040730answerandgroundsofbasicresearch

In the Matter of UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION BASIC RESEARCH, LLC, a limited liability company; A.G. WATERHOUSE, L.L.C. a limited liability corporation, KLEIN-BECKER USA, LLC, a limited liability company; NUTRASPORT, LLC, a limited liability company; SOVAGE DERMALOGIC LABORATORIES, LLC, a limited liability company; BAN, LLC, a limited liability corporation, also doing business as BASIC RESEARCH, L.L.C., OLD BASIC RESEARCH, L.L.C., BASIC RESEARCH, A.G. WATERHOUSE, KLEIN-BECKER USA, NUTRA SPORT, and SOVAGE DERMALOGIC LABORATORIES, DENNIS GAY, individually and as an officer of the limited liability corporations, DANIEL B. MOWREY, Also doing business as AMERICAN PHYTOTHERAPY RESEARCH LABORATORY, and MITCHELL K. FRIEDLANDER, Respondents, Docket No. 93 18 ANSWER AND GROUNDS OF DEFENSE OF RESPONDENT BASIC RESEARCH, LLC Pursuant to Federal Trade Commission ("Commission") Rule of Procedure 3.12, Respondent, Basic Research, LLC respectfully submits this Answer and Grounds of Defense in response to the Complaint filed in this matter. With respect to the first paragraph of the Complaint, Basic Research, LLC denies that the Commission has reason to believe that Respondents have violated the provisions of the Federal Trade Commission Act (the "Act") and/or that this proceeding is in the public interest. Basic Research, LLC responds to each numbered paragraph of the Complaint as follows: 1. Admitted, except to clarify that the Respondent is a limited liability company. Denied as to the reference to "corporation." 2. Admitted, except to clarify that the Respondent is a limited liability company. Denied as to the reference to "corporation." 3. Admitted, except to clarify that the Respondent is a limited liability company. Denied as to the reference to "corporation." 4. Admitted, except to clarify that the Respondent is a limited liability company. Denied as to the reference to "corporation." 5. Admitted, except to clarify that the Respondent is a limited liability company. Denied as to the reference to "corporation." 6. The first sentence of Paragraph 6 is admitted, except to clarify that the Respondent BAN, LLC is a limited liability company; denied as to the reference to "corporation." As to the second sentence of Paragraph 6, it is admitted that BAN, LLC was named Basic Research, LLC prior to December 27,2002, and that BAN, LLC was named Old Basic Research, LLC between December 27,2002 and March 31,2003; further admitted that, at certain times and under those earlier names, BAN, LLC has done business as Basic Research, A.G. Waterhouse, Klein-Becker usa, Nutrasport, and Sovage Dermalogic Laboratories. Denied as to the third sentence of Paragraph 6. 7. Admitted that Dennis Gay is an individual whose principal place of business is at 5742 W. Harold Gatty Dr., Salt Lake City, Utah. Otherwise denied. 8. Admitted that Daniel B. Mowrey is an individual with an office located at 5742 W. Harold Gatty Dr., Salt Lake City, Utah. Otherwise denied. 9. Admitted that Mitchell Friedlander is an individual. Otherwise denied. 10. Denied. 11. Admitted that at certain times Respondent Basic Research, LLC and Respondent BAN, LLC have manufactured, advertised, labeled, offered for sale, sold andlor distributed the products identified in sub-paragraphs 11(A) through 11(F) ("the Products"). Admitted that other Respondents have performed those activities, but only as follows: Respondent A.G. Waterhouse, LLC only with respect to Leptoprin, Respondent Klein-Becker usa, LLC only with respect to Dermalin-APg, Anorex, and PediaLean, Respondent Nutrasport LLC only with respect to Cutting Gel, and Respondent Sovage Dermalogic Laboratories, LLC only with respect to Tummy Flattening Gel. Admitted as to the allegations in sub-paragraphs 11(A) through 1 l(F) describing the advertisements. Admitted that each of the Products has been advertised in one or more of the media identified in Paragraph 11. The last sentence of Paragraph 11 states a legal conclusion, to which no response is required. Otherwise denied. 12. Denied in that the Complaint does not accurately characterize the "acts and practices" of the Respondents. Dermaliu-APg, Cutting Gel, and Tummy Flattenin2 Gel Products for Fat Loss 13. Admitted that, at certain times, Respondent Basic Research, LLC, Respondent BAN, LLC, and Respondent Klein-Becker usa, LLC disseminated advertisements andlor labeling for Dermalin-APg. Denied in that the term "caused to be disseminated" is inherently vague, subjective, and susceptible to numerous different interpretations. Admitted that, at certain times, Respondent Basic Research, LLC, Respondent BAN, LLC, and Respondent Nutrasport, LLC disseminated advertisements and/or labeling for Cutting Gel. Denied in that the term "caused to be disseminated" is inherently vague, subjective, and susceptible to numerous different interpretations. Admitted that, at certain times, Respondent Basic Research, LLC, Respondent BAN, LLC, and Respondent Sovage Dermalogic Laboratories, LLC disseminated advertisements and/or labeling for Tummy Flattening Gel. Denied in that the term "caused to be disseminated" is inherently vague, subjective, and susceptible to numerous different interpretations. Admitted that advertisements for the named Products have appeared in the publications named in the second through fourth sentences of Paragraph 13. Admitted that the quoted language in sub-paragraphs 13(A) through 13(G) appear in the advertisements attached as Exhibits A through G, but denied that those quotations accurately or fully reflect the express andlor implied messages of those advertisements. Otherwise denied. 14. Denied in that the language "causes rapid and visibly obvious fat loss in areas of the body to which it is applied" does not appear in the advertisements for Dermalin-APg identified in Paragraph 13, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 15. Respondent denies having made the representations alleged in Paragraph 14 and thus denies having represented that it "possessed and relied upon a reasonable basis that substantiated" such representations. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernihle quantitative or qualitative requirements. 16. Denied in that the allegations assume that Respondent made the representations alleged in Paragraphs 14 and 15, which Respondent denies. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 17. Denied in that the language "causes rapid and visibly obvious fat loss in areas of the body to which it is applied" does not appear in the advertisements for Cutting Gel identified in Paragraph 13, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 18. Respondent denies having made the representations alleged in Paragraph 17 and thus denies having represented that it "possessed and relied upon a reasonable basis that substantiated" such representations. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 19. Denied in that the allegations assume that Respondent made the representations alleged in Paragraphs 17 and 18, which Respondent denies. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 20. Denied in that the language "causes rapid and visibly obvious fat loss in areas of the body to which it is applied" does not appear in the advertisements for Tummy Flattening Gel identified in Paragraph 13, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 21. Respondent denies having made the representations alleged in Paragraph 20 and thus denies having represented that it "possessed and relied upon a reasonable basis that substantiated" such representations. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 22. Denied in that the allegations assume that Respondent made the representations alleged in Paragraphs 20 and 21, which Respondent denies. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 23. Respondent denies that it has represented that "Cutting Gel causes rapid and visibly obvious fat loss in areas of the body to which it is applied" and thus denies having represented that "published, clinical testing" has proven that statement to be true. Further, the language "Cutting Gel causes rapid and visibly obvious fat loss in areas of the body to which it is applied" does not appear in the advertisements for Cutting Gel identified in Paragraph 13, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 24. Denied in that the allegations assume that Respondent has represented that "Cutting Gel causes rapid and visibly obvious fat loss in areas of the body to which it is applied" and that "published, clinical testing" has proven that statement to be true, which Respondent denies. Further, the language "Cutting Gel causes rapid and visibly obvious fat loss in areas of the body to which it is applied" does not appear in the advertisements for Cutting Gel identified in Paragraph 13, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 25. Respondent denies that it has represented that "Tummy Flattening Gel causes rapid and visibly obvious fat loss in areas of the body to which it is applied" and thus denies having represented that "published, clinical testing" has proven that statement to be true. Further, the language "Tummy Flattening Gel causes rapid and visibly obvious fat loss in areas of the body to which it is applied" does not appear in the advertisements for Tummy Flattening Gel identified in Paragraph 13, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 26. Denied in that the allegations assume that Respondent has represented that "Tummy Flattening Gel causes rapid and visibly obvious fat loss in areas of the body to which it is applied" and that "published, clinical testing" has proven that statement to be true, which Respondent denies. Further, the language "Tummy Flattening Gel causes rapid and visibly obvious fat loss in areas of the body to which it is applied" does not appear in the advertisements for Tummy Flattening Gel identified in Paragraph 13, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. Leptoprin and Anorex Products for Weight and Fat Loss in "the Significantly Overweight" 27. Admitted that, at certain times, Respondent Basic Research, LLC, Respondent BAN, LLC, and Respondent A.G. Waterhouse, LLC disseminated advertisements andlor labeling for Leptoprin. Denied in that the term "caused to be disseminated" is inherently vague, subjective, and susceptible to numerous different interpretations. Admitted that, at certain times, Respondent Basic Research, LLC, Respondent BAN, LLC, and Respondent Klein-Becker usa, LLC disseminated advertisements andlor labeling for Anorex. Denied in that the term "caused to be disseminated" is inherently vague, subjective, and susceptible to numerous different interpretations. Admitted that the quoted language in sub-paragraphs 27(A) through 27(C) appear in the advertisements attached as Exhibits H through J, but denied that those quotations accurately or fully reflect the express andlor implied messages of those advertisements. Otherwise denied. 28. Denied as to Paragraph 28(A) in that the language "causes weight loss of more than 20 pounds, including as much as 50,60, or 147 pounds, in significantly overweight users" does not appear in the advertisements for Leptoprin identified in Paragraph 27, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. Denied as to Paragraph 28(B) in that the language "causes loss of substantial, excess fat in significantly overweight users" does not appear in the advertisements for Leptoprin identified in Paragraph 27, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 29. Respondent denies having made the representations alleged in Paragraph 28 and thus denies having represented that it "possessed and relied upon a reasonable basis that substantiated" such representations. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 30. Denied in that the allegations assume that Respondent made the representations alleged in Paragraphs 28 and 29, which Respondent denies. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 3 1. Denied as to Paragraph 3 1(A) in that Respondent denies that it has represented that "Leptoprin causes weight loss of more than 20 pounds, including as much as 50, 60, or 147 pounds, in significantly overweight users" and thus denies having represented that "clinical testing" has proven that statement to he true. Further, the language "Leptoprin causes weight loss of more than 20 pounds, including as much as 50,60, or 147 pounds, in significantly overweight users" does not appear in the advertisements for Leptopnn identified in Paragraph 27, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. Denied as to Paragraph 31(B) in that Respondent denies that it has represented that "Leptoprin causes loss of substantial, excess fat in significantly overweight users" and thus denies having represented that "clinical testing" has proven that statement to be m e . Further, the language "Leptoprin causes loss of suhstantial, excess fat in significantly overweight users" does not appear in the advertisements for Leptoprin identified in Paragraph 27, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 32. Denied as to Paragraph 32(A) in that the allegations assume that Respondent has represented that "Leptoprin causes weight loss of more than 20 pounds, including as much as 50, 60, or 147 pounds, in significantly overweight users" and that "clinical testing" has proven that statement to be true, which Respondent denies. Further, the language "Leptoprin causes weight loss of more than 20 pounds, including as much as 50,60, or 147 pounds, in significantly overweight users" does not appear in the advertisements for Leptoprin identified in Paragraph 27, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. Denied as to Paragraph 32(B) in that the allegations assume that Respondent has represented that "Leptoprin causes loss of substantial, excess fat in significantly overweight users" and that "clinical testing" has proven that statement to be true, which Respondent denies. Further, the language "Leptoprin causes loss of substantial, excess fat in significantly overweight users" does not appear in the advertisements for Leptoprin identified in Paragraph 27, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 33. Denied as to Paragraph 33(A) in that the language "causes weight loss of more than 20 pounds in significantly overweight users" does not appear in the advertisements for Anorex identified in Paragraph 27, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. Denied as to Paragraph 33(B) in that the language "causes loss of substantial, excess fat in significantly overweight users" does not appear in the advertisements for Anorex identified in Paragraph 27, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 34. Respondent denies having made the representations alleged in Paragraph 33 and thus denies having represented that it "possessed and relied upon a reasonable basis that substantiated" such representations. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 35. Denied in that the allegations assume that Respondent made the representations alleged in Paragraphs 33 and 34, which Respondent denies. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. PediaLean Product for Weight Loss in Children 36. Admitted that, at certain times, Respondent Basic Research, LLC, Respondent BAN, LLC, and Respondent Klein-Becker usa, LLC disseminated advertisements and/or labeling for PediaLean. Denied in that the term "caused to be disseminated" is inherently vague, subjective, and susceptible to numerous different interpretations. Admitted that advertisements for PediaLean have appeared in the publications named in the second sentence of Paragraph 36. Admitted that the quoted language in sub-paragraphs 36(A) through 36(B) appear in the advertisements attached as Exhibits K and L, but denied that those quotations accurately or fully reflect the express and/or implied messages of those advertisements. Otherwise denied. 37. Denied in that the language "causes substantial weight loss in overweight or obese children" does not appear in the advertisements for PediaLean identified in Paragraph 36, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 38. Respondent denies having made the representation alleged in Paragraph 37 and thus denies having represented that it "possessed and relied upon a reasonable basis that substantiated" such representation. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 39. Denied in that the allegations assume that Respondent made the representations alleged in Paragraphs 37 and 38, which Respondent denies. Further, the phrase "reasonable basis" is inherently vague, not defined in the Complaint, and subject to no discernible quantitative or qualitative requirements. 40. Respondent denies that it has represented that PediaLean "causes substantial weight loss in overweight or obese children" and thus denies having represented that "clinical testing" has proven that statement to be true. Further, the language "causes substantial weight loss in overweight or obese children" does not appear in the advertisements for PediaLean identified in Paragraph 36, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. 41. Denied in that the allegations assume that Respondent has represented that PediaLean "causes substantial weight loss in overweight or obese children" and that "clinical testing" proves that statement to be true, which Respondent denies. Further, the language "causes substantial weight loss in overweight or obese children" does not appear in the advertisements for PediaLean identified in Paragraph 36, is not defined in the Complaint, and is inherently vague, subjective, and susceptible to numerous different interpretations. Expertise of Respondent Mowrev 42. Denied. 43. Admitted that Respondent Daniel B. Mowrey is not a medical doctor Otherwise denied. 44. Denied. ADDITIONAL GROUNDS OF DEFENSE Without assuming any burden of production or proof that it would not otherwise be required to bear under applicable law, Respondent asserts the following defenses and reserves its right to raise additional defenses as appropriate: Fifth Amendment -- Due Process This enforcement action is based upon regulatory standards governing the quantity and quality of substantiation Respondent must possess at the time it makes express and implied claims in advertisements. The standards fail and have failed to provide reasonable persons, including Respondent, with fair notice as to whether contemplated claims in advertisements, including those at issue in this proceeding, are and were permissible andor allow and have allowed the Commission andlor its representatives to enforce the standards pursuant to their personal or subjective predilections. The regulatory standards are thus unconstitutionally vague on their face andor as applied to Respondent's prior and contemplated advertising activity and, therefore, violate Respondent's rights to due process under the Fifth Amendment to the Constitution of the United States. The Complaint and enforcement action based upon such standards must therefore be dismissed. First Amendment -- Freedom of Speech The Commission's Complaint, enforcement action, and the relief sought abridge Respondent's rights under the First Amendment to the Constitution of the United States because the Commission seeks to restrict, restrain and/or prohibit protected commercial speech, because the Commission seeks to restrict, restrain and/or prohibit protected commercial speech through the use of ad hoc and non-defined terms and advertising substantiation lacking any measurable degree of definiteness, and because the Commission's actions are premised at least in part upon alleged representations made "by implication" that the Commission has labeled false or misleading without relying on extrinsic evidence. In proceeding this way, the Commission has failed to choose and/or rejected alternate means to achieve its interests that are less restrictive of protected speech. Puffery One or more of the advertisements identified in the Complaint contains one or more claims and/or representations that are vague, generalized, subjective, highly suggestive, andlor exaggerated statements, and/or statements that ordinary consumers do not take literally or rely upon, and/or statements that cannot be substantiated objectively. Such claims and/or representations constitute puffery, which is not likely to mislead a reasonable consumer. Administrative Procedure Act (5 U.S.C. 6 706) -- Improper Agencv Action The Complaint and this enforcement action are based upon regulatory standards governing the quantity and quality of substantiation Respondent must possess at the time it makes express and implied claims in advertisements. The standards fail and have failed to provide reasonable persons, including Respondent, with fair notice as to whether contemplated claims in advertisements, including those at issue in this proceeding, are and were permissible and/or allow and have allowed the Commission and/or its representatives to enforce the standards pursuant to their personal or subjective predilections. The regulatory standards are unconstitutional; therefore, this enforcement action constitutes agency action that is arbitrary, capricious, an abuse of discretion, otherwise not in accordance with law, contrary to constitutional right, and/or without observance of procedure required by law. Federal Trade Commission Act (15 U.S.C. 6 45(b)) -- No Reason to Believe The Commission failed, or failed properly, to reach the required determination that it had "reason to believe" Respondent has violated the Act prior to initiating this enforcement action. The reasons for that failure include, hut are not necessarily limited to, the Commission's use of regulatory standards that are inherently vague and subject to no discernible quantitative or qualitative requirements, and its refusal to consider extrinsic evidence in determining whether the advertisements at issue are false or misleading. In failing, or failing properly, to reach the "reason to believe" determination, the Commission has violated 15 U.S.C. 5 45(b) of the Act. Federal Trade Commission Act (15 U.S.C. 6 45(b) -- Interest of the Public The Complaint and this enforcement action are based upon regulatory standards governing the quantity and quality of substantiation Respondent must possess at the time it makes express and implied claims in advertisements. The standards fail and have failed to provide reasonable persons, including Respondent, with fair notice as to whether contemplated claims in advertisements, including those at issue in this proceeding, are and were permissible andlor allow and have allowed representatives of the Commission to enforce the standards pursuant to their personal or subjective predilections. The regulatory standards are unconstitutional; therefore, the Commission's decision to initiate this enforcement proceeding based upon that standard is not to the interest of the public. Administrative Procedure Act (5 U.S.C. 66 706(1) and/or 555(b)) -- Unreasonable Delav The Commission did not initiate this proceeding with due regard for the convenience and necessity of the parties or their representatives, or within a reasonable time, as required under 5 U.S.C. 5 5550). Instead, it unreasonably delayed the filing of the Complaint for political or otherwise improper reasons. This unreasonable delay has prejudiced the ability of Respondent to present its case in this proceeding. * * * * * To the extent any of the foregoing grounds of defense may not properly be asserted and/or adjudicated in this proceeding, Respondent hereby states its intent to preserve such defenses for future proceedings. DEMAND FOR ATTORNEY'S FEES Respondent reserves all claims for attorney's fees and costs that they may have under the Recovery of Awards Under the Equal Access to Justice Act in Commission Proceedings, 5 U.S.C. $5 504 and 553(b). Respectfully submitted, COVINGTON & BURLING 1201 Pennsylvania Avenue, NW Washington, DC 20004 Tel: (202) 662-6000 Fax: (202) 662-6290 Counsel for Respondent Basic Research, L.L. C. CERTIFICATE OF SERVICE I hereby certify that on this 30th day of July, 2004,I caused to be filed and served the Answer and Grounds of Defense of Respondent Basic Research, LLC as follows: (I) an original and two paper copies filed by hand delivery and one electronic copy in PDF format filed by electronic mail to: Donald S. Clark, Secretary Federal Trade Commission 600 Pennsylvania Avenue, N.W., Room H-159 Washington, D.C. 20580 Email: secretary@ftc.gov (2) one paper copy served by hand delivery to: The Honorable Steven J. McGuire Administrative Law Judge 600 Pennsylvania Avenue, N.W., Room H-112 Washington, D.C. 20580 (3) one paper copy by first class U.S. mail and one electronic copy in PDF format by electronic mail to: Laureen Kapin Walter C. Gross Joshua S. Millard Robin F. Richardson Laura Schneider Federal Trade Commission 600 Pennsylvania Avenue, N.W., Suite NJ-2122 Washington, D.C. 20580 email: Ikapin@ftc.gov (4) one paper copy by first class U.S. mail to: Elaine D. Kolish Associate Director, Enforcement Federal Trade Commission 601 New Jersey Avenue, N. W. Washington, D.C. 20001 Ronald F. Price PETERS SCOFIELD PRICE 3 10 Broadway Centre Salt Lake City, UT 841 11 Counsel for Respondent Daniel B. Mowrey Richard D. Burhidge Jefferson W. Gross Andrew J. Dymek BURBDGE & MITCHELL 215 South State Street, Suite 920 Salt Lake City, UT 841 11 Counsel for Respondent Dennis Gay Mitchell K. Friedlander C/O Compliance Department 5742 West Harold Gatty Drive Salt Lake City, UT 841 16 Jeffrey D. Feldman FELDMAN GALE Miami Center, 19th Floor 201 South Biscayne Blvd. Miami, Florida 33 13 1-4332 Counsel for Respondent A.G. Waterhouse, L.L.C., Klein-Becker USA, L.L. C., Nzitrasport, L.L. C., Sovage Dermnlogic Laboratories, L.L. C., and Ban, L.L.C. I further certify that the electronic copies sent to the Secretary of the Commission are true and correct copies of the paper originals, and that paper copies with original signatures are being filed with the Secretary of the Commission on the same day by other means.