Many of us have been awaiting the outcome of the FTC's appeal to the Third Circuit in the Lane Labs case. As we noted in a previous blog, the FTC had brought a compliance action against Lane Labs alleging that the company lacked adequate substantiation for several of its dietary supplement claims. The District Court found that the FTC had failed to meet its burden, holding that while there was a disagreement among the scientific studies and experts, Lane Labs had acted reasonably under the circumstances.
Well the Third Circuit has spoken and it looks like we will all have to wait a bit longer for a complete resolution as the case was remanded back to the District Court for a more detailed, claim specific review rather than what the Third Circuit perceived to be a generalized review of the efficacy of the challenged products.
However, the Third Circuit did provide some useful insight along the way. First, the Third Circuit affirmed the District Court's finding that the claim that AdvaCal would increase bone density in the hip was substantiated. The Third Circuit did so notwithstanding the absence of any studies specific to AdvaCal because it agreed with Lane's expert that generic calcium trials showing an effect from calcium on bone density in the hip could be extrapolated to AdvaCal because "once the calcium is in your bloodstream, it doesn't make any difference what it was associated with before." As we have noted in prior blogs, the FTC has adopted new language regarding "reliable and competent scientific evidence" that makes it increasingly difficult to make such "extrapolations" and it will be interesting to see what impact, if any, the Third Circuit's decision has on the FTC's efforts in this regard.
On the other hand, the Third Circuit found a number of specific claims for AdvaCal to be unsubstantiated, including claims that it was comparable or superior to prescription medicine and that it was unique in its ability to increase bone density
With respect to the male fertility product, the Third Circuit upheld the District Court's finding that a claim of improvement in sperm count in one month was substantiated because the FTC at trial failed to question Lane Lab's expert witness further in regard to what it characterized as his ambiguous testimony.
In analyzing the District Court's opinion that Lane Labs had not violated that portion of the Order that prohibited misrepresentations regarding tests and research, the Third Circuit held that the conclusion that AdvaCal was generally efficacious did not preclude a finding that the Company had misrepresented clinical studies. The Third Circuit remanded the issue back to the District Court, noting though that it was "difficult to comprehend" how this provision of the Order had not been violated.
Lastly, the Third Circuit formally adopted the defense of "substantial compliance." The Court held that to assert the defense a party must show that it "has taken all reasonable steps to comply with the valid court order" and has "violated the order in a manner that is merely 'technical' or 'inadvertent.'" In addressing whether Lane Labs had acted "reasonably" the Third Circuit held that the District Court had properly taken into account the FTC's "prolonged delay" (approximately 6 years) in initiating contempt proceedings. The Court found, however, that the District Court had not made sufficient findings as to whether the alleged violations were "technical" or "inadvertent" and remanded this issue.
In summary, the FTC may have won the victory but lost the war. The Third Circuit's opinion clearly establishes that Lane Labs violated portions of its order, but the Court's opinion on the extrapolation of clinical research to other products and the impact of the long delay in the FTC's compliance process may have the more lasting impact.