"Feds file suit against Buckyballs; retailers ban product."

Craig Zucker was shocked when he read that headline in USA Today in July. His company, Maxfield & Oberton, owed its success to Buckyballs. Now it was being sued by the Consumer Product Safety Commission, or CPSC, which claimed magnetic toys like Buckyballs posed a health risk to children, hundreds of whom had been injured after swallowing them. The agency was seeking to bar the sale of Buckyballs and similar products. Zucker had been working for some time to address the commission's concerns without having to go through a recall. But that, it seemed, wasn't enough to satisfy the CPSC.

1. The backstory

In 2009, Zucker and his friend Jake Bronstein happened to see a video of people making unusual geometric shapes out of small rare-earth magnets. Zucker suggested that they sell magnet sets as a desk toy. They sourced the magnets from a Chinese manufacturer, and that March, Buckyballs were born. The tiny magnetic balls came in packs of 125 or 216, for $25 to $40, and were a big hit out of the gate. Rolling Stone named Buckyballs Toy of the Year in its holiday gift guide. In 2011, the company launched another product, Buckycubes. As distribution expanded to stores such as Urban Outfitters and Brookstone, annual sales hit $18 million.

The CPSC first came calling in March 2010. New regulations required that all makers of toys for kids 13 and older change the suitable age range to 14 and older. The company immediately complied. It also added safety warnings, recalled all products with the old labeling, and stopped selling its products in children's stores. Plus, it submitted reports to the agency about two incidents in which children had swallowed the magnets.

The following fall, the company worked with the CPSC to produce a video warning that high-powered magnet sets were unsuitable for children. A year later, Zucker launched an informational website for parents and established a safety program for retailers to ensure that Maxfield & Oberton's products were not sold to underage customers.

2. The problem

In May 2012, Maxfield & Oberton received an information request from the CPSC, asking for a list of its retailers, copies of its marketing materials, and a list of any known safety incidents involving its products. Again, Zucker complied. A few weeks later, he received a letter from the agency demanding that he recall Buckyballs and Buckycubes.

Because of their high magnetic flux, rare-earth magnets can cause severe internal injury if swallowed; two magnets attracted to each other can cause blockages, or worse, in the intestines. Children were highly attracted to the shiny magnets, the CPSC argued, and it was easy for stray magnets that had fallen on the floor to end up within their reach. The agency estimated that since 2009, 1,700 children had swallowed magnets. More than 20 children had required surgery; in one case, a 23-month-old boy required a bowel transplant. Warnings, the commission argued, simply weren't enough. "It's necessary to take stronger action to keep children safe," says Scott Wolfson, the CPSC's director of communications.

The agency contacted Maxfield & Oberton's major retailers, informing them of its investigation and suggesting they remove Buckyballs and Buckycubes from their shelves. Urban Outfitters, Brookstone, and Amazon, among others, complied.

Zucker, however, insisted that there was nothing wrong with his company's products, which were strictly marketed to adults only. The notion that warnings were ineffective in preventing injury seemed to him to contradict the CPSC's usual approach to safety hazards. "The rate of incident for Buckyballs, compared to so many other products--such as fireworks and balloons--is astoundingly low," he says. On July 24, he sent the CPSC an alternative plan of action, including proposals to sell the products in a child-resistant carrying case, create more educational programs, and add enhanced warnings on the company's labels.

The next day, Zucker read in USA Today that the CPSC had filed suit against his company--the first time in 11 years the commission had sued to force a company to stop selling its products. Zucker was blindsided. He had recently announced two new products, Buckybars and Bucky Bigs, neither of which had hit stores. The company was on track to close 2012 with $25 million in sales. Now its survival was at stake.

3. The decision

Zucker's first move was to reach out to his retailers, many of whom were confused about whether they could legally sell the products. Zucker assured them that they could. "It's a well-designed product," says Alan Ceppos, owner of the New York City chain Pylones. "It's too bad to see the government trying to squash them."

Zucker knew his company would need a strong legal defense, but he also recognized the importance of public opinion. With the help of a PR agency, Zucker and his marketing team began crafting a campaign. Their slogan: "Save Our Balls."

On July 27, the company posted a video explaining the situation on its website. Customers were urged to contact the CPSC and to support the company by leaving comments on Facebook and Twitter. On August 2, Zucker ran an open letter to President Obama in The Washington Post. "We do not understand why our products have suddenly been raised to the very top of the CPSC's action list," the letter said. "It feels unfair, unjust, and, well, un-American."

One commissioner received more than 1,000 letters, calls, and emails; thousands more people voiced support online. Zucker appeared on Fox News and Rush Limbaugh's show. Politicians also weighed in. Representative Charles Rangel of New York sent a letter to the CPSC in support of Maxfield & Oberton, and Representative Marsha Blackburn of Tennessee questioned the suit during a subcommittee hearing.

4. The aftermath

The CPSC has yet to set a date for a hearing. Eleven other marketers of rare-earth magnets agreed to the recall. "We're just as concerned with public safety as they are," says Tim Szeto, co-founder of Toronto-based Nano Magnetics. "We are trying to save our industry." Meanwhile, Australian regulators have proposed a ban, and Canada is investigating the products.

Maxfield & Oberton's PR campaign appears to have been successful. In the four weeks after the suit was filed, online sales soared 2,700 percent over the same period in 2011. And Zucker says history may be on his side. Daisy Manufacturing, a BB-gun maker that was the last company sued by the CPSC, 11 years ago, ultimately settled by pledging to fund a safety education campaign--the same approach Zucker advocates.

The Experts Weigh In

Change the product, quickly

"If the word gets out that a product, even if it's not intended for kids, has resulted in a bunch of surgeries...you don't come back from that very easily. Even if the product is basically safe and is just getting a bad rap, the company needs to fix the cosmetics of the issue by finding a way to make Buckyballs impossible, or at least vastly more difficult, to swallow. I also would rename the product; call it Buckyballs 2 or something. But Buckyballs without a fix? Maybe Zucker will win the legal battle, but they'll wind up on the bottom shelf of the stupid adult-toys section."

—James MacGregor, vice chairman, Abernathy MacGregor Group, New York City

A settlement is unlikely

"There's no graceful way to resolve this issue right now. You never make points by poking a stick in the eye of the person you're approaching, and the Consumer Product Safety Commission gets pissy if you badmouth it in the press. It's highly unlikely that the agency will offer to settle the case in any way that lets the company stay in business--at least if Maxfield & Oberton continues to make Buckyballs the same way it always has. If Zucker doesn't somehow change the product or go out of business, the company will have to litigate this to the end."

—Michael J. Gidding, principal, Gidding Law, Bethesda, Maryland

You can't fight City Hall

"We spent more than $1 million suing the CPSC when it fined us. In the end, the government did what the government felt was best. Zucker would be well advised to spend his money working with the government. Get together with competitors and start an organization to develop safety standards. Get your congressman involved. In the end, regulators don't want the public questioning why they didn't take action if something bad happens. You need to develop a standard that keeps you in the market. And keeps your industry safe."

—Greg Shelton, owner, Shelton Fireworks, Eagleville, Missouri