On April 3, 2019, Conkle, Kremer & Engel attorneys John Conkle and Raef Cogan joined the Personal Care Products Council (“PCPC”) in Sacramento, California to lobby members and staff of the California Legislature on pending legislation important to members of the personal care products industry, including Senate Bill 574 and Assembly Bill 495.
SB 574, also known as the “Toxic Fragrance Chemicals Right to Know Act of 2019,” would require cosmetic manufacturers to disclose fragrance of flavor ingredients that appear on any one of 27 “designated lists.” CK&E attorneys explained during the meetings that a viable version of this bill may be presented in the future, but that as written SB 574 threatens cosmetic companies’ confidential business information, results in duplicative regulation and relies on faulty, unscientific “lists” to determine what information manufacturers must disclose.
AB 495, is entitled the “Toxic Free Cosmetics Act,” and would dramatically increase the number of cosmetics listed as “adulterated,” without justification. CK&E attorneys explained that under AB 495 as proposed, any cosmetic that contained even trace amounts of identified ingredients would be labeled “adulterated” and would be banned outright. Some ingredients sound scary, like lead, but are in fact naturally occurring and cannot be completely eliminated from cosmetic (or many other) products. Others are preservatives that have been deemed completely safe for use in cosmetics by the FDA and other regulatory bodies.
Both SB 574 and AB 495 are coming up for committee vote soon. Conkle, Kremer & Engel will stay apprised of the results and will provide updates on this legislation that is important to the cosmetics industry.
PCPC California Lobby Day also featured presentations from Allen Hirsch, Chief Director of the California Office of Environmental Health Hazard Assessment (“OEHHA”), Karl Palmer from the Department of Toxic Substances Control (“DTSC”), Joseph Calavita from the Air Resources Board, and Senator Bill Quirk, Chair of the Environmental Safety and Toxic Materials Committee. The regulators spoke about important upcoming actions by their agencies. Senator Quick focused on the importance of protecting our environment from toxins, primarily greenhouse gasses. Each of these presenters stressed a need for more information sharing between the industry and the respective regulatory and legislative bodies.
SB 574, the “Toxic Fragrance Chemicals Right to Know Act of 2019”
SB 574, the “Toxic Fragrance Chemicals Right to Know Act of 2019,” was introduced last month. It would require cosmetic manufacturers, starting July 1, 2020, to disclose whether any of their cosmetic products contains a toxic fragrance or flavor ingredient.
Fragrance or flavor ingredients that appear on any one of 27 “designated lists” would be subject to public disclosure. The designated lists include chemicals listed as known to cause cancer or reproductive toxicity pursuant to California’s Proposition 65; chemicals classified by the European Union as carcinogens, mutagens or reproductive toxins; chemicals included in the European Union Candidate List of Substances of Very High Concern; and Group 1, 2A or 2B carcinogens identified by the International Agency for Research on Cancer (IARC) among many others.
Existing law – the California Safe Cosmetics Act of 2005 (“Safe Cosmetics Act”) – requires cosmetic manufacturers to disclose to the California Department of Public Health (CDPH) Safe Cosmetics Program whether any of their cosmetic products contain chemicals known or suspected to cause cancer or reproductive toxicity. The Safe Cosmetics Act’s list of reportable ingredients is compiled from a more far limited set of five designated lists. This self-reported information, in turn, is publicly available through the CDPH’s Safe Cosmetics Database.
While the Safe Cosmetics Act does not exempt fragrances and flavorings from being reported, the reportable chemicals in those cases are often identified simply as “trade secrets.” The proposed legislation would require the disclosure of the identities of the reportable chemicals or ingredients, but for trade secret purposes, would not require the weight or amount of a fragrance or flavor ingredient to be disclosed or any disclosure of how the fragrance or flavor is formulated. In addition, a manufacturer would not have to disclose any fragrance or flavor ingredients that are not found on any of the 27 designated lists. It is important to note that SB 574 as proposed would not ban or otherwise regulate the use of any fragrance or flavor ingredients.
AB 495, the “Toxic Free Cosmetics Act”
AB 495, also introduced in February 2019, would amend both California’s Sherman Food, Drug and Cosmetic Law and the Safe Cosmetics Act.
California’s Sherman Food, Drug and Cosmetic Law prohibits the manufacture, sale, delivery, holding or offer for sale of adulterated cosmetics. AB 495 would greatly expand the definition of an “adulterated cosmetic” to include cosmetics that contain specific ingredients. Any cosmetic that contains lead or asbestos or any of the following 13 intentionally added ingredients – without regard to the amount or exposure levels – would be banned from sale in California:
Mercury and related compounds
Per- and Polyfluoroalkyl substances (PFAS)
The bill would also amend the Safe Cosmetics Act by requiring referrals to be made to the Department of Justice for any sale of adulterated cosmetics, as well as any violation of the Safe Cosmetics Act.
It has become clear that California’s leadership position on cosmetic regulation has effectively driven changes in cosmetic products and labeling throughout the United States. Conkle, Kremer & Engel will continue to follow and update these important developments affecting the cosmetics industry.
Update on AB 495 as of April 9, 2019
Efforts to pass AB 495 have temporarily stalled. On April 9, 2019, the Assembly’s Environmental Safety and Toxic Materials Committee postponed a scheduled vote to move the bill to the Assembly Health Committee due to lack of support. The bill is not expected to be brought back again until next year. It is anticipated that the bill will be in a revised form when reintroduced. Conkle, Kremer & Engel will continue to monitor the developments of AB 495.
2018 turned out to be the most lucrative year ever for Proposition 65 attorneys and their clients, according to settlement data collected by the California Office of Attorney General (OAG). The famous “right-to-know” law has been on the books for more than 30 years, and requires businesses to provide warnings for exposures to any one of the more than 900 chemicals on the Proposition 65 list that are known to cause cancer, reproductive harm or birth defects – or face hefty civil penalty and attorneys’ fees demands from the OAG, a district attorney or, far more commonly, private enforcers who initiate their claims by sending Notices of Violation.
Reviewing the recent trends, the indications are that the private enforcer claimants are becoming more efficient at extracting as much as possible from the unfortunate businesses who receive Notices of Violation. Even though California’s Office of Environmental Health Hazard Assessment (OEHHA) is supposed to benefit from Proposition 65 recoveries, the chart below shows graphically that the vast majority of the money obtained by the claimants stays with the claimants – and most of it stays with the claimants’ attorneys. In 2018, less than 12% of the money obtained by private enforcers went to OEHHA, and more than 79% went to the claimants’ attorneys.
The claimants’ increasing efficiency is shown clearly by the fact that, even though the number of Notices of Violation sent to businesses dropped by approximately 13% (2,710 in 2017 and just 2,364 in 2018), the number of settlements and judgments increased from 693 in 2017 to 834 in 2018. The average settlement shot up by 13%, from $38,395 in 2017 to $44,097 in 2018. This was buoyed in large part by a huge increase in the attorneys’ fees and costs collected by plaintiffs’ attorneys. In 2017, plaintiffs’ attorneys took in $20.2 million in attorneys’ fees and costs. In 2018, plaintiffs’ attorneys recovered $29.1 million in attorneys’ fees and costs.
The small circle of private enforcers making these claims remains an exclusive club. The claimants active in 2018 included: Alicia Chin; Amy Chamberlin; Anthony E. Held, Ph.D., P.E.; Anthony Ferreiro; APS&EE, LLC; As You Sow; CA Citizen Protection Group, LLC; Center for Advanced Public Awareness, Inc.; Center for Environmental Health; Consumer Advocacy Group, Inc.; Dennis Johnson; Donny Macias; Ecological Alliance, LLC; Ecological Rights Foundation; Ema Bell; Environmental Law Foundation; Environmental Research Center, Inc.; EnviroProtect, LLC; Erika McCartney; Evelyn Wimberley; Gabriel Espinosa; Hector Velarde; John Moore; Estate of Karen Charlene Calacin; Kim Embry; Kingpun Cheng; Laurence Vinocur; Maureen Parker; Michael DiPirro; Paul Wozniak; Peter Englander; Precila Balabbo; Russell Brimer; Safe Products for Californians, LLC; Sara Hammond; Shefa LMV Inc.; Susan Davia; The Chemical Toxin Working Group, Inc.; and Whitney R. Leeman, Ph.D.
Questions still remain as to the effects on the Proposition 65 industry of the OAG’s amended settlement guidelines that went into effect October 1, 2016, and the new clear and reasonable warning requirements that went into effect August 30, 2018. We posited some theories in our previous blog post on the issue, but it’s too early to tell the collective effects of these changes on the net Proposition 65 costs for businesses. One thing is for certain: The risks to businesses are increasing as Proposition 65 claimants are demanding more money than ever to resolve their claims. Absent any meaningful Proposition 65 reform, that trend will only continue. Unfortunately, Proposition 65 is notoriously difficult to reform because it requires a two-thirds majority approval of each house in the Legislature and any amendment must further the purposes of Proposition 65.
The best approach for businesses is to be proactive to try to meet the Proposition 65 challenges before they become very costly burdens. Aside from carefully reviewing your compliance, the most important factor in reducing costs of resolution is to act promptly when you receive a Notice of Violation to contact qualified counsel experienced in Proposition 65 issues. Conkle, Kremer & Engel keeps up to date on developments in Proposition 65 and provides expert guidance to clients to ensure compliance with Proposition 65 and other regulations.
2018 by the Numbers
2,364: Notices of Violation Served
834: Number of Settlements/Consent Judgments
39: Number of Active Prop 65 Plaintiffs
$36.7 Million: Paid by Businesses to Resolve Claims
$29.1 Million: Attorneys’ Fees & Costs Collected by Plaintiffs’ Attorneys
$3.3 Million: Payments Collected by Plaintiffs
$4.3 Million: Payments to State Agency
$44,097: Average Settlement/Judgment Amount
2017 by the Numbers
2,710: Notices of Violation Served
693: Number of Settlements/Consent Judgments
38: Number of Active Prop 65 Plaintiffs
$26.6 Million: Paid by Businesses to Resolve Claims
$20.2 Million: Attorneys’ Fees & Costs Collected by Plaintiffs’ Attorneys
We previously blogged about Proposition 65 trends based on data about settlements and judgments collected and made public by the California Attorney General’s Office. One trend we noted was the downward shift in civil penalty offsets known as “payments in lieu of penalties” (PILPs) or “additional settlement payments” (ASPs), due to recent amendments to the Proposition 65 regulations to rein in such payments. We’ll refer to these offsets collectively as ASPs and look at how the amendments have affected the Proposition 65 “industry”.
By way of background, Proposition 65 generally allows claimants (termed private enforcers) to keep 25% of the civil penalties as well as recover their attorneys’ fees and costs in enforcement actions. The state’s regulating agency, the Office of Environmental Health Hazard Assessment (OEHHA) retains the other 75% of the civil penalties. While Proposition 65 authorizes penalties of up to $2,500 “per day for each violation,” the reality is that civil penalties make up a very small portion of an overall settlement or judgment: The vast majority of the payment is earmarked as attorneys’ fees and costs paid to the claimant’s lawyers.
In the past, Proposition 65 private enforcers have often demanded additional payments that were treated as offsets to civil penalties. In other words, whatever the appropriate amount of civil penalties, they would carve out a portion of it as ASPs, because the claimants could keep the ASP portion entirely or direct it to a related entity – in addition to retaining their 25% share of the civil penalties. OEHHA does not receive any part of an ASP.
The practice became concerning enough that the Attorney General’s Office amended the regulations, effective October 1, 2016, to impose additional requirements for ASPs. According to the Final Statement of Reasons for the rulemaking, the amendments were intended, among other things, to “ensure that [OEHHA] receives the civil penalty funds specified in Proposition 65, so that it has adequate resources for Proposition 65 implementation activities” and to “limit the ability of private plaintiffs to divert the statutorily mandated penalty to themselves or to third parties, in the form of [ASPs].”
The regulations as amended also reflect the Attorney General’s position that ASPs should not be included in any settlement that is not subject to judicial approval and ongoing judicial oversight. The effect has been that, since 2017, only one private settlement agreement has included ASPs. Several others were reported in 2017 and 2019, but a review of the settlement agreements showed that the private enforcer in those cases erroneously reported its 25% portion of the civil penalties as ASPs.
While this can be seen as a bright spot, it may have the unintended consequence of lowering the incentive for certain private enforcers to settle early and privately, increasing costs to businesses who receive a Proposition 65 “notice of violation” – the official precursor to legal action. Indeed, since the amendments, we have continued to see a high number of court judgments contain ASP provisions, since those are still allowed under the amended regulations but subject to additional scrutiny by the Attorney General. In 2017, 90 of the 345 court judgments called for payment of ASPs (totaling $1,421,660) and in 2018, 109 of the 366 court judgments included ASPs (totaling $1,915,083). While not all plaintiffs are as aggressive about collecting ASPs, some NGO plaintiffs (such as As You Sow, Center for Advanced Public Awareness, Center for Environmental Health, Consumer Advocacy Group, Ecological Rights Foundation and Environmental Research Center) still show a strong preference for ASPs in resolving their claims. It is possible that OEHHA’s move to restrict ASPs results in more lawsuits and fewer pre-litigation settlements, but may not ultimately reduce ASPs as much as anticipated.
More problematically, the amendments seem to have had the unintended effect of driving up the civil penalties and attorneys’ fees and costs. The amended regulations provide that ASPs should not exceed the 75% share of the civil penalty paid to OEHHA. Previously, ASPs in both private settlements and judgments often exceeded the total civil penalties. The regulations now effectively place a cap on the amount of ASPs: ASPs that exceed 75% of the civil penalties may cause the Attorney General to file an opposition. So to maximize their own recovery private enforcers are now settling for what seems to be high civil penalties and ASPs that are a hair below 75% of that amount. Legally, that is a very doubtful practice – since ASPs are an offset to civil penalties, a defendant should pay the same total amount based on statutory factors, regardless of whether any part of the payment is earmarked as an ASP or if all of it is treated as a civil penalty.
One of the most stunning observations of the trends in Proposition 65 recoveries is that the attorneys’ fee portion of Proposition 65 settlements has increased every year. As we will discuss further in a later blog post, in 2018 the total amount of attorneys’ fees and costs collected by Proposition 65 plaintiffs shattered all records. Attorneys’ fees made up 79% of all Proposition 65 recoveries in 2018 – up from 76% in 2017. The claimants’ attorneys collected an astonishing $29,117,784 – an increase of nearly $9 million over 2017. It is not a big leap to infer that there is a connection between this and the changed regulations reducing claimants’ ability to rely on ASPs – claimants may be increasing the attorneys’ fees portion of their recovery to make up for perceived “losses” in ASPs.
What do the amended regulations and the settlement trends mean for businesses defending against Proposition 65 claims? For one, settling early and privately in an out-of-court settlement is a recommended strategy. ASPs should not be part of such early agreements. This means anyone receiving a notice of violation should act promptly to obtain qualified legal counsel, because private enforcers can sue in court after giving 60 days’ notice. Certain defense strategies can be utilized to try to force an out-of-court settlement for a non-cooperating private enforcer, or at least make a court judgment less appealing to the claimant. Businesses should also take steps to minimize civil penalties and thereby ASPs by taking immediate corrective action as well as ensure that their legal counsel put together a defense that supports a minimal civil penalty recovery under the law.
Conkle, Kremer & Engel attorneys are experienced at helping clients defend against Proposition 65 claims, resolving them cost-effectively and efficiently, as well as implementing proactive strategies to avoid Proposition 65 and other regulatory issues.
Over the last several years, the California Attorney General’s Office (OAG) has released annual reports of Proposition 65 settlements through 2017. These reports make one thing clear – Proposition 65 continues to be a lucrative source for private Proposition 65 claimants and their lawyers, as the total settlement payments continues to rise through the years.
In the past, we noted that private Proposition 65 claimants and their lawyers collected at total of $17 million in settlement payments (comprised of civil penalties, “PILPs” or “Payments in Lieu of Penalties” [also known as “Additional Settlement Payments”] and attorneys’ fees and costs) in 2013, and $20 million in 2012. The trend since then has been upward on all fronts, with one notable recent qualification regarding PILPs.
Proposition 65 contemplates that private claimants will share any civil penalties collected, with 75 percent going to the California Office of Environmental Health Hazard Assessment (OEHHA) and 25% being kept by the private claimants. However, Prop 65 claimants are allowed an alternative remedy of PILPs, in which the claimants can pocket 100% of the PILPs and share nothing with OEHHA. All private claimants needed to do is establish that the PILP payments will go to fund some kind of activities with a nexus to the basis for the litigation, and show how those funds would be spent. Until recently, this was not a big obstacle for Prop 65 claimants. As can be seen from the OAG reports, many Prop 65 claimants are special-purpose entities that contend their own business of pursuing Prop 65 claims serves the environmental interests they are trying to protect through pursuit of more Prop 65 claims. As a result, these entities could pocket the PILP money to self-fund their own activities to make more Prop 65 claims. Being able to keep all of the PILP money, rather than the alternative of having to give 75% of civil penalties to OEHHA, undoubtedly made PILPs very attractive to Prop 65 claimants. Perhaps the only bright spot in the chart below is the significant reduction (by more than 50%) in PILP recoveries, which followed an amended regulation that went into effect on October 1, 2016 to tighten requirements for PILP settlements. We’ll develop more on this amendment and its effects in a future blog post.
Finally, but clearly most significantly in terms of dollars spent on settlements of Prop 65 claims, private claimants’ lawyers are entitled to recover reasonable attorneys’ fees and costs. As seen in OAG reports, and displayed graphically below, this attorney fee recovery constitutes by far the largest portion of Prop 65 settlements.
Since 2012, total settlement payments have increased substantially, reaching their high-water mark in 2016 but not declining very much in 2017 (2018 figures have not yet been fully released by OAG). Between 2014 and 2017, Prop 65 settlement payments totaled well over $25 million per year. Overall, the settlement payments are comprised of attorney fee recoveries to claimants’ lawyers, PILP recoveries to claimants, and a smaller number of civil penalties that are shared 25% with claimants and 75% with OEHHA. In sum, every dollar shown in the chart below, other than the OEHHA portion shown in red, has gone to either the Prop 65 claimants or the claimants’ lawyers:
When viewed graphically, it becomes all the more evident that the vast majority of Prop 65 settlements benefit claimants and their lawyers, not OEHHA or any other government agency charged with protecting the public. Questions must arise whether this was really the intent of Proposition 65, however beneficent was its purpose.
2016 was the biggest year for Prop 65 private claimants, according to data released by the California Attorney General’s Office. In 2016, private claimants settled 760 cases, suing smaller businesses and larger entities like K-Mart, Michaels, Williams-Sonoma, and Twinings. The settlements for that year totaled over $30 million.
Of the $30 million collected in settlement payments in 2016, attorneys’ fees made up more than $21.5 million, or 71.5% of all private settlements. In addition, while civil penalties amounted to just over $5 million, or 18% of all private settlements, private claimants can take 25% of any civil penalty assessed as a “bounty.” In 2016, the civil penalties retained by claimants represented a sum of $1,361,500, or 4.51% of all private settlements. PILP money made up 10.42% of all private settlements. That means approximately $3.1 million landed in the hands of private claimants and their attorneys, in addition to the attorneys’ fees and civil penalty bounties they received.
A few firms did particularly well that year. In 2016, The Chanler Group brought in 242 settlements for over $7.4 million. 83% of this figure, or over $6 million, was paid out in the form of attorneys’ fees and costs. Brodsky & Smith brought in 99 settlements for nearly $2.5 million. 90% of the nearly $2.5 million, or $2.2 million, in settlement payments went to the lawyers as attorneys fees and costs.
Some claimant representatives obtained settlements that were not quite as disproportionately in favor of attorneys’ fees and costs. For example, the Center for Environmental Health brought in 93 settlements in 2016, for a total of $4 million, broken down as follows: 11% as non-contingent civil penalties, 16% as PILP payments, and 74% as attorneys’ fees and costs. Similarly, the Consumer Advocacy Group brought in approximately $4 million across 71 settlements, recovering 11% as non-contingent civil penalties, 14% as PILP payments, and 75% as attorneys’ fees and costs.
The Environmental Research Center brought in 55 settlements for nearly $5 million, and the breakdown of payments was split more evenly: 36% as civil penalties, 31% as PILP payments, and 33% as attorneys’ fees and costs.
In 2017, private claimants continued to pursue Prop 65 claims, settling or obtaining judgments in 693 cases. The recoveries totaled more than $26 million. As can be readily seen in the chart above, although the total claimants’ recoveries were somewhat lower, they were on par with 2015 recoveries. Further, attorneys fees were proportionately even higher in 2017 than in preceding years, and the reduction was primarily in the PILP recoveries. Attorneys’ fees made up more than $20 million, or 76% of all private settlements, and civil penalties retained by claimants represented an additional $1,431,496 or 5.4% of all Prop 65 recoveries.
If these trends continue, total Prop 65 settlement payouts will continue to rise, imposing the “unnecessary burdens for businesses” that “are cause for public concern,” as the OAG noted in 2014. Conkle, Kremer & Engel routinely represents businesses against Prop 65 claims and lawsuits brought by private claimants, and works with businesses to develop compliance strategies to minimize the risk that they will be future targets of Prop 65 claimants.
As usual, a new year means new laws, especially in California. For 2019, one law that all employers need to be aware of is SB1343, which amended Government Code Sections 12950 and 12950.1 to impose new sexual harassment training requirements on most employers. Previously, only employers of at least 50 employees were required to train their supervisory employees. Starting now, if you have 5 workers, including both employees and contract workers, you have to comply with several training requirements:
– Within the next year, all supervisory employees must complete two hours of sexual harassment training.
– The definition of “supervisor” is fairly broad and covers more than just your managers. Under California Government Code 12926(t), “Supervisor” means “any individual having the authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action, if, in connection with the foregoing, the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”
– Within the next year, all nonsupervisory employees must complete one hour of sexual harassment training.
– For all employees, the training must be provided within six months of the employee’s assumption of a position with the company.
– After January 1, 2020, each employee must receive sexual harassment training once every two years.
– Beginning January 1, 2020, seasonal and temporary employees, and any employees hired to work for less than six months, must receive sexual harassment training within 30 calendar days after the hire date or within 100 hours worked, whichever occurs first. If the temporary employee is employed by a temporary services employer (i.e., a temporary staffing agency), the temporary services employer is required to provide this training, not the client.
California’s Department of Fair Employment and Housing (DFEH) is required to develop online sexual harassment training courses. DFEH has stated that it expects to have such training programs available on its website by late 2019. If they are available on time, employers can direct their workers to those online courses, but otherwise employers must develop or provide their own training.
Constant vigilance is required for employers to comply with rapidly changing requirements. Employers should consult with experienced counsel particularly in regard to interpretation of new requirements such as these. Conkle, Kremer & Engel attorneys are experienced with counseling employers in the face of the changing legal landscape in employment law. CK&E attorneys help companies identify and reduce areas of exposure to liability for employment claims, including wage and hour, discrimination, harassment, and retaliation claims.
The big breakthrough in the 2018 Farm Bill is that it legalized hemp by changing troublesome language in the federal Controlled Substances Act (CSA) in two important ways. First, it removes hemp and any hemp derivate from the definition of “marihuana.” Hemp is defined as any part or derivative of the cannabis plant with 0.3% or less THC (dry weight). This change means that CBD derived from hemp will no longer be considered a controlled substance under the CSA. Second, the Farm Bill amends the definition of “Tetrahydrocannabinols” or THC to exclude the THC that is found in trace amounts in hemp. This was important because THC is a psychoactive ingredient, and trace amounts that are too small to cause psychoactive effects might otherwise compel hemp and its products to be treated as controlled substances.
This change is exciting news for companies who are eager to follow the market trends of adding CBD to products. Even though CBD remained technically illegal under federal law prior to the passage of the 2018 Farm Bill, sales of consumer products containing CBD already exceeded $350 million in 2017. That number is expected to jump significantly with the availability of legal CBD and the entry into the market of companies who were hesitant to incorporate CBD into their products because of the questionable legality. Still, companies that are eager to incorporate CBD into their products should proceed with caution if they want to ensure that their products are legal under federal law.
While some might believe that all CBD is now legal, that is not correct. Not all CBD will be legal, and manufacturers must take care to assure and document that the CBD they use comes from legal sources. For one example, CBD derived from cannabis plants with more than 0.3% THC (dry weight) remains illegal under federal law. CBD is only legal if it is: (1) derived from hemp, and (2) produced by a licensed grower in a manner consistent with the Farm Bill and associated federal and state regulations.
The Farm Bill invites states to submit a plan to the US Department of Agriculture that outlines how the state will monitor, license, and regulate the production of hemp. State departments of agriculture must consult with the state’s governor and chief law enforcement officer on the plan. If a state does not have a plan approved by the USDA, the USDA will have available a federal program for monitoring, licensing, and regulating hemp production. Hemp and its derivatives are only legal if grown under license pursuant to these state or federal programs.
It is clear that not all CBD has become legal overnight. The state and federal licensing and regulatory programs under which hemp can be legally grown will take months to establish. Once such programs are established, businesses should engage in due diligence to ensure that the CBD they are purchasing is derived from hemp grown under license from state or federal programs, and they should maintain documents to be able to demonstrate the chain of production.
This welcome development is a major crack in the dam that prevented cannabis-derived products from entering consumer markets. Watch for more soon, as other federal regulatory agencies such as the FDA consider controlled ways to permit CBD to be added to foods and pharmaceuticals.
CK&E attorneys will continue to monitor and stay up to date on the development of state and federal CBD ingredient and hemp cultivation programs, and are ready to help clients navigate complex and rapidly-changing federal and state regulatory schemes. If you have questions in this or other regulatory areas, contact CK&E at [email protected] or 310-998-9100.
Almost no one favors animal testing for cosmetics. The beauty market trend has been strongly away from animal testing, as demonstrated by the recent announcement of Coty, Inc.’s CoverGirl brand being certified cruelty free. That’s why the personal care products industry supported California’s new Cruelty Free Cosmetics Act, SB 1249, which was unanimously passed by the California State Assembly and signed into law by Governor Brown on September 28, 2018. The new Act does not take effect until January 1, 2020, but compliance will require cosmetics businesses to plan ahead. The new Act may present some thorny and perhaps unexpected issues and risks for importers, manufacturers, distributors and resellers of beauty products and ingredients in California.
The new Act is found at Section 1834.9.5 of the California Civil Code, immediately following the existing animal testing law that has been in effect since 2000. That existing law, Section 1834.9, continues to prohibit manufacturers and testing facilities from using animal testing when alternative methods have been scientifically validated and recommended by responsible agencies. But the existing law has limited application, and the new Act significantly expands on the prohibitions of animal testing for cosmetics and their ingredients.
Generally, the Act prohibits a manufacturer from importing, offering or selling in California any cosmetic that “was developed or manufactured using an animal test that was conducted or contracted by the manufacturer, or any supplier of the manufacturer, on or after January 1, 2020,” with specified exceptions. The first observation must be that the new Act will not apply to any manufacturer’s cosmetic or ingredient that was previously subject to animal tests. The natural effect is that the Act generally does not apply to a manufacturer’s existing cosmetic ingredients and product formulations, even if the cosmetic or ingredient is manufactured after January 1, 2020.
However, manufacturers and importers need to note that the Act certainly can affect development of new cosmetic formulations, and so it will have a strong impact on use of innovative cosmetic ingredients in new or reformulated products. This can impede participants in the personal care products industry who strive to develop new ingredients to improve and differentiate their products. Scientifically-reliable alternative non-animal test methods can be slow to develop and receive approval by regulatory agencies, so the inability to conduct animal testing could inhibit the introduction of new cosmetic ingredients, particularly potentially complex ingredients such as new surfactants or polymers.
There are some exceptions to application of the new Act, but they may defy easy workaround solutions. The first major exception is a multi-step assessment that exempts application of the Act if the manufacturer can establish all of these elements:
An animal test is required by a U.S. federal or state regulatory authority, and no non-animal alternative testing method is acceptable;
The ingredient tested is in wide use and cannot be replaced by another ingredient with similar function; and
The need to conduct animal tests is justified to address a specific substantiated human health problem and supported with a detailed research protocol.
The multiple elements required for this exception are so demanding that its practical utility is doubtful. But there are two additional exceptions that on first blush appear deceptively simple to apply: First, if animal testing is required by a foreign regulatory authority for export to that country, the animal-tested product does not for that reason violate the new Act. This was an important exception favored by the industry, because without it cosmetic products could not be readily exported to foreign markets, like China, that require animal testing. The second exception applies if animal tests were required to be performed on an ingredient for non-cosmetic purposes. In other words, if some animal testing was done on the ingredient for non-cosmetic purposes, or was required for exporting the product, that animal testing in itself will not preclude use of that ingredient in a cosmetic product.
On their face, these last two exceptions seem like they create large loopholes in the Act. But looks can be deceptive. Both of these exceptions are narrowed by an additional term that prohibits the manufacturer from relying on evidence of the animal testing to substantiate the safety of cosmetics sold in California. California and the FDA require that “Each ingredient used in a cosmetic product and each finished cosmetic product shall be adequately substantiated for safety prior to marketing.” (21 CFR 740.10(a)) There are few meaningful guidelines about what “adequate substantiation” of safety means, or exactly what records are required to be maintained to show such substantiation, but it is clear such substantiation must exist “prior to marketing.”
So the effect of the new Act is to prohibit manufacturers offering products in California from relying on animal testing as part of their “adequate substantiation of safety” before selling their products, even though the animal testing itself did not violate the Act due to the noted exceptions. This limitation effectively requires manufacturers to somehow show separate, non-animal testing to have adequate substantiation of the safety of their ingredients and products prior to marketing. That in turn renders the animal testing that was permitted under the exceptions useless to support the safety of cosmetic sales in the California market.
The safety substantiation requirement has yet another twist that may present a significant risk to manufacturers selling cosmetics in California after the new Act becomes effective: Although no federal or California state law specifies how or what documentation of safety must be maintained, the new Act both permits and motivates district attorneys and city attorneys, upon their determination of “a reasonable likelihood of a violation,” to “review the testing data upon which a cosmetic manufacturer has relied in the development or manufacturing” of the product sold in California. Given that violators can be fined $5,000 initially plus $1,000 per each day that a violation continues, which fines are payable directly to the city or county attorney’s office, district attorneys and city attorneys have powerful motivation to aggressively pursue possible violations.
It seems the legislature was sufficiently concerned about this “adequate substantiation” issue that it was felt necessary to specify in the Act that a manufacturer “is not prohibited from reviewing, assessing or retaining evidence from an animal test conducted” for non-cosmetic purposes (though, oddly, the Act says nothing about that for the separate “foreign regulatory” exception). So just having an animal test in the manufacturer’s file may not violate the Act, but the manufacturer still cannot rely on those tests when a DA or city attorney comes calling. Manufacturers must determine how they will maintain records to show adequate substantiation of the safety of all of their ingredients and product formulations, prior to marketing, without running afoul of the Cruelty-Free Cosmetics Act.
The new Act does not itself create a new private legal claim, which means that (unlike some other California consumer protection statutes like Proposition 65) bounty-hunter plaintiff lawyers will not have direct motivation to pursue claims under the Act. However, that has not stopped creative plaintiffs’ attorneys from bootstrapping other consumer product regulatory violations as bases for civil lawsuits, such as “Unfair Business Practices” claims under Business & Professions Code Section 17200 et seq., and even class actions under the Consumer Legal Remedies Act (CLRA), California Civil Code Section 1750. It is also not difficult to imagine competitors making claims of unfair competition based on allegations that a competing cosmetics brand violated California’s animal testing laws, perhaps including false advertising claims for good measure.
Cosmetics manufacturers and their suppliers have a little over a year to ensure that their cosmetics and ingredients made, imported or sold in California will be compliant with the Cruelty Free Cosmetics Act. More challenging still, manufacturers, importers and ingredient suppliers will have to plan for development of new cosmetics and ingredients, with adequate substantiation of their safety that does not depend on animal testing results. Conkle Kremer & Engel attorneys stay up to date on important regulatory developments affecting their clients in the manufacturing and resale industries, and are ready to help clients navigate California’s fast-changing regulatory landscape. If you have questions in this or other consumer product regulatory areas, contact CK&E at [email protected] or 310 998-9100.
Sure, we’re serious lawyers but we like to have a little fun too, especially during the summer with our law clerks. This summer, our law student clerks joined us for a lot of hands-on, real world experience in commercial litigation, intellectual property and transactional practice. And they still had time for some fun, including an outing to a Dodgers vs. Angels game in the Freeway Series. We started with a limo stop for dinner at Wurstkuche in DTLA, and ended the evening with fireworks after the game.
We also attended a special evening at the Hollywood Bowl – Star Wars Episode IV: A New Hope, with a live orchestra and even more lively lightsabers. The evening began with a special private dinner served at the Hollywood Bowl Volunteers Cottage, and ended with a limo ride home for our stormtroopers.
Back in the office, our lawyers and summer law clerks joined in a lark of a project that one of our attorneys, Evan Pitchford, dreamed up as an homage to the movie “Inception”. Rather than dreams within dreams, Evan decided he wanted to create “Shirtception” – T-shirts within T-shirts. Evan photographed himself wearing successive generations of T-shirts to organically create an infinite mirror effect of image within image of himself in his T-shirt. When Evan was done, attorneys and our summer law clerks wanted to join in. This photo of our attorneys and summer law clerks wearing successive generations of the T-shirts followed:
One of our clients imports kites and other toys and games, and gave our attorney Desiree Ho a couple of kites as a gift of appreciation. As summer wound down and fall breezes picked up, a few of our attorneys decided to hold a kite-flying contest – from the roof of our building.
We can’t say exactly what next summer will bring, but we can say that we expect to have more fun.
Goop, a life-style branding company founded by Gwyneth Paltrow, was recently fined $145,000 by a consortium of California Counties for making exaggerated and false advertising claims about its products. The makers and distributors of everything from clothes to perfume, and face cream to condoms, Goop has a well-documented history of over-the-top marketing claims. In the action brought by the County District Attorneys, the government took exception to the claim made by Goop regarding its Jade Egg product. Goop claimed among other things that the egg product, when inserted into the vagina, prevented uterine prolapse and improved sex. In the parlance of the regulators, this was an unsubstantiated or unapproved new drug claim.
In similar fashion, cannabidiol oil or “CBD” products are at the forefront of aggressive (sometimes overly aggressive) health and medical claims. Everyone knows about “medical” marijuana, and CBD is one of several “active” ingredients found in marijuana and hemp plants which is often associated with the beneficial effects of the plant: pain relief, stress or anxiety relief, anti-nausea, and anti-inflammatory. This phenomenon has lead to a budding market in consumer products featuring CBD, accompanied by assertive health claims. The CBD market already covers a wide range of products, including cosmetics (skin creams), food products (edibles), and even CBD laced beer. To add to the confusion, a compound found in marijuana was recently approved by the FDA for treatment of a rare seizure disorder.
And this highlights the problem, especially for marketers of cosmetics. The only FDA-approved medical claim for marijuana compounds is directed to a rare seizure disorder, and this is a tiny market. To make a valid advertising claim that a skin cream product treats, for example, eczema, psoriasis or a rash, the company or brand would need to have FDA approval of the active ingredient for that particular disease or condition at issue. Absent such approval, the marketing claim would likely be regarded as an unapproved new drug and subject to regulatory fines and seizure. Thus, for example, if you want to make a skin-protectant claim for your product, you would need to use one of the FDA approved ingredients for such claims, and limit the claim to the language approved in the FDA monograph for skin protectants. To illustrate the point, witch hazel is one of the FDA approved skin protectant active ingredients. If you use witch hazel as an ingredient in your product, in the correct percentage, it would allow you to make the claim “[r]elieves minor skin irritations due to either i) insect bites, ii) minor cuts, and/or iii) minor scrapes”.
The point of all this is to make sure that your advertising claims are reviewed and approved by experienced legal counsel. This is a common area for regulatory action, as well as private class actions. The FDA routinely polices the internet looking for unsubstantiated and unapproved new drug claims. When the FDA finds a violation, it sends out a warning letter that will look something like this. You do not want to be the first one on your block to own one of these. Consult your CK&E attorney before you put a label on your product, make an advertising claim on your website, press send on an email blast promotion, or even drop a product catalog in the mail. Yes, even old school mailers can get you in trouble.