Case History: Lane Labs and the FTC

This past November, a federal judge ruled dietary supplements marketer Lane Labs-USA LLC and its president Andrew Lane in contempt of a 2000 consent decree barring the company from making deceptive health claims.

This case has remained significant for more than a decade-not only because of how it’s played out, but because it sparked what appears to be permanent change in how the FTC now handles consent orders.

The Past

Back in June 2000, Lane Labs and the FTC reached the consent decree to settle FTC charges that Lane Labs made unsupported and false claims for its BeneFin shark cartilage product and SkinAnswer skin cream. According to the FTC, Lane Labs claimed that the products could prevent, treat, or cure cancer and, moreover, that they were clinically proven to do so.

Per the consent decree, Lane Labs agreed not to make any fraudulent, unsupported health or disease claims about any food, drug, or dietary supplement in the future. The order stipulated that support for any future health claims be based on “competent and reliable scientific evidence.”

In January 2007-nearly seven years later-the FTC filed charges against Lane Labs for violating that agreement. The agency stated that the company continued making deceptive, unsubstantiated product claims, this time for its AdvaCAL calcium supplement and Fertil Male fertility supplement.

According to the FTC, the company claimed AdvaCAL was more absorbable than other types of calcium, superior to other calcium or prescription drug products in building bone mineral density, and superior to other calcium products in reducing risk of fractures. The FTC said these claims were based on misrepresented test results. For Fertil Male, it said claims of improving male fertility were based on flawed scientific studies.

In August 2010, the New Jersey district court where the charges were filed ruled in favor of Lane Labs and against the FTC, stating that Lane Labs met the consent decree provisions. (The court also criticized the FTC’s seven-year delay in bringing the charges of consent decree violation, stating that during that time-without hearing differently from the FTC-Lane Labs may have assumed it was in compliance with the consent decree.)

In October 2010, however, the Third Circuit Court of Appeals overturned the district court’s decision, stating that the district court failed to consider the specific marketing claims for Fertil Male and AdvaCAL and whether those claims were actually substantiated.

In its written opinion, the appeals court stated: “The District Court’s failure to provide us with a reasoned basis for concluding that Lane Labs did not violate Section IV prevents us from exercising meaningful review. Many of the challenged representations appear misleading on their face, and the District Court provides no rationale for its conclusion that they are not.”

The appeals court stated that based on the evidence, Lane Labs had made unsupported claims. As such, the appeals court remanded the case back to the district court to reconsider whether Lane Labs had in fact violated the 2000 consent decree.

The Present

Last November, the district court sided with the FTC. This time, it found Lane Labs in contempt of the consent decree.

Based on the evidence, the court said Lane Labs had promoted the unsubstantiated claim that AdvaCAL was three to four times more absorbable than other calcium supplements, for a broad range of consumers. Addressing the FTC’s claims that such absorption levels are not achievable in any population, the court agreed with the agency’s contention that Lane Labs “promised results that were not attainable in any population, which shows that Defendants did not possess competent and reliable scientific evidence for their claims, in violation of Section III of the Final Order.”

Regarding Lane Labs’ contention that its high-absorbability claims primarily targeted older women at risk of achlorhydria, a condition that can hinder calcium absorption, the court stated: “The record does not indicate that Defendants consistently, and expressly, limited the three or four times more absorbable claim to any particular segment of their market.”

The court also ruled that Lane Labs had misrepresented research, tests, and studies in graphs and charts featured prominently in product advertisements. Instances included substituting radial bone density changes for spinal bone density changes on a study titled “Two Year Spinal Bone Density Changes Graph” and manipulating a bar graph whose data represented the results of individual women, instead labeling the graph as representing “groups.”

The court also considered whether any violations of the consent decree had been “technical” or “inadvertent.” If Lane Labs had unknowingly erred, the company could still possibly be considered compliant with the consent decree. However, the court stated: “Defendants chose to make the claims at issue, and chose to widely distribute those claims. The Court cannot find a violation under those circumstances to be either ‘technical’ or ‘inadvertent.’”

Notably, the court opinion again chastised the FTC for taking too long to file charges against Lane Labs for violating the consent decree. “The Court remains highly concerned with the FTC’s delay in bringing this suit….The FTC’s failure to act on these statements until January of 2007 is bewildering. This extensive delay understandably led Defendants to believe that they were in compliance with the Final Order, and for the FTC to bring its motion after six years seems to the Court to be fundamentally unfair. This is not, however, the relevant inquiry at this time.”

Moving forward, the district court will now focus on ruling on any monetary damages.

The Future

The Lane Labs case is often tied to a question of where the FTC is-or has been-heading in terms of how, in consent decrees, it defines “reliable and competent” scientific evidence to back health claims. Some have suggested that in the Lane Labs case, the New Jersey district court’s initial ruling against the FTC happened because the requirement for “competent and reliable” evidence was too broad to prove that the company did not meet it.

“For decades previous, most orders on health-related advertising included the traditional ‘competent and reliable scientific evidence’ standard....You can see that it’s a very flexible, very broad standard,” said Katie Bond, advertising and marketing practice associate for the law firm Kelley Drye & Warren LLP. In December, Bond and law partner John Villafranco hosted a webcast titled “How ‘Competent and Reliable’ Is Your Scientific Evidence?”

Bond continued, ”What it came down to is that the orders required future claims to be backed by good, objective science, and the kind of science wasn’t specified….But last year, that all started to change.”

As indicated in recent consent orders, the FTC is spelling out in very specific terms what its substantiation requirements are for future claims. Several consent orders state that the companies under order should have two randomized, placebo-controlled human clinical studies to back any health claims.

In 2009, FTC’s Bureau of Consumer Protection director David Vladeck publicly declared the agency’s goal to make consent order decrees more specific.

Bond said that six consent orders have been issued so far that reflect this new, more specific wording.

The FTC maintains that its substantiation requirements haven’t changed. It says its requirement is still “reliable and competent” science. However, with more consent decrees asking for two randomized, placebo-controlled, human clinical studies as evidence, should companies nevertheless assume that this is the FTC’s new substantiation threshold?

“It is the new de facto standard for companies that want to maintain a conservative risk profile,” Villafranco told Nutritional Outlook. “The FTC has made it plain that it is not the law, but it is what the staff will expect when relying on tests with relatively small study populations.”

Villafranco took care to underline that the requirements of consent orders only apply to the companies under order. “But that doesn’t mean you shouldn’t be concerned,” he added.

“The first step would be to ask yourself, ‘How risk averse are we as a company?’” he continued. “In the area of weight loss or for most other health claims, a company that wants to feel secure with the FTC should either have a robust and completely buttoned-down trial or, in situations where that is not possible, look for an ingredient backed by two well-designed studies.”

Back to the new conclusions in the Lane Labs case, Villafranco said: “In my view, the celebration started a bit too soon after the district court’s [initial] opinion in Lane Labs. It was a rare win for the defense in a supplement case brought by the FTC, but victory was fleeting. It was clear the FTC was not prepared to live with the result and what it might mean in future cases that consider the issue of substantial compliance with an FTC order. Reversal became a priority at the agency, and it has now been achieved.”

“The Lane Labs party is officially over,” he concluded.