Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Ga.: FTC contempt motion premature in weight-loss supplement misrepresentation suit, (Nov 5, 2015)

By Greg Hammond, J.D.

The FTC was denied its motion for entry of a contempt judgment and imposition of sanctions against marketers of weight-loss products for allegedly violating permanent injunctions. The federal district court in Atlanta denied the motion after the Eleventh Circuit found the lower court misapplied the doctrine of collateral estoppel when it refused to consider the marketers’ evidence of substantiation (FTC v. National Urological Group, Inc., November 4, 2015, Pannell, C.).

The underlying injunctions prohibited the defendants—National Urological Group, Inc., National Institute for Clinical Weight Loss, Inc., and Hi-Tech Pharmaceuticals, Inc.—from making certain representations about weight-loss products unless substantiated with competent and reliable scientific evidence. The injunctions did not mention any requirement to produce clinical trials to substantiate weight-loss representations.

In previous contempt proceedings, the district court required the marketers to produce clinical trials to substantiate the challenged representations because the court had earlier required the marketers to offer such evidence to defend the claims. The court ruled that the marketers were collaterally estopped from presenting new kinds of evidence to satisfy the standard of “competent and reliable scientific evidence.” Ultimately finding the marketers in contempt, the court imposed approximately $40 million in sanctions on Hi-Tech Pharmaceuticals, Inc. and related individuals.

The appellate court vacated the district court’s order of contempt, finding that the lower court misapplied the doctrine of collateral estoppel when it refused to consider the defendants’ evidence of substantiation. On remand, the district court is required to determine the admissibility of any evidence offered by the FTC and by the contempt defendants and to make findings about whether any evidence of substantiation, if admissible, satisfied the standard of the injunctions for “competent and reliable scientific evidence.”

Because the defendants do not concede that they are in civil contempt for violation the preliminary injunction order, and because they did not admit the product packaging and labels for the products at issue contain efficacy claims, the district court could not establish a contempt finding at this time. Because the appellate court vacated the district court’s earlier order finding the defendant in contempt, the district court concluded that judicial economy requires ruling on all remaining contempt allegations at the same time. Consequently, the court denied the Commission’s motion for contempt and for sanctions, noting that the FTC can move again for entry of a contempt judgment within 30 days after the close of discovery on April 29, 2016.

The case is No. 1:04-CV-3294-CAP.

Attorneys: Amanda C. Basta, FTC. Edmund J. Novotny (DeLong Caldwell Bridgers Fitzpatrick & Benjamin, LLC) for National Urological Group, Inc., National Institute for Clinical Weight Loss, Inc., and Hi-Tech Pharmaceuticals, Inc.

Companies: National Urological Group, Inc.; National Institute for Clinical Weight Loss, Inc.; Hi-Tech Pharmaceuticals, Inc.

Cases: Advertising FederalTradeCommissionNews GeorgiaNews