Fourth Circuit Court of Appeals Upholds Federal Ban on Trafficking of Certain “Culturally Significant Articles”

On October 22, 2012, the United States Court of Appeals for the 4th Circuit affirmed a Federal District Court decision that a federal ban on the trafficking of certain culturally significant articles was proper and did not unfairly prevent the importation of rare coins from China and Cyprus.

Historically, the United States has taken significant steps to thwart the theft, excavation, and illicit export of culturally significant articles into and out of other countries. In 1970, the United Nations Educational, Scientific, and Cultural Organization (“UNESCO”) held a conference in which it developed an international system to protect countrys culturally significant articles. The Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (the “Convention”) was spawned from this conference. The Convention promulgated rules that afforded state parties the ability to request that other signatories to the Convention implement import and export controls to protect the requesting states cultural property from theft and illicit export.

The U.S. Congress subsequently ratified these rules in 1972, and ten years later under President Reagan, domestically implemented the Convention through the Cultural Property Implementation Act (“CPIA”). The CPIA give the U.S. government the authority to place import restrictions on certain articles of cultural property at the request of a Convention signatory. The scope of these restrictions is limited under 19 U.S.C. §2601 to, among other criteria, “archeological or ethnological material of the State Party” that “was first discovered within, and is subject to export control by, the State Party” requesting import restrictions. The authority to determine and list restricted articles initially resided with the President and Secretary of Treasury, but has since been delegated to the Assistant Secretary of State for Educational and Cultural Affairs.

The CPIA provides the following exceptions for articles being imported into the United States that have been determined to be covered by the Act:

  1. the articles are accompanied by formal documentation certifying that the item was lawfully exported;
  2. there is satisfactory evidence that the article was exported from a State Party at least ten years prior to arriving to the United States and the importer owned it for less than one year before it arrived in the United States; or
  3. there is satisfactory evidence that the article was exported from the State Party before the import restrictions took effect.

Also, if the date of export from the State Party is not known, a statement expressing belief that the article meets one of the exemptions may suffice.

In September 1998, Cyprus formally requested the imposition of import restrictions on certain categories of articles that jeopardize the national cultural patrimony of Cyprus. The import restrictions were permitted and further extended to include certain coins of Cypriot origin in 2007. In May 2004, China also made formal requests to the United States for the imposition of import restrictions on categories of Chinese archeological material from the Paleolithic to the Qing Dynasty. The United States also permitted these restrictions and in 2009 extended said restrictions to certain types of Chinese coins.

In April of 2009, after these restrictions had taken effect, the Ancient Coin Collectors Guild (the “Guild”) purchased twenty-three (23) ancient Chinese and Cypriot coins from a London dealer. According to the dealers documentation, the coins were minted in China or Cyprus and each coin had no recorded provenance. The coins were subsequently detained by U.S. Customs and Border Protection (“CBP”) for allegedly violating CPIA and associated regulations. Interestingly enough, rather than attempting to establish that the coins were lawfully admitted under one of CPIAs exceptions, the Guild decided not to provide CBP with any supporting documentation and, in the alternative, waited until forfeiture proceedings were initiated to bring a claim against CBP and the U.S. Department of State in Federal District Court.

What was initially an import/export dispute with CBP quickly turned into a dispute regarding the balance of powers between the different branches of the federal government. In its court filings, the Guild claimed that both CBP and the Department of State acted ultra vires, a Latin phrase that means “beyond the powers” and which has been coined (no pun intended) in the legal context to describe actions where an entity exceeds the authority which it has been expressly granted. The Guild based its ultra vires claims on the fact that both agencies overstepped their authority by not including a more detailed accounting of specific items covered under the CPIA import restrictions in violation of the Administrative Procedures Act (“APA”), and First and Fifth Amendments of the U.S. Constitution.

Unfortunately for the Guild, the Fourth Circuit recognized that it is well settled, with respect to foreign affairs, that the federal judiciary is generally not empowered to second-guess the Executive Branch. The court also found that, with respect to these types of import restrictions, the Executive Branch has broad discretion in negotiating agreements with foreign states under 19 U.S.C. §2602(a). Based upon the broad powers of the Executive and the agencies proper compliance with the APA, the court affirmed the district courts dismissal of the Guilds claims on these arguments.

Additionally, the Fourth Circuit pointed out that Congress had provided administrative procedures through which importers could challenge CPIA seizures and forfeitures under § 2609. In its case, the court ruled that the Guild was not stripped of its due process rights, but rather decided to purposely forego its potential administrative remedies in order to challenge the governments claims and prove that the coins were not subject to forfeiture.

Furthermore, as a legal strategy, it may have been of greater value for the Guild to focus its efforts on trying to prove that the coins were outside of the confines of the CPIA import restrictions. Generally, importers of antiques and culturally significant items are advised to assemble formal documentation of lawful entry prior to import and to complete significant due diligence into their prospective imports origin, age, and chain of custody to avoid possible import violations. The court noted in its opinion that proving the coins are beyond the scope of CPIA in the administrative process may be the Guilds only remaining legal recourse.

Here at FIDJ our attorneys have significant experience in disputing seizures of cultural items, antiques and artifacts. If you believe that your importation of culturally significant or ethnological materials has been improperly seized or may qualify for one of the CPIA exemptions, feel free to contact the Customs and Trade Law practice group at FIDJ.

FDA Issues Draft Guidance and 510(k) Submission Checklist

On August 13, 2012, the U.S. Food and Drug Administration (“FDA“) issued a Draft Guidance document entitled “Refuse to Accept Policy for 510(k)s” (“the Guidance”). The Guidance outlines the procedures and criteria FDA uses to assess whether a 510(k) submission meets the minimum threshold to be accepted for substantive review. If finalized, the Draft Guidance will supersede the 1993 guidance entitled “Center for Devices and Radiological Healths Premarket Notification (510(k)) Refuse to Accept Policy” and the 1994 guidance entitled “510(k) Refuse to Accept Procedures (K94-1).”

The FDA requires that 510(k)s be submitted in an organized, tabulated document that provides sufficient information for the FDA to be able to determine whether the device is substantially equivalent (“SE”) to a predicate device. The FDA estimates that the average 510(k) submission is about 35 pages; although others may be 100 pages or more depending on the complexity of the device. The FDA has not implemented a standard 510(k) form.

The purpose of the Draft Guidance is to provide device sponsors with clarification regarding what should be included in 510(k) submissions in order to enhance the quality of submissions and improve overall FDA review time. Detailed in the Draft Guidance is an “Acceptance Checklist” that contains the criteria the FDA will use to conduct an acceptance review to ensure that 510(k) submissions are administratively complete.

According to the Draft Guidance, within 15 days of receipt of a 510(k), the FDA will conduct a review to assess whether the submission should be accepted. If one of more of the items on the Acceptance Checklist is not present, the 510(k) submission will not be accepted and will receive a Refuse to Accept (“RTA”) designation. The FDA will notify the device sponsor in writing that the submission has not been accepted and will provide a copy of the completed checklist indicating which items are the basis for the RTA designation. The 510(k) submitter may respond by providing the missing information identified in the checklist. Only when all the missing information is submitted will the 510(k) be accepted and the FDA will conduct a substantive review evaluating the quality of the content to determine if the device should be cleared.

The Draft Guidance is one of the FDAs attempts to improve its medical device application review times in order to meet the performance goals set forth in the Medical Device User Fee Modernization Act (“MDUFMA”). For more information regarding the FDAs attempts to improve review times, please see our previous report regarding the medical device pre-submission (“Pre-Sub”) program.

Some members of the medical device industry are concerned that the acceptance review of a 510(k) may be potentially time consuming and counterproductive to the FDA goals to improve review times. In a letter to the FDA, the Advanced Medical Technology Association (“AdvaMed”) on behalf of industry reasons that it may be difficult for reviewers conducting the acceptance review to determine whether certain elements are present without conducting a substantive review. Also in an effort to improve review times, AdvaMed urged the FDA to lower the bar for the acceptance criteria described in the Draft Guidance, and limit the acceptance review to allow for an effective substantive review.

The FDAs review of medical devices is complex. Fuerst Ittleman David & Joseph PL has extensive experience successfully navigating medical devices through FDA review. For more information on FDAs review of medical devices, please contact us at contact@fidjlaw.com.

FDA Issues Warning Letters to Manufacturers of Misrepresented Conventional Foods and Dietary Supplements

As we have previously reported here and here, manufacturers of conventional food products and dietary supplements have often been the target of U.S. Food and Drug Administration (“FDA“) Warning Letters for allegedly misrepresenting their products. Pursuant to Section 201(ff)(2)(B) of the Federal Food, Drug, and Cosmetic Act [21 U.S.C. 321(ff)(2)(B)], if a product is represented as a conventional food, the product cannot also be marketed as a dietary supplement. However, categorizing conventional foods and dietary supplements can be complicated.

The FDA defines conventional foods as “foods that are not dietary supplements.” All ingredients in conventional foods must be pre-approved by the FDA as a food additive or meet the requirements of the “Generally Recognized as Safe” (“GRAS”) provisions. Dietary supplements are defined as products “intended for ingestion that contain a Ëœdietary ingredient intended to add further nutritional value to (supplement) the diet,” dietary supplements may be in forms such as tablets, capsules, softgels, gelcaps, liquids, or powder, and may be one, or a combination, of the following substances: vitamins, minerals, herbs or botanicals, amino acids, concentrates, metabolites, constituents, or extracts.

Prior to 2009, the FDA determined if a product was a conventional food or dietary supplement based on the labeling pursuant to the Dietary Supplements Health & Education Act (“DSHEA“). For example, conventional foods were required to have a “Nutrition Facts” panel on their labels, and dietary supplements were required to have a “Supplement Facts” panel. However in 2009, the FDA issued the draft guidance document “Factors that Distinguish Liquid Dietary Supplements from Beverages, Considerations Regarding Novel Ingredients, and Labeling for Beverages and Other Conventional Foods” that changed the factors that the FDA relies on to determine a products category. The 2009 draft guidance states that the FDA considers a products name, packaging, serving size, and recommended conditions of use, as well as other representations about the product, to be important determinants of whether the product is a conventional food or dietary supplement.  If the product is a conventional food or dietary supplement but marketed as the other, the product could be deemed by the FDA to be misbranded or adulterated in violation of 21 U.S.C. § 331(a) and 21 U.S.C. 342(a)(2)(C).

The FDA issued 13 Warning Letters to companies that misrepresented their products as either conventional foods or dietary supplements prior to the issuance of the 2009 draft guidance and has issued 7 Warning Letters subsequently. In 2011, an FDA spokesman reportedly stated that the FDA had not been more aggressive with enforcement actions due to competing priorities and limited resources available to the FDA. The 2 most recently issued Warning Letters were made public on May 23, 2012 and July 20, 2012, and can be found here and here.

FDA Warning Letters notify recipients and the public that the FDA believes that a particular firm has violated federal law. Thus, given the bad publicity that these letters generate, it is advantageous for firms to correct possible violations as quickly as possible. The recipients of Warning Letters have 15 days to address the issues presented by the Warning Letter and to develop specific corrective actions. Failure to do so may put the recipient in jeopardy of facing product seizures or formal legal action by the FDA. Please see our previous reports here and here, discussing whether, and if so how, the recipients of these Warning Letters may respond or challenge the Warning Letters in court in light of the United States Supreme Courts recent ruling in Sackett v. EPA.

Fuerst Ittleman David & Joseph, PL will continue to monitor the regulation of conventional foods and dietary supplements. The attorneys in the Food, Drug, and Life Sciences practice group are well-versed in the complex FDA regulatory framework. For more information, please email us at contact@fidjlaw.com or call us at (305) 350-5690.

Medical Device Contract Manufacturers and Contract Sterilizers Now Required to Register and List

Establishments involved in the production and distribution of medical devices intended for use in the United States are required to register annually with the U.S. Food and Drug Administration (“FDA“). 21 C.F.R. § 807.20. Most establishments are also required to list the devices that are made at their facilities and the activities that are performed on those devices. Id. The process is known as establishment registration and listing. Those firms required to register and list are also required to pay the associated user fee.

Effective October 1, 2012, the requirements for medical device establishment registration and listing will change. On August 2, 2012, the FDA issued “Medical Device Establishment Registration and Listing – Notice of Changes for FY 2013” and a final rule to implement the requirements enacted in Section 321 of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (“Bioterrorism Act“), and Section 207 of the Medical Device User Fee and Modernization Act (“MDUFMA”). The notice and final rule require all registered medical device establishments to pay the annual registration fee, regardless of the type or activities conducted. In addition, certain establishments must comply with additional registration and listing requirements.

The most notable change contained in the final rule requires all contract manufacturers and contract sterilizers to register the devices they manufacture and sterilize with the FDA. Previously, contract manufacturers and contract sterilizers were exempt from registration and listing requirements pursuant to 21 C.F.R. 807.20(c)(1)-(2). However, the final rule eliminates the exemption for contract manufacturers and contract sterilizers, thus requiring those who were previously exempt to register, list, and pay the user fee. This change significantly expands the scope of establishments subject to the annual establishment registration and listing requirements. As a result, the FDA estimates that the new rule will increase the number of establishments paying the user fee from 16,000 to 22,000.

Other changes to medical device registration and listing requirements resulting from this new final rule include:

  • All registration and listing submissions must be made to the FDA through electronic means rather than paper forms;
  • Foreign establishments must identify all known importers and the name of each person who imports or offers to import the foreign establishments device into the United States; and
  • All establishments must pay a registration fee when they initially register with the FDA and for each annual registration thereafter.

On September 12, 2012, the FDA released a document entitled “Frequently Asked Questions about the New Device Registration and Listing Requirements.” The list of FAQs is designed to assist medical device establishments with under the new registration and listing requirements. The FAQs address issues such as: updating existing registration information, proprietary (brand) names, combination products, medical device excise tax, foreign establishments, exporters, importers, and contract manufacturers and sterilizers.

An establishments failure to register and list as required by the final rule will cause the firms medical device to be deemed to be misbranded by the FDA pursuant to 21 U.S.C. § 352(o). Thus, establishments should ensure that they properly register and list with the FDA.

For information on how Fuerst Ittleman David & Joseph PL can assist your firm with registering and listing your medical device with the FDA pursuant to the new requirements, please contact us at contact@fidjlaw.com.

FTC and Brain-Pad Settlement Provides New Substantiation Standard and Highlights Issues with Enforcement of Consent Decrees on Non-Parties

On August 16, 2012, the Federal Trade Commission (“FTC“) announced a proposed settlement with the mouthguard marketer Brain-Pad, Inc. (“BPI”).  According to the FTC Administrative Complaint, BPI violated Sections 5(a) and 12 of the Federal Trade Commission Act (“FTC Act“) by making deceptive advertising claims that its mouthguards are clinically proven to reduce the risk of concussions from lower jaw impacts. However, a careful analysis of the Consent Decree reveals yet another definition for the FTCs substantiation requirement for health claims and illustrates the FTCs attempt to exceed the scope of the consent decree and bind non-parties.

Substantiation Requirement

The BPI Consent Decree states that BPI must possess “competent and reliable scientific evidence” to substantiate claims that BPIs products will reduce the risk of concussions. “Competent and reliable scientific evidence” is defined as “tests, analysis, research, or studies that have been conducted and evaluated in an objective manner by qualified persons and are generally accepted in the profession to yield accurate and reliable results.”

The definition contained in the BPI Consent Decree marks another attempt by the FTC to employ and enforce a heightened level of substantiation for health related claims through consent decrees. As we have previously reported (here, here, here, and here), the FTC has sought to enforce the definition of “competent and reliable scientific evidence” to require “two adequate and well-controlled human clinical studies for all absolute or comparative claims” or “one [a]dequate and well-controlled human clinical study” in litigation with companies such as Garden of Life, The Dannon Company, Nestle HealthCare, Iovate Health Sciences, POM Wonderful, and Medifast, Inc.

The varying definitions of “competent and scientific evidence” may be due to the recent trend of courts disagreeing with the FTCs attempts to redefine and enforce a heightened level of substantiation requiring two adequate and well-controlled human clinical studies for health related claims.  As we previously reported, the Garden of Life decision is one example. In FTC v. Garden of Life, the FTC sought to modify a previous consent decree by changing the definition of “competent and reliable scientific evidence” to require “two adequate and well-controlled human clinical studies for all absolute or comparative claims” and FDA approval for disease claims. In rejecting the FTCs position, the Court stated that competent and reliable evidence does not mean “uncontroverted proof.”

Enforcement of Consent Decrees on Non-Parties

At the bottom of its press release, the FTC stated that “[w]hen the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.” However, in reality, FTC consent decrees have the force and effect of law solely with respect to the future actions by the party, or parties, and products subject to the decree. Porter & Dietsch, Inc. v. FTC, 605 F.2d 294 (7th Cir. 1979). For enforcement purposes, FTC consent decrees must be construed as contracts. US v. ITT Cont’l Baking Co., 420 U.S. 223, 237 (1975). Therefore, the scope of consent decrees must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to the decree. Id at 245.

In this case, the parties subject to the decree are (1) BPI, “its successors and assigns and their officers, and each of the aboves [sic] agents, representative and employees” and (2) “Joseph Manzo [the President of BPI] and his agents, representatives and employees.” The covered product refers to “any (1) mouthguard or (2) equipment used in athletic activities that is intended in whole or in part, to protect the brain from injury.”   Thus, the FTC consent decree carries the force and effect of law solely with respect to future actions of those specific parties and products.

Our previous report regarding the Garden of Life decision highlights one example of the FTCs attempt to broaden the scope of enforcement through the use of consent decrees.  In Garden of Life, the Court noted that “consent decrees generally do not have overarching purposes” such as consumer protection, and the actually negotiated purpose of consent decrees is usually far more limited. Furthermore, the Court stated that “decree[s] cannot be interpreted as requiring whatever might be necessary and appropriate to achieve [consumer protection.]” Order at 8 (citing Sierra Club v. Meiberg, 296 F.3d 1021, 1031-1032 (11th Cir. 2002)).

For more information on FTC regulations and substantiation requirements, or on how to ensure that your business maintains regulatory compliance at both the state and federal levels, please contact us at contact@fidjlaw.com.

The Regulation of Compounding Pharmacies Under Scrutiny Once Again

The recent nationwide outbreak of fungal meningitis has pushed compounding pharmacies back into the public spotlight. The cases of fungal meningitis have been traced to contaminated injections produced by a compounding pharmacy in Framingham, Massachusetts. This outbreak has been linked to 15 deaths and 230 confirmed cases of fungal meningitis in 15 states. (For the most up-to-date information on the number of confirmed fungal meningitis cases in the United States, please visit the website for the Centers for Disease Control and Prevention here.) Over the past month, the number of confirmed cases has steadily risen, prompting calls by the public for better oversight and tighter regulation of compounding pharmacies.

Compounding pharmacies have historically been an important part of the pharmaceutical landscape. Unlike their mass-market manufacturing counterparts, compounding pharmacies typically prepare small batches of medications to meet a prescribing doctor’s requirements for dosages or combinations of ingredients that would otherwise be unavailable from commercial manufacturers. In particular, compounding pharmacies have been critical in filling prescriptions for patients who need solutions, creams and other medicines customized to, for example, alter dosage forms or remove ingredients that cause allergies. Due to drug shortages over the past few decades, the market for compounding pharmacies has substantially expanded. Today, over half of the nation’s pharmacies engage in some form of drug compounding and account for roughly one to three percent of the overall $300 billion U.S. prescription market. (For more statistics about drug compounding, please visit the International Academy of Compounding Pharmacists here.)

News of the deadly meningitis outbreak has led many to question what the difference is between a compounding pharmacy and a drug manufacturer. Generally, the operations of compounding pharmacies are regulated by State Boards of Pharmacy, whereas drug manufacturers are regulated by the U.S. Food and Drug Administration (FDA). Consequently, drugs produced by compounding pharmacies are not subject to premarket review by the FDA or any other regulatory body, unless state laws so require. The activities of the compounding pharmacy in this case, which appear to have involved the manufacture and shipping of drug products across the country, appear to be much more akin to traditional notions of drug manufacturing than compounding. Unfortunately, at least at the federal level, there are no statutes or regulations in place to help us understand where, exactly, compounding ends and manufacturing begins.

In an effort to provide some guidance on the regulation of compound pharmacies, the FDA issued a compliance policy guide (CPG) in 1992 that outlined the FDA’s enforcement policy on pharmacy compounding. This CPG remained in effect until the enactment of the Food and Drug Administration Modernization Act (FDAMA) in 1997. (For the full text of FDAMA, please click here.) FDAMA amended the federal Food, Drug, and Cosmetic Act (FDCA) by adding section 503A, which stated that drug products compounded by a pharmacist were entitled to exemptions from three provisions of the FDCA:

  1. The adulteration provision of section 501(a)(2)(B) (concerning the good manufacturing practice requirements);
  2. The misbranding provision of section 502(f)91) (concerning the labeling of drugs with adequate directions for use); and
  3. The new drug provision of section 5005 (concerning the approval of drugs under new drug or abbreviated new drug applications).

FDAMA went into effect in November of 1998; however, several provisions of section 503A were challenged as a violation of commercial speech. In 2001, in Western States Medical Center v. Shalala, the Ninth Circuit Court of Appeals declared section 503A invalid in its entirety for violating commercial speech, a decision that was affirmed by the Supreme Court in 2002. However, the Supreme Court did not address the Ninth Circuit’s holding that the commercial speech provisions could not be severed from the rest of section 503A. As a result, in at least the Ninth Circuit, all of section 503A is invalid. Since 2002, no other federal laws have been enacted to replace the regulatory void left by the invalidation of section 503A.

Following the Supreme Court’s decision in Western States Medical Center, the FDA released a compliance policy guide that explains how the FDA will determine whether a pharmacy’s operations constitute compounding or cross the line into drug manufacturing. This CPG has been the primary basis upon which the FDA has relied in making its decisions regarding whether or not to take federal enforcement action against compound pharmacies. According to the CPG, the “FDA will continue to defer to state authorities regarding less significant violations of the [FDCA] related to pharmacy compounding of human drugs.” Nevertheless, the FDA will take into account several factors when determining whether “the scope and nature of a pharmacy’s activities raise the kinds of concerns normally associated with a drug manufacturer.” For example, the FDA will consider whether the pharmacy compounds drugs in anticipation of receiving prescriptions, compounds drugs from active ingredients that are not components of FDA-approved drugs, or uses commercial-scale manufacturing or testing equipment to compound drugs. (For the full text of the FDA’s CPG, please click here.)

In spite of the FDA’s 2002 CPG, serious questions about the ambiguous compounding pharmacy “regulations” have continued to arise, and the FDA and individual states have received criticism for their lack of oversight. In a briefing on October 11, 2012, Deborah Autor, a deputy commissioner at the FDA, stated that “[t]he world has changed a lot since the days of the mortar and pestle, and this is the time for pharmacists, for lawmakers, for regulators, for doctors, to sit down and grapple with this new model and come up with a regulatory scheme that appropriately controls the risk.” (See National Public Radio’s article, “Meningitis Outbreak Puts Doctors, Regulators In New Territory“.) The trail of incidences of infection and death resulting from the poor oversight of compound pharmacies is “not a trend that’s popped up overnight.” In fact, questions about the regulation of compound pharmacies span back as far as the 1990s.

For example, in September 2005, three patients died and several others were sickened in Virginia after being given contaminated medications made at a compounding pharmacy in Maryland. In March 2007, two patients in Washington and Oregon died after receiving doses of intravenous pain medication that were measured improperly by a compounding pharmacy in Texas. In 2009, Frank’s laboratory, a compounding pharmacy in Florida, mistakenly produced contaminated drugs that killed over two dozen polo ponies and, in another incident, provided solutions that damaged the vision of 33 eye surgery patients. In March 2011, nine patients died after receiving contaminated nutritional supplements prepared by a compounding pharmacy in Alabama. Most recently, FDA officials raided the Framingham, Massachusetts pharmacy linked to the widespread fungal meningitis outbreak to investigate whether the sterility of its products had been compromised. (For more examples, you can read USA TODAY’s article here, and the Washington Post’s article here related to the regulation of compounding pharmacies.)

In many of these cases, the FDA has issued a recall of medications and conducted investigations that revealed practices which violated the FDCA. Pursuant to its enforcement authority, and in consideration of the factors outlined in the CPG, the FDA has issued over 40 Warning Letters to compounding pharmacies, over half of which were issued in the last three to four years. These Warning Letters have cited pharmacies for producing banned compounds, distributing drugs that were adulterated or contaminated, and selling medication in improper dosages or without accurate labels.

It is important to emphasize that health issues associated with compounding pharmacies are in no way new. The FDA, lawmakers, courts and industry have been well-aware of these issues for nearly two decades. As a result of the recent meningitis outbreak, however, calls for regulation in this area seem to have gained renewed political traction. In particular, Senator Edward Markey has called on Congress, demanding that the Legislature address the gaps in the piecemeal regulatory system and reconcile varying standards and requirements in state regulations. (For more information about Senator Markey’s push to fix the regulation of compounding pharmacies, see the Boston Globe’s article here.) At this point, it is uncertain how far the Senator’s initiative will go, given that previous attempts to introduce new legislation in this area have largely failed.

In sum, health scares like the meningitis outbreak will continue to provide reminders of the remaining inefficiencies and problems with the current regulatory and enforcement scheme. It is difficult to discern whether the fundamental problem is a complex systematic failure to regulate or monitor the compound pharmacy industry, or whether these adverse incidences are merely representative of the small minority of noncompliant pharmacies whose violative practices have caught national media attention. Even though the public continues to put pressure on lawmakers to take a closer look at the regulatory structure on both a federal and state level, it remains unclear how”or even if”Congress will respond.

Fuerst Ittleman David & Joseph, PL will continue to monitor any developments in the regulation of compounding pharmacies. For more information, please feel free to email our offices at contact@fidjlaw.com or by phone at (305) 350-5690.

U.S. Indicts Multiple Companies and 165 Parties Added to the BIS Entity List for Alleged Involvement in Russian Military Procurement Network

On October 3, 2012, two companies and 11 individuals of an alleged Russian military procurement network operating in the United States and Russia were indicted in the U.S. District Court for the Eastern District of New York. The individuals, who work for a Texas-based export company and Russia-based procurement firm, are alleged to have illegally exported high-tech microelectronics to Russian military intelligence agencies. These high-tech microelectronics are subject to U.S. Department of Commerce dual-use export controls due to their potential use in an array of military systems such as radar and surveillance systems, detonation triggers, and weapons guidance systems.

In a coordinated effort, the U.S. Department of Commerce Bureau of Industry and Security (“BIS”) also issued an amendment (found here) to the Export Administration Regulations (“EAR”) to add 165 foreign persons and companies to the Entity List which identifies specific licensing requirements independent of those required under the EAR. These 165 foreign persons and individuals were alleged to have received, transshipped or facilitated the export of microelectronics to Russia and have “been determined by the U.S. government to be acting contrary to the national security or foreign policy interests of the United States.”

The indictment alleges that since October 2008, Alexander Fishenko, the president of the Russia-based procurement firm Apex Systems, LLC (“Apex”), and the Texas-based export company, Arc Electronics, Inc. (“Arc”), along with ten other defendants engaged in a “surreptitious and systematic conspiracy to obtain advanced microelectronics from the U.S. and to export those high-tech goods to Russia, while carefully evading the government licensing system set up to control such exports.”

According to the indictment, Apex functioned as a certified supplier of military equipment for the Russian government. The defendants often provided false end user information in connection with the purchase of goods, concealed their status as exporters, and falsely classified goods as having civilian end uses so as to induce manufacturers and suppliers to sell them the highly sought after microelectronics. Arcs website, for example, falsely claimed to be a traffic light manufacturer when it manufactured no goods and operated exclusively as an exporter. In another instance it is alleged that one of the defendants instructed the Russian procurement company to “make sure that” the end-use certificate indicated “fishing boats, and not fishing/anti-submarine ones” before they start working.

Each individual defendant in the case faces a maximum of 5 years incarceration for the conspiracy charges, 20 years for substantive International Emergency Economic Powers Enhancement Act (“IEEPA”) and Arms Export Control Act (“AECA”) charges, and an additional 20 years for obstruction of justice changes. In addition Fishenko faces a possible additional sentence of 20 years for money-laundering conspiracy charges and an additional 10 years for acting as an unregistered agent of the Russian government. Both Arc and Apex face up to $500,000 in fines for conspiracy counts and $1,000,000 in fines for the substantive IEEPA and AECA counts.

The involvement of Arc, Apex, Fishenko, and the 10 remaining individuals in the alleged Russian military procurement scheme offers proof of suspect activity that has the potential to result in significant incarceration and monetary penalties for these parties. But what about the additional 160+ individuals and companies “ which include suppliers, re-exporters, and transhippers “ which, to their detriment, may have relied on Fishenkos alleged fraud, misclassification of goods, and claims that his exports were for civilian end uses? They now find themselves on the EAR Entity List on the basis of Section 744.11 for acting contrary to the national security or foreign policy interests of the United States. And as such, these individuals and businesses find themselves subject to additional BIS license requirements and limited ability to apply license exceptions for exports and re-exports.

While at this stage there is no way to prove for certain the level of knowledge or active involvement of these 160+ individuals and businesses, we can expect that at least some of them were not fully aware of the nature of Fishenkos business operation and intended Russian military end uses of its high-tech exports.

Exporters, re-exporters, transshippers, and all parties involved in export-related transactions must implement effective export compliance procedures to help insulate themselves from situations such as this, situations in which they can be accountable for their passive involvement in illegal export activities. An effective compliance program and inquiry into products intended end uses prior and throughout the shipment process can provide crucial insight into the legitimacy of an exporters operation.

Furthermore, as set forth in Supplement 1 and 2 of Part 766 of the EAR, an effective compliance program is entitled a high level of consideration with respect to mitigation of actual and suspected violations of the EAR. Exporters, re-exporters, and transhippers are encouraged to complete their due diligence with respect to all of their shipments by implementing proper export controls. While even the most effective export compliance plan may not identify business activity that is a result of fraud or conspiracy (such as in the alleged Russian military procurement network mentioned above), the presence of an established export compliance program may provide BIS sufficient proof of passively involved shipping companies attempts to comply with U.S. export control law. This proof may be just enough to keep unsuspecting businesses off of the Entity List and/or mitigate EAR violation penalties issued by BIS.

Below we have provided some of the guidelines that BIS takes into account when assessing the effectiveness of a companies export compliance program:

  • Whether the company has performed a meaningful risk analysis of the goods being exported and their intended end use
  • The existence of a written compliance program that is communicated to others
  • Whether senior management oversees export compliance program
  • Whether the company screens customer transactions
  • An existence of an internal system for reporting export violations
  • Whether corrective action has been taken in response to export violations

The Customs and Trade Practice at Fuerst Ittleman David & Joseph, PL, has extensive experience in drafting customized export compliance manuals for a wide variety of business types and industry applications. If you want to strengthen your businesss export compliance procedures please feel free to email our offices at contact@fidjlaw.com or phone 305-350-56909.

Physicians and Pharmacies Must Be Aware of the Dangers and Potential Penalties Associated with Importing Prescription Drugs

Introduction

As the price of healthcare continues to increase, healthcare practitioners have become more innovative and creative in their attempts to keep costs affordable for their patients. One technique which has increased in its popularity is doctors purchasing prescription drugs from foreign sources, particularly online pharmacies. However, while such techniques may provide for less expensive medical care, the importation of drugs from foreign sources can expose healthcare practitioners to a variety of criminal and civil penalties, and according to the FDA, can seriously endanger patients.

The risks associated with imported prescription drugs

For years, FDA has warned businesses and individuals about the risks associated with buying prescription drugs from foreign sources, specifically Canada. Recently, on September 28, 2012, the FDA issued a news release launching a national campaign called BeSafeRx that is designed to raise public awareness about the dangers of ordering prescription drugs from foreign unapproved sources. According to the FDA, the National Association of Boards of Pharmacy has found that less than three percent (3%) of online pharmacies meet the licensing requirements under federal law. A copy of the BeSafeRx announcement can be read here.

The FDA has taken the position that the dangers consumers face when purchasing foreign prescription drugs include consumption of expired, subpotent, contaminated or counterfeit drugs. Further, because foreign drugs may be manufactured for sale in non-English speaking countries, consumers may receive drugs without adequate directions for use. See South Florida Access to Affordable Prescription Drugs: Costs and Benefits of Alternative Solutions, Hearing before Subcomm. on Oversight and Investigations of H. Comm. on Energy and Commerce, 108th Cong. (2003).  Additionally, as many of these foreign drugs are produced in non-FDA approved facilities, the FDA cannot assure that they were manufactured in compliance with current good manufacturing practice (cGMP) standards. See generally, 21 U.S.C. § 360; 21 C.F.R. part 207.  Thus, per the FDA, consumers are exposed to numerous risks when purchasing drugs from internet pharmacies that dispense foreign drugs.

An example of the dangers consumers and healthcare practitioners face when importing foreign drugs played out earlier this year. In February, the FDA issued Warning Letters to numerous healthcare professionals that may have purchased counterfeit copies of the cancer drug Avastin from Canadian internet pharmaceutical distributors. According to reports, the fake Avastin, which was manufactured in unapproved facilities in Europe then distributed into the United States through Canadian internet pharmacy CanadaDrugs.com, contained no active cancer fighting ingredients. As a result of these events, healthcare practitioners who imported the counterfeit products may face criminal and civil penalties for having participated in adulteration and misbranding violations. See 21 U.S.C. § 351, 21 U.S.C. § 352.

More recently, on September 21, 2012, the FDA issued Warning Letters to over 4,100 identified websites that sell drugs or medical devices to American consumers. The Warning Letter, which was addressed to Canadadrugs, explained that these online pharmacy websites “offer unapproved and misbranded new drugs for sale” and requested each website to “immediately cease marketing violative drug products to United States consumers.” (To read the FDAs Warning Letter, click here.) Furthermore, the FDA sent notices to Registries, Internet Service Providers (ISPs), and domain Name Registrars (NDRs) informing them of the websites allegedly violative practices.

Additionally, on October 4, 2012, the FDA announced the details of Operation Pangea V, a global effort to combat the online sale and distribution of potentially counterfeit and illegal medical products. For the full text of the FDAs press release, please click here. In executing Operation Pangea V, the FDA collaborated with INTERPOL, the World Customs Organization, Permanent Forum of International Pharmaceutical Crime, Heads of Medicines Agencies Working Group of Enforcement Officers, the Medicines and Healthcare products Regulatory Agency of the United Kingdom, the Irish Medicines Board, the London Metropolitan Police, the U.S. Department of Homeland Security, the Center for Safe Internet Pharmacies, and the national health and law enforcement agencies from 100 other participating countries. The cooperative investigations conducted by these law enforcement, customs, and regulatory authorities resulted in civil and criminal charges, seizure of illegal produces, and removal of websites. For more information regarding Operation Pangea V, please see our previous report here.

The following discussion contains an outline of the penalties practitioners may face when importing foreign pharmaceutical drugs. This outline, however, is not exhaustive, as different penalties may be applicable to different importation activities under different circumstances.

1. Criminal Penalties under the FDCA

Under the FDCA, it is unlawful to import unapproved, misbranded, and adulterated drugs into the United States. This includes the importation of foreign versions of U.S. approved pharmaceuticals as well as those drugs that are manufactured in the United States, exported to other countries, and then subsequently reimported.

Two of the more typical FDCA violations which healthcare practitioners may face as a result of importing misbranded drugs are: 1) introduction or delivery for introduction into interstate commerce of any drug that is adulterated or misbranded; and 2) the receipt in interstate commerce of any drug that is adulterated or misbranded, and the delivery or proffered delivery thereof for pay or otherwise. See 21 U.S.C. § 331 (a), (c). The penalties and punishments associated with these crimes are governed by 21 U.S.C. § 333 and depend on whether the government charges the defendant with committing a violation “with the intent to defraud or mislead.”

Pursuant to 21 U.S.C. § 333(a)(1), a first misbranding violation is a strict liability offense and is a misdemeanor. Thus, no criminal intent need be established by the Government in order to sustain a conviction. However, 21 U.S.C. § 333(c) provides several good-faith exceptions, of which, if the healthcare practitioner qualifies, would absolve them from liability.

The maximum sentence provided by statute for a violation of 21 U.S.C. 331(a) or (c) is 1-year imprisonment, a supervised release of one year; and a maximum fine not in excess of $100,000. 21 U.S.C. § 333(a)(1); 18 U.S.C. § 3571. In addition, section 2N2.1 is the Sentencing Guideline applicable to misdemeanor violations of biological products, devices, cosmetics, and usually used in FDA prosecutions of statutes and regulations relating to foods, drugs, agricultural products.

However, if a healthcare practitioner is charged with violating either 331(a) or (c) with the intent to defraud or mislead, enhanced penalties do exist and such cases are prosecuted as felonies. The penalties associated with a violation of 21 U.S.C. § 333(a)(2) are a term of imprisonment of not more than 3 years and a fine of not more than $250,000. See 21 U.S.C. § 333(a)(2); 18 U.S.C. § 3571.

A violation of 21 U.S.C. § 333(a)(2) is a specific intent crime, see United States v. Mitcheltree. The specific intent requirement in § 333(a)(2) requires:

  1. Proof of misbranding; and
  2. Proof of intent to mislead or defraud “which is connected to the misbranding violation.”

Id. In other words, because “knowledge of the essential nature of the alleged fraud is a component of the intent to defraud, a defendant cannot act with an intent to mislead or defraud under § 333(a)(2) without some knowledge of the misbranding.” Id. (citing United States v. Hiland, 909 F.2d 1114, 1128 (8th Cir. 1990)).

As previously explained, “felony criminal responsibility requires a knowing violation with the specific intent to defraud or mislead.” Mitcheltree, 940 F.2d at 1350. A violation of 333(a)(2) “may be proved with facts indicating knowledge of the misbranding activity and a concomitant intent to defraud or mislead the FDA or its state counterpart.” Id.; see also United States v. Patwardhan,422 Fed. Appx. 614 (9th Cir. 2011); United States v. Bradshaw, 840 F.2d 871 (11th Cir. 1988) (sustaining a conviction under 333(a)(2) where defendant: 1) knowingly sold steroids without a prescription for unapproved use; 2)mislabeled the steroids as vitamins to avoid detection; and 3) made affirmative misrepresentations and omissions to state drug authorities while attempting to obtain a drug wholesalers permit.).

Additionally, while “the cases construing § 333(a)(2) have ordinarily been based on a sellers intent to defraud or mislead purchasers,” a prosecution under 333(a)(2) may be “based upon an intent to mislead or defraud not only natural persons, but also government agencies if there is evidence that a defendant consciously sought to mislead drug regulatory authorities such as the FDA or a similar governmental agency.” Mitcheltree, 940 F.2d at 1347, 1348 (10th Cir. 1991). As described by the Court in Mitcheltree, “if the government proceeds on this theory, there must be a demonstrated link between the § 331 violation and an intent to mislead or defraud an identifiable regulatory agency involved in consumer protection. Id. at 1349 (emphasis in original); see also United States v. Cattle King Packing Co., 793 F.2d 232 (10th Cir. 1986) (finding that the specific intent requirement of the statute could be satisfied by a showing that defendant intended to mislead or defraud the government agency charged with federal meat inspection); Bradshaw, 840 F.2d 871 (11th Cir. 1988) (finding defendant could satisfy the specific intent requirement of the statute by showing that defendant intended to mislead or defraud state agency in charge permitting and licensing). Additionally, “similar governmental agency” is interpreted to include agencies of foreign governments. See United States v. Industrial Laboratories, 456 F.2d 908 (10th Cir. 1972) (finding that the specific intent requirement of the statute could be satisfied by a showing that defendants intended to mislead or defraud Canadian authorities).

2. Additional criminal and civil liabilities

In addition to violations of the FDCA, practitioners who import foreign pharmaceuticals can face a variety of other criminal penalties. For example, according to the Centers for Medicare and Medicaid Services fact sheet, Medicare will not pay for health care or supplies obtained outside the U.S., which includes prescription drugs imported from Canada. 42 U.S.C. § 1395y. As such, doctors could face criminal and civil liability for knowingly importing drugs in violation of the FDCA and submitting a claim to Medicare for the illegally imported drugs.

Such charges may include:

  • Health care fraud for defrauding or obtaining money from a health care benefit program. 18 U.S.C. § 1347. Notably, the doctor does not need to have actual knowledge or specific intent to violate this section. Violations of the health care fraud statute are punishable by fines or imprisonment of no more than 10 years, or both.
  • False claims for knowingly presenting a false claim for payment or approval to the government. 31 U.S.C. § 3729. Violations for false claims are punishable by civil penalty of not less than $5,000 and not more than $10,000.Further, healthcare practitioners could be subject to various fraud charges related to importing drugs from overseas. Such charges may include:
  • Mail and wire fraud for the use of mails or wire communications in furtherance of a scheme to defraud. See 18 U.S.C. § 1341; 18 U.S.C. § 1343.  Violations of the mail and wire fraud statutes are punishable by imprisonment of no more than 20 years, or fines, or both.
  • Bank fraud for obtaining money held by a financial institution through false representations pursuant to 18 U.S.C. § 1344. Violations of the bank fraud statute are punishable by no more than $1,000,000 or imprisonment of no more than 30 years, or both. Section 2B1.1 is the Federal Sentencing Guideline applicable to fraud perpetrated by individuals. Under this guideline, although the “victims loss is usually used as the proxy for the severity of thr crime, the offenders gain, i.e. the proceeds from the illicit activity, can provide an adequate, alternative method of gauging the crimes just penalty when the loss is incalculable. See United States v. Haas, 171 F.2d 259, 269, 270 (5th Cir. 1999) (finding that while “the loss sustained by either the FDA or Haass customers is, for all practical purposes, incalculablethe district court can, however, estimate the gain that Haas received from defrauding the FDA. Thus, Haass gain from his fraudulent importation scheme appears to have been the monies received [from his company] by way of salary and profits.”). Therefore, under the sentencing guideline, the more money involved in a fraud scheme involving  the sale or distribution of misbranded or adulterated drugs, the greater the potential sentence.
  • Smuggling or clandestinely introducing goods because of failure to comply with other statutes. 18 U.S.C. § 545. Violations are punishable by fines or imprisonment of no more than 30 years, or both.Healthcare practitioners must also be aware of the potential liabilities they face if they engage in the re-importation of drugs.
  • Drug re-importation involves exporting U.S. manufactured prescription drugs to a foreign country, then subsequently importing the same drug back into the U.S. by someone other than the U.S. manufacturer, and carries additional penalties under the FDCA. The  FDCA prohibits anyone other than the U.S. manufacturer of a drug to re-import the drug into the U.S. even if the drug was approved and manufactured in the U.S; 21 U.S.C. § 381 (d)(1).The FDA has found that, because it does not have oversight over other countries drug distribution systems, insufficient safeguards in foreign handling and shipping exist to prevent the introduction and retail sale of substandard, ineffective, or counterfeit drugs. 59 Fed. Reg. 11842 (March 14, 1994). Thus, products that are re-imported by anyone other than the manufacturer will be denied entry into the U.S. 21 U.S.C. § 381(d)(3)(B).If a business or individual knowingly violates 21 U.S.C. § 381 (d)(1) by causing prescription drugs manufactured in the U.S. to be re-imported by persons other than the manufacturer of the drug, they may be subject to criminal liability consisting of a maximum of 10 years in prison and a maximum $250,000 fine. 21 U.S.C. § 333(b)(1)(A).It is important to note that those who aid and abet in a criminal violation of the FDCA, or conspire to violate the FDCA, can also be found criminally liable. 18 U.S.C. §§ 2, 371. Thus, businesses or individuals that import drugs from foreign sources in violation of the FDCA could potentially be charged with these offenses as well.

3. Exclusion from participation in federal health care programs

In addition to criminal penalties, practitioners may also face various administrative penalties. For example, 42 U.S.C. §1320a-7b(a) empowers the Secretary of Health and Human Services to exclude certain convicted individuals from participation in any “Federal Health Care Program.” In particular, § 1320a-7(b)(1)(a) authorizes the Secretary to exclude individuals convicted of a criminal offense consisting of a misdemeanor relating to fraud, theft, embezzlement, breach of fiduciary responsibility, or other financial misconduct in connection with the delivery of a health care item or service.

Additionally, § 1320a-7(b)(3) authorizes the Secretary to exclude any individual who has been convicted of a criminal offense consisting of a misdemeanor relating to the unlawful manufacture, distribution, prescription, or dispensing of a controlled substance. See Friedman v. Sebelius, Case No. 11-5028 (D.C. Cir. July 27, 2012).  Further, “items and services furnished, ordered, or prescribed by [an excluded person] will not be reimbursed under Medicare, Medicaid and all other Federal health care programs until [that person] is reinstated by the OIG.” 42 C.F.R. § 1001.2. For more information regarding exclusion from federal health care programs under 42 U.S.C. § 1320a-7b, please see our previous report here.

Conclusion

Healthcare practitioners are in a never-ending struggle to control the costs of patient care, but must nevertheless ensure that the methods they choose comply with federal law. For more information regarding the importation of drugs from foreign sources, our FDA litigation practice, or how to ensure that your business maintains regulatory compliance, contact Fuerst Ittleman David & Joseph PL at (305) 350-5690 or contact@fidjlaw.com.

Operation Pangea V: A Global Attack on Online Prescription Drug Pharmacies

The U.S. Food and Drug Administration (FDA), in partnership with multiple international regulatory and law enforcement agencies, targeted over 4,100 internet pharmacies that allegedly sell potentially dangerous, unapproved drugs to consumers. On October 4, 2012, the FDA announced the details of Operation Pangea V, a global effort to combat the online sale and distribution of potentially counterfeit and illegal medical products. (For the full text of the FDAs press release, please click here.) In executing Operation Pangea V, the FDA collaborated with INTERPOL, the World Customs Organization, Permanent Forum of International Pharmaceutical Crime, Heads of Medicines Agencies Working Group of Enforcement Officers, the Medicines and Healthcare products Regulatory Agency of the United Kingdom, the Irish Medicines Board, the London Metropolitan Police, the U.S. Department of Homeland Security, the Center for Safe Internet Pharmacies, and the national health and law enforcement agencies from 100 other participating countries. The cooperative investigations conducted by these law enforcement, customs, and regulatory authorities resulted in civil and criminal charges, seizure of illegal produces, and removal of websites.

According to the FDA, the goal of Operation Pangea V, which took place between September 25 and October 2, 2012, was two-fold: first, to identify producers and distributors of illegal pharmaceutical products and medical devices and, second, to remove these products from the supply chain. In its press release, the FDA stated that the majority of medicines at issue pose potential health concerns for consumers because “they contain active ingredients that are approved by FDA for use only under the supervision of a licensed health care practitioner or active ingredients that were previously withdrawn from U.S. market due to safety issues.” Some of the medicines identified through Operation Pangea V were Domperidone, Isotretinoin, Tamiflu, and Viagra.

During Operation Pangea V, regulators and customs authorities across the globe inspected over 133,000 packages and confiscated over 3.75 million illicit and counterfeit pills. In total, approximately $10.5 million worth of pharmaceuticals were seized worldwide and over 18,000 pharmacy websites were ordered to shut down its operations. (To read INTERPOLs brief summary of Operation Pangea V, click here.) The FDA referred to the online sale of illegal, unapproved, counterfeit, or potentially adulterated or substandard drugs as an “inherently international crime problem.” To that end, INTERPOL estimates that roughly 80 individuals are currently under investigation or under arrest for criminal offenses, including operating a clandestine laboratory producing counterfeit medicines, membership in a criminal group selling illicit medicine online, and operating websites selling illicit medicines.

Pursuant to its enforcement authority in the United States, the FDA issued a Warning Letter to Canadadrugs, which listed over 4,100 identified websites that purportedly sell illegal or counterfeit drugs or medical devices to American consumers. The operators of each of these 4,100 websites received a copy of the FDAs Warning Letter to Canadadrugs, which explained that these online pharmacy websites “offer unapproved and misbranded new drugs for sale” and requested each website to “immediately cease marketing violative drug products to United States consumers.” (To read the FDAs Warning Letter to Canadadrugs, please click here.) Furthermore, the FDA sent notices to Registries, Internet Service Providers (ISPs), and domain Name Registrars (NDRs) informing them of the websites allegedly violative practices.

The FDA has stated that it will continue to work with international groups to investigate websites that sell potentially unapproved, counterfeit, or adulterated drugs and medical devices. Within the last week, alone, the FDA launched BeSafeRx”Know Your Online Pharmacy, a national campaign to provide consumers with information about the risks of purchasing prescription drugs online.

Fuerst Ittleman David & Joseph, PL will continue to monitor the regulation of online pharmaceutical drug companies. The attorneys in the Food, Drug, and Life Sciences practice group are well-versed in the complex regulatory framework for prescription drugs and medical devices. For more information, please email us at contact@fidjlaw.com or call us at (305) 350-5690.

Medifast Agrees to Settle Advertising Dispute with FTC

On September 10, 2012, the Federal Trade Commission (“FTC“) announced that Jason Pharmaceuticals, Inc. (“Jason”), a subsidiary of Medifast, Inc. and the makers of Medifast weight loss meal replacement products, agreed to pay $3.7 million to settle charges for allegedly violating a 1992 Consent Decree regarding weight loss claims. This enforcement action is part of the FTCs ongoing effort to make sure that companies comply with FTC consent decrees, and the Commissions crackdown on what it deems to be deceptive and misleading health claims.

According to its Complaint, the FTC alleges that since at least November 2009, Jason violated the FTCs 1992 Consent Decree by making unsubstantiated weight loss claims in advertisements in violation of Sections 5(a) and 12 of the FTC Act, 15 U.S.C. §§ 45(a) and 52. The Complaint also alleges that consumer testimonials in Jasons advertisements conveyed unsubstantiated claims that Medifast products resulted in weight loss of 2 to 5 pounds per week.

The 1992 Consent Decree specifies that Jason must possess “competent and reliable scientific evidence” in order to substantiate heath claims. “Competent and reliable scientific evidence” is defined as “tests, analyses, research, studies, surveys or other evidence conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted in the relevant profession or science to yield accurate and reliable results.”  However, the newly entered 2012 Consent Decree redefines “competent and reliable scientific evidence” as “one [a]dequate and well-controlled human clinical study” of a “low calorie meal replacement program . . . designed to lower the users total caloric intake” that follows “acceptable designs and protocols” or a protocol “satisfying all of the criteria.”  The criteria require 16-week clinical studies for weight loss claims, and 52-week clinical studies to support any claims related to weight maintenance.

As we have previously reported (here, here, and here), over the past several years the FTC has attempted to employ and enforce a heightened level of substantiation for health related claims through consent decrees. In litigation with companies such as Garden of Life, The Dannon Company, Nestle HealthCare, Iovate Health Sciences and POM Wonderful, the FTC has sought to enforce the definition of “competent and reliable scientific evidence” to require “two adequate and well-controlled human clinical studies for all absolute or comparative claims” and FDA approval for all “disease treatment and cure claims.”

Conversely, the new requirements for substantiation contained in the Jason consent decree mandate one, not two, adequate and well-controlled human clinical studies. This change may be due to the recent trend of courts disagreeing with the FTCs attempts to redefine and enforce a heightened level of substantiation requiring two adequate and well-controlled human clinical studies for health related claims.  As we previously reported, the Garden of Life decision is one example. In FTC v. Garden of Life, the FTC sought to modify a previous consent decree by changing the definition of “competent and reliable scientific evidence” to require “two adequate and well-controlled human clinical studies for all absolute or comparative claims” and FDA approval for disease claims. In rejecting the FTCs position, the Court stated that competent and reliable evidence does not mean “uncontroverted proof.”

For more information on FTC regulations and substantiation requirements, or on how to ensure that your business maintains regulatory compliance at both the state and federal levels, please contact us at contact@fidjlaw.com.