We are advising our clients about a recent tactic being used by bounty hunting attorneys to extract settlements from dietary supplement companies under the guise of California’s Proposition 65 (“Prop 65,” The Safe Drinking Water and Toxic Enforcement Act of 1986). For those unaware, Prop 65 is a California law that requires businesses to provide warnings to Californians about significant exposures to chemicals that cause cancer, birth defects or other reproductive harm. These chemicals can be in the products that Californians purchase, in their homes or workplaces, or that are released into the environment. The law requires the State to publish a list of chemicals known to cause cancer, birth defects or other reproductive harm. This list has grown to include approximately 900 chemicals since it was first published in 1987.
Businesses selling products to Californians are required to provide a “clear and reasonable” warning before knowingly and intentionally exposing anyone to a listed chemical, unless the business can show that the anticipated exposure level will not pose a significant risk of cancer or is significantly below levels observed to cause birth defects or other reproductive harm. This warning can be given in several ways, but for supplement companies it is usually done by adding a warning to the product packaging. Importantly, however, businesses with less than 10 employees are exempt from Prop 65’s warning requirements.
This small business exemption is now being rendered meaningless. Prop 65 bounty hunters are recently targeting businesses that sell their products on Amazon, regardless of how many employees they have. The hunters will buy products on Amazon that do not have Prop 65 warnings and have them shipped to a purchaser in California. They will then test the product, and if testing reveals a significant exposure to one of the 900 chemicals on California’s list, they will serve Amazon with a Notice of Violation. Their theory is that by selling on Amazon or using Amazon as a platform to sell products, Amazon acts as the retailer. Amazon certainly has more than 9 employees, and the hunters’ position is that at a minimum there needs to be a Prop 65 warning on the Amazon sales page.
As a company selling its products on Amazon, a supplement company agrees by contract to indemnify Amazon in any potential lawsuit – which means that the supplement company is on the hook for the legal fees incurred by Amazon in defending any lawsuit. So, upon being served with a Notice of Violation, Amazon will forward that paperwork to the supplement company to decide if the company wants to settle the matter on its own or wants Amazon to handle it. Amazon has little risk in handling such a lawsuit, knowing that they are spending someone else’s money (thanks to the indemnification clause). Litigation is quite expensive, and unfortunately no one has yet to challenge such a broad definition of “retailer” due to the high potential legal costs. It is far more economical for the average supplement company to negotiate a settlement directly with the bounty hunting law firm, even if the settlement is in the tens of thousands of dollars.
If you’re selling to California through Amazon or another online platform, you need to be aware of this important development. There are several strategies to address this troubling situation, and they are worth discussing. The attorneys at Collins Gann McCloskey & Barry are always fighting to protect your business. Give us a call at 516-294-0300 if you have concerns or to discuss this issue in more detail.