After almost two years of litigation and a threat of $57 million in penalties, Craig Zucker, the man behind Buckyballs, will have to fork over just $375,000 to recall the little magnetic desk toys--and possibly even less than that.
In the March issue of Inc., I wrote about Zucker's battle with the Consumer Product Safety Commission. After some children were injured by ingesting Buckyballs, the Consumer Product Safety Commission sued Zucker's fast-growing company, Maxfield & Oberton, and later added him personally to the suit--the first administrative action against any entrepreneur by the agency in 11 years. As a result, Maxfield & Oberton went out of business. But Zucker fought back.
On Friday, May 9, the CPSC and Zucker finally settled the case. Under the terms of the agreement, the CPSC released Zucker from any personal liability related to his products and Zucker did not admit that the toys were defective or posed a substantial product hazard. In exchange, Zucker agreed to fund a CPSC-managed recall of Buckyballs, and waive his right to pursue any legal or administrative action against the federal agency related to the toys. The agreement also declared it is now illegal to manufacture, distribute, or sell Buckyballs in the U.S.
"After nearly two years of fighting, it's good to finally have this case behind me," said Zucker in a statement. "My life has been consumed with defending both an overreaching lawsuit and the rights of small business owners." Zucker, who did not return a call for comment, went on to state that he has spent more defending the suit than he will actually pay as part of the settlement.
"From our point of view, this is a win for the safety of children," says Scott Wolfson, spokesperson for the CPSC. Commissioners of the Consumer Product Safety Commission voted 2-1 to settle the case. Only Robert Adler, the agency's acting chairman, voted against the settlement, says Wolfson. (The commissioners' specific statements on the lawsuit itself will be published later this week.)
To fund the recall, Zucker will move $375,000 into an escrow account--enough money to refund less than 1 percent of Buckyballs ever sold. Of that amount, $100,000 will immediately go to a specially formed "recall trust" ($75,000 for publicizing the recall, and $25,000 for refunds). Every time the refund balance is depleted, Zucker will have to wire another $25,000 from the escrow account to the trust. After 12 months, any remaining funds will go back to Zucker.
"We're aware that, with these products, there have been signs of low response rates," says Wolfson (several retailers agreed to voluntarily recall the magnets last year). "We want there to be a strong response, but we're realistic at the same time." In a claim made to the Maxfield & Oberton's liquidating trust, the agency had previously cited a $57 million figure for the recall--the estimated cost of refunding every Buckyball ever sold. That number that was often used in the press to emphasize the magnitude of the case.
Consumers seeking a refund will need to provide at least half of the magnets included in a set and proof of purchase to get all their money back. The CPSC will release further recall instructions in the coming weeks, says Wolfson.
As part of the settlement, a nonprofit advocacy group Cause Of Action, which was helping Zucker pursue a civil lawsuit against the CPSC and its former chairman Inez Tenenbaum, agreed to drop its case. However, it says it will continue to pursue Freedom of Information Act litigation to expose what it claims was "vindictiveness" on the part of the agency against Zucker.
Meanwhile, the CPSC continues to pursue a lawsuits against two other magnet brands, Zen Magnets and Star Networks. It is also currently seeking to ban all small magnet desk sets, saying they are hazardous by nature.