FDA Obtains FTC-Type Consumer Redress and Disgorgement Remedy in USDCT

On August 17, 2006, the FDA announced that the United States District Court for the District of New Jersey has adopted an $8 million consumer redress program for purchasers of certain products from Lane Labs-USA, Inc.

In 2004 , the court found that the three products sold by Lane Labs-USA, Inc. and its president Andrew J. Lane (the defendants) as dietary supplements and a cosmetic - Benefin, MGN-3 and SkinAnswer - were, in fact, unapproved new drugs under federal law because they were being marketed as treatments for cancer, HIV, and skin cancer without FDA approval. In addition, the court permanently enjoined the defendants from distributing BeneFin, MGN-3, and SkinAnswer unless the products are first either approved for marketing by FDA or distributed pursuant to an Investigational New Drug (IND) application for purposes of conducting a clinical trial. At that time, the court ordered the defendants to pay restitution to all purchasers of BeneFin, MGN-3, and SkinAnswer since September 22, 1999. The number of purchasers are estimated to be 150,000.

The FDA had previously issued a warning letter to the defendants in September 1997. Nevertheless, the FDA alleged that the defendants continued promoting BeneFin, MGN-3, and SkinAnswer as treatments for cancer and other diseases through such means as mailings, Internet web sites, and employee statements. BeneFin, produced from shark cartilage, was promoted as a treatment for cancer. SkinAnswer, a glycoalkaloid skin cream, was marketed as a treatment for skin cancer. MGN-3, a rice-bran extract, was promoted as a treatment for cancer and HIV, the virus that causes AIDS. The Court ordered Lane Labs to pay restitution to persons who purchased the products between September 22, 1999, and July 12, 2004. The Court also appointed Newark, New Jersey attorney Donald A. Robinson as Special Master to oversee the restitution process. Gilardi & Co., LLC has been retained to assist with the restitution process.

The FDA reports that $8 million was available for redress. Under the restitution order, a consumer who request a refund will be given a refund (or a pro-rata refund), with the remainder of funds paid to the United States Treasury in the form of disgorgement.

What is notable about this ruling is the FDA adopting a FTC-type remedy in a case which typically (in the FDA context) would have resulted in either the seizure of the product and/or a potential criminal action. Here, as is the case in the typical FTC case, the court has entered an injunction regarding the product claims as well as the institution of a redress program.

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