GNC Lawsuit: Dietary Supplement Companies Can Adapt to Focus of State AGs

By Lori Kalani and Christopher Allen

The dietary supplement industry is flourishing—68 percent of U.S. adults now report taking at least one dietary supplement annually. As with any expanding industry, new regulations and legal battles follow. The ongoing litigation between Oregon Attorney General (AG) Ellen Rosenblum and General Nutrition Corp. (GNC), in particular, is being scrutinized because of the novel issues raised and its potential to alter the landscape.

The case has a complex procedural history arising from the industry’s unique regulation. In filing the state court lawsuit, Oregon alleged GNC sold products considered unlawful under the Federal Food, Drug and Cosmetic Act (FDCA). Oregon’s allegations, though made under state law, relied heavily upon this federal statutory and regulatory structure, which gives FDA primary enforcement authority. GNC thus argued the case belonged before a federal court, and it was removed to federal court until remanded in June 2016, when Oregon successfully argued its claims belong in state court.

The lawsuit showcases the tension between federal and state authority, particularly where FDA issues guidance or warning letters. It also raises compliance questions for the industry. For example, is a new dietary ingredient (NDI) notification required if a dietary supplement contains an ingredient that is a “combination" of already-established dietary ingredients—and if so, when? What information would be required in this NDI notification? Who bears responsibility for monitoring the lawfulness of dietary ingredients? Are manufacturers responsible for determining ingredients used in a dietary supplement are legal “dietary ingredients" under the FDCA, or do retailers have their own responsibility to ensure these third-party products contain legal dietary ingredients?

This last point, stemming from the evolving relationship between retailers and regulators, is this case’s most intriguing highlight. Supplement manufacturers continue to be subject to regulations on product labeling and ingredients, but retailers are now the subject of heightened scrutiny by AGs with respect to products they sell. The AGs’ shifting regulatory focus from manufacturers to retailers stems from the broad authority vested in AGs, whose role as their states’ chief legal officers empowers them to bring investigations, affirmative litigation and enforcement actions in the “public interest."

AGs possess power to investigate and take action against businesses, including those subject to federal regulation, under states’ broad unfair, deceptive and abusive practices laws. Such laws often do not require AGs to establish actual harm to a consumer, or intent on a company’s part, for the AG to investigate and obtain documents prior to filing a lawsuit. Fortunately, AGs often reach out to companies before taking action when they have concerns about a particular business practice or product, so in many cases there are opportunities for a company to respond to the AG prior to the initiation of an enforcement action. An AG’s decision-making process can depend on a company’s openness to dialogue and candor in responding to concerns.

Companies can take steps to improve the outcome of any AG interactions by following five basic principles.

• First, know the law and act on it. Be aware and comply with the laws of states where business is conducted, particularly because ignorance of the law will not grant immunity.

• Second, monitor consumer complaints, promptly addressing any legal violations or developing trends because AG investigations are often prompted by a critical mass of consumer complaints.

• Third, be responsive. If you receive an inquiry from an AG, obtain counsel with experience in the structure, process and policy objectives of AG offices. Your counsel should learn about the AG’s specific concerns and have a constructive dialogue with the AG’s office to narrow the focus of the inquiry, which can drastically minimize the cost of a response. While interactions may never lead to litigation, ensure documents are preserved as they would be in civil litigation.

• Fourth, balance responsiveness with a desire to protect sensitive information. Understand confidentiality rules for the states in which business is conducted to protect trade secrets and competitive documents. If an AG inquiry is received, rely on counsel to determine specific state laws and whether the AG should be asked to sign a confidentiality agreement.

• Finally, understand the scope of the AG’s authority, which varies among states. Counsel should review laws the AG invokes to determine what types of information or action an AG can take. This “homework" allows you to create a plan with counsel on how to respond to the modern regulatory and policy landscape, ensuring the most positive possible outcomes.

Companies in the dietary supplement industry—manufacturers, distributors and retailers—must adjust to an increased interest by AGs, just as other industries that have been and continue to be the subject of AG scrutiny have done. The dietary supplement industry has the opportunity to incorporate lessons from other industries to avoid unnecessary litigation and continue their important role promoting healthier lifestyles.

Looking to understand the breadth of AG’s authority and what may be coming next? Join us for the State Attorneys General: Communication & Mitigation Strategies workshop on Wednesday, Oct. 5, at SupplySide West 2016.

Lori Kalani is the co-chair of Cozen O’Connor’s State Attorneys General Practice. Her experience has included representing a global nutrition company in responding to inquiries by state and federal regulators into its marketing practices and developing and implementing a strategy for responding to attacks by activist investors. Christopher Allen represents clients in connection with complex investigations, litigation and public policy advocacy on the state and federal level. He is a member of the firm’s State Attorneys General Practice.