CPSC’s Civil Penalty Settlement with Peloton Has a Big Number, But Don’t Stop Reading There
On Thursday, January 5, the US Consumer Product Safety Commission (CPSC) announced one of its largest ever civil penalty settlements: a $19 million penalty against Peloton Interactive, Inc. The settlement relates to Peloton’s 2021 recall of its “Tread+” treadmill to address a risk of serious injury or death from being pulled under the slatted-belt treadmill’s running deck. The eye-catching $19.065 million figure is broken out into $16.025 million for late reporting—the largest allowable under the CPSA for the period of the alleged violations—and another $3.04 million for the post-recall distribution of 38 recalled treadmills. This sum further underscores the ongoing shift toward a more aggressive enforcement posture under the current Commission, including Chair Alexander Hoehn-Saric, who joined the body late in 2021.
In the settlement agreement, the CPSC alleged that, by the time Peloton reported the risk to CPSC in March 2021, there were more than 150 reports involving persons, pets or objects being pulled under the treadmill, including 13 injuries ranging from abrasions to broken bones and one child fatality. CPSC alleged that Peloton failed to immediately report a potential safety issue to CPSC as required under Section 15(b) of the Consumer Product Safety Act (CPSA). Among other allegations, CPSC called out Peloton’s decision to move a warning label to the rear of the treadmill where entrapment incidents were occurring and evaluation of a potential design change to prevent entrapments years before notifying CPSC about the potential hazard. In a civil penalty proceeding, it is not unusual for CPSC staff to view changes to a product’s design, manufacture or warnings, particularly in response to incident reports, as evidence that the company had information that it knew or should have known triggered reporting under Section 15(b). In addition, Peloton allegedly failed to provide CPSC with certain consumer contact information, necessitating the Commission to issue a subpoena for the information.
Beyond the headlines, there are a couple of other points in the settlement agreement that those in the consumer products space should take note of.
Compliance Program: Annual Reporting
First, as has been the case in a few other recent CPSC civil penalty settlements, the Peloton settlement agreement (see ¶ 35) sets forth required elements of the company’s compliance program and requires the company to submit an annual report, sworn to under penalty of perjury. The annual report requires that Peloton:
- describe in detail each element of its compliance program and actions taken to comply;
- affirm that it has reviewed for effectiveness its compliance program and internal controls during the reporting period, including the actions taken to comply, and that the program complies with each element listed in the agreement or detail any noncompliance; and
- identify any enhancements or modifications the company has made as a result of that review.
Peloton is required to submit these reports for five years, imposing a burden that goes well beyond the immediate $19.065 million check.
Second, regarding the allegation that Peloton distributed treadmills after they were recalled, CPSC alleges that “Peloton knowingly distributed into commerce 38 Tread+ treadmills (Recalled Products) that were subject to the recall by Peloton personnel and through third-party delivery firms to consumers.” (¶ 18.) In its response, Peloton states that, “Peloton requested its third-party distribution partners pause deliveries prior to the recall announcement.” (¶ 25.) From these few details, it is unclear what role Peloton itself played in the alleged distribution of what is arguably a small number of recalled treadmills versus its third-party distributors. According to a statement released by Commissioner Peter Feldman, “Peloton’s conduct” as it relates to the post-recall sales “appeared to stem from a loss of control of its product distribution during unique pandemic circumstances.” This would suggest CPSC is not applying a “strict liability” standard, in which a manufacturer that played no role in a post-recall sale nonetheless could be held liable for a downstream distributor’s independent distribution, though the extent of Peloton’s alleged role in the distribution cannot be discerned given the limited details in the publicly available materials.
Regardless of external circumstances, consumer product manufacturers should examine closely both their internal controls and their relationships with their downstream vendors to determine whether enhancements are needed to reduce the risk of post-recall sales.
Any CPSC civil penalty settlement serves as an important data point for consumer product manufacturers, distributors and retailers, as it provides both a reminder of companies’ obligations under the CPSA and a signal of how the agency may view and enforce those obligations going forward. The hefty Peloton civil penalty settlement is a data point on a continuing trendline toward more aggressive enforcement and lower tolerance for companies that the Commission believes have fallen short of meeting regulatory requirements.
For questions about this post, CPSC enforcement practices or other product safety matters, please reach out to the authors or any of their colleagues on Arnold & Porter’s Consumer Product Safety team.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.