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Legal Watch
By C.J. Mittica and Dave Vagnoni
December 2009

In 2009, legal proceedings in Washington D.C. directly impacted daily business in the ad specialty market. Between product safety and pharmaceutical marketing legislation, the legal winds are changing and distributors need to stay up-to-date. Here’s a primer on new and pending legislation.

While 2009 has been a year of change on the business front, industry companies also had to confront new laws that are impacting how distributors and suppliers go to market. The first piece of legislation – and the one that has the most impact on everyday business in the ad specialty industry – was passed last year and began to be implemented earlier this year.

Distributors and suppliers may have been able to ease into the controversial Consumer Product Safety Improvement Act (CPSIA) in the beginning of the year. After all, the Consumer Product Safety Commission (CPSC), which enforces the standards, granted a one-year stay on mandatory lab testing of products, and wasn’t in a position to vigilantly enforce the standards.

That, however, is changing quickly. The CPSC is interpreting rules more rapidly to turn the regulatory gray areas into cut-and-dried answers. The stay is coming to an end in February. And, as planned, the CPSIA – which applies to products intended for children ages 12 and under – has progressed with a set schedule of increasingly stringent requirements that suppliers, manufacturers and importers must comply with. On August 14 of this year, a number of important changes went into effect. These include:

  • Lead content: The limit for lead dropped from 600 parts per million (ppm) to 300 ppm. This applies to components that are accessible to children.
  • Lead in paint and other surface coating materials: This limit dropped from 600 ppm to 90 ppm.
  • Civil penalties: Violators now face increased civil penalties up to $100,000 per violation and a potential maximum of $15 million for a related series of offenses. The previous maximums were $8,000 and $1.825 million.
  • Tracking labels: These labels, according to the CPSIA, must provide “marks that will enable the ultimate purchaser to ascertain the manufacturer or private labeler, the location and date of production of the product and cohort information.” In addition, manufacturers are not permitted to attach labeling tags or adhesive labels to fabrics, which some believe complicates the design process of certain items.

Further, a grace period for choking hazard warnings in catalogs featuring toys and games (intended for ages 3 to 6) ended on August 9.

What Constitutes A Child’s Toy?

While the CPSIA regulates a variety of factors involved in the manufacture of children’s products sold in the United States, the law has also left many businesses questioning exactly what classifies as a children’s product.

How will you know what defines a children’s product? Or what makes a product “intended primarily” for children? Factors include a statement by the manufacturer on the intended use of a product, packaging or marketing aimed specifically at children and items that are commonly recognized as children’s products (toys, for example). The CPSC also has Age Determination Guidelines in place to eliminate confusion.

It’s important to note that a number of materials and items don’t have to be tested, provided they haven’t been altered. Among them are wood, yarn, a variety of textiles (such as cotton, nylon and more) and natural materials like feathers, fur and untreated leather. Many suppliers had speculated that all pens would fall under the CPSIA’s purview (because the tips are made of lead brass), but the CPSC stated that only writing instruments specifically designed and marketed for children apply.

CPSC Board Moves Forward
 
The leadership of the CPSC portends great change for suppliers heading into next year and beyond. Inez Tananbaum was tabbed as the new commissioner of the organization, and President Obama selected two more commissioners to complete the executive board as it expanded from three to five positions. While the CPSC previously struggled to provide guidance to manufacturers, a full board will allow the CPSC to move more quickly in responding to concerns.

While that could ease the rash of confusion that plagued the CPSIA earlier in the year, many suppliers remain fearful of the costs of complying, particularly with the specter of mandatory testing. On February 10, 2010, the one-year stay regarding mandatory testing and certification will expire. At that time, the CPSC will vote to decide whether to continue the stay. Should it expire, suppliers will be obligated under the CPSIA to use an accredited laboratory to test their products for lead and phthalates, as well as make sure any toys fall under the Mandatory Toy Standard stipulations (also known as ASTM F963).

The stay remains a bit of a misnomer, simply because suppliers must comply with lead bans already, and the most practical way to do so is test their products. But to avoid mandatory testing for another year, lobbying your elected officials and writing to the CPSC remains the best way to make that a reality.

Legislators Link Sunshine Act With Health-Care Reform 

Next up on the legislative hit parade is the Physician Payments Sunshine Act (PPSA). The future of the PPSA is likely to be closely tied to national health-care legislation, following a recommendation from Senator Max Baucus (D-MT), chairman of the Senate finance committee.  

Baucus recently introduced an $856 billion bill, called America’s Health Future Act of 2009, which outlines a variety of insurance options for individuals and businesses. A section of the bill also requires the reporting of most payments (which include promotional items) made to physicians, group practices and hospitals, similar to previous legislation largely meant to target pharmaceutical companies.

In line with some previous proposals, the Baucus bill provides an exemption for educational items and products under $10 in value, unless the aggregate payment eclipses $100 annually. The legislation also calls for the reporting to begin on March 31, 2012, a full year later than earlier bills. The Baucus bill amends one of the original Sunshine Acts, authored and released in January by U.S. Senators Chuck Grassley (R-IA) and Herb Kohl (D-WI), that was in part designed to stop pharmaceutical companies from exerting influence over doctors by providing lavish gifts and services.
 
The January version of the Sunshine Act was introduced soon after the pharmaceutical industry imposed a voluntary moratorium on branded promotional items at the start of 2009. The updated Pharmaceutical Research and Manufacturers of America (PhRMA) marketing code suggests restricting imprinted reminder items like pens, mugs and calculators. However, anatomical models, charts and multi-item patient kits (which can still include branded pens and journals) are clearly permissible and have successfully been sold to drug companies throughout this year.

Refining The Sunshine Act

While the PhRMA code is simply a set of guidelines and federal legislation continues to be debated, local campaigns organized by ad specialty companies have gained traction. For example, a new Iowa law that bans gifts to doctors from pharmaceutical companies includes an exemption for promotional products.

The exemption was granted after a nearly year-long process involving extensive legislative talks and hearings, as well as a letter-writing campaign spearheaded by leading Iowa distributors. Similar efforts have been underway in Florida, where legislators are trying to implement more uniform and consistent rules regarding reporting of payments to doctors.

It’s also possible that pending Sunshine Act-related legislation could influence federal tax codes. In October, three U.S. senators introduced a bill that would eliminate the federal tax deduction on advertising for prescription drug medications. If passed, the bill would significantly increase the cost of advertising for pharmaceutical companies, possibly leading to smaller marketing budgets.

One of the bill’s sponsors, Senator Al Franken (D-MN), estimates that eliminating the tax breaks would bring close to $3.5 billion a year in revenue to the federal government. However, the American Advertising Federation estimates that disallowing the deduction would raise the marketing costs of drug companies by up to 35%.

Stay Connected
Here are some online resources to keep you in the loop on the latest legislative updates:

  • For the Physician Payments Sunshine Act: Go to www.policymed.com and search “PPSA.” 
  • For PhRMA regulations: Go to www.phrma.org and search “Code on Interactions with Healthcare Professionals.”
  • For CPSIA facts and requirements: Go to www.cpsc.gov.

Get Your Voice Heard In Congress
The Rocky Mountain Region Promotional Products Association (RMRPPA) is one organization rallying support against the Physician Payments Sunshine Act, using a campaign that includes letter writing, signed banners and even the use of ad specialties. The RMRPPA has started a blog, available through www.rmrppa.org, that offers campaign instructions to other organizations and individuals who would like to join the fight against the Sunshine Act.

Also, go to www.asicentral.com/ppsa to find out more information on the Physician Payments Sunshine Act. Also on the site is a link to a list of U.S. senators and a sample letter that can be used to write a congressperson and share your concerns about the pending law.

Pay A Visit To Congress
Not content to merely send e-letters to his local government representatives in an effort to combat the Physician Payments Sunshine Act (PPSA), Bob Hechler of Windbrella (asi/97247) took it a step further.

As a member of the Gold Coast Promotional Products Association, Hechler worked with the group’s lobbyist to get face time with Bill Nelson, his Democratic senator from Florida. Within days of initial contact, Hechler made his way to Washington, D.C., and spent time with Nelson and his chief of staff discussing the PPSA and its sweeping implications for the industry.

“We all need to take responsibility to protect and enhance our industry,” says Hechler, who pointed out that an aide for Nelson noted that one personal visit from a constituent to a member of Congress carries as much influence as 5,000 e-mails. “It was relatively easy to get a meeting with my Senator, and I encourage other people in the industry to reach out to theirs as well.”

As a result of Hechler’s visit, Nelson is now going to contact the two Senators behind the Physician Payments Sunshine Act – Chuck Grassley (R-IA) and Herb Kohl (D-WI) – to express his concerns. “There is no doubt that personal attention can make the difference,” Hechler says.

C.J. Mittica and Dave Vagnoni are staff writers for Counselor.

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