MADE

Buckyballs vs. The United States of America

Buckyballs co-founder Craig Zucker says he was bullied by the government. The Feds say his company deserved to die.
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"We coulda been a Lego! We coulda been a Rubik's Cube!"

Instead, Craig Zucker is in a shared workspace in Brooklyn, New York, hanging on. It's like a bad dream: He's no longer selling Buckyballs--the tiny magnetic desk toys that did $40 million in sales in just four years. Instead, the 34-year-old is selling Liberty Balls, chestnut-size magnets that are weaker, lamer, and much less lucrative. His trendy Manhattan office is gone, and so are all his employees, save one. The two of them rent this cube inside a former warehouse where the lobby is raw concrete and the elevator reeks of cigarettes. Posted on the glass walls are stickers advertising Liberty Balls and layouts for sales promotions: They're What Lincoln Would Have Played With reads one. Juvenile? Maybe. But Zucker needs these slogans in his fight against the monster (every bad dream has a monster). In Zucker's case, it's the federal government.

As Zucker sees it, the government destroyed his business--and now, by suing him personally for the cost of recalling every Buckyball he ever sold, it's hellbent on destroying him, too. Losing this battle will ruin him financially. Winning, which could be years and millions of dollars away, might well ruin him, too. "This started as a side business, a way to make a couple thousand bucks," he says. "Now, I'm living a nightmare."

A couple of years ago, Craig Zucker had a hot company with $18 million in annual sales. Now, it's all gone, and he's fighting a government suit that could ruin him.

About 200 miles south of Zucker's office--across the street from a high school, upstairs from a day care center--is the headquarters of the Consumer Product Safety Commission, or CPSC, in Bethesda, Maryland. Inside, Scott Wolfson, head of communications, sits with a framed photo of his son and a #1 Dad ribbon on his desk. But behind him are pictures of other children. There's 16-month-old Danny Keysar, who died after a crib collapsed on his neck. There's 22-month-old Kenny Sweet Jr., who died after eating loose parts from one of his brother's toys. And next to them is the most recent addition to the collage: Braylon Jordan, just 23 months old in the photo. He must eat through a tube for the rest of his life because he swallowed eight little magnetic balls that tore holes through his intestines like gunshots. Those magnets weren't Buckyballs; they were a competitor's brand. To Wolfson, they may as well have been Zucker's.

"It's about safety," he says. "Zucker only talks about the impact on himself."

The CPSC's battle with Zucker reveals what happens when an entrepreneur provokes regulators. It also shows how this small, long underfunded agency has become more aggressive than ever--taking hard-line stances with businesses and using heavy-handed tactics to rid America of the products it deems dangerous. "It's a sea change in the way the agency's behaved in the last 20 years," says Michael J. Gidding, a product-safety lawyer based in Bethesda. The agency's lawsuit has riveted small-business advocates, and they aren't the only ones watching. Consumer-interest groups and product-safety lawyers are glued to it, too. The outcome could have implications for anyone who sells stuff in America.

Zucker smiles when he tells the beginning of the story. He was in his 20s and had just failed launching a product called Tap'd NY--filtered New York City tap water that he bottled and sold back to New Yorkers as "local." (No Glaciers Were Harmed Making This Water! the labels read.) Looking around for his next thing, he had come across a YouTube video marketing tiny balls of neodymium that snapped together to make cool shapes. He thought he could sell them better. In 2009, he and his business partner, Jake Bronstein, ordered $2,000 worth of magnets from China, dubbed their product Buckyballs (simply because it sounded catchy), and called their company Maxfield & Oberton (same reason). They made the brand all about fun. At early trade shows, the founders concocted origins for Bucky on the spot. ("He was my dog!" they would say. "He was my science teacher!") They had even more fun with the latter part of the name: "Play with our balls!" they'd yell.

"This started as a side business, a way to make a couple thousand bucks. Now, I'm living a nightmare."

Sales took off right away. At each new trade show, the founders signed up dozens, sometimes hundreds, of new retail accounts. By Christmas, Buckyballs had been in Real Simple's holiday gift guide and in Rolling Stone as a Toy of the Year. But in January 2010, at a gift show in Atlanta, Zucker received an ominous call from a sales rep. The 2-year-old son of a retail client had swallowed two magnets. The boy was fine--the balls passed through his system without harm--but the store didn't want to carry Buckyballs anymore. "It was a nauseating feeling," recalls Zucker. Unsure what to do, he went back to his booth and wrote more orders.

A few weeks later, the CPSC detained Maxfield & Oberton's latest shipment of Buckyballs at John F. Kennedy International Airport in New York City. Oddly enough, the CPSC's inquiry wasn't related to the incident with the 2-year-old. It had to do with the warning labels on the Buckyball packages. Zucker didn't realize it at the time, but magnets were a sore spot for the agency.

When Congress established the CPSC, in 1972, it gave the agency sweeping authority to set safety standards, ban products, order recalls, and levy fines in more than 10,000 product categories. But in 1981, the Reagan administration slashed its budget and added onerous rules that cowed it to industry. (For instance, the CPSC had to get companies' permission to disclose their brand names during most recalls.) With a budget smaller than that of the National Endowment for the Arts, the CPSC had to carefully pick its battles. So it cut a lot of deals. If a company agreed to recall a product quickly, the agency allowed it to deny its product posed a hazard--vital armor against the nation's hordes of personal-injury lawyers.

But in 2007, crisis struck. An investigative reporter at the Chicago Tribune published a series of scathing product-safety articles. The first began with a preschool teacher pleading with a rep on the CPSC's hotline: Magnets from a building toy called Magnetix had come loose, a 5-year-old boy had swallowed them, and he'd almost died. The agency took the report but did nothing. Six months later, little Kenny Sweet Jr. was killed by the same toy.

The story, which later won a Pulitzer Prize, showed a pattern of ignored warnings, ineffectual recalls, and avoidable deaths--much of it because, the series alleged, the CPSC was "a captive of industry."

"Kenny Sweet's death is emblematic of how a weakened federal agency, in its myopic and docile approach to regulation, fails to protect children," wrote the story's author, Patricia Callahan--words that were later read aloud to CPSC commissioners at a congressional oversight hearing.

Later in 2007, millions of toys were recalled for illegal levels of lead--news that dominated the headlines, given that it raised concerns that America had ceded quality control to China. The media and Congress flayed the CPSC for all of it. In 2008, Congress overwhelmingly passed legislation to overhaul the agency. In addition to nearly doubling the CPSC's (still small) budget to more than $118 million, the law tightened toy standards and increased penalties. A separate rule banned children's toys with neodymium magnets small enough to swallow. The Chicago Tribune article remains a painful memory for staff at the CPSC. A printout is tacked on Wolfson's wall next to the children. The headline: Not Until a Boy Died.

Zucker wasn't up on this history, but he hired a lawyer who was. Alan H. Schoem was a product-safety lawyer and a 31-year veteran of the CPSC. Together he, Zucker, and Bronstein untangled the warning-label issue. (Basically, the labels should have said Ages 14+, not Ages 13+.) To be extra safe, they changed the warnings to Keep away from all children! and stopped selling to stores that mainly carried children's toys. In March, Maxfield & Oberton issued a voluntary recall of all 175,000 units it had sold so far and replaced all the labels. (Just 50 sets were returned.) Zucker felt he was securely on the right side of the law. The children's-toy standards didn't apply, because Buckyballs was not a children's product. Schoem agreed.

Doctors surgically removed 37 Buckyballs from the insides of 3-year-old Payton Bushnell.

By the end of 2011, Maxfield & Oberton was selling $18 million worth of Buckyballs annually online and through national retailers, including Urban Outfitters and Brookstone. (Bronstein left the company after disagreements with Zucker but kept a 50 percent stake.) There had been more ingestion incidents, but Zucker had stayed in front of the issue, participating in a CPSC press release that warned parents. To him, the good news outweighed the bad: Buckyball sets were becoming a hot holiday gift, making People magazine's "hottest trends of the year." Hundreds of thousands of Buckyball sets flew off shelves that Christmas season. Unfortunately, some wound up in children's stockings. After the holidays, the number of ingestion incidents spiked. In the first half of 2012, there were 25 reported cases--more than in the entire year before.

In the scheme of things, the number was small (there were 265,000 toy-related injuries resulting in emergency-room visits in 2012). But the status of Buckyballs as a hot new product, paired with the gruesome nature of the injuries, made for a sensational news story. On the front page of The Washington Post appeared an article about Meredith DelPrete, a 10-year-old girl from Virginia who was hospitalized after swallowing two Buckyballs. (She had tried to use them to mimic a tongue ring.)

Both Good Morning America and the Today show ran a segment on Payton Bushnell, a 3-year-old girl from Portland, Oregon. The child went to the hospital with what her parents believed was stomach flu. An X-ray revealed she had eaten 37 Buckyballs, punching three holes in her lower intestine and one in her stomach.

In Louisiana, Dr. R. Adam Noel, a pediatric gastroenterologist, was spending a quiet evening at home when he got a call from the emergency room. A boy had some sort of necklace in his stomach. It turned out to be 39 Buckyballs inside his intestines. Noel had the boy rushed to the New Orleans Children's Hospital, where he removed the magnets in a two-hour operation.

In the months that followed, Noel witnessed two more cases at the hospital. One was Braylon Jordan, who had swallowed eight magnets (not Buckyballs). The damage was so severe that the boy had all but about 5 inches of his small intestine removed--requiring him to eat through a chest tube and use a colostomy bag for the rest of his life. Alarmed, Noel emailed other pediatric gastroenterologists, asking if they were seeing similar incidents. More than 30 other doctors said they had. Something had to be done about this. In June 2012, a group of 14 doctors went to Bethesda to urge the CPSC to stop the sale of these magnets, and then to Capitol Hill to lobby their representatives. A handful of senators, including Robert Menendez of New Jersey, Sherrod Brown of Ohio, and Kirsten Gillibrand of New York, wrote letters to the CPSC, urging the agency to take action.

"Buckyball sets were becoming a hot holiday gift. Unfortunately, some wound up in children's stockings."

The CPSC staff was determined to do something. It wouldn't wait until a child died--not this time. The problem for the CPSC was that there was no rule that Maxfield & Oberton was violating, exactly. The magnet standards applied only to children's products. And there were no incidents involving the product's intended audience, adults.

The agency had one nuclear option, reserved since the '70s: It could declare an "imminent hazard" and file an injunction to stop sales. It had almost never used that power, and with so few Buckyball incidents, it might be hard to prove in court why it was necessary now. One thing was sure: Any effective action against magnets had to include Maxfield & Oberton, which had a70 percent share of the market.

By July 2012, the CPSC staff had devised a plan: It would target Buckyballs' warning labels. Incidents had increased despite Zucker's enhanced warnings. Once adults removed the magnets from the box, the warnings were no longer visible. And the shiny balls were incredibly attractive to toddlers and older kids. Therefore, the warnings were defective, the agency's lawyers argued. Because there was no way to put warnings on the small metal balls themselves, Zucker should recall the product completely.

The agency sent letters to Maxfield & Oberton and a dozen of its competitors, saying it had determined that small magnets could pose a "substantial product hazard" (a couple of grades down from "imminent") and demanding a plan to remove them from the market. Two days later, Schoem wrote a detailed response disagreeing with the assessment. The next day, he received an email from the agency. So, was Maxfield & Oberton going to stop selling Buckyballs or not? No, Schoem responded.

The CPSC immediately launched its next phase of its attack: It wrote to several retailers that sold Buckyballs, requesting that they voluntarily stop selling small magnets. The letters were framed as requests for information and were careful not to name a manufacturer or brand (doing so would have violated regulations). But the retailers just happened to be Maxfield & Oberton's biggest clients. And Buckyballs was the only brand of magnets many of them sold.

Maxfield & Oberton's phones started ringing off the hook. "Retailers were scared," says Bethel Costello, who managed the company's retail accounts. Many thought the letter meant it was no longer legal to sell the magnets. (At Maxfield & Oberton's request, the CPSC sent a follow-up letter clarifying that selling the magnetic balls was still technically legal--"although your willingness to stop sales voluntarily pending resolution of the matter helps us to safeguard children," it read.) On July 25, the CPSC filed a lawsuit against Maxfield & Oberton. The agency also sued Zen Magnets, a smaller competitor. The 11 other companies agreed to stop selling magnets.

The problem with suing a man who built a multimillion-dollar business using ball jokes is that he fights back like a smart-ass, too. Zucker and his eight employees quickly launched a publicity campaign called Save Our Balls. They bought a full-page ad in The Washington Post. They posted silly caricatures of the commissioners and Scott Wolfson online, along with their phone numbers and email addresses. They launched a site called Ban This Next, encouraging the CPSC to ban things that killed more Americans than Buckyballs every year, such as hot dogs ("delicious but deadly") and falling coconuts ("tasty fruit or deadly sky ballistics?"). Zucker offered to donate $10,000 to the Red Cross if Scott Wolfson would debate him on CNN. Next, he offered to donate the $10,000 if Wolfson would just arm-wrestle him. The stunts got the company a lot of press--CNBC, Fox News, The New York Times, and this magazine all ran stories.

All the while, Maxfield & Oberton tried to sell as many Buckyballs as possible. It had a glut of inventory for the holiday season--some 300,000 units--and since the CPSC letters, almost no retailers to sell it. So, as Christmas Day grew closer, Maxfield & Oberton held a closeout sale to end all closeout sales: BUCKYPOCALYPSE! read the banner on its website, alongside a countdown clock.

Offering discounts and promotions, Maxfield & Oberton managed to sell almost everything by Christmas, and Zucker closed up shop. He paid his staff members bonuses and their last paychecks and officially dissolved the company. Days later, his lawyers filed a motion to withdraw from the CPSC's lawsuit because Maxfield & Oberton no longer existed. Then Zucker took off with his girlfriend for a six-week vacation in Thailand.

Zucker says his campaign was in keeping with the Buckyball brand--a fun way to stand up for his company's rights. To others, it looked like a reckless entrepreneur flooding the market with dangerous products, joking about it, and then skipping town. After Zucker got back from vacation in February, he was personally added to the CPSC's lawsuit.

Wolfson, the CPSC spokesperson, says the decision to add Zucker was not vindictive but a necessary next step. "He dissolved Maxfield & Oberton," Wolfson says, and so the government needed to hold someone responsible for a recall. "We look at the domino effect, to who was still standing," he says. "We made a decision as an agency not to walk away from this case."

"It's a sort of tyranny. It's like 'Oh, yeah, you may have these legal remedies or rights, but by God, if you exercise 'em, you'll pay a penalty."

But product-safety lawyers see glaring problems with the CPSC's case, which is now in the middle of discovery. First, it could be hard to show that Buckyballs' warning labels were insufficient--plenty of adults-only products use warning labels, after all, and the agency itself approved Buckyballs' warnings back in 2010. Plus, adding Zucker personally in a case like this was unusual, if not unprecedented. It may not have even been legal, given that there wasn't a commission vote.

"This is a really hard case to prove," says Gidding, the product-safety lawyer. "If you're saying a product intended for adults can hurt children because it's too attractive for them, where does it end? Is the agency now saying that warnings aren't any good?"

Zucker has since become a cause célèbre in libertarian and conservative circles. And more than 2,000 letters have poured in to the CPSC supporting Buckyballs and its competitors. Last fall, government-accountability nonprofit Cause of Action helped Zucker countersue the CPSC in Maryland federal court. Zucker began selling those chestnut-size Liberty Balls as a way of generating income to support his legal fees. He positions buying the balls (which are too big to swallow) as a way to assert American freedom. So far, he has sold $250,000 worth, which is just 10 percent of what he has already spent on legal fees, he says. And how much money did he make from Buckyballs? Zucker claims that he and Bronstein ended up with less than $5 million each, before taxes. "You know who got the largest benefit from Buckyballs?" says Zucker. "The federal government."

In the meantime, the CPSC has proposed a rule to ban all small, high-powered magnets. And the agency continues to take a more aggressive approach toward product safety. The acting chairman, Robert Adler, has been encouraging staff members to hunt down products they think are dangerous before incidents pile up. "More proactive is the term I use," says Adler. "If you have a product that's new to the market, we should be able to say it's something we should be addressing." The agency is also becoming more adversarial toward business. In November, the commission proposed tough new guidelines for voluntary recalls that would make agreements legally binding and sometimes require companies to implement federally monitored safety programs afterward. Worst of all for businesses, it would remove some long-held liability protections for participating companies. The agency still won't be able to mention brands by name without permission or a lawsuit, but this, too, is something Adler wants to get rid of.

Adler declined to comment on Buckyballs. But speaking generally, he boiled down his philosophy on lawsuits to a troubling phrase: "Even if we win, we lose. And even if we lose, we win." The first sentence means that CPSC litigates as a last resort, because lawsuits are costly and time-consuming. The second sentence is a bit more sinister: "We win," he says, "because this company is going to suffer terribly adverse publicity for years. They will take a hit not just to the product at issue but to the overall product line." In other words, disagree with the CPSC and face the consequences.

"To me, it's a sort of tyranny," says Anne Northup, a Republican commissioner at the CPSC until 2013. "It's like, 'Oh, yeah, you may have these legal remedies or rights, but by God, if you exercise 'em, you'll pay a penalty,' " she says. Back in 2012, Northup voted to sue Maxfield & Oberton--she believed Buckyballs posed enough of a hazard that the case should be heard in court. But she says she doesn't approve of how the agency has pursued Zucker since.

It comes down to this: Every time a new product like Buckyballs arrives, a decision must be made. Do we keep this new thing and warn against the dangers--like we do with balloons, trampolines, and plastic bags? Or do we banish it? The CPSC exists to make this decision. But how should this judgment be carried out? And what should happen to the entrepreneur who introduced the new thing?

Over the last few weeks of 2013, attorneys representing Zucker and the CPSC met to discuss a settlement, but the talks fell apart. Zucker declined to comment on the negotiations specifically but says he won't agree to any settlement that doesn't "include language respecting the corporate form and limited liability of individuals"--in other words, that doesn't release him from personal liability. He needs that to avoid personal-injury suits. (There's already one suit looming.) However, Adler has said that holding someone liable is what the agency demands in cases like this (again, he declined to comment on Buckyballs specifically): "If we litigate a case, the court is going to find liability. That's one of the inducements for companies to reach voluntary recalls with us instead."

In effect, the CPSC won't agree to a settlement unless it ruins Zucker and makes an example of him for other entrepreneurs to see.

Is that what he deserves? Well, the following is true: Craig Zucker profited from products that hurt children. When regulators asked him to stop, he mocked them and sold more. He has shown little contrition or sympathy for the children hurt by Buckyballs. Rather, he is quick to pity himself.

But these things are also true: Craig Zucker followed the law. He sold a product that adults loved, and he looked for ways to keep children safe--first through warnings, then limited sales, even a magnet-safety website. He sought guidance from and complied with the CPSC--that is, until the agency attacked his business. Then, he tried to defend himself in court and with free speech.

Now, every day Zucker wakes up, and there are no Buckyballs in sight. Yet he's still trapped in his bad dream. It's a chilling reminder for entrepreneurs who hope to sell the Next Big Thing.

 

Update: On May 9, 2014, Craig Zucker settled with the CPSC. Zucker will pay $375,000 to fund a recall and has been released from personal liability for injuries caused by Buckyballs. Click here for more details about the settlement.

 

IMAGES: Courtesy Company, Ryan Pfluger, KPTV Fox 12 Oregon
From the March 2014 issue of Inc. magazine

BURT HELM | Staff Writer | Senior Writer

Burt Helm is a senior writer for Inc. magazine.




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