Antitrust Law Daily Wrap Up, ADVERTISING—D. D.C.: Final judgment entered in DOJ action over deceptive marketing, (Apr 7, 2015)

By Linda O’Brien, J.D., LL.M.

In an action by the U.S. Department of Justice against the marketers of dietary supplements for violating an FTC cease and desist order intended to halt their unsubstantiated claims, the federal district court in Washington, D.C. has entered a final judgment in favor of the government (U.S. v. Daniel Chapter One, March 31, 2015, Sullivan, E.).

James Feijo is the sole member of Daniel Chapter One, a company that advertises and sells dietary supplements, including BioShark, 7 Herb Formula, GDU, and BioMixx. The company claimed that the products could treat, cure, or prevent cancer; inhibit tumors; and ameliorate the adverse effects of radiation and chemotherapy. In September 2008, the FTC filed an administrative complaint against Feijo and Daniel Chapter One, alleging that the defendants’ marketing of the products constituted deceptive acts and practices in violation of the FTC Act. Following a trial, an administrative law judge found that the defendants violated the FTC Act by making unsubstantiated claims. The Commission upheld the decision and issued a cease and desist order.

In August 2010, the U.S. Department of Justice (DOJ) filed its complaint against Feijo and Daniel Chapter One, alleging that the defendants violated the FTC’s cease and desist order and seeking civil penalties and injunctive relief. In September 2012, the government’s motion for summary judgment on liability was granted. Before the court was the government’s motion for entry of final judgment.

Injunctive relief. The court found that the granting of a permanent injunction was necessary to protect the public. According to the court, from when the FTC order went into effect in April 2010, the defendants intentionally and knowingly violated the FTC order as well as the court’s June 2011 preliminary injunction. The defendants were well aware of what was required in order to comply with various orders, yet deliberately chose to continuously ignore those orders. The record was replete with evidence that the defendants continued to make representations on their radio show and websites that their products treated or cured cancer without competent or reliable scientific evidence to substantiate those representations. Based on the factual record, a permanent injunction was necessary and appropriate to protect consumers and ban the defendants from selling any dietary supplement or making any disease claims.

In order to ensure enforcement, the court adopted enhanced compliance monitoring provisions, which require the defendants to dispose of customer information, acknowledge receipt of the final order in the case, provide a written report of their business activities along with periodic updates, and maintain records of future businesses.

Monetary relief. The court awarded equitable monetary relief in the amount of over $1.3 million. The government calculated the defendants’ unjust gains in that amount as equaling what consumers spent on the products between April 2010 and May 2012, when the defendants came into compliance with the FTC order. Moreover, the defendants did not present any evidence that the government’s calculations were inaccurate.

Civil penalty. From April 2010 to May 2012, the defendants committed multiple violations of the FTC order, the court noted. They promoted the products as cancer treatments on their radio show, on several websites, and in online forums and neglected to send required corrective notices. In determining the amount of an appropriate civil remedy, the court found that the defendants acted in bad faith, their representations injured the public, the penalty eliminated the benefits of noncompliance and vindicated the authority of the FTC, and the defendants had the ability to pay a civil penalty. Based on an analysis of those factors, an award in the amount of $3.5 million was imposed for the defendants’ failure to comply with the FTC order.

The case is No. 10-1362.

Attorneys: Jessica R. Gunder for United States of America Department of Justice. Robert M. Sanger (Sanger Swysen & Dunkle) for Daniel Chapter One.

Companies: Daniel Chapter One

Cases: Advertising DistrictofColumbiaNews