The Saga of Buckyballs–How Not to Regulate

Today’s Wall Street Journal has an Op Ed I wrote about the CPSC’s actions against Buckyballs and one of its founders, Craig Zucker. While the Op Ed gives you the overview of the controversy, there is a substantial back story that space considerations only allowed me to touch on. Nevertheless, that back story is important and it illustrates how the actions of the CPSC discourage the kind of corporate responsibility that the agency needs to encourage to protect consumers.

Skip the Warning—Just Ban the Product

We all acknowledge the harm that small powerful magnets can cause when several are swallowed. The CPSC is aware of about 50 incidents of swallowed magnets over the past three years and, from this, estimates that there have been approximately 1700 incidents involving these magnets. We also must acknowledge that the harm is only now being recognized by the medical community and that efforts to educate the public have been inadequate.

A number of manufacturers make small powerful magnet desk toys and manipulatives. Buckyballs had the largest share of that market. Even though Buckyballs were not intended for or primarily sold to children, when reports of ingestion started coming in, the company making them, Maxfield and Oberton, stepped up with an aggressive safety education program to warn against the danger of children swallowing powerful magnets. Even though that education program was fully discussed with and encouraged by the agency, the CPSC then demanded a recall and decided to sue the company when it disagreed with its demand—all before the safety education program could be fully put into place. A principle tenet of the agency’s case is that warnings were not sufficient to protect the public. Yet, the only evidence it has to support that contention is its speculative conclusions, since the aggressive safety campaign envisioned by the industry was prematurely shut down by the agency.

I could point to other instances where the agency has worked to encourage public education campaigns to successfully address problems with equally serious injury patterns. In this case, the agency apparently made a decision that warnings would not work and that a recall and product ban were needed before it had the real world evidence to support that conclusion.

Influencing the Process

The lawsuit against Maxfield and Oberton is not the only action the agency is pursuing. Shortly after the agency sued the company, it also started a rulemaking proceeding to ban small powerful magnet desk toys and manipulatives as presenting unreasonable risks. The problem is that the agency in this rule is answering substantially the same question that it is litigating in the Buckyballs case.

Why is this a problem? First, by issuing a rule essentially banning these products before the lawsuit against Maxfield and Oberton is concluded, the agency is determining that the product does in fact present an unreasonable risk of injury. The issue before the judge is whether the product has a defect that presents a hazard. It is naïve to think that the judge will consider this case in a vacuum and that the agency’s determination in the rulemaking proceeding will not have an impact on the litigation. By proceeding with the rule before the law suit is completed, the agency seeks to put too heavy a thumb on the scales.

Second, the commissioners are the venue for appeals coming out of the law suit. When they have already make the ultimate decision that this product should not be on the market, it is questionable about how objective they are thought to be or actually are.

I am not arguing that the CPSC should not protect the public through the rulemaking process. I am arguing that, when it made the decision to bring suit against Buckyballs, it then needed to recognize that procedural fairness comes with that decision. As I stated at the time, both processes conducted simultaneously does not allow for an even playing field.

Legal Gamesmanship that Sacrifices Long-Term Safety

The agency staff’s decision to add Mr. Zucker as a party to the case is a truly pernicious development that, in the long run, may seriously damage the agency’s ability to work with stakeholders to carry out its mission. Working with companies collaboratively to effect voluntary recalls is the foundation of the agency’s success. The CPSC relies on the involvement of senior management to assure that cooperation. To now say that senior management’s involvement, so essential to help protect consumers, could result in mind-blowing penalties imposed personally can only result in destroying the cooperative relationship the agency needs to do its job effectively. It creates the perverse incentive for corporate officers to avoid involvement, hide behind lawyers and shun scrutiny of their safety systems when what is needed is more involvement.

If the agency seeks the involvement of senior corporate managers to help them assure compliance with regulations and then it penalizes them for that same involvement; if business owners have to fear personal financial ruin for making the government prove its case; and if speaking out against government action that is thought to be unfair results in what appears to be a personal vendetta, then we have to wonder about the quality of leadership that allows such results.

Yesterday, Mr. Zucker took the unprecedented step of suing the CPSC. His lawsuit is being financed by the profits of his newest product, “Liberty Balls.” I understand they are selling quite well.