Gordon & Rees partner James Scadden was interviewed and quoted in a recent article on Forbes.com titled “‘Dream Scenario:’ Herbal Supplements Sitting Pretty After AG’s Blunder.”
The article discusses major flaws in a report by the New York State Attorney General’s office condemning the supplements industry – particularly products sold by GNC – as not containing the herbal substances as labeled. Following the report, GNC’s stock declined 5% following the cease-and-desist letter that was sent to GNC as well as other retailers including Target, Walgreens, and Walmart. That action was based on DNA test findings that only 21% of samples actually contained the plants or herbs advertised. Members of the plaintiffs’ bar have initiated lawsuits based upon the alleged mislabeling.
However, it has since become apparent that the research methods used in the study were both unreliable and misleading. In the process of making supplements, DNA is necessarily eliminated or denatured during the extraction and purification process. Had significant DNA indicators been found, it would have meant the products were poorly made. Thus, the New York AG got it backwards, and wrong.
The AG’s misguided report came under fire from third-party experts who are critics of the supplement industry. While they lobby for the public to be better informed as to the possible hazards of herbal supplements, they recognize that unsupportable investigations are a disservice to that purpose.
In commenting on the story, Scadden said, “The fact that third-party experts typically critical of the industry have now challenged the methodology used by the New York State Attorney General is a dream scenario for any attorney representing a company responding to a lawsuit. The common attack on expert defense testimony is to question the impartiality of the expert and to assert that the expert is somehow beholden to the defendant that hired them. But when those same experts have acted in the past as critics of companies in the same industry, it allows for unassailable arguments about that expert’s impartiality and credibility. Lawyers defending companies in the supplement industry will now happily point to the work of past critics of the industry to defend cases,” he concluded. The complete article can be read by clicking here.
Surprisingly, several days thereafter the New York AG called a press conference to announce a settlement with GNC whereby GNC agreed to certain DNA testing of their products. The testing will be performed under a different protocol than that used by the AG so as to provide results that actually provide relevant information regarding the source materials for the supplements. GNC also agreed to broad testing for contaminants, basically allegans, agreed to post information on their website and to place informational signs in their stores, and finally to provide annual reports to the New York AG regarding their DNA testing of their products.
There may be some expectations that other suppliers will act in a similar fashion, but it must be remembered that such conduct is not required by law and that the Congress after due deliberation has implemented its own scheme that was felt to be appropriate There is also the danger that when you attempt to accomplish what are felt to be remedial efforts by a piecemeal approach through multiple cases or various jurisdictions, you can end up with inconsistent, poorly reasoned results.
It is unlikely that what GNC has done will become an industry standard because it does not have the force of law, and the industry itself and its products are so diverse that there is no “one size fits all” response to the concerns described by the AG. Further, in some jurisdictions, doing what GNC has committed to do may actually leave a supplier in technical noncompliance with other state laws. For example, in California there is a separate regulatory regime which requires labeling in certain circumstances. The labeling in California is dictated by regulations and would arguably not be consistent with what GNC has agreed to in New York.
The recent activity of the NY AG and the response by GNC will certainly generate extensive discussion in the industry, though it is yet to be seen what changes may result.