http://online.wsj.com/article/SB1000142 ... 08428.html'So this is what starting over looks like. I have a seven-by-seven space with two little desks in it."
Craig Zucker is remarkably good-humored, considering what he's been through over the past year—and the tribulations that lie ahead. He's referring to his office, rented month-to-month in a dilapidated building in a dusty corner of Brooklyn. There is construction all around, graffiti on the brick walls, and unfinished doors and windows.
It's a long way from the Soho digs the 34-year-old used to occupy. Mr. Zucker is the former CEO of Maxfield & Oberton, the small company behind Buckyballs, an office toy that became an Internet sensation in 2009 and went on to sell millions of units before it was banned by the feds last year.
Related Video
Assistant books editor Sohrab Ahmari on how the Consumer Products Safety Commission is destroying a magnet product called “Buckyballs.” Photos: Associated Press
A self-described "serial entrepreneur," Mr. Zucker looks the part with tussled black hair, a scraggly beard and hipster jeans. Yet his casual-Friday outfit does little to subdue his air of ambition and hustle.
Nowadays Mr. Zucker spends most of his waking hours fighting off a vindictive U.S. Consumer Product Safety Commission that has set out to punish him for having challenged its regulatory overreach. The outcome of the battle has ramifications far beyond a magnetic toy designed for bored office workers. It implicates bedrock American notions of consumer choice, personal responsibility and limited liability.
It all began while the Ohio native was wrapping up his previous venture, Tap'd NY, "a bottled water company that was purifying New York City tap water and selling it to New Yorkers as the local, honest bottled-water alternative." You read that right: Mr. Zucker persuaded New Yorkers to pay for rebranded tap water.
Jake Bronstein, Mr. Zucker's marketing director at Tap'd NY, was at the time the proprietor of a blog called Zoomdoggle. "He would produce eight posts a day," Mr. Zucker recalls, "one for each hour of the workday: games, jokes, adult fun. What Jake wanted to do was to find a product that would fit perfectly with that audience."
The answer came in the form of neodymium magnets. These small, powerful rare-earth magnets can be stacked like Legos, stretched and used to make infinite shapes. Maxfield & Oberton, the company Messrs. Zucker and Bronstein eventually formed, packaged the magnets and called them "Buckyballs," after the American architect and futurist Buckminster Fuller.
"In March of 2009, we ordered 100 sets of magnets from China. We literally put our last $1,000 each in the business," Mr. Zucker says. At first the company filled a few hundred orders a day on its own website. But then Buckyballs made their way into the blogosphere. "Then very, very quickly other websites were calling to buy the product and resell it. We realized we had a really great brand."
In August 2009, Maxfield & Oberton demonstrated Buckyballs at the New York Gift Show; 600 stores signed up to sell the product. By 2010, the company had built a distribution network of 1,500 stores, including major retailers like Urban Outfitters and Brookstone. People magazine in 2011 named Buckyballs one of the five hottest trends of the year, and in 2012 it made the cover of Brookstone's catalog.
Maxfield & Oberton now had 10 employees, 150 sales representatives and a distribution network of 5,000 stores. Sales had reached $10 million a year. "Then," says Mr. Zucker, "we crashed."
On July 10, 2012, the Consumer Product Safety Commission instructed Maxfield & Oberton to file a "corrective-action plan" within two weeks or face an administrative suit related to Buckyballs' alleged safety defects. Around the same time—and before Maxfield & Oberton had a chance to tell its side of the story—the commission sent letters to some of Maxfield & Oberton's retail partners, including Brookstone, warning of the "severity of the risk of injury and death possibly posed by" Buckyballs and requesting them to "voluntarily stop selling" the product.
It was an underhanded move, as Maxfield & Oberton and its lawyers saw it. "Very, very quickly those 5,000 retailers became zero," says Mr. Zucker. The preliminary letters, and others sent after the complaint, made it clear that selling Buckyballs was still considered lawful pending adjudication. "But if you're a store like Brookstone or Urban Outfitters . . . you're bullied into it. You don't want problems."
As for the corrective-action plan, it was submitted at 4 p.m. on the July 24 deadline. Yet the very next morning the commission filed an administrative lawsuit against Maxfield & Oberton, suggesting the company's plan was never seriously considered.
The commission alleged that Buckyballs pose substantial hazards, which no remedy short of a full recall could address. Buckyballs, the commission said, "pose a risk of magnet ingestion by children below the age of 14, who may . . . place single or numerous magnets in their mouth."
Although no deaths have been associated with Buckyballs, the commission alleged that "numerous incidents involving ingestion by children under the age of 14 have occurred," including a 3-year-old who swallowed Buckyballs attached to her home refrigerator and a 4-year-old who ingested Buckyballs used to decorate his mother's wedding cake. These were troubling cases. But considering the thousands of other potentially dangerous products purchased everyday, it's hard to blame them on an inherent defect in Buckyballs.
"When used as intended there's never been an incident involving someone over the age of 14," Mr. Zucker says. "Like any other product in your house, if it's used in an unintended way by an unintended consumer, it of course has the ability to create an injury. Take household cleaners, knives, power tools, detergent pods. Or take balloons, which are actually intended for children and create deaths every few years. So we didn't see how the product, when used as intended—following the warnings, following the safety program—could be defective."
Buckyballs' initial conception and subsequent marketing, Mr. Zucker says, shows they were never intended for children. "We were in the lexicon of popular culture," he says. "And if you look back at this press, it was very clearly targeted at the adult community. It was in People magazine, in Real Simple magazine—it was never in Parenting magazine saying they're great for children."
Mr. Zucker and his colleagues were particularly appalled by the commission's claims, given that the warnings and safety programs they used were developed in collaboration with commission staff.
Initially the product was labeled "13+," since the relevant statute at the time defined "children's products" as intended for children 12 and under. But when a voluntary industry practice defining "toys" as intended for children 14 and under became the legal standard, Maxfield & Oberton conducted a voluntary recall: In spring 2010, any consumer who had purchased Buckyballs labeled "13+" was offered a refund. Of over 175,000 units sold, fewer than 50 were returned by consumers.
Stores also received packaging with aggressive new warnings. "Keep away from all children!" the label said. "Do not put in nose or mouth. Swallowed magnets can stick to intestines causing serious injury or death. Seek immediate medical attention if magnets are swallowed or inhaled."
"Maxfield & Oberton had a comprehensive safety program that included not just warnings but a way to restrict sales to stores that were exclusively or primarily selling children's products," Mr. Zucker says. "Toys 'R' Us didn't qualify. They wanted Buckyballs for their brick-and-mortar stores, but we wouldn't even take a call from them."
To enter into a sales agreement, retailers were required to complete a safety questionnaire and commit to a Buckyballs Responsible Seller Agreement. "When Maxfield & Oberton did that initial recall, 600 stores didn't pass the test, and the company paid to bring the product back."
Nonetheless, the commission pressed ahead with its war on Buckyballs. Most infuriating was the commission's argument that a total recall was justified because Buckyballs have "low utility to consumers" and "are not necessary to consumers."
"Two and a half million adults spent $30 on a product," Mr. Zucker says. "This wasn't a $5 impulse buy. This was a product that American adults thought had value and wanted it. It's not the government's place to say what has value and what doesn't in a free society."
Maxfield & Oberton resolved to take to the public square. On July 27, just two days after the commission filed suit, the company launched a publicity campaign to rally customers and spotlight the commission's nanny-state excesses. The campaign's tagline? "Save Our Balls."
Online ads pointed out how, under the commission's reasoning, everything from coconuts ("tasty fruit or deadly sky ballistic?") to stairways ("are they really worth the risk?") to hot dogs ("delicious but deadly") could be banned. Commission staff were challenged to debate Mr. Zucker, and consumers were invited to call Commissioner Inez Tenenbaum's "psychic hotline" to find out how it was that "the vote to sue our company was presented to the Commissioners on July 23rd, a day before our Corrective Action Plan was to be submitted."
"It was a very successful campaign," says Mr. Zucker, "just not successful enough to keep us in business." On Dec. 27, 2012, the company filed a certificate of cancellation with the State of Delaware, where Maxfield & Oberton was incorporated, and the company was dissolved.
"The inventory was sold and the business ended," says Mr. Zucker. He thought it was an "honest and graceful exit" to a broken entrepreneurial dream.
But in February the Buckyballs saga took a chilling turn: The commission filed a motion requesting that Mr. Zucker be held personally liable for the costs of the recall, which it estimated at $57 million, if the product was ultimately determined to be defective.
This was an astounding departure from the principle of limited liability at the heart of U.S. corporate law. Normally corporate officers aren't liable for the obligations of a company, and courts are loath to pierce the shield of limited liability unless it can be shown that the corporate entity was a mere facade—that corporate formalities weren't adhered to, the officers commingled personal and corporate funds, and so on.
No such allegations were made against Mr. Zucker. Instead, the commission seeks to extend the holding of United States v. Park, a 1975 Supreme Court case in which the CEO of a food retailer was held criminally liable under the Food and Drug Act for rodent infestation at company warehouses. The CEO, the court ruled, was the "responsible corporate officer" by virtue of being in a position of authority when the health violations occurred.
But in a subsequent case, Meyer v. Holley (2003), the justices clarified that ordinary rules of liability apply unless there is clear congressional intent in the pertinent statute to hold individual officers liable. The statute in Park did include an individual-liability provision. But the relevant law in the Buckyballs case, Section 15 of the Consumer Product Safety Act, regulates the conduct of manufacturers, distributors, retailers and importers as corporate persons, suggesting Congress didn't intend to hold officers liable for recalls when there is a proper corporate entity in place. There is also no question of a criminal violation in Mr. Zucker's case.
Says Mr. Zucker: "The commission's saying that because as CEO I did my duty—didn't violate any law, was completely lawful—I am now the manufacturer individually responsible." Shockingly, the administrative-law judge hearing the case bought the commission's argument, meaning Mr. Zucker will have to defend himself in the Maxfield & Oberton recall case to its conclusion at the administrative level before he can challenge the individual-liability holding on appeal.
Given the fact that Buckyballs have now long been off the market, the attempt to go after Mr. Zucker personally raises the question of retaliation for his public campaign against the commission. Mr. Zucker won't speculate about the commission's motives. "It's very selective and very aggressive," he says. "If you want to ask if this is some sort of reprisal, well, they don't need Craig Zucker anymore."
Mr. Zucker says his treatment at the hands of the commission should alarm fellow entrepreneurs: "This is the beginning. It starts with this case. If you play out what happens to me, then the next thing you'll have is personal-injury lawyers saying 'you conducted the actions of the company, you were the company.' "
And if the commission's reasoning on Buckyballs were to stand, "you won't have a free market anymore—you end up with a place where adults aren't choosing which products they can own."
Mr. Ahmari is an assistant books editor at the Journal.
Login
Register
FAQ
Search
