What Does FTC vs. Q-Ray Co. Mean for Ingredient-based Substantiation?

On Sept. 8, 2006, Magistrate Judge Morton Denlow of the U.S. District Court for the Northern District of Illinois issued a 136-page decision, ruling in favor of the Federal Trade Commission (FTC) in its action against the marketers of the Q-Ray ionized bracelet (FTC v. Q.T., INC et. Al, No. 03 C 3578 [ND. Ill]). The bracelet had been marketed through Internet and infomercial advertising with claims that it could provide significant and immediate relief from pain caused by, among other things, rheumatoid arthritis, sciatica, sinus problems, tendonitis and other injuries. Infomercials for the Q-Ray bracelet aired 42,213 times between April 14, 2001, and June 29, 2003. The defendants total net sales of the bracelet exceeded $87 million; their net profits amounted to approximately $22.6 million.

Coming after a seven-day bench trial, Magistrate Denlows decision represents a significant victory for the FTC. It is notable for its detailed discussion of the nature of the claims made by the defendants through testimonials, individual defendants personal liability and expert testimony presented by the defendants that was found lacking. However, perhaps the two most significant aspects of the Courts decision were the level of substantiation it found necessary to support express health-related claims and the vast amount of restitution for which the defendants will be responsible.

Substantiation

After carefully reviewing all of the claims made by the defendants through testimonials and direct representations that they possessed studies demonstrating Q-Ray bracelets were effective in stopping various types of pain, the magistrate concluded that none of the claims made for the product were substantiated. This decision was based upon the courts rejection of both the quality and the nature of the studies on which the defendants purported to rely.

Initially, the court ruled claims that the Q-Ray bracelets could provide immediate, significant or complete relief from various types of pain is clearly a health-related medical claim. No one would dispute that Tylenol makes [this type of claim] in its commercials. ... The court sees no difference in defendants infomercials.

When making health-related claims, courts have consistently held that an advertiser must have a reasonable basis to make the claim at issue. This standard is satisfied where the advertiser possesses competent and reliable scientific evidence supporting the claim (citing Sterling Drug, Inc. v. FTC, 741 F.2d 1146 [9th Cir. 1984]). After reviewing the testimony of several experts at trial, Magistrate Denlow concluded that when an advertiser makes a medical, health-related claim it must possess a well-conducted, placebo controlled, randomized, double-blinded study, the gold standard. (Citing FTC v. SlimAmerica, Inc., 77 F. Supp. 2d 1263 [S.D. FLA].) Any lower level of evidence would be deficient.

In this case, the substantiation cited by the defendants in support of their claims was found severely lacking. Not only did the magistrate find that they did not have a single study on their product supporting the precise claims made in their advertising, he also completely rejected the various studies the defendants cited as supporting their claims. This aspect of the decision is particularly noteworthy for its dismissal of the defendants efforts to rely on non-U.S. based studies, non-randomized studies and research letters.

Finally, the Court flatly rejected the defendants contention that the placebo effect (the phenomenon that a patients symptoms can be alleviated by an otherwise ineffective treatment, since the individual expects or believes that it will work) could provide competent and reliable scientific evidence supporting their claims. After noting the FTC is not required to prove that a product is wholly ineffective in order to carry its burden that the sellers representations are false, the magistrate ruled: [When] a products effectiveness arises solely as a result of the placebo effect, a representation that the product is effective constitutes a false advertisement even though some consumers may experience positive results. (Citing FTC v. Pantrone I Corp., 33 F. 3d 1088 [9th Cir. 1994].) Underlying this aspect of the courts decision was the notion that in order for any product to show a placebo effect, the advertiser must misrepresent the effectiveness of the product. The customer must be duped ... if the defendants had honestly advertised that the Q-Ray bracelet relieved pain because of its placebo effect, the placebo effect would be nil.

Restitution

Rejecting the defendants arguments that the courts powers under the FTC Act are limited to the granting of injunctions governing future behavior, Magistrate Denlow held that the powers inherently vested in the federal courts permit the entries of orders involving equitable remedies such as restitution, disgorgement and rescission of contracts. Furthermore, the magistrate noted: under the FTC Act, the statutory grant of authority to the District Court to issue permanent injunctions includes the power to order any ancillary equitable relief necessary to effectuate the exercise of the granted powers. Orders of restitution are considered proper forms of relief to effectuate the FTC Acts objective of consumer protection (citing FTC v. Amy Travel Services, Inc., 875 F.2d 564 [7th Cir. 1989]).

Dowler also rebuffed the defendants efforts to limit the monetary portion of the judgment against them to their profits. Rather, the magistrate concluded that in this case the proper vehicle for equitable relief would be an order requiring the defendants to restore the full amount lost by consumers. (No doubt because of the nature of the claims made by the defendants and the complete lack of substantiation for those claims.) Thus, the final order entered against the defendants requires the payment of at least $22.6 million (an amount equaling their profits) and no more than $87 million (their net sales), depending upon the number of consumer requests for refunds.

Conclusion

Based upon the broad language of this decision, and the courts citation to authority involving FTC enforcement actions against drug and dietary supplement companies, there is little doubt that Magistrate Dowler would have applied the same reasoning to any product making health-related claims. That portion of his decision requiring substantiation for such claims include at least one welldesigned, double blind, placebo-controlled study is particularly noteworthy for dietary supplement marketers, as such a trial is the gold standard. Carried out to its logical conclusion, strict enforcement of such a standard could jeopardize supplement companies ability to rely on ingredient-based substantiation for multi-ingredient products. While the FTC has periodically suggested its belief that this is the appropriate standard for most multiingredient supplements, it has yet to seek or obtain a court ruling rejecting ingredient-based substantiation. Should the defendants appeal this order, and should the FTC prevail on appeal, it would not be surprising to see the commission look for an opportunity to bring an enforcement action that would expand the mandatory requirement for at least one gold standard study into the dietary supplement area.

Marc Ullman is a partner with the Ullman, Shapiro & Ullman law firm.