves your attention. See http://www.fashion-incubator.com/archive/my-response-to-representative-schakowsky/. Please read the 45+ comments as well.

What is notable about this exchange of letters and the associated comments? Of course, the issue is "misinformation". There has been much traffic in accusations of "misinfomration". See http://energycommerce.house.gov/images/stories/Documents/PDF/Newsroom/nord%20moore%202009%201%2016.pdf and http://energycommerce.house.gov/Press_111/20090204/cpsc.pdf (Congressional leaders) and http://www.consumerfed.org/pdfs/CPSC_leadership_release_1-30-09.pdf (consumer groups). In Ms. Schakowsky's letter, she identifies herself as a major source of misinformation - all in the name of defending the noble CPSIA. Hmmm. How should we voters feel about this kind of manipulation by an elected leader closely identified with the CPSIA? I believe the public believes it can rely on our Congressional leaders to get it right, but that is apparently a misplaced trust. This is especially irksome since advocates for the CPSIA strenuously sling mud at unnamed opponents for trumpeting "misleading" information. The tactic of attacking the messenger in order to distract from an inconvenient or unwanted message is an old trick. We get it, and the press gets it. When will Congress?

There is a large group of concerned citizens agitated over this law. You can read the comments yourself - how is public opinion running ? It may no longer be relevant how lopsidedly this bill passed - the public is getting fed up. Now that the CPSIA's destructive economic impact is finally being felt, public sentiment is running strongly against the new law. The notion that this law changes the safety picture has been exposed as a joke. Nevertheless, Congress persists in repeating its mantra that the law will not be changed and the CPSC simply needs to implement the CPSIA and make things "clear". Hearings on the law have been scheduled - and cancelled - more than once. This is transparency? Is this what we Americans voted for in the Obama "revolution"? I used to think safety was a non-partisan issue. . . .

The longer that Congress arrogantly refuses to acknowledge the public with its legitimate concerns about this dangerous law, the more likely the outrage will turn into a political firestorm. The American public is increasingly disillusioned with the new Congress as the U.S. economy sinks into the abyss. It's time for Congress to acknowledge the serious errors underlying this terrible bill - publicly for the benefit of the American people - and to take serious action. Please do not underestimate those of us advocating against this bill. We will not agree to tweaks (the word "any" in the lead exemptions won't do it) - the bill needs to be reconsidered.

I hope you will act before it's too late. Our small businesses, and your constituents, are waiting.

I will be posting this letter to my blog. Please feel free to join the debate there for all to see.

Richard Woldenberg
Chairman
Learning Resources, Inc.
rwoldenberg@learningresources.com
Follow my blog at http://www.learningresourcesinc.blogspot.com/ or at www.twitter.com/rwoldenberg.