logo1cIn a case of first impression under the Federal Food, Drug and Cosmetic Act (FDCA), the Third Circuit Court of Appeals in Philadelphia has held that restitution is available as a remedy and may be ordered against companies that violate the Act. See U.S. v. Lane Labs – USA, Inc. and Andrew J. Lane, No. 04-3592 (3d Cir. October 21, 2005).

Lane Labs was an enforcement action brought by the FDA for, among other things, distribution and sale of drugs in violation of the FDCA. The FDA alleged that the defendants marketed and sold several different nutritional supplements and cosmetceuticals while promoting them to treat diseases. At issue were three supplements: 1. BeneFin, a dietary supplement containing shark cartilage; 2. Skin Answer, a skin cream containing glycoalkaloid; and 3. NGN-3, a dietary fiber from rice bran and containing extract of shitake mushroom.

The FDA alleged that Lane Labs promoted BeneFin and Skin Answer as potential treatments for cancer and HIV. After an investigation and a series of warning letters both the FTC and the FDA sued Lane Labs in Federal Court. In the FTC Action, a consent decree was entered against Lane Labs in the amount of one million dollars, along with the permanent injunction prohibiting Lane Labs from making claims concerning disease prevention or cure unless supported by confident and reliable scientific evidence. For the FTC case documents, click here.

In a separate action, the FDA sought a permanent injunction against further distribution and sale of the company’s supplements claiming that the defendant’s promotional claims brought the supplements within the FDCA’s definition of drugs, and that the supplements were new drugs being distributed without FDA approval. The FDA also alleged that the company’s supplements were misbranded drugs sold in violation of the FDCA. FDA press release here.

The original complaints sought a permanent injunction and also contained the traditional wherefore clause requesting that the court, “grant such other and further relief as it deems just and proper.” In an amended complaint the FDA added a prayer for equitable relief in the form of restitution for purchasers of the defendant’s products since September 22, 1999, the date the FDA notified the defendant of its intent to sue.

The District Court granted restitution and an appeal was taken solely on the issue of whether restitution was an authorized and permitted remedy under the FDCA. In its decision affirming the District Court, the Third Circuit engaged in a comprehensive analysis of the statutory grant of equitable power under 21 USC § 332(a), and concluded that this section, which authorizes injunctions, also authorizes other equitable remedies including restitution. In light of Supreme Court precedent authorizing restitution under other similarly worded statutes, the Third Circuit held that restitution is one of a number of equitable remedies available to the District Court.

The Lane Labs decision is important because it authorizes a legal remedy that, when applied to a popular “hot” supplement product, could have an impact of tremendous magnitude on a small supplement company. Just imagine if you were Lane Labs and had to return all the revenues (not just profits) you would earn from sales in a three-year period for your biggest product. The impact of such an order would be crippling on the average small supplement maker.

About 

Joel B. Rothman represents clients in intellectual property infringement litigation involving patents, trademarks, copyrights, trade secrets, defamation, trade libel, unfair competition, unfair and deceptive trade practices, and commercial matters. Joel’s litigation practice also includes significant focus on electronic discovery issues such as e-discovery management and motion practice relating to e-discovery.