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Advertisers of supplements face outright ban under proposed FTC settlement

Editorial credit: Felix Lipov / Shutterstock.com Federal Trade Commission 2020

For the first time ever in a case brought by the Federal Trade Commission, advertisers of dietary supplements would be barred from the industry under a proposed settlement.

A consent agreement, which is currently subject to public comment, is the culmination of several FTC actions targeting Health Research Laboratories LLC, Whole Body Supplements LLC and its owner Kramer Duhon.

If adopted as a final order, the agreement will ban the two Texas-based companies and Duhon from advertising or selling any dietary supplement. The case arose from an administrative complaint filed in November 2020, which alleged the companies made unsupported claims that their supplements cure, mitigate, prevent or treat medical conditions, including cardiovascular disease and diabetic neuropathy.

Just four months earlier, a federal court denied a motion to hold the defendants in contempt for violating an earlier settlement order with FTC and the state of Maine. FTC had alleged the companies violated an earlier judgment by making unsubstantiated claims that four products cure, treat or mitigate diabetes, diabetic neuropathy, cardiovascular disease, atherosclerosis and hypertension.

In denying the motion, Chief U.S. District Judge Jon D. Levy found a section of the 2018 judgment was “facially ambiguous” and didn’t “clearly and unambiguously” forbid the representations targeted by the government.

FTC’s subsequent administrative complaint alleged the defendants violated provisions of the Federal Trade Commission Act, including making unsubstantiated disease claims. FTC Chair Lina Khan and her three fellow commissioners voted unanimously to accept the proposed consent agreement announced last month.

In addition to the ban on the sale of dietary supplements, other conditions of the proposed settlement bar the two companies and its owner from:

  • Making any disease prevention, reduction of risk, cure, mitigation or treatment claim when advertising, marketing, promoting or offering for sale any product.
  • Making any representation about the health benefits, safety, performance or efficacy of any food or drug, unless the representation is non-misleading, and at the time such representation is made, respondents possess and rely upon competent and reliable scientific evidence that substantiates that the representation is true.
  • Making misrepresentations: (1) That the performance or benefits of any food or drug are scientifically or clinically proven or otherwise established; or (2) about the existence, contents, validity, results, conclusions or interpretations of any test, study or other research.

The respondents must send a letter to customers who purchased the following supplements on or after Jan. 17, 2018: Black Garlic Botanicals, BG18, The Ultimate Heart Formula and Neupathic. The proposed letter specifies the companies and Duhon have been sued by FTC for making misleading claims, and they must stop selling dietary supplements and claiming their products cure, treat, mitigate, prevent or reduce the risk of any disease.

“This order banning the respondents from the supplement industry should put an end to their long history of making baseless claims that their products can treat various diseases,” said Samuel Levine, director of FTC’s Bureau of Consumer Protection, in a March 16 news release. “People with serious health concerns should rely on their health professionals, not advertisements.”

Attorney Joel Reese, who is representing Health Research Laboratories, Whole Body Supplements and Duhon, did not respond to a request for comment.

In a notice published last month in the Federal Register, FTC requested comment by April 22 on the proposed consent agreement. As of Monday, only one public comment had been published with a very generic statement, “[Yes], we need to focus on health.”

FTC answered in the negative when asked for this article whether the agency could point to other administrative or court cases in which a company or individual was banned from the dietary supplement industry.

Reaction on supplement ban from industry attorneys

Attorneys who represent companies in FTC investigations cited other forms of injunctive relief prohibiting entities from participating in certain industry activities, including multi-level marketing.

Donnelly McDowell, a partner with Kelley Drye & Warren LLP, highlighted a statement made in 2018 by then-FTC commissioner Rohit Chopra, who now directs the Consumer Financial Protection Bureau.

Commenting on “repeat offenders” in a six-page memorandum, Chopra wrote FTC should seek monetary relief plus other remedies, “including the dismissal of senior management and board directors, changes to executive compensation, outright bans on adjacent business practices and closure of appropriate business lines.”

Chopra argued, “When the commission orders corrective actions to safeguard against future noncompliance after the first instance of misconduct, and that misconduct is later repeated, we should then consider seeking to ban the firm from engaging in related business practices altogether.”

In 2019, AdvoCare International L.P. and its former CEO, Brian Connolly, agreed to pay $150 million and be banned from the MLM industry to settle FTC charges that the company operated an illegal pyramid scheme.

A recent ban was announced in a case involving the deceptive marketing of oral film strips as effective smoking cessation, weight-loss and sexual-performance aids. An order entered by a federal district court permanently bans two individuals from participating in multi-level marketing, robocalls, negative option sales, and marketing, advertising or selling to consumers thin film strips, according to an FTC news release published March 25.

“The commission’s authority to include appropriate fencing-in relief in its administrative orders to prevent future violations of the FTC Act is well-established,” FTC staff told Natural Products Insider.

The agency referenced a 1965 U.S. Supreme Court decision involving deceptive shaving cream TV commercials.

In FTC v. Colgate-Palmolive Co., then-Supreme Court Chief Justice Earl Warren wrote, “Finally, we find no defect in the provision of the order which prohibits respondents from engaging in similar practices with respect to ‘any product’ they advertise. The propriety of a broad order depends upon the specific circumstances of the case, but the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist.”

Attorney Katie Bond of Lathrop GPM, who represents companies in FTC investigations, described the proposed ban on dietary supplement sales as “draconian” and “extraordinary.” She and other lawyers questioned whether the agency could secure such relief if it was contested in federal court rather than the subject of a settlement.

“The courts have certainly signed off on plenty of things that I think wouldn’t have survived an actual litigation,” Bond said in an interview.

For example, she referenced a 2015 decision involving Pom Wonderful. A federal appeals court in Washington, D.C., held FTC failed to provide adequate justification for requiring at least two randomized, controlled clinical trials as a precondition to making any disease claim. Separately, in response to FTC lawsuits, several companies—including dietary supplement firms—have agreed to the requirement for two clinical trials to make certain claims.

Bond suggested the outright ban on the sale of dietary supplements—if challenged in court—would raise a number of First Amendment issues given that such a sweeping provision would bar even truthful advertising.

FTC addressed the importance of the proposed supplement ban.

“Respondents are parties to a 2018 federal order requiring appropriate substantiation for dietary supplement health claims, and they continued to make unsubstantiated health claims,” FTC staff said in an email to Natural Products Insider. “Given this history, a ban on selling and marketing dietary supplements is appropriate and necessary to prevent further legal violations and injury to consumers.”

The proposed ban was not the only aspect of the case that caught the attention of lawyers who have represented dietary supplement firms in FTC investigations. Bond found it somewhat “troubling” that FTC filed an administrative action, or “forum shopped,” after its request in federal court to hold the defendants in contempt was denied.

FTC officials have demonstrated “a willingness to litigate and lose as long as they eventually are getting the result that they want,” McDowell said in an interview.

Benjamin Mundel is a partner with Sidley Austin LLP, who was part of the legal team that successfully defended Bayer Corp. several years ago against the FTC in a contempt action followed closely by the dietary supplement industry.

“I do think there is an increasing concern that the FTC is using its administrative forum to ‘forum shop’ and avoid independent federal judges from deciding cases,” Mundel remarked. “And obviously in our legal system it is very important that independent …. judges decide the cases that are intended for federal court.”

McDowell, whose practice focuses on advertising and consumer protection law, noted the “fencing-in” relief that FTC can obtain must be “reasonably related to the violations of law” identified by the agency. Commenting on the proposed supplement ban, he said he believes the agency would face a difficult challenge showing such broad “injunctive relief is really necessary to prevent violations of the law.”

“If these companies litigated the matter, I think there’s almost no way a court is going to award that broad of injunctive relief,” McDowell concluded.

Attorney Jennifer Adams is a partner with Amin Talati Wasserman LLP, who also has defended companies in FTC challenges.

“Banning someone is a very extreme measure,” and FTC’s case against the Texas-based companies “was perhaps more amenable to it because [respondents] did have such a long history of not listening and violating advertising practices,” Adams said in an interview.

She added FTC is trying to be creative with its enforcement tools after the U.S. Supreme Court ruled last year that the agency did not have authority to obtain monetary damages under Section 13(b) of the FTC Act. Commenting on the ruling at the time, then-FTC Acting Chairwoman Rebecca Kelly Slaughter proclaimed the nation’s highest court “has deprived the FTC of the strongest tool we had to help consumers when they need it most.”

Mundel also agreed the proposed supplement ban is an extraordinary remedy, and he also questioned whether it would survive a challenge in federal court.

“Obviously, the defendants here agreed to it … and when a party agrees to it, there’s not a legal challenge for it,” he said in an interview. “If the FTC tried to seek a ban in court, I think there are very serious questions as to whether they would have the authority to do that, or whether a court would grant an injunction banning individuals from participating in a market altogether.”

 

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