Legal Constraints on Standards-Setting
Political and economic factors only partly explain regulatory behavior. The law is a powerful external influence, placing very different constraints on the two sectors. Only private standards-setters are subject to the antitrust laws—unless they can cloak their activity under the guise of a "public purpose." And lacking the sovereign immunity defense, private organizations are far more vulnerable to liability suits than their public counterparts. But public agencies are subject to more frequent and intrusive judicial review of their regulatory decisions. These legal influences, explored below, help explain the observed differences in regulatory philosophy.
Critics of private standards charge that the activity is prone to anticompetitiveness and that, owing to lax antitrust enforcement, the law does not sufficiently discourage such activity. Proponents counter that the combination of liability law and antitrust law keeps private standards within an acceptable range of results. The argument goes as follows: private standards must be reasonable because liability attaches if a
product is not reasonably safe, while the antitrust law assures that standards will not be arbitrary or anticompetitive. The case studies suggest that antitrust concerns are voiced by committee members more openly than those about liability, but their perceptions of antitrust law are often uninformed.
The accusation that anticompetitive purposes lurk behind private standards is understandable given the unsavory history of product standards. Standardization schemes involving everything from ice cream to carpets were struck down by the courts in the 1940s as thinly veiled efforts at price fixing. AGA Labs was implicated in one of the most famous legal decisions in the field, Radiant Burners v. Peoples Gas, for allegedly withholding product certification for anticompetitive reasons. Economic considerations certainly influenced the AGA/ANSI committee's decision about requiring the ODS device when there was only one supplier. Ironically, while pleading antitrust concerns, most committee members were actually worried about putting U.S. companies at a competitive disadvantage. But popular perceptions to the contrary, there are several reasons why safety standards are unlikely to be infused with anticompetitive purposes. First, price fixing schemes tend to involve the shape or size of a product, not its safety features. The former are necessary to standardize prices, the latter are not.
More important, anticompetitive motives are most likely to be a problem in interpreting or applying safety standards, not in writing them. Anticompetitive implications are the clearest in applied situations, where outside scrutiny is minimal compared to standards-writing. The most celebrated case in the field, American Society of Mechanical Engineers v. Hydrolevel Corp., involved a conspiracy between two volunteers on a small subcommittee that helps issue thousands of annual interpretations to the Boiler and Pressure Vessel Code. In 1988, the Supreme Court declined to apply the "governmental action" immunity and upheld a verdict against a producer of steel conduit that had "packed" an NFPA meeting in order to keep polyvinyl chloride from becoming an accepted substitute under the National Electric Code.
There is somewhat less here than meets the eye. There has never been a successful antitrust suit alleging that a safety standard itself, as opposed to an interpretation, violated antitrust laws. The recent Supreme Court cases involved unusual circumstances and are unlikely to have widespread effect on private standards-setting, although they suggest a trend that might be counterproductive. American Society of Mechanical Engineers v. Hydrolevel Corp. involved an interpretation of the Boiler
and Pressure Vessel Code, something that focuses directly on a single product, not on the formation of general standards. Allied Tube and Conduit Corp. v. Indian Head involved a decision on the floor of an NFPA meeting, not in a committee or subcommittee, where almost all policy decisions are actually made. Morever, as a result of changes prompted in part by these cases, standards-setters are providing fewer "interpretations" and the decisive "floor vote" is a thing of the past at NFPA.
This leaves vast regions of standards-setting largely unaffected by antitrust considerations. In fact, the law tolerates a great deal of private activity, some of it questionable by almost any measure. By applying the so-called rule of reason to cases involving standards-setting proper, courts have sanctioned several private standards acknowledged to stifle technological innovation. Absent a showing of bad faith, there is almost always an "objective" reason for a standard that can pass judicial muster.
Private responses to antitrust law often seem out of proportion to the actual requirements of the law. Antitrust law is a popular excuse for almost every negative decision in the private sector. Since standards exclude things by definition, there is always an intuitively appealing argument that proposed requirements might illegally exclude something from the market. The law is not actually this restrictive. Even standards of obviously questionable scientific merit have been treated with great deference by courts and agencies. "We give the benefit of the doubt to the standards setter," according to a Federal Trade Commission official. The makers of low-tolerance metal chimneys or high-clearance woodstoves would have a valid antitrust claim only if they could prove the standards to be "manifestly anti-competitive and unreasonable."
Antitrust law is nevertheless influential in standards-setting, according to participants. Fear of the antitrust law, well founded or not, apparently helps explain the reluctance of private organizations to ban specific product types or push technology. A representative of the Gas Appliance Manufacturers Association argues that the Z21.11.2 committee could not require the ODS device, which was manufactured solely by a European manufacturer, without raising "serious antitrust problems." UL, beset by a controversy about the temperature tolerance of metal chimneys, argues that the antitrust law is one of the reasons it cannot upgrade the standard. Similarly, after the NFPA general membership agreed in an unusual floor vote to ban woodstoves requiring more than thirty-six-inch clearances, the Standards Council overturned
the action, citing antitrust concerns. These concerns are both widespread and overstated.
Unlike antitrust law, liability law is seldom cited as an official reason for doing anything in the private sector. Yet the case studies suggest that liability is a more significant factor than antitrust law in explaining regulatory behavior. Liability concerns help explain why so many provisions in NFPA 61B are vague and why, in both 61B and 408, NFPA pushes the distinction between "requirements" and "appendices." More generally, liability law seems to explain the reluctance of the private sector to (1) recognize or address issues of consumer misuse, (2) embrace certain new technologies, and (3) include work rules or operational controls in safety standards.
Turning first to misuse: incorporating misuse considerations into standards can nullify the one effective defense to product liability suits that product certifiers and manufacturers still retain in some states—the misuse defense. This defense works only if the plaintiff's use of the product was unforeseeable to the manufacturer. Accordingly, the more misuse is acknowledged in standards, the more manufacturers and product certifiers might be held responsible for it (no matter how impossible the task). In other words, because of liability law it is not in UL's interest to think too much about potential consumer misuse.
There is a similar reluctance to adopt certain new technologies. The failure of a new safety device might leave a manufacturer or certifier in a worse legal position than if it had not addressed the problem to begin with. The argument, advanced to explain the slow diffusion of antilock braking technology, appears to explain the reluctance to require the ODS for gas space heaters. Committee members admit privately that data on failure rates of the device in Europe were considered legal dynamite. Even if it significantly reduced the number of carbon monoxide deaths, as expected, manufacturers worried that the occasional injury it failed to prevent—as a result of equipment failure or poor maintenance—would be seen as the fault of the manufacturer, not the consumer.
Standards-setters also worry that "upgrading" a standard leaves existing products more vulnerable to product liability suits. Improvements can be cited in some jurisdictions as evidence that the old standard was
inadequate. When, as in the case of UL's metal chimney standard, hundreds of thousands of products manufactured under the existing standard are still in use (and will be for many years to come), there is considerable reluctance to "upgrade" the standard. This reason, admitted privately by UL officials, makes much more sense than the stated concern about excluding low-tolerance chimneys from the market.
Finally, liability concerns help explain why the operational controls were placed in the appendices of NFPA 408 and 61B. Technical and engineering standards are much easier to control. Third-party certification assures compliance with many product standards. Compliance with other provisions in NFPA 408 and 61B involves fairly discrete acts—carrying a certain type and number of fire extinguishers, attaching devices to converyor belts in grain elevators, using specified building materials. Operational controls, on the other hand, require unfailing implementation. They are dependent on the goodwill and reliability of employees. They are also where corners are likely to be cut in the face of various economic pressures. Either way, liability fears apparently keep the private sector from mandating operational controls.
The Burden of Justification
The most important legal influence on public regulation appears to be the specter of judicial review. There is no analogy in the private sector. Except for violations of antitrust law, there is no possible basis for challenging the substance of private standards in court (and the antitrust law, as already explained, gives substantial deference to private safety standards in the absence of proven bad motives). With the CPSC, standards are not just reviewable by court, the statute allowing such review is intended to encourage closer judicial scrutiny than under the traditional, more deferential approach. The agency has not fared well in the courts. A standard for swimming pool slides was rejected because the CPSC "provided little evidence that warning signs would benefit consumers." The court rejected arguments based on "common sense" and faulted the agency for not having tested the effectiveness of the required signs. That same year, another court, rejecting portions of a safety standard for matchbook covers, practically demanded that the agency justify all of its decisions with cost-benefit analyses.
This sort of judicial review creates a burden of justification on public agencies that does not hinder their private counterparts. "We cannot go to court on engineering judgment," notes a CPSC staff member with
dismay. This suggests a major difference between public and private standards-writing. Public agencies cannot "get away with" what forms the basis for most private standards: engineering judgment, common sense, and educated guesses. The burden of justification probably helps explain why the government agencies shied away from technical issues in the case studies, seizing issues for which technical proof is least significant, such as warning labels and effective dates.
The final three chapters assess the policy implications of these observations and explanations. Chapter 10 aggregates the institutional considerations, setting forth the comparative institutional advantages of each system. Chapter 11 examines the most common policy prescription for improving standards-setting: changing administrative procedures. Chapter 12 considers interactive strategies and alternative policy instruments that are also worthy of consideration but are often overlooked in discussions of standards policy.