Two words that always get the attention of lawyers and their clients, alike, are stricti juris; meaning, the rule of law will be interpreted strictly and without extension or enhancement in interpretation. Think of it as a zero tolerance standard. I mention these words to describe the continued trend in regulatory enforcement of hazardous materials regulations; the most recent example arriving in the form of PHMSA’s June 30, 2011 ‘Clarification’ relating to its fireworks approval policy, whereby approvals will be issued to manufacturers only.
Readers of this column are already familiar with PHMSA’s expressed intention to clarify the fireworks approval policy and, in the course, modify long-standing custom and practice. Indeed, this columnist previously wrote that the words ‘manufacturer’ as expressly stated in the policy did not leave any room for interpretation, at least from a purely legal perspective (the only opinion to be expressed). While the article deliberately avoided supporting any specific outcome, numerous comments of both an equitable and legal nature were submitted to PHMSA for consideration; this author did not submit any comments to preserve neutrality. Now that PHMSA has released its ‘Clarification’, it is an opportune and appropriate time to consider the various legal and equitable arguments among the comments.
First, some background. To summarize:
1. The clarification became effective June 29, 2011 and, going forward, fireworks classification approvals will only be issued to manufacturers. This clarification leaves no room for interpretation, frustrating industry. Downstream, only the manufacturer or its designated agents can apply for approval of fireworks classification. The application process contemplates a legally enforceable connection between the manufacturer and the person(s) acting as its designated agent; while not expressly stated, PHMSA advises that the designated U.S. agent for service in accordance with 49 CFR § 105.40 also qualifies as the “designated agent” in 49 CFR § 173; essentially, the designated U.S. agent can serve dual roles. Nevertheless, until a formal writing (clarification) is issued by PHMSA on terminology, it would be prudent for all designated agents to seek indemnification language or, at the very least, explicitly document in all fireworks approval applications the fact that the designated agent is recognized as U.S. agent for service of process, if applicable. This linkage will prove helpful in the event the actions of the US agent for service of process are subject to review in the context of an investigation of a fireworks classification approval.
2. All EX numbers issued prior to June 29, 2011 will continue to be in effect, and;
3. Any applications pending approval will continue to be processed and may result in approval (I suspect approval will occur only in instances where the applicant is either the manufacturer or its designated agent).
No less than eighteen comments were submitted to PHMSA in response to its initial notice, demonstrating intense interest. PHMSA categorized the comments as follows:
Implementation– in response to two comments asserting that implementation would be complicated and require substantial time PHMSA observed that the approval process was proceeding unaffected since it the agency is only clarifying existing policy. To demonstrate that the clarification creates no disruption on the process all pending applications are being processed, albeit the majority of them are being denied.
Impact on Fireworks Application Volume– in response, PHMSA contends that the need for safety trumps the need for efficiency. PHMSA also observes that EX numbers must be maintained by the manufacturer, in exclusive fashion, and cannot be shared, effectively eliminating the practice of permitting multiple manufacturers from relying upon one EX number. To the extent that PHMSA has now determined that only the manufacturer identified in the approval is authorized to use the EX number, the EX number is effectively tied to the manufacturing facility, and is neither transferable nor transportable.
Language Barriers– in response to several comments regarding the language barrier and associated complications, PHMSA explained that the issue is illusory since all foreign businesses must have a US agent that, impliedly, understands English.
Control and Distribution of Fireworks– in response to comments arguing that trademark laws would be disturbed, PHMSA only expressed the obvious legal reality that a fireworks classification approval has no relevance to trademark or copyright laws. In prior articles, the limited role and utility of trademark and copyright laws in the context of fireworks product names and brand names was examined in detail, and the views expressed in those articles is consistent with the views expressed by PHMSA. Suffice to say, there is no connection between the USPTO and its power to register a trademark or copyright (thereby activating its consequent statutory entitlements) and the DOT’s power to issue fireworks classification approvals; the two actions are mutually exclusive. There are no statutory rights and, most significantly, no statutory remedy available to the manufacturer that is issued a fireworks classification approval. All notions that EX numbers possess legally enforceable trademark entitlements have been popped; the concept is without legal merit and lacks logic.
Ability to Ensure Compliance/Enforce– it should come as no surprise that comments questioning PHMSA’s ability to clarify existing agency policy would be rebuked. As part of its response, PHMSA observes the obvious fact that manufacturers, not importers, are liable for ensuring compliance with U.S. regulations; nor are importers considered insurers of product compliance since, in actuality, the articles are prevented from being lawfully imported into the country until any deficiencies are corrected. PHMSA also explicitly recognizes that importers are afforded the defense of justifiable reliance upon the representations of the manufacturer relating to product manufacturing and product compliance. PHMSA went on to dispute comments that it lacks the resources and experience to perform global investigations, noting that it already performs international inspections as well as domestic. In PHMSA’s opinion, to the extent that the clarification only serves to harmonize this regulation with prevailing HMR guidance the objective of uniform application is being served.
Regularity Clarity– it should come as no surprise that comments questioning PHMSA’s effort to clarify its own agency policy would be rebuked. In any event, PHMSA asserts that the clarification achieves the goal of regulatory clarity.
Economic and Transportation Effects– PHMSA responds to comments that its actions will affect “costs, competition, or interfere with trade and commerce” by observing that it is not changing the policy but, rather, only clarifying existing policy. This is a subtle, but material, difference.
Transportation Safety– here, PHMSA declares its true intentions: in its opinion the manufacturer is the only entity that can ensure that the formulation relating to the approval is faithfully followed. No exceptions are contemplated, thus, stricti juris.
Administrative Issues– PHMSA contends that clarifying a current policy does not automatically initiate informal rulemaking rules under the Administrative Procedure Act. Essentially, the act of clarifying an existing policy does not automatically impact it in a manner requiring full compliance with the APA.
Effects on the HMR– PHMSA rejected comments that the term ‘manufacturer’ may cause confusion, or may be inconsistent with other portions of the HMR, on the grounds that the clarification is consistent with the HMR and the clarification relates only to fireworks approvals.
Legal Issues– PHMSA also disagreed with the legal argument of laches preventing PHMSA from clarifying
