Eleventh Circuit Reverses District Court’s Collateral Estoppel Ruling, Giving A Dietary Supplement Company Another Chance To Substantiate Advertisements.
June 3rd, 2015
The dietary supplement industry is regulated by the Federal Trade Commission (“FTC”) and the Food and Drug Administration (“FDA”). The FTC has regulatory authority over the advertising of dietary supplements, while the FDA has regulatory authority over the labeling and manufacturing. (To see the full FTC regulatory scheme for dietary supplements please click here.)
Generally speaking, when a dietary supplement company advertises a product, the company must show some form of “competent and reliable scientific evidence” to substantiate its claims. The definition of “competent and reliable scientific evidence” has become a $40 million issue for Hi-Tech Pharmaceuticals. Although the industry standard allows “competent and reliable scientific evidence” to be flexible, the FTC does not rely upon “industry standards.” Instead, the FTC has stated through guidances and case law that “competent and reliable scientific evidence” means “tests, analyses, research, studies, or other evidence.” More recently, the agency has narrowed its interpretation of “competent and reliable scientific evidence” through consent decrees (settlement with private parties that are not developed via the Administrative Procedure Act’s (“APA”) notice-and-comment rulemaking process), to redefine “competent and reliable scientific evidence” to exclusively be defined as two randomized, double blind, placebo controlled clinical trials (“RCTs”). (For an example of how the FTC has done this in practice, please click here. To read what we have previously reported on this issue, please click here.)
On May 5, 2015, the Eleventh Circuit reversed a $40 million judgement against Hi-Tech Pharmaceuticals and related defendants entered by the United States District Court for the Northern District of Georgia. In the Eleventh Circuit’s decision, it ruled that the “district court misapplied the doctrine of collateral estoppel when it barred Hi-Tech Pharmaceuticals . . . from presenting [non-RCT] evidence to prove their compliance with the injunctions against them.”(Read the entire opinion here.) See FTC at 2-3. The district court found Hi-Tech “in contempt for violating [the] injunctions that prohibit them from making any representation about weight-loss products unless they ‘possess[ ] and rely[y] upon competent and reliable scientific evidence that substantiates the representation,’” and thereby collaterally estopped Hi-Tech from presenting evidence to substantiate its claims. Id. at 2. But, on appeal, the Eleventh Circuit ruled that the district court erred when it misapplied the law by not allowing Hi-Tech’s evidence to be presented.
Litigation between the FTC and Hi-Tech commenced in 2004, when the FTC filed a complaint against Hi-Tech and related defendants for violations of section 5 and 12 of the Federal Trade Commission Act. See FTC at 3. The FTC claimed that the defendants “made unsubstantiated representations about two weight-loss products (Thermalean and Lipodrene).” Id. In 2008, the district court granted summary judgement in favor of the FTC, concluding that the defendants had violated the FTC Act “because they had not substantiated their representations with clinical trials of the weight-loss products instead of ingredients in the products.” Id. This resulted in a permanent injunction against the defendants which “prohibited [them] from making any representation that [Thermalean and Lipodrene] ‘causes rapid or substantial loss of weight or fat’ or ‘affects human metabolism, appetite, or body fat,’ unless the defendants ‘possess and rel[y] upon competent and reliable scientific evidence that substantiates the representation.’” Id. at 4-5. The injunction did not mention any requirement for RCTs.
After the 2004 case concluded, the defendants did not stop promoting weight-loss products, and began advertising new dietary supplements: Fastin, Stimerex-ES, Benzedrine, and the newly formulated Lipodrene. In 2011 “the Commission moved the district court to order Hi-Tech, Wheat, and Smith to show cause why they should not be held in contempt for making unsubstantiated representations” about these four products. Id. at 5. In response, the defendants submitted evidence (100 peer-reviewed and double blind studies of the ingredients within the supplements) to support their representation. Nevertheless, the district court held that “because the defendants had not produced clinical trials on the four products at issue in the contempt proceedings” Hi-Tech and related defendants were “jointly and severally liable for approximately $40 million in sanctions.” Id. at 9.
Eleventh Circuit Decision
Hi-Tech appealed the judgement of the district court to the United States Court of Appeals for the Eleventh Circuit. On appeal, the Eleventh Circuit ruled that the district court abused its discretion when it held the defendants in contempt “and misapplied the doctrine of collateral estoppel when it refused to consider the defendants’ evidence of substantiation.” Id. at 10. Because the district court erred in adopting a stricter standard for substantiation (regarding the advertising claims of the four dietary supplements), the Eleventh Circuit held the district court’s holding must be vacated and remanded. However, in deciding this case, the Court clarified two principles: (1) when the doctrine of collateral estoppel is applied, and (2) the standard used when ruling on injunctions.
The doctrine of collateral estoppel, which protects defendants from being tried for the same issue in more than one trial, is applied only when the following four criteria are met: (1) the current issue is identical to the prior; (2) the identical issue was litigated in the prior suit; (3) the determination of the issue was a critical and necessary part of the judgment; (4) there is full and fair opportunity to litigate the issue. (You can find the full discussion of the four criteria of collateral estoppel here.) According to the Eleventh Circuit, the first criteria was not met in the FTC’s case against Hi-Tech, and therefore the doctrine was erroneously applied. Hi-Tech could “easily” show that the current issue (the 2011 litigation) was not identical to the prior (the 2004 litigation). As the Eleventh Circuit stated, “the issue decided in the earlier litigation involved different representations, different products, and the interpretation of a different legal standard from the issue the district court prevented Hi-Tech from litigating in the contempt proceedings.”Id. at 11. Therefore, Hi-Tech should not have been collaterally estopped from putting on its chosen defense in the contempt proceedings.
The defendants also argued that the district court erred by adopting an impermissibly strict standard for substantiation. However, the Eleventh Circuit did not rule on this issue. Rather, it clarified for the purposes of remand, “the district court must exercise its discretion to determine the admissibility of any evidence offered by the Commission and by the contempt defendants and make findings about whether any evidence of substantiation, if admissible, satisfies the standard of the injunctions for ‘competent and reliable scientific evidence.’” Id. at 13.
The Uncertain Future of What “Competent and Reliable Scientific Evidence” Means
The Eleventh Circuit’s ruling is another blow to the FTC seeking to enforce an RCT standard that was not promulgated through the statutorily required notice-and-commenting rulemaking process. Upon remand to the district court, Hi-Tech should be permitted to rely upon the evidence it initially brought—evidence that is less rigorous than RCTs—to substantiate its advertising claims. It will then be up to the district court to decide whether reliance upon evidence less stringent than two RTCs is consistent with the injunction entered in 2008. Regardless of how the district court rules, the table will likely be set for another Eleventh Circuit decision, wherein the court may be forced to evaluate the lawfulness of FTC’s position regarding RCTs.
Fuerst Ittleman David & Joseph, PL will continue to monitor any developments in the regulation of dietary supplement labeling and advertising. The attorneys in our Food, Drug, and Life Sciences practice group are experienced in assisting regulated industry to ensure that products are marketed and advertised in compliance with all applicable federal laws and regulations. For more information, please call us at (305) 350-5690 or email us at firstname.lastname@example.org.