Antitrust Law Daily Marketers of supposed memory-aid supplement stripped of several defenses to FTC action
Thursday, March 5, 2020

Marketers of supposed memory-aid supplement stripped of several defenses to FTC action

By E. Darius Sturmer, J.D.

Prevagen’s makers could still raise New York law jurisdictional arguments, that their actions were protected commercial speech, and that their good faith precluded a permanent injunction.

In an FTC enforcement suit alleging that the sellers of a dietary supplement violated the FTC Act and New York General Business Law Secs. 349 and 350 by falsely misrepresenting to consumers that the product improves memory and provides other cognitive benefits, a motion by the FTC and the co-plaintiff State of New York to strike numerous affirmative defenses that the defendants asserted was granted in part and denied in part by the federal district court in New York City. The defendants were not entitled to relitigate the availability of several defenses—including failure to state a claim, laches and estoppel, validity of the FTC’s quorum to initiate the suit, primary jurisdiction of the Food and Drug Administration (FDA), and the right to raise additional defenses—that had been unsuccessfully raised earlier in the litigation. However, the court found, proposed defenses related to protected commercial speech, good faith, and personal jurisdiction for purposes of the New York law claims, could yet be applicable in the litigation and therefore should not be disallowed (FTC v. Quincy Bioscience Holding Co., Inc., March 2, 2020, Stanton, L.).

Background. The defendants—Quincy Bioscience LLC, its parent entity and several sister companies, and their president/co-founder—manufacture and sell Prevagen, a dietary supplement they claim improves memory. Prevagen’s active ingredient is apoaequorin, a protein derived from jellyfish. In various ads on various platforms, Quincy claimed that Prevagen had been clinically shown to improve memory, a contention based in large part on a double-blind trial called the Madison Memory Study.

The FTC and the New York Attorney General filed suit against them in a New York federal court early in 2017, alleging violations of the FTC Act and the New York law for deceptive advertising. Their suit was based on the results of at least 30 analyses of the Madison Memory Study, all of which found no statistical differences between those who took Prevagen and those who took a placebo. Furthermore, Quincy had claimed that Prevagen works by entering the human brain and supplementing the proteins that are lost during aging. The medical research indicated, however, that Prevagen is rapidly digested in the stomach and is broken down into amino acids and small peptides, like all other dietary proteins. At no time does it enter into the brain.

Quincy filed a motion to dismiss, which the court granted in September 2017, ruling that the claim failed to state a claim under the FTC Act. The court also refused to exercise supplemental jurisdiction over the New York law claims. In April 2019, the Second Circuit of the U.S. Court of Appeals reversed dismissal on the ground that the allegations plausibly established claims for deceptive advertising. The appellate court also ordered the court to consider various arguments that Quincy had raised in its original motion to dismiss but that the court did not address.

On remand, Quincy renewed its motion to dismiss, raising three questions that were not originally considered: (1) whether the FTC had a sufficient quorum to implement its decision to file suit against Quincy; (2) whether the court had personal jurisdiction over the two individuals; and (3) whether the court could impose personal liability against those two individuals. In July, the court ruled on each of these issues, rejecting the defendants’ arguments with respect to each and denying their motion to dismiss in all respects other than the individual liability of another Quincy co-founder/officer. Thereafter, the remaining defendants filed their answer, asserting dozens of affirmative defenses. The plaintiffs moved to strike eight of them.

Failure to state claim. The court began its analysis by discarding the defendants’ respective first defenses, a renewed contention that the complaint "fails to state a claim upon which which relief can be granted." Pointing out the Second Circuit’s explicit finding in April 2019 that the government plaintiffs had made plausible allegations of deceptive misrepresentation, the court saw "no need to litigate the same issue again."

Laches and waiver. The defendants’ assertion that the claims were barred, in whole or in part, by the doctrines of laches and waiver were no more viable, in the court’s view. Laches were not available against the federal government when, as here, it was acting to enforce a public right or to protect the public interest, the court observed. As it would be unfair to the FTC and State of New York to require them to spend time and resources on litigating an invalid defense, the motion to strike the defense of laches and waiver was granted.

FTC quorum. As above, the court found no need to relitigate the issue of whether the FTC had a sufficient quorum to file the complaint, having ruled in its previous opinion and order that the three-commissioner quorum was valid and its vote to bring the action was not ultra vires.

Commercial speech. The defendants’ argument that the challenged advertising claims were protected by Quincy’s right to commercial speech, however, was a legitimate question, even though deceptive commercial speech had no constitutional protection. Quipping that the purpose in the trial of the case was to determine whether or not the advertisement was deceptive, the court rejected the motion to strike that defense.

Good faith. The court also saw as potentially viable as a defense the defendants’ assertion that because they "acted in good faith in all aspects of their marketing and advertising practices," the plaintiffs were prohibited from obtaining any injunctive relief. Though good faith was not relevant in determining whether a party engaged in deceptive or fraudulent conduct, Quincy and the individual defendant were right that their "good faith is relevant to determining whether plaintiffs are entitled to a permanent injunction."

Primary jurisdiction. Addressing the defendants’ contention that the plaintiffs’ claims should be dismissed because they "fell within the primary jurisdiction of the Food and Drug Administration," rather than the FTC, the court reasoned that the two agencies’ "overlapping and concurring regulatory jurisdiction" precluded the viability of a defense based on the FDA’s supposed primary jurisdiction. The FTC’s authority to bring the action was not limited by the FDA’s jurisdiction over claims related to labeling, the court noted.

New York claims. The defendants’ next assertion--that the claims under New York’s general business law had to be dismissed for lack of subject matter jurisdiction, since the alleged conduct involved transactions that took place out of state—also had potential, in the court’s eye. At the present stage of the litigation, it was undetermined whether any deceptive conduct occurred in New York, the court explained. Prior orders had addressed neither this issue nor whether the defendants had sufficient minimum contacts with the state, the court added.

Additional defenses. Finally, the court granted the plaintiffs’ "motion to strike defendants’ reservation of an untrammeled right to raise additional defenses." Absent permission of the court, the defendants were required to assert every defense in their answer, the court observed. If the defendants sought to raise other defenses during the pendency of the action, they could do so "with the opposing party’s written consent or the court’s leave under Fed. R. Civ. P. 15(a)," the court remarked.

This case is No. 1:17-cv-00124-LLS.

Attorneys: Annette Soberats for the FTC. Kathryn Ann Matuschak, Office of the Attorney General, for People of the State of New York. Geoffrey White Castello, III (Kelley Drye & Warren, LLP) for Quincy Bioscience Holding Co., Inc., Quincy Bioscience, LLC, Prevagen, Inc. d/b/a Sugar River Supplements and Quincy Bioscience Manufacturing, LLC. Michael B. De Leeuw (Cozen O'Connor P.C.) for Mark Underwood.

Companies: Quincy Bioscience Holding Co., Inc.; Quincy Bioscience, LLC; Prevagen, Inc. d/b/a Sugar River Supplements; Quincy Bioscience Manufacturing, LLC

MainStory: TopStory Advertising ConsumerProtection FederalTradeCommissionNews NewYorkNews

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