The Third Circuit Court of Appeals has reversed and remanded a district court determination that a dietary supplement maker did not violate a consent order with the Federal Trade Commission (FTC). FTC v. Lane Labs-USA, Inc., No. 09-3909 (3d Cir., decided October 26, 2010). While the appeals court found that the lower court correctly decided some of the contempt charges in favor of the supplement maker, it found other rulings erroneous or insufficiently addressed.
Significantly, the Third Circuit adopted a substantial compliance defense that the lower court will have to apply on remand. Under that defense, a party must show that it (i) “has taken all reasonable steps to comply with the valid court order,” and (ii) “has violated the order in a manner that is merely ‘technical’ or ‘inadvertent.’” The district court set forth the correct standard but did not address the second part of the substantial compliance inquiry in its analysis.
The case involved an agreement, formalized by court order, reached by the supplement maker with FTC in 2000 involving advertisements for some of its products. The agreement required the manufacturer to refrain from making any product representations unless supported by “competent and reliable scientific evidence,” which term was further defined. The agreement also forbade express or implied misrepresentations about any test, study or research in connection with product promotions. Thereafter, the company began promoting calcium and male-fertility supplements for several years, submitting research that purportedly substantiated its claims to FTC, which ultimately decided that the company was in contempt of the earlier court order.
According to the Third Circuit, the company’s claims that the calcium supplement was the “only” supplement that “can increase bone density,” and is “superior to prescription osteoporosis drugs,” are unsupported by scientific evidence. The court agreed with the district court, however, that the company could properly claim that the product has been shown to “increase bone density in the hip.” Because the district court did not “exhaustively” address claims that the product was three to four times more absorbable than other calcium supplements, the appeals court remanded this issue for further development.
The appeals court also determined that the company could claim that its male-fertility supplement can cause sperm count to “skyrocket” in as little as one month, because FTC failed to pursue questioning about a witness’s assertion that some positive changes occur within the first month the product is consumed, even though increased sperm count takes at least three months to detect.