The cosmetics industry has seen an uptick in plaintiffs’ lawsuits as the grace period for compliance with new ingredients added to California’s Proposition 65 list expires, though there is movement afoot in the legislature and governor’s office to potentially modify the regulation.

Proposition 65, or the state’s Safe Drinking Water and Toxic Enforcement Act, requires manufacturers to disclose to consumers the presence of chemicals with suspected carcinogenic or reproductive toxicity risks when exposure levels exceed limits set by the state's Office of Environmental Health Hazard Assessment.

A number of ingredients often found in cosmetic products were added last year to Prop 65, notably cocamide diethanolamine, which the state of California has linked to cancer. Following a one-year grace period, more than 100 manufacturers and retailers of cocamide DEA-containing products that failed to properly notify consumers have been sued Also see "NGO’s Prop 65 Lawsuit Targets Undisclosed Cocamide DEA" - HBW Insight, 16 September, 2013..

“I think we’re going to see from [Gov. Brown] an attempt to reign in, at least to disincentivize from the attorneys fee perspective, what is going on in the state – people just sending out hundreds and hundreds of [Prop 65] notices.” – Attorney Ronie Schmelz

The legal action amounts to a “hostage mentality” by NGOs and “bounty hunting” as they pursue settlements from manufacturers and retailers, according to Ronie Schmelz, a partner with Edwards Wildman.

Essentially, special interest groups have been enforcing the regulation, and a “cottage industry” has cropped up since Prop 65 went into force, Schmelz said in an interview with “The Rose Sheet.”

Individuals at the NGOs – who will serve as plaintiffs – purchase the products that are noncompliant, then give the manufacturer and/or retailer a 60 day-notice of their violation.

“It’s not a 60-day notice to give them an opportunity to cure [the violation] – it also goes to every county and governmental authority in the state where the product is sold to give the attorney general and the district attorneys alike notice of this offense,” Schmelz explained.

Typically the government does not pursue action, and at the end of the 60 days the notice is converted into a lawsuit. The lawsuits often result in significant settlements and high attorney paydays.

Moreover, manufacturers and/or retailers responsible for a product not in compliance face fines of $2,500 per product per day.

“Every day that the product is sitting there on the shelf, without [marketers] knowing if they’re in compliance or not, is a day they’re exposed,” according to Schmelz.

And the clock began ticking on penalties for products on the market the day Prop 65 went into effect, which differs from many FDA regulations that impact only new product being shipped after the date of implementation and exclude product already on stores shelves.

According to the attorney, some smaller firms in the industry are banding together in joint-defense agreements to fight Prop 65 lawsuits. Joint-defense agreements help firms pool their resources and offer a united front.

Reform On Horizon?

Though significant changes to Prop 65 are considered a longshot, the state has been inching toward small reforms.

The State Assembly and the Senate have passed a bill that would give certain Prop 65 violators a 14-day window to address the violations and avoid lawsuits, while only paying a $500 fine.

“It would give companies the opportunity to cure and not be immediately subject to those dramatic penalties,” Schmelz said.

The legislation has advanced to the office of Gov. Jerry Brown for review.

While the bill as written applies to bars, restaurants, coffee shops and parking garages, it could open the door for future measures providing relief for the cosmetics industry and other stakeholders.

Brown had proposed a sweeping overhaul of Prop 65, though those efforts have reportedly fizzled Also see "“Devil Is In The Details” On Prop 65 Reform Benefits – AHPA" - HBW Insight, 13 May, 2013..

“I think we’re going to see from him an attempt to reign in, at least to disincentivize from the attorneys fee perspective, what is going on in the state – people just sending out hundreds and hundreds of notices,” according to Schmelz.

Sharon Blinkoff, counsel with Edwards Wildman and chair of the Independent Cosmetic Manufacturers and Distributors’ government relations committee, agreed, suggesting in an interview that there may be tighter rules in the future for giving notice and opportunity to correct violations before fees kick in.

“I think there may be a relook at how chemicals may be listed and perhaps looking at [establishing] concentration levels where there is real risk,” she said.

Cosmetics Industry “Taken Aback”

While bigger firms in the industry were not caught off guard by the recent rash of Prop 65 lawsuits, many smaller companies did take hits.

“The cosmetics industry was taken aback a bit, and [they are] surprised and unclear as to the extent to which they are exposed” under Prop 65, Schmelz said. “We get calls all the time from both manufacturers and from product labelers themselves trying to figure out what the story is with Prop 65 and what they need to do.”

Partnering with retailers who have dealt with Prop 65 in the past helped some firms to escape the worst of it.

“Some of the chain drug stores were really quite prepared for Prop 65 because they had other products that were involved in Prop 65 before,” Blinkoff said. “These retailers kept themselves informed and watched the ingredients that were listed and informed their [suppliers and partners] they expected them to be in compliance.”

As for those firms that still need to comply, they can do so by labeling their products with notices that they contain ingredients the state has linked to cancer or reproductive toxicity.

There has been confusion surrounding compliance with Prop 65 for ingredients used in products in very small amounts. While Prop 65 dictates exemption levels for some ingredients, products with ingredients lacking set exemptions may not need to comply if firms can demonstrate that the ingredients in their products are at small-enough levels to not pose significant risk, according to Blinkoff.

In some other cases, particle size determines whether use of an ingredient requires notification. For example, warnings are required for products containing titanium dioxide – such as sunscreens – if the ingredient is present at a respirable size, Blinkoff said. She noted that some cosmetic products use TiO2 as a colorant in particles that are very large and therefore not respirable, which would exempt those products from carrying a warning.

“Prop 65 is at its essence a labeling requirement, labeling in the broadest sense,” Blinkoff observed. “It’s a requirement that you warn consumers of the risk presented by the chemical if it’s a listed chemical.”

As an alternative to alerting consumers, some manufactures will move to reformulate their products – “not because it’s really a problem, but because it’s a negative” in the eyes of the consumer, the attorney explained.

But reformulation isn’t cheap, and some firms are considering pulling out of California altogether.

At any rate, “my perception is that the industry is getting educated quickly on Prop 65,” Blinkoff said.

Cosmetics Firms Held “Hostage” By Prop 65 Litigators; Law Changes Possible

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