I am NO expert but if the government deems it is intended or could be intended for a child under 12 it is covered by the law.
Another example, art dolls, many make these and sell them for hundreds of dollars these too are covered by the law.
Yes, grandma would be violating this law along with all mom-to-mom sales, garage sales, charity donations.
Plain and simple if a child under 12 could use it, it could be covered.
The law is VERY broad and sweeping and assumes all are guilty without the testing.
This is one of the best articles and sums it pretty good.
http://www.forbes.com/opinions/2009/01/16/cpsia-safety-toys-oped-cx_wo_0116olson.html