** California Law Makers Turn Their Attention to the Prop 65 Implications of Online Retailing **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

By: Brent E. Johnson                                                                                                                                                                                                                                                                                                             

California’s Proposition 65, requires any person who exposes a consumer to a listed chemical deemed to be either a carcinogen or a reproductive toxicant “in the course of doing business” to first provide a warning about that exposure (California Health & Saf. Code § 25249.5 et seq.).  As many of our readers are no doubt aware, particularly those who represent clients in California, Proposition 65 has generated a substantial amount of litigation since its enactment, largely due to “public interest” standing creating a private right of action to “any person” (§ 25249.7(d)).

California’s Office of Environmental Health Hazard Assessment (OEHHA) is tasked with updating the list of offending chemicals – there are almost a thousand currently on the list – and once a consumer product is shown to contain one of the listed chemicals a defendant has a heavy burden to show that the amount of exposure is within a safe harbor level or that the product is manufactured in such a way which precludes exposure.  The usual practice for consumer companies has been to rely on the warning provision – foreclosing on Prop. 65 litigation.  That said, the warning, in order to properly immunize the consumer company has to be “clear and reasonable” (§ 25249.11(f)).

What does this mean for manufacturers and retailers that deal with consumers online?  Bear in mind that the initial passage of Proposition 65 was in 1985 and unfortunately the implementing rules had not kept pace with changing trends in online retailing (not having been updated since 2008).  So internet sellers have been left somewhat to wonder.  OEHHA has released new regulations to take effect August 30, 2018, and for the first time they provide added specificity for internet sellers, and demonstrate when and how a Prop 65 warning should be provided.

New Reg. § 25600.1 provides a definition of “Retail seller” which means “a person or business that sells or otherwise provides consumer products directly to consumers by any means, including via the internet” (emphasis added).  The new rules do not upend the presumption that “[t]o the extent practicable, warning materials such as signs, notices, menu stickers, or labels shall be provided by the manufacturer, producer, or packager of the consumer product, rather than by the retail seller” (old § 25603) – they recognize that the new implementing rules are intended to minimize the burden on retail sellers of consumer products (see § 25249.11(f) of the Act).  As such it is primarily the burden of the “manufacturer, producer, packager, importer, supplier, or distributor” to provide the written notice of exposure to the retailer seller (Reg. § 25600.2 (b), (c)).

However, a retailer sellers is responsible for providing a Prop 65 warning in the following instances (§ 25600.2(e)):

• The retail seller is selling the product under a brand or trademark that is owned or licensed by the retail seller or an affiliated entity;
• The retail seller has knowingly introduced a listed chemical into the product, or knowingly caused a listed chemical to be created in the product;
• The retail seller has covered, obscured or altered a warning label that has been affixed to the product by a manufacturer; or
• Where the seller has “actual knowledge” from a “reliable source” of the potential of consumer product exposure to a listed chemical AND where the manufacturer, producer, packager, importer, supplier, or distributor of the product is: EITHER not “doing business” (because for example, they have less than 10 employees ” ( 25249.11(b))) OR has no registered agent or place of business in California. See Reg. § 25600.2 (e)(5).  In essence this broadens the reach of Prop 65 to retailers as a proxy for manufacturers who were not otherwise caught by Prop 65, either because they were too small or not connected to California.  “Actual knowledge” means specific knowledge of the consumer product exposure received by the retail seller from any reliable source.”  If the source of this knowledge is a notice served pursuant to Section 25249.7 (d)(1) of the Act (i.e. the 60 day notice required under Prop 65 before litigation can commence), the retail seller shall not be deemed to have actual knowledge of any consumer product exposure that is alleged in the notice until five business days after the notice.  This 5 day rule provides an important safe harbor for retailers – and begs the question as to whether there is any incentive for retailers to investigate products – or just wait until notice is provided. The fact that the provision also only applies to retailers when they are dealing with small (or out of state companies) also begs the question whether they’ll be a perhaps unintended consequence – retailers refusing to deal with these small businesses out of fear of the pass-along risk.

A retail seller can also be liable to provide Prop 65 warning where the manufacturer , importer, etc. provides notice and materials for the retailer to affix them, to shelves, products, or the text to provide on internet listings.  (Reg. § 25600.2 (b), (c)). The retailer’s correlative obligation is the “placement and maintenance of warning materials, including warnings for products sold over the Internet, that the retail seller receives” from the manufacture, producer etc.  (Reg. § 25600.2 (d)).  However, a retailer who agrees in writing with the manufacturer, importer, etc., that allocates legal responsibility to the latter will be binding and effective against Prop 65 liability (provided the consumer receives the relevant warning) (Reg. § 25600.2 (d)).  This provision provides another important safe harbor for retailers.  It will be interesting to see in which retail-manufacturer relationships the retailer has the bargaining power to demand this agreement.

The new regulations also provide guidance on how a Prop 65 warning should be given (Reg. § 25602 (b)): “For internet purchases, a . . .  must be provided by including either the warning or a clearly marked hyperlink using the word “WARNING” on the product display page, or by otherwise prominently displaying the warning to the purchaser prior to completing the purchase.  If an on-product warning is provided pursuant to Section 25602(a)(4), the warning provided on the website may use the same content as the on-product warning. For purposes of this subarticle, a warning is not prominently displayed if the purchaser must search for it in the general content of the website.”  As many of you are aware, the new 2018 Regulations also provide new warning requirements, including a symbol, hyperlink and warning language more specific to the carcinogen, reproductive toxicant, etc. (Reg. § 25603).  There are also slightly different rules for specific products such as Food (Reg. § 25607.2), Raw Wood Products (Reg. § 25607.10), Furniture (Reg. § 25607.12), Products With Diesel Engines (Reg. § 25607.14), etc.

These new rules provide clarity . . . but also raise new questions.  For example, is an online platform which is merely connecting the ultimate seller and buyer, such as eBay (and to some extent Amazon) the actual “retail seller” or is the vendor who uses the site the “retail seller.”  See Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93, 96–97 (2d Cir.2010) (eBay does not “does not itself sell the items listed for sale on the site nor does it ever take physical possession of them.”); Butler v. eBay, Inc., No. 5:06–cv–02704–JW (N.D.Cal. 12, 2006) (“[T]he seller is in control of the sale, not eBay…. Thus, the sale transaction is between the seller and the bidder.”); see also Cal. Att’y Gen. Op. No. 02–111 (2003) (“We have little doubt that eBay does not sell or offer to sell or buy or offer to buy, on behalf of another or others, any of the items.”). Should retailers, as discussed above, be required to be affirmative or have constructive knowledge of Prop 65 chemicals?  And if online retailers, as a practical matter, have to make the warning nationwide – does this trigger dormant commerce clause challenges?  These developments and more to follow as the rules begin implementation next year.