Toymaker Ty Inc. averted a court fight and what would have been the first test of Illinois' strict lead-in-toys law when it backed down and removed its lead-tainted Jammin' Jenna dolls from store shelves in the state.

The Westmont, Ill.-based company had contended that the dolls complied with federal safety standards and that those take precedence over state law. But in January, the Illinois attorney general's office threatened to sue the toymaker, and Ty decided to replace the dolls with another version that meets the state standards rather than face litigation.

The state argues that its Lead Poisoning Prevention Act of 2006 takes precedence because it sets a specific standard for lead content in toys while federal laws do not. The Illinois attorney general's office and the U.S. Consumer Product Safety Commission (CPSC), which regulates consumer products, have said in statements that Illinois' lead act is valid because states can adopt their own rules where no specific federal law exists. While Federal Hazardous Substance Act (FHSA) governs lead content in paint, it does not set standards for lead in toys specifically, only hazardous substances in toys.

Both sides can make strong arguments for which law takes precedence, says Brett Crawford, an associate at Sonnenschein Nath & Rosenthal. “It's not entirely clear how a court will ultimately rule on that issue,” he says.

Filling the Gap
The controversy involving Ty began in November 2007, when tests performed by the Chicago Tribune found that red vinyl shoes on the Jammin' Jenna dolls exceeded Illinois lead levels for toys. Illinois Attorney General Lisa Madigan was quick to ask Ty to remove the dolls from stores in Illinois. Ty agreed to do so, but days later the doll could still be found in stores.

Three months later, with the threat of litigation looming and bad publicity growing over the tainted shoes, Ty removed the dolls from Illinois store shelves and replaced them with a revamped version that featured cloth shoes with no lead content.

However, Ty still refused to issue a recall, maintaining that the doll complied with federal standards and that those standards take precedence. Madigan's office maintained that a gap in federal law governing lead levels in toys gave precedence to the state lead law. That law prohibits the sale of toys, clothing, jewelry or any other product intended for use by children that contains lead in excess of 600 parts per million–matching the federal limits on lead in paint and other surface coatings.

“The FHSA would arguably cover this product because federal law does cover toys in general,” says Richard Fama, member at Cozen O'Connor. “I think [Ty would have had] a real good argument that the federal statute, particularly the Federal Hazardous Substances Act, governs this product and regulates this [toy]; the product actually complies with that act; and that act pre-empts the state law.”
But Crawford adds that if this case went to trial the court would give significant weight to the CPSC's opinion, which lent support to the state law.

Preventive Approach
Both houses of Congress recently passed similar measures to close the gap and regulate lead in all children's products. At press time legislators were negotiating a final bill.

Meanwhile, the issue of whether states can set lead limits on toys may extend beyond Illinois. In January, Michigan rolled out a package of new state laws that call for fines of up to $50,000 for companies that sell toys containing high levels of lead. As in Illinois, Michigan's standards ban children's products with lead levels above 600 parts per million.

“General counsel have to figure out how to prevent products, especially toys that contain lead, from being recalled at both the federal and state level, and getting there will require setting [lead content requirements] that will be tougher than federal standards and any state standards that are economically and physically feasible,” says Christopher Smith, partner at Sonnenschein. “These standards will also have to be pushed down the supply chain so that when the holidays come this year, there will not be any threats to a company of any legal action regarding lead content in toys.”

Fama argues that companies can't cave in to each state that may enact different standards. “It becomes a business decision whether they want to comply with stricter state standards, which is problematic because consumers want cheap toys and to get that, most of the stuff is sourced from China,” he says. “That leaves them with far less control of the content of the toys,” he says.

But Fama points out that while meeting federal standards may give a company a strong legal position, companies have to weigh standing their ground against the negative public image that could result from fighting the state standards.

“There are costs associated with all of these preventive measures, but companies should look at it as an investment that will help them preserve the brand name and prevent future risks associated with product defects or recalls like product liability suits and class action suits,” Crawford says.