The FTC v. Lane Labs story started with shark cartilage and the latest chapter involves a contempt ruling from a federal judge. If the FTC’s advertising substantiation doctrine is relevant to your company or your clients — and it should be — you’ll want to keep tabs on the case.
The FTC’s original action challenged allegedly deceptive anti-cancer claims for two products: BeneFin, a shark cartilage supplement, and SkinAnswer, a skin cream. In addition to a $1 million redress order, Section III of the settlement required the defendants to have competent and reliable scientific evidence to substantiate future health claims. Section IV barred misrepresentations about “the existence, contents, validity, results, conclusions, or interpretations of any test, study or research.”
In 2007, the FTC filed civil contempt charges, alleging that the defendants had violated the order. The complaint challenged claims for AdvaCal, a calcium supplement touted as vastly superior to competing calcium products and prescription drugs used to treat osteoporosis, and Fertil Male, a plant derivative advertised to improve fertility.
The trial court denied the FTC’s contempt motion, ruling that Lane Labs had “acted in accordance with the spirit” of the order by consulting experts “who opined that the research supporting the product and the product itself were good.” But even if Lane Labs had violated the order, the trial court held that the company was entitled to a defense of substantial compliance, noting that it had undertaken “considerable effort” to comply.
On appeal, the United States Court of Appeals for the Third Circuit vacated the trial court’s ruling that the defendants had substantially complied and remanded the case for additional findings. The Court’s discussion of Lane Labs’ superiority claim should be of particular interest to marketers.
According to the Court, the company president had sent a pitch letter to the editor of a newsletter describing AdvaCal as “a revolutionary calcium supplement . . . that has been clinically shown to actually build postmenopausal bone density, without the side effects of hormonal drugs or supplements.” The newsletter published an article praising AdvaCal, saying that it “works as well or better than [leading prescription drugs], and without the substantial side effects and risks.” However, as the Third Circuit observed, AdvaCal “has never undergone scientific testing for comparison with any prescription drug.”
At trial, the defendants argued that the representation wasn’t theirs and they had no control over the content in the newsletter. The Third Circuit was unconvinced, stating “This assertion was, quite simply, more than a stretch.” It noted that the company had paid for the right to distribute the article and did so “extensively” in direct mail packets and in-store displays. “In short,” the Court held, “the Lane defendants adopted [the newsletter’s] characterization by aggressively promoting the newsletter’s content. They cannot run from the representation now that its veracity has been subjected to the spotlight.”
Because the trial court didn’t expressly address the superiority claim or Lane Labs’ use of the article to promote AdvaCal, it was unclear to the Third Circuit “whether the Court found substantiation for the claim or whether it accepted Lane Labs’ attempt to absolve itself from propagating the representation.” In either event, ruled the appellate court, “there is no dispute that the comparability/superiority claim was unsupported by competent or reliable scientific evidence and, by their own admission, the Lane defendants used this claim to market AdvaCal,” in violation of Section III of the order.
As to other ad claims, the Third Circuit remanded the case for additional findings. The Third Circuit held that the trial court’s characterization of AdvaCal as a “good product” did not “relieve it of the duty to make particularized findings of fact germane to the purported misrepresentations challenged by the FTC. Rather, it was incumbent upon the Court to examine the alleged misrepresentations in detail and to explicitly find whether each transgressed the proscriptions” of the order.
On remand, the trial court ruled in a November 18th opinion that the defendants had violated Section III of the 2000 order by deceptively claiming that AdvaCal is three-to-four times more absorbable than other calcium supplements. In addition, the court held they had violated Section IV “by misrepresenting research, tests, and studies in graphs and charts prominently featured in AdvaCal’s advertisements.”
The court also rejected the defendants’ claim that they had substantially complied with the order, concluding that the violations weren’t merely technical or inadvertent. Rather they went to the “core substance” of the order and “were not the result of oversight or neglect.” While noting what the court described as the defendants’ “good faith,” it concluded, “Good faith alone, however, does not bar a conclusion that Defendants acted in contempt.” The court granted the FTC’s contempt motion, but will rule later on the remedy.