Nanotech -- Small Particles, Big Potential for Compliance and Litigation Risk

Nanotechnology is poised to become a big compliance headache. And, concerns have been raised about potential human health and environmental effects that make nanotechnology a potential litigation risk as well. Since you can only manage risks you know about, the time to get educated about nanotech and its role in your products is now.

Knowing what's in your company's products sounds simple enough in theory. But in practice, when this question has to be answered at the nano level, the answer is not likely to be easy. For example, in 2008 a leading consumer advocacy group reported that four out of five companies that represented that their sunscreen did not contain any nanomaterials were wrong -- their products did contain nanomaterials.

Nanotechnology has become increasingly pervasive in many industries: Technology, aerospace and defense, transportation, and consumer products, to name a few. Yet, there are no existing labeling requirements that compel either suppliers or manufacturers to specify that their products contain nanomaterials, as opposed to their macroscale counterparts. A product ingredient can be identified as titanium dioxide, for example, without specifying that it is nanoscale.

So what if you products contain nanomaterials? Why do you need to know?

Nanomaterials may present new health and environmental risks. Knowledge about the potential impact of full-scale elements on human health and the environment does not necessarily apply to nanomaterials. Nanomaterials may be more easily absorbed by the human body and may infiltrate the environment more rapidly or extensively than their full scale counterparts.

Animal studies, which cannot necessarily be extrapolated to humans, have raised concerns that some nanomaterials may be associated with health effects. Most notably, some animal studies have found that carbon nanotubes affect the lungs much like asbestos, causing inflammation and fibrosis, and possibly cancer. A group of UCLA researchers found an association between nano titanium dioxide and DNA damage and cellular inflammation in mice that could possibly lead to an increased risk of cancer. One of the study's authors specifically warned against the use of spray-on sunscreens containing nano titanium dioxide to minimize inhalational exposure. Some studies have also raised concerns about the potential negative impacts of certain nano metal oxides, such as silver, on aquatic life.

These examples, far from exhaustive, demonstrate that significant concerns have been raised about nanomaterials already in widespread use.

The first wave of nano compliance requirements is about to break.

Data Reporting Requirements

Government regulators are requesting health and safety information from manufacturers of nanomaterials under various environmental laws. California has already done so; the EPA is poised to issues its own data collection requirements in the spring of 2011.

Product Labeling Requirements

Identifying nanomaterials as such on product labels will soon be required for some industries. The EU has adopted a directive requiring explicit labeling of nanomaterials in cosmetic products beginning in 2013. In the US, the EPA has expressed interest in requiring explicit identification of nanomaterials in pesticide products.

Voluntary Labeling Standards

These are also being developed through standards-setting organizations, though their short-term future is uncertain. In mid-2010, the American National Standards Institute issued a draft Technical Specification ("TS") jointly developed by the European Committee for Standardization and the International Organization for Standardization. The draft TS would have required identification of nano-objects in products. The draft proposed affirmatively requiring manufacturers to ask suppliers whether supplies contain nano-objects. After being put out for a vote, the draft TS was disapproved in mid-January 2011. Comments provided as part of the voting process are being reviewed to determine whether revisions to the draft or other steps are appropriate.

Other voluntary product labeling regimes may require manufacturers to represent that their products are nano-free. For example, this fall, a government committee recommended that the engineered nanomaterials be prohibited from certified organic food products.

Workplace Safety Requirements

In December, the U.S. National Institute of Occupational Safety and Health ("NIOSH"), issued a proposed recommended workplace exposure limit for carbon nanotubes and carbon nanofibers. NIOSH's recommended exposure limit is not binding unless it is adopted by the Occupational Health and Safety Administration ("OSHA"), but it represents the first government-initiated step towards workplace exposure limits for nanomaterials in the US or the EU. It is not likely to be the last.

The first wave of nano litigation may soon follow. As various compliance requirements are developed and implemented, the environment for lawsuits becomes more favorable.

In the U.S., manufacturers are typically strictly liable for any injuries caused by their products, whether their products are nanomaterials or incorporate them as ingredients.

Standards, whether regulatory mandates or voluntary industry initiatives, expand potential liability by creating benchmarks for evaluating the reasonableness of a manufacturer's conduct in ensuring a safe workplace or a safe product. Failure to comply with standards can lead to claims that a manufacturer has acted unreasonably. In a world where personal "injuries," such as the risk of future disease and fear of cancer can provide a viable claim for large consumer or worker class actions, the legal risks are potentially significant.

Moreover, nano-labeling is likely to be a source of litigation in itself. Companies that provide nano-information will need to ensure its accuracy. Inaccurate labeling claims could be pursued as class actions under consumer protection statutes that often carry hefty penalties such as treble damages. Companies should be especially careful in making claims that their products are nano-free. Companies that violate any disclosure requirements ultimately adopted under various environmental statutes could also face potential liability.

Even where identification of nanomaterials is not mandatory, manufacturers face potential liability for non-disclosure. Plaintiffs' lawyers have recently mounted several "no injury" consumer class actions which seek to recover for the economic injury to consumers who claim that they would not have purchased a product if they had known about the undisclosed, allegedly harmful substance it contains. Recent "no injury class actions" have been based upon formaldehyde in baby shampoo and bisphenol-A in baby bottles. To date, these "no injury" cases have not been particularly successful, but they remain a concern because of the novel legal issues raised, the large number of potential plaintiffs, and the negative publicity that can damage a product's reputation.

What can you do to protect your company from compliance and litigation risks from nanotechnology?

Companies should be initiating supply chain and product reviews to identify products and manufacturing processes that involve nanomaterials. These reviews should focus not only on products that incorporate nanomaterials by design, but also any products that may use ingredients or components that could incorporate nanomaterials intentionally or inadvertently. Products that create the greatest potential for consumer or worker exposure should be prioritized. Suppliers should be asked directly whether their products contain nanomaterials and, if so, specific information about their characteristics should be obtained.

Based on the results of such an audit, companies should consider:

• whether to require suppliers to represent that their products do not contain nanomaterials as part of purchase agreements;
• whether existing purchase agreements, particularly those related to nanomaterials, adequately address indemnity for any potential liability;
• whether existing occupational health and safety procedures are adequate to protect workers in light of any applicable proposed exposure limits and available scientific data concerning nanomaterials;
• whether adequate precautions are being taken in waste disposal of nanomaterials; and
• whether existing insurance policies provide adequate coverage (many do not cover nano-liabilities) or if a specialized nano policy should be considered.

Jennifer Quinn-Barabanov is a Partner in the Products Liability, Pharmaceutical & Mass Tort group at Steptoe & Johnson LLP in Washington, DC