National Center for Electronics Recycling (NCER)

DRAFT - 4/5/2005

National Center for Electronics Recycling (NCER)

Determination of “Orphan” Products

Background

The National Center for Electronics Recycling (NCER) will develop and implement a database to compile, assess, and utilize electronic product recycling data. As part of this effort, NCER will categorize data based on brand name, product type, and producer identity.

The issue of “orphan” products is relevant for this activity. How will the determination that a product is an “orphan” be made? Can such a determination be made? This paper will gather the various definitions that are currently in use regarding “orphan” electronic product and develop some guidelines for NCER use.

Existing Definitions

The following chart outlines the existing definitions of “orphan” product that are currently in use – both in existing and pending electronic recycling legislation as well as in other electronic recycling initiatives.

Term / Source / Definition
“Orphan Waste” / Maine LD 1892 / Covered electronic device, the manufacturers of which cannot be identified or is no longer in business and has no successor in interest
“Orphan Waste” / Minnesota Bill SF 1595 / Electronic waste manufactured by or bearing the brand name of a company that is no longer in business
“Orphan Waste” / Texas Bill SB 564 / Electronic equipment that became electronic equipment waste before [September 1, 20050 and as manufactured by or bears the brand name of a company that was no longer in business on [September 1, 2005]
“Orphan Waste” / Rhode Island Bill S826 / Covered electronic product, the producer of which can not be identified or is no longer in business and has no successor in interest and which was discarded prior to the effective date of this chapter.
Term / Source / Definition
“Orphan Electronic Waste” / NERC/CSG “Electronics Recycling: Glossary of Terms” / Used electronic equipment whose manufacturer either cannot be identified or is no longer in business
“Orphan products” / ERIC / Covered electronic devices for which (1) the manufacturer no longer exists and a successor cannot be identified, or (2) no manufacturer can be identified
Orphan Products” / Industry comment / “any covered electronic device that is returned under the electronic product recycling system and for which a current manufacturer cannot be identified or compelled to participate in the recycling system”

Analysis

Most of the entities that use the term “orphan waste” define it as waste for which a manufacturer can not be identified or waste for which its manufacturer is no longer in business. For manufacturers that are no longer in business, a successor in interest can also not be identified. It may be helpful to expand the definition of “manufacturer” to include persons that sell products under a brand name. This is consistent with some legislation that has been introduced (Minnesota SF 1298).

It is clear then, products which can be identified with an existing producer or brand owner are not orphan products. Examples include HP as producer of-HP-branded products and HP as successor to Compaq-branded products. Under the definition of “manufacturer” that includes brand owners, it would also include products branded by retailers, such as Sears and Walmart.

A key issue that will require resolution is the determination of whether a manufacturer that produced a product that is no longer in business has a successor. This may involve a legal determination that may require resolution to determine successor responsibility; however, this determination is likely beyond the scope of the NCER. Information on this determination is included in Attachment A.

Another issue that will require resolution is the status of products for which a current manufacturer cannot be compelled to participate in the recycling system. Some bills term such waste: “manufacturer abandoned waste.” While some may consider these products “orphans” under for purposes of a mandatory producer responsibility system, the intent of this NCER project is to illuminate the various definitions of “orphan” and analyze the application of these definitions to real lists of returned brands -- not to determine the scope of producer responsibility for products deemed “orphan product.”

Types of “Orphans”

Based on the existing definitions, , it appears that there are three categories of orphan products:

(1) “True” Orphans (“No parent exists or cannot be identified”)

These are products with producers or brand owners that cannot be identified or are no longer in business. Those producers have not been acquired by a successor that can be identified and still exists and, as a result, there is no true corporate “parent” of these products when they become “waste.”

EXAMPLE:

Products identified as “clones” in the Florida data.

(2) “Undetermined” Orphans (Parentage Unclear)

These are products with producers or brand owners that are no longer in business. If there are successors to the original producers/brand owners, a legal test of corporate successor liability will have to be applied to determine true orphan status. If successors are found, these products will not be considered “orphans.” NCER is unlikely to pursue such a determination so a default of “orphan” may be chosen for these products.

EXAMPLE:

Curtis Mathes TV equipment.

(3) Reluctant Orphans (Parentage Clear but Parent Unwilling to Take Responsibility)

These are product brands with producers or brand owners that can be identified but, for some reason, the producers are unwilling to participate in a recycling system. Perhaps, the system cannot compel them to participate for jurisdictional or other reasons. Since categorization of NCER would not establish producer responsibility, these products will be categorized by their true parentage although in a “producer pays” systems, these products may be treated as orphans.

EXAMPLE:

TV or computer products that are sold to commercial entities in Maine, but are returned at municipal collection locations. The Maine statute, LD 1892, does not appear to cover such products.

ATTACHMENT A

Legal Test for Determination of Corporate Successor Liability

Overview:

Although the NCER is unlikely to pursue determinations of legal corporate successor liability, this document may be helpful in helping determine “orphan” products in cases where product brands were acquired by successor producers.

Basic Principles of Corporate Successor Liability:

With limited exceptions, the law of successor liability in most states provides that a successor is not liable for the debts and liabilities of its predecessor. However, there are specific situations where corporations can be held liable for the actions of its predecessor. The field of law that determines such cases is called “corporate successor liability.” This field is highly developed in cases involving the Comprehensive Environmental Response, Compensation, and Liability Act (CERLCA), which holds a large class of persons liable for the response and remediation costs associated with environmental clean-ups at hazardous waste sites. CERCLA case law may be helpful for our purposes in that CERCLA is a producer responsibility law that requires producers to finance the environmental remediation of products previously placed on the market.

In CERCLA cases, courts apply a “substantial continuity test” to determine successor liability. According to a recent BNA article, the Substantial Continuity Test is an expansion of state common law rules for successor liability.[1] According to state common law, an asset purchaser succeeds to the liabilities of the asset seller when one of four criteria are met:

(1)  the successor expressly or impliedly agrees to assume them

(2)  the transaction may be viewed as a de facto merger

(3)  the transaction is fraudulent

(4)  the successor is a mere continuation of the predecessor.

Courts that have applied the “substantial continuity test” consider it as a way to clarify the fourth criteria and they examine a number of factors to determine whether the successor is a “mere continuation of the predecessor.” These factors include:

·  Retention of same employees

·  Retention of same supervisory personnel

·  Retention of same production facilities

·  Production of the same product or service

·  Retention of the same name

·  Continuity of assets

·  Continuity of general business operations; and

·  Whether the successor holds itself out as a continuation of the previous enterprise.

[1] James B. Slaughter & Katherine T. Gates. & Peter W. Landreth, “Corporate Successor Liability under CERCLA: The Vitality of the Substantial Continuity Test in Superfund Cleanups,” BNA Environment Reporter (October 24, 2003).