Zen Magnets, LLC won a massive victory against the CPSC on Tuesday, with a 10th Circuit Court of Appeals ruling that the CPSC overstepped its bounds in its crusade against rare earth magnets and overturning the promulgated standard.
The U.S. Consumer Product Safety Commission (“CPSC”) is used to getting its way. When it comes calling, companies, under threat of press release or a lawsuit, generally cave, roll over and do what the agency wants, which is usually a product recall. Few and far between are the companies that push back against the CPSC, and the ones that do so usually fight quietly since the Agency’s proceedings are, for the most part, confidential and are only publicized when there’s an agreement reached. But that all changed back in 2012 when the CPSC began its crusade against rare earth magnets, sold then under brand names like Bucky Balls and Zen Magnets.
For those that haven’t been following this, rare earth magnets are very strong magnets, with a flux index between 400 to 500 kG2mm2. In layman’s terms – they stick together really, really well. This is both a benefit – since it allows for stronger adhesion and therefore more applications – and a potential hazard – if two or more are swallowed, they can bond together in the digestive tract and cause serious injury. Some were being sold as toys for kids, and lacked labeling and warnings. This prompted the CPSC to look into rare earth magnets and after some preliminary research, in May of 2012, the CPSC asked thirteen importers to stop importing and selling them. Ten of the thirteen agreed to the request voluntarily; the remaining three stood their ground and the CPSC filed administrative lawsuits against them in July of 2012. Those cases garnered a good bit of public attention mostly because one importer in particular, Maxfield & Oberton Holdings, LLC (“M&O”), the importer of Bucky Balls, the most well-known brand of rare earth magnets, chose to publicize its fight with a media campaign called “Save Our Balls” which included an online ad campaign, caricatures of the commissioners, and a full-page plea to President Obama in the Washington Post. M&O put up a good fight, but after the CPSC threatened to hold its CEO personally responsible for the $57 million in recall costs, M&O settled the case and walked away.
At the same time the CPSC was suing M&O, it also sued Zen Magnets, LLC, another importer of rare earth magnets. Zen, and its founder Shihan Qu, fought the CPSC with as much vigor as M&O, though without the flash and fanfare of a public media campaign. In March of 2016, Zen quietly won a major victory against the CPSC when the Administrative Law Judge assigned to the matter ruled that the magnets distributed by Zen were not defective under 16 C.F.R. § 1115.4, and specifically, that:
- The Agency failed to prove the existence of a fault, flaw or irregularity in the warnings;
- The agency did not show that a risk of injury occurs as a result of use or operation of the magnets; and
- Proper use of Zen Magnets … creates no exposure to danger whatsoever.
See Decision and Order at 36 (emphasis added).
Displeased with that ruling, the CPSC appealed the ruling ……. to itself, because that’s how these proceedings operate. Zen rightfully moved for the disqualification of the commissioners from hearing their own appeal, and unsurprisingly the commissioners declined to disqualify themselves and denied Zen’s motion entirely, despite the fact that Commissioner Buerkle rightfully pointed out in her dissent that the Commission had no business making a ruling on something when it would be tasked with deciding the appeal of that decision.
Having reached the 10th Circuit Court of Appeals on appeal by Zen on the issue of the CPSC’s rulemaking under the Administrative Procedures Act, it finally obtained a review of the Agency’s actions from a body other than the Agency itself. The 10th Circuit found that the CPSC didn’t have the requisite findings of fact to implement the rule that it did and vacated the product safety rule. Of particular interest were the following findings:
- Of the 86 injury reports on which the CPSC based its product safety evaluation, only nine definitively involved the magnet sets.
- The CPSC’s analysis neglected to address critical ambiguities and complexities in the data … and as a result of those omissions, the Court is unable to ascertain whether the Commission’s findings meet the substantial evidence standard.
- The CPSC deliberately limited the timeframe of its data review to exclude significant market changes triggered by the CPSC’s compliance activities, which included a decrease in magnet-related injuries.
- The CPSC improperly relied upon data, culled by its own improper search techniques, whereby ninety percent (90%) of the incidents relied upon by the Agency in support of its rule only “possibly” involved the subject magnet sets.
- The court rebuked the CPSC for its misuse of emergency room data, indicating “it may not [use the data] in a way that cloaks its findings in ambiguity and imprecision, and consequently hinders judicial review.” Page 19.
- The CPSC completely, and improperly, overlooked the scientific, mathematic and educational usefulness of the magnets in calculating the cost to consumers of removing the products from the market. The CPSC improperly ignored numerous comments from teachers and researchers indicating that they use the magnet sets to model and explain physics, biology and geometry concepts.
Taking all of that, and more, into consideration, the 10th Circuit Court of Appeals overturned the CPSC’s magnet set safety standard and remanded the case back to the CPSC for further proceedings consistent with the ruling. What, exactly, that means for consumers and importers going forward remains to be seen. After all, this is sending the matter back to the exact same people that implemented the rule in the first place, so this is hardly expected to be the end of the line for this fight, but rather a new chapter.
This has been a long and hard-fought battle for Shihan Qu and Zen Magnets, but it is proof positive that you can fight the CPSC and win. This victory should stand as a symbol and a benchmark for what you can accomplish when you stick to your guns and don’t allow yourself to be bullied or bulldozed by a federal agency. Too often companies simply roll over and comply when the CPSC comes knocking, even where they did nothing wrong. Here, Shihan Qu and Zen Magnets refused to accept what was being improperly forced on them, and for that I applaud them. His independent spirit and willingness to fight for what he believes in are the same philosophies that drive my law firm and my practice, and I put that to work for clients in dealings with the CPSC daily. I am happy to take up your cause with the CPSC and don’t shy away from doing so.
Let this be an example to businesses everywhere – don’t be another victim to government agency bullying, stand up and fight for your business!