Basic Research and the “Reasonable Basis” Standard

By Jennifer M. Thomas –

Last month, the U.S. District Court for the District of Utah dealt a significant blow to the Federal Trade Commission (“FTC”) when it denied FTC’s motion summary judgment in a case against Basic Research, LLC (“Basic Research”).  The Court’s decision marks the potential conclusion of a long-standing conflict between FTC and Basic Research regarding the meaning and application of the “reasonable basis” standard in a 2006 consent agreement.  FTC’s deadline to appeal the decision is in late January, 2015.

Related interactions between Basic Research and FTC began in 2004 or earlier, but this specific case began in 2009, when Basic Research sued the FTC.  More specifically, Basic Research sued the FTC for threatening to sue Basic Research.  According to Basic Research’s 2009 compliant, FTC threatened to bring contempt proceedings against the company under a prior consent agreement entered into by FTC and Basic Research in 2006, unless Basic Research complied with FTC’s demands to produce certain substantiation or pull advertising for Basic Research’s AkävarTM and RelacoreTM dietary supplement products.  See Complaint, Basic Research LLC v. FTC, No. 09-cv-779 (D. Utah, Aug. 31, 2009).  But Basic Research argued that FTC’s demands were outside the scope of the parties’ prior agreement – which required only a “reasonable basis” for advertising claims – and its threats of imminent contempt litigation allegedly violated Basic Research’s First and Fifth Amendment rights to advertise as permitted by that binding agreement.  Id. at 2.  Basic Research asked the District Court to declare the meaning of the “reasonable basis” standard.

Predictably, FTC filed the threatened enforcement action shortly after Basic Research sued.  See United States v. Basic Research, LLC, No. 09-cv-972 (D. Utah, Oct. 29, 2009).  The two actions were consolidated into the case Basic Research had filed.  See Memorandum Decision, Basic Research LLC v. FTC, No. 09-cv-779 (D. Utah, May 23, 2011).  FTC’s motion to dismiss the Basic Research’s case for lack of jurisdiction was concurrently denied.  Id.

On June 1, 2012, the District Court ruled in favor of Basic Research’s motion for partial summary judgment, declaring among other things that (1) FTC was bound by the consent agreement, which must be enforced only according to its terms, (2) the “reasonable basis standard” in the consent agreement was clear and unambiguous.  See Order Granting Plaintiffs’ Motion for Partial Summary Judgment, Basic Research, LLC v. FTC, No. 09-cv-779 (D. Utah, Jun. 1, 2012).  Specifically, the Court declared that the “reasonable basis” standard is met when there is a causal connection between the evidence proffered as support and the representation at issue at the time it is made, and the representation is supported by competent and reliable scientific evidence, including tests, analysis, research, and studies that:

(i) is based on the expertise of professionals in the relevant area;
(ii) conducted and evaluated in an objective manner;
(iii) by a person qualified to do so; and
(iv) uses procedures accepted in the profession to yield accurate and reliable results.

Id.  More significantly, however, the Court also declared FTC must prove that one of the above requirements for a “reasonable basis” has not been met in order to prove contempt, and that FTC’s burden would not be met merely by producing evidence that contradicts the evidence proffered by Plaintiffs, unless FTC’s evidence proves that one of the requirements for “reasonable basis” was not met.  Id.

In light of the Court’s 2012 order, FTC faced a significant challenge in proving contempt under the “reasonable basis” standard.  And it ultimately failed. 

On November 25, 2014, the District Court granted Basic Research’s motion for summary judgment and denied that of the FTC.  See Memorandum Decision and Order, Basic Research, LLC v. FTC, No. 09-cv-779 (D. Utah Nov. 25, 2014).   First, the Court determined that the study Basic Research proffered in support of its claims for AkävarTM, a double-blind, placebo controlled, peer-reviewed and published study, was sufficient to provide a “reasonable basis” for the company’s AkävarTM advertising.  This conclusion was based in part on the opinions of two experts that Basic Research asked to review the study, both of whom concluded that the study supported Basic Research’s claims for AkävarTM.  FTC also produced an expert, but it appears the Court found his opinion less than convincing on the salient point of whether Basic Research had a “reasonable basis” for its claims.  Specifically, the Court found that FTC’s expert had impermissibly compared the company’s proffered evidence with the “Gold Standard” for scientific substantiation, rather than the reasonable basis standard as stated by the Court’s 2012 order, and had “based his opinion on inaccurate and incomplete facts.”  Id. at 23.  Second, the Court found that FTC’s expert had similarly applied the wrong standard to Basic Research’s evidence in support of its RelacoreTM claims (multiple expert opinions based on a review of the published data on RelacoreTM’s ingredients).  The Court rejected the FTC expert’s opinion that a single study on the RelacoreTM formulation was necessary to support claims for that product.  Id. at 25.  The Court’s decision is also noteworthy in that the Court deemed several categories of studies worthy of consideration that FTC’s expert had summarily dismissed.  For example, the Court determined that animal and in vitro studies, while they did not warrant “automatic extrapolation . . . to human beings” should not be disregarded.  Id. at 26.  The Court questioned why “correlations and inference cannot be drawn” across study reports.  Id. 

Based on its evaluation of the expert opinions submitted by FTC and the data and expert opinions submitted by Basic Research, the Court concluded that (1) Basic Research provided a reasonable basis for its AkävarTM and RelacoreTM marketing claims, and (2) FTC failed to make a prima facie showing that Basic research lacked competent and reliable scientific evidence.  Thus, the Court granted summary judgment to Basic Research.

FTC’s loss to Basic Research drives home the importance to FTC and its enforcement authority of being able to impose a more specific substantiation standard on allegedly violative companies than the historically more general “competent and reliable scientific evidence” definition.  FTC clearly recognizes the importance of this issue, as evidenced in part by its persistent defense of the “two random and controlled trials” standard it has sought to impose on POM Wonderful LLC, see here.  Cases like Basic Research (and Bayer, which we blogged about here and here), amplify the significance of the D.C. Circuit’s eventual holding in the POM Wonderful case, which we at the FDA Law Blog await eagerly.