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From Antitrust Law Daily, May 6, 2015

Contempt finding against weight-loss product marketers in FTC case vacated

By Jeffrey May, J.D.

The U.S. Court of Appeals in Atlanta has vacated an order holding marketers of weight-loss products in contempt for violating permanent injunctions entered in an FTC enforcement action. The appellate court found that the doctrine of collateral estoppel was misapplied to deny the defendants the opportunity to offer evidence of substantiation to refute the contempt claims (FTC v. National Urological Group, Inc., May 5, 2015, Pryor, W.).

The underlying injunctions prohibited the defendants 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 the contempt proceeding, 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 lower court ruled that the marketers were collaterally estopped from presenting new kinds of evidence to satisfy the standard of “competent and reliable scientific evidence.” The marketers were found in contempt, and the court imposed approximately $40 million in sanctions on Hi-Tech Pharmaceuticals, Inc. and related individuals.

The district court misapplied the doctrine of collateral estoppel when it refused to consider the defendants’ evidence of substantiation, the appellate court ruled. In order for collateral estoppel to apply, the issue at stake had to be identical to the one involved in the prior litigation. However, the level of substantiation the injunctions required for the representations at issue in the contempt proceedings was not “identical” to any issue the district court decided in the earlier litigation, the court explained. “The issue decided in the earlier litigation involved different representations, different products, and the interpretation of a different legal standard from the issue the district court prevented Hi-Tech [and the individual defendants] from litigating in the contempt proceedings,” the court stated. On remand, the district court had to determine the admissibility of any evidence offered by the Commission and by the contempt defendants and make findings about whether any evidence of substantiation, if admissible, satisfied the standard of the injunctions for “competent and reliable scientific evidence.”

This is Case No. 14-13131.

Companies: Hi-Tech Pharmaceuticals, Inc.

Attorneys: Leslie Rice Melman for FTC. Merritt Ellen McAlister (King & Spalding, LLP), Charles Ronald Bridgers (DeLong Caldwell Bridgers & Fitzpatrick, LLC), and Timothy M. Fulmer (Natter & Fulmer, PC) for Hi-Tech Pharmaceuticals, Inc. E. Vaughn Dunnigan (E. Vaughn Dunnigan, PC), and Steve Murrin (Murrin Wallace & Associates) for Stephen Smith.

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