Federal Judge Trims Diet Supplement Maker’s Earnings by $40M and Orders Recall of Banned Labeling

On May 14, a Georgia federal court dished out severe contempt sanctions against Hi-Tech Pharmaceuticals, its president and two others for violating a 2008 court order relating to the advertising and labeling of Hi-Tech’s “diet supplements.” In addition to ordering a recall, the court also ordered the Hi-Tech defendants to disgorge not only their profits from the falsely advertised supplements, but also their entire gross receipts from the products at issue, in the amount of $40,120,950.

In 2008, following an FTC enforcement action, the Hi-Tech defendants were permanently enjoined from making performance-related advertising claims about their supplements without “competent and reliable scientific evidence.” Unfortunately, the defendants did not stick to the prescribed regimen. Less than three years later, they were back in court because of problematic advertisements about several diet drugs that Hi-Tech marketed.  For example, the package for Hi-Tech’s drug Fastin made the following claims — “Rapid Fat Loss Catalyst,” “Rapid Fat Loss,” “Increases the Metabolic Rate, Promoting Thermogenesis (The Burning of Stored Body Fat),” and “Rapid Fat Burner” all without, in FTC’s and the court’s view, “competent and reliable scientific evidence” to support these claims.

The court found that Hi-Tech’s advertising for Fastin and other drugs violated the 2008 order and, to make matters worse, found that Hi-Tech’s violations were willful. Hi-Tech’s internal documents revealed that the defendants had ignored Hi-Tech’s counsel’s “grave concerns” about the publication of the Fastin claims, including concerns that the claims did not comply with the 2008 order. Similarly, despite acknowledging in internal documents that double-blind placebo-based clinical studies would be needed to substantiate any weight-loss claims, Hi-Tech went to market without performing any such study. 

Another thing that seemed to upset the court – indeed it belongs in the Hall of Fame of bad judgment – was that Hi-Tech’s president, while failing to pay a fine of several million dollars imposed in the earlier FTC enforcement action, purchased for himself a Lamborghini Gallardo. 

To prevent further harm to consumers and to coerce Hi-Tech into compliance with the 2008 order, the court ordered the defendants to recall all products bearing the banned packaging and labels. This order was backed up with a promise of “coercive incarceration” should the Hi-Tech parties not take sufficient action. In addition, the court ordered respondents to pay an amount equal to the gross receipts of the products at issue, rather than Hi-Tech’s profits on those products, because “[r]equiring the defendants to return the profits that they received rather than the costs incurred by the injured consumer would be the equivalent of making the consumer bear the defendants’ expenses.” The court ordered the FTC to distribute these funds to affected consumers, sending a clear message that, in the absence of adequate scientific evidence, the only thing the Hi-Tech defendants can claim to have lost weight is their own pocketbooks.

 

Published In: Civil Remedies Updates, Communications & Media Updates, Consumer Protection Updates, Products Liability Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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