Archive for the 'magnets' Category

Fighting the Magnet Wars

 

This morning I watched the oral arguments before the CPSC in the staff appeal of the ALJ’s decision in the Zen Magnets case.  I felt as if I was watching World War One trench warfare in modern dress.  And like trench warfare where the combatants refuse to give an inch, insisting on holding their positions, what we saw this morning was both wasteful and futile, made worse by a predetermined outcome.

To recap, this morning’s exercise was the latest in the long running battle between the CPSC and Zen Magnets which sells small rare earth magnets (“SREMs”).  The agency argues that the magnets are defective because small children can ingest them with resulting severe injuries.  In addition, the agency argues that the magnets are “toys” and violate the toy safety standard which prescribes how powerful magnets used in toys can be.  The agency brought an administrative action to recall the magnets but the administrative law judge who heard the case did not buy the CPSC’s arguments. Instead, he found that the magnets were not defective when accompanied with proper warnings and age restrictions and that the toy standard does not apply to such magnets. The agency staff does not accept this determination and instead appealed it to the Commission—the same body that voted to bring the administrative action in the first place.  I have not found even one person who believes that a majority of the Commissioners will not vote to overturn the ALJ’s decision and order a recall.  At that point, the order will be final agency action and ripe for judicial review.

The ALJ’s decision is not the only skirmish on this subject that the agency has lost.  At the end of last year, the Tenth Circuit U.S. Court of Appeals overturned a federal safety standard issued by the Commission which effectively banned the sale of SREMs by restricting the permissible strength and size of the magnets. The court found that the agency failed to properly address the degree of the risk posed by the product and also the utility of the product.  As a result of these shortcomings, the court overturned the rule. A majority of the Commissioners have now voted to re-propose the rule to correct the deficiencies identified by the court—in other words, beef up the record but still ban the product.

Today’s hearing covered a lot of ground.  For example, even though the agency put incident data into the administrative record, the staff sidestepped shortcomings found in the data (since the incidents could not be attributed to Zen), indicating that no injuries or incidents are needed to support a defect finding.  There was a great deal of discussion about the role of consumer misuse, and the adequacy of warnings and labels.  The Commission asked about the applicability of the toy standard to a general use product

While this all may be interesting to students of martial arts or administrative law, what should be of concern is that consumer safety has gotten lost in these protracted battles—and this must be laid at the doorstep of the agency.  Putting Zen Magnets out of business—which seems to be the objective of the exercise—will not stop SREMs from getting into the hands of consumers.  By shutting down the remaining U.S. company that has aggressive warnings and marketing practices that minimize children’s exposure to the product, the agency leaves the field open to the many other companies, based outside the U.S., that are now selling the product without warnings—and without any interference from the CPSC.

If the agency had spent the resources that it has devoted to this case to looking at what is now going on in the market, rather than seeking to stop the leading proponent of safe and responsible magnet use and who is seeking to bring better safety awareness to the industry, it would be fulfilling its safety mission.  If the agency had accepted the many offers that have been made to educate the public on magnet safety, it would be fulfilling its safety mission.  Instead, it just feels like the agency is fighting a grudge match—what a waste!

The futility of the agency’s position is also maddening.  The magnet recalls that have been done resulted in a dismal return rate.  In other words, the public likes the product—not just because it is very cool but also because it has high utility as an educational, creative and artistic product. While the agency discounts these uses, the public does not.  What the agency has not done and refuses to do is consider whether there are any ways to reconfigure the packaging, beef up the warnings, put in place marketing restrictions, and engage in education efforts so that the public can have access to the product with safety considerations part of the equation. It has done this with other products that present much greater risks to children—button batteries, for example. However, this would require the agency to get out of the trenches and this it refuses to do.  So the magnet wars continue into the future and real consumer safety is the main casualty.

 

 

 

 

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Court to CPSC: Your Magnet Rule’s a Turkey

Zen Magnets, the tiny Colorado company that has challenged the CPSC’s actions turkeyregulating small, powerful magnets, will be having a very good Thanksgiving this year.  That is because, once again, Zen has shown that it is possible to fight the federal government and win.  Today the United States Court of Appeals for the Tenth Circuit ruled that the CPSC’s safety standard banning the magnets sold by Zen did not withstand judicial scrutiny.  The court told the agency that if it wanted to regulate magnets it needed to follow the requirements of the Consumer Product Safety Act, and that it should go back to the drawing board and rethink its justifications for the rule.

The CPSA requires that the agency do a cost-benefit analysis and make findings that identify the nature and degree of the risk of injury weighted against the public’s need for the product and then regulate in the least burdensome manner possible.  The Court found that the agency’s analysis was deficient.  The court found that the agency overstated the number on injuries and neglected to consider the public utility of many of the uses of the product.  In other words, the statutory requirement to weight the costs and benefits of a proposed action is a critical part of regulating.  My experience in the last several years of my term as a CPSC Commissioner was that this statutory requirement was seen as an annoyance rather than as a tool for informed decision-making.  Perhaps the Tenth Circuit’s decision will change the agency’s approach to using this statutory tool.

The agency’s approach to regulating magnets has been characterized by an “ends justifies means” mind-set.  The agency worked to cut off the ability to sell the magnets through retail channels by “asking” retailers to stop selling the product.  The agency sought to recall the product, knowing that consumers would not respond to the recall but also knowing that this device could stop further sales.  The agency sued those few distributors who had the fortitude to challenge the agency’s action.  The one company that has stayed the course is Zen, and its success rate has been quite remarkable.  The administrative law judge that heard the recall action ruled in Zen’s favor.  Now an appellate court has found that the rule the agency issued to ban future sales of the product is defective because it blew by statutory requirements that provide for balanced decision-making.

Zen is like a little Yorkie terrier that has grabbed ahold of the ankle of the CPSC and will not let go.  Yet, through its determination to challenge what it believes is over-reach by the federal government, it has forced the agency to reexamine its approach to a serious issue.  It may be that, through Zen’s actions, the CPSC will come to understand that it can protect consumer safety without disregarding basic notions of due process.  What a good Thanksgiving that would be.

Such a Tiny Product; Such a Large Issue

On a recent overseas trip, in one of the trendiest shops in one of the trendiest Western European capitals, I saw a display of tiny spherical rare earth magnets (SREM’s) with signs extolling the coolness of the product.  I almost bought up the entire display but thought about the possibility, when I got back to the States, of CPSC investigators confiscating the whole batch and hauling me off as an importer of deadly banned products.  If only I were kidding.

Remember that, here in the U.S., SREM’s were once a very popular product, intended as an adult desk toy or for making remarkable sculptures and art works.  However, if children swallowed the tiny magnets, they could cause serious internal injury.  Therefore, the CPSC set out to force the product off the market–through a series of recalls aimed at individual importers together with strong pressure on retailers not to sell the product. The agency also issued a rule banning the sale of tiny powerful magnets when used as a manipulative.  Only one company—little Zen Magnets in Boulder, CO, whose CEO is not yet 30 years old—refused to knuckle under and decided to fight the government.

This past weekend, in a battle of David v. Goliath proportions, Zen finally got a win.  Here’s what happened.  When Zen refused to voluntarily recall the SREM’s he was importing and selling, the CPSC filed a lawsuit to force a mandatory recall.  A trial was held before an Administrative Law Judge (ALJ) to determine if the magnets, when sold, were defective and constituted a substantial product hazard and therefore must be recalled. After a long trial and much deliberation, the ALJ found what most of us, except the CPSC, already knew:  that ingesting SREM’s can create a risk of injury but that proper use of the magnets pose no threat and that, when sold with appropriate warnings and proper age recommendations, the magnets do not pose a substantial product hazard.  The ALJ rejected the agency’s argument that warnings cannot be effective because the spheres can become separated.  He also rejected the agency argument that the product was so inherently dangerous to children that proper use by adults must give way.  Significantly, this is the first judge to examine the underlying theory of the agency’s actions forcing recalls and he found the agency’s proof to be wanting.

Even though Zen won this battle, it has not won the war. The agency lawyers now have ten days to appeal the ALJ’s decision.  That appeal will be heard and decided by the five members of the CPSC—the same group who voted to sue Zen, who voted to issue the related rule banning the product, and several of whom have made public statements that suggest where they will come out on the appeal.  In other words, Zen doesn’t stand a chance before the Commission.  The Commission’s decision can then be appealed to the appropriate Court of Appeals.   If Zen has the resources and is scrappy enough to continue the fight, it will be a long one indeed.

Solving At Least One Magnet Issue

On a related matter, the Commission has stepped up to address a flaw in its rules governing trials before ALJ’s.  When the agency was trying to force the recall of SREM’s sold under the name “Buckyballs”, and when the company had the “hutzpah” to say “no” to the agency’s demand that it recall its magnet product, the agency voted to sue Buckyballs as well.  After the Commissioners voted to bring the action against the company, the agency staff took it upon itself to expand the complaint to sue the CEO of the company in his personal capacity.  While this case was ultimately settled, the settlement did not address whether the staff acted properly in expanding the complaint without an affirmative vote of the Commission.

The agency is currently updating its rules of practice for adjudicative proceedings and those proposed rules are now out for public comment.  Commissioner Mohorovic was able to get into the proposal – unanimously – an amendment that expressly requires the ALJ to refer to the Commission “any proposed amendment [that] would have the effect of adding or removing any person as a respondent to the complaint or adding or removing any count.” Just in case an ALJ tried to reason in such a way that an amendment that should come to the Commission didn’t actually add a party (by, say, reasoning that the CEO of a company is de facto on the complaint already, so it’s fine to add him by name) and thus could be done without Commission approval, the proposal also creates an interlocutory appeal right for any ruling on an amendment made without a Commission decision.

Admittedly, this language is overly broad since one would not want to capture situations where staff needs to add a DBA, for instance, nor should the agency give an interlocutory appeal for amendments that clearly are within staff’s administrative authority, but, for the handful of times in a decade that the agency actually litigates something, the burden of work from overbreadth seems to be insignificant compared to the risk to Commission authority from being too narrow. The staff’s action with respect to the Buckyballs situation demonstrates the need for this kind of correction.  Since the proposed amendments make a number of other changes to the adjudicative procedures, they should be carefully reviewed and comments provided the agency.

The proposed changes to the agency’s adjudicative proceedings are now out for public comment.  Those who practice before the agency and other interested parties should read them carefully and take the time to comment.  As we have seen from the Zen case, this stuff matters.

Shihan vs Goliath, Addendum

It is nice to know that folks out there read what I write.  When I started this blog I really wanted to have a conversation with people who are impacted by the actions of the CPSC, both positively and otherwise.  In response to my last blog post, I got a response from Shihan Qu, among others, and I thought I would share his comments.

Shihan takes issue with my notion that the magnets rule applies only to magnet sets that are intended to be used as adult desk toys and manipulatives.  He reminds me that the final rule blew a hole through this interpretation when the Commission added the phrase “commonly used” to the definition of magnet set.  The definition states “magnets sets are aggregations of separable magnetic objects that are marketed or commonly used as a manipulative or construction item.”  By expanding the definition this way, all powerful small magnet spheres may well end up within this definition since it is the end user, not the manufacturer, who determines whether the product is regulated or not.  One problem is that US based industrial magnet companies who never considered themselves within the definition may well be in for a nasty surprise if their products fall into the hands of the wrong user.

In response to my observation that magnets are easily available for sale online, Shihan responds, “Indeed you can still purchase magnet spheres easily by searching “neocube” or “buckyball” online. The rest of the companies are based in China, and are not easily targeted by the CPSC like we are. As long as there is demand, there will continue to be suppliers who will provide them. What can the CPSC do about them, if anything?”

Finally, I again emphasize that, in its latest action, the CPSC has targeted Mr. Qu personally, as it did when it went after Craig Zucker, in his individual capacity, in the Buckyballs matter.  It seems that the agency is really prickly when it comes to young entrepreneurs who still think that they can challenge the government.  Oh, when will they grow up?!

However, for those who are not willing to accept the notion that the government is always right, this is a troubling development.  And for CPSC attorneys who represent small companies, best let your clients know that, apparently if you want to fight the CPSC, be prepared to put your entire bank account on the line.

Shihan vs Goliath

As the saga of the magnets ban continues to unfold, last week another chapter was added when the CPSC brought yet another action against Zen Cartoon David and GoliathMagnets, the one company that has refused the CPSC’s demand to do a recall.  But this time the agency sued not only the company but also its young founder, Shihan Qu, in his personal capacity.  The CPSC alleges that Zen purchased, and then illegally resold, the inventory of a competitor, Magnicube, that was negotiating a recall with the CPSC.

The law is pretty clear—it prohibits the sale of a product which a manufacturer (including an importer) has recalled.  However, Mr. Qu argues forcefully in the attached newsletter that the products were totally fungible, one magnet being indistinguishable from another, and it was still legal for him to sell magnets identical to those sold by his competitor.  Mr. Qu argues that Magnicube could have sent its remaining inventory back to the factory in China to be comingled with other identical magnets and then shipped to Zen–a more complex transaction but achieving the same result.

In raising this latest action by the federal government against tiny Zen Magnets, it is not my purpose to argue the merits of the case being brought.  Instead, I raise it because, to me, it poses questions of proportionality and discretion. I have repeatedly expressed my concerns about the agency’s troubling willingness to disregard fair process in an “ends justifies means” mindset, at least with respect to this product.   This latest action seems to smack of a vendetta against the one company that did not give in to the agency’s demands, especially since the issue of whether Zen’s magnets should be recalled is well into the latter stages of litigation and, presumably, will be resolved soon.

The government is no doubt arguing that its latest action is needed to keep products it sincerely believes are unsafe out of the hands of consumers.  However, as noted above, the exact same magnets were easily available to Zen from China at the time so the agency’s action would not accomplish this purpose.   Further, with a ban on prospective sales of these products now going into effect (unless it is overturned by judicial review at some point down the road), consumers seem to be protected.

Recalls—the remedy the agency was originally ostensibly seeking from Zen—have been totally ineffectual in getting this product out of consumers’ hands. (It seems consumers like the product and do not want to hand it over, even for money.)  And remember, in spite of the CPSC’s rule banning magnet sets sold as adult desk toys, it is possible to go online to buy sets of magnets, like those at issue here.  I did so this morning.  As long as they are not advertised as having entertainment value, they can be sold.

I wonder whether this latest action, rather than making the government appear strong, makes it appear vindictive and petty, given the force the federal government can bring against a tiny company that dares to challenge it.  I wonder whether the government could not have advanced whatever safety purpose it had in a less Goliath-like way. I am curious what you think.


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