01-15546. Panda Herbal International, Inc., et al.; Analysis to Aid Public Comment

AGENCY:

Federal Trade Commission.

ACTION:

Proposed Consent Agreement.

SUMMARY:

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the complaint that accompanies the consent agreement and the terms of the consent order—embodied in the consent agreement—that would settle these allegations.

DATES:

Comments must be received on or before July 16, 2001.

ADDRESSES:

Comments should be directed to: FTC/Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Michael Bloom or Donald D'Amato, Federal Trade Commission, Northeast Region, One Bowling Green, Suite 318, New York, NY 10004. [phone] or 607-2802.

SUPPLEMENTARY INFORMATION:

Pursuant to section 6(f) of the Federal Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and section 2.34 of the Commission's Rules of Practice (16 CFR 2.34), notice is hereby given that the above-captioned consent agreement containing a consent order to cease and desist, having been filed with and accepted by the Commission, has been placed on the public record for a period of thirty (30) days. The following Analysis to Aid Public Comment describes the terms of the consent agreement, and the allegations in the complaint. An electronic copy of the full text of the consent agreement package can be obtained from the FTC Home Page (for June 14, 2001), on the World Wide Web, at “http://www.ftc.gov/​os/​2001/​06/​index.htm.” A paper copy can be obtained from the FTC Public Reference Room, Room H-130, 600 Pennsylvania Avenue, NW., Washington, DC 20580, either in person or by calling [phone].

Public comment is invited. Comments should be directed to: FTC/Office of the Secretary, Room 159, 600 Pennsylvania Ave., NW., Washington, DC 20580. Two paper copies of each comment should be filed, and should be accompanied, if possible, by a 31/2 inch diskette containing an electronic copy of the comment. Such comments or views will be considered by the Commission and will be available for inspection and copying at its principal office in accordance with section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR 4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted, subject to final approval, an agreement to a proposed consent order from Panda Herbal International, Inc. (“Panda”), a corporation, and Everett L. Farr III, individually and as an officer of the corporation (“proposed respondents”).

The proposed consent order has been placed on the public record for thirty (30) days for the receipt of comments by interested persons. Comments received during this period will become part of the public record. After thirty (30) days, the Commission will again review the agreement and comments received and will decide whether it should withdraw from the agreement and take appropriate action or make final the agreement's proposed order.

This matter involves proposed respondents' making of health-related advertising claims on the Internet and elsewhere for their Herbal Outlook (a dietary supplement that contains St. John's Wort) and HerbVeil 8 (a topical ointment) products. The proposed compliant alleges that proposed respondents violated Sections 5 and 12 of the Federal Trade Commission Act by making deceptive claims for these products.

The proposed complaint alleges that respondents' claims that ingestion of Herbal Outlook is effective in the treatment of HIV/AIDS, herpes simplex, tuberculosis, influenza, and hepatitis B infections are unsubstantiated. Further, the proposed complaint alleges that responents deceptively fail to disclose significant adverse drug interactions in light of respondents' implied drug compatibility claim (“ingestion of St. John's Wort, an ingredient in Herbal Outlook, is effective in the treatment of HIV/AIDS”). The proposed complaint also alleges that respondents' claim that ingestion of St. John's Wort, an ingredient in Herbal Outlook, has no known contraindications or drug interactions is false because there is substantial information available documenting significant adverse drug interactions. In addition, the proposed complaint alleges that respondents' HerbVeil 8 claims that topical application of HerbVeil 8 is effective in the treatment of carcinomas, adenocarcinomas, and melanomas are unsubstantiated.

For purposes of the proposed order, a “covered product or service” means any service, program, dietary supplement, food, drug, or device.

The proposed order defines “Herbal Outlook product” as respondents' Herbal Outlook or any other covered product or service for which the term “Hypericum Perforatum” or “St. John's Wort” appears on the covered product or service label or in any advertising or promotion, and any covered product or service containing “Hypericum Perforatum” or “St. John's Wort.”

Part I of the proposed consent order prohibits proposed respondents from representing that ingestion of any Herbal Outlook product or any covered product or service is effective in the treatment of HIV/AIDS, herpes simplex, tuberculosis, influenza, or hepatitis B infections, unless, at the time the representation is made, respondents possess and rely upon competent and reliable scientific evidence that substantiates the representation.

The proposed order defines “HerbVeil 8 product” as respondents' HerbVeil 8 or any covered product or service for which the term “HerbVeil 8” appears on the product label or in any advertising or promotion, any covered product or service containing “HerbVeil 8,” and any covered product or service promoted for the topical treatment of any cancer. Part II of the proposed consent order prohibits proposed respondents from representing that application of any HerbVeil 8 product, or any covered product or service, is effective in the treatment of any cancer unless, at the time the representation is made, respondents possess and rely upon competent and reliable scientific evidence that substantiates the representation. Part III of the proposed consent order prohibits proposed respondents from representing that ingestion of any Herbal Outlook product has no known contraindications or drug interactions.

Part IV provides that in any advertisement, promotional material, or product label for any Herbal Outlook product, that contains any representation about the efficacy, performance, or safety of such product, and in any discussion, communicated via electronic mail or any telephone line, that contains any representation about the efficacy, performance, or safety of any Herbal Outlook product, proposed respondents shall make clearly and prominently, the following disclosure:

Warning: St. John's Wort can have potentially dangerous interactions with some prescription drugs. Consult your physician before taking St. John's Wort if you are currently taking anticoagulants, oral contraceptives, anti-depressants, anti-seizure medications, drugs to treat HIV or prevent transplant rejection, or any other prescription drug. This product is not recommended for use if you are or could be pregnant unless a qualified health care provider tells you to use it. The product may not be safe for your developing baby.

unless respondents possess competent and reliable scientific evidence that such product produces no adverse drug interactions or side effects. This disclosure was developed after discussions with the Food and Drug Administration. FDA has announced that it intends to initiate a rulemaking for dietary supplements for women who are or who may become pregnant. In the event that FDA issues a final rule requiring a warning for pregnant women on dietary supplements, respondents may substitute that warning for the disclosure on that topic required under the proposed order. Part IV specifies that the product label requirements of this Part shall not apply to products that are shipped to consumers or purchasers for resale less than thirty (30) days after the date of service of this order, and that with regard to products shipped after thirty (30) days of the date of service of this order, respondents may affix the disclosure clearly and prominently by sticker or other device on the labels of products manufactured prior to thirty (30) days after the service of this order.

Part V provides that proposed respondents, in connection with the advertising or sale of any Herbal Outlook product, HerbVeil 8 product, or any covered product or service, shall not make any representation that such product or service is effective in the mitigation, treatment, prevention, or cure of any disease or illness, or about the health benefits, performance, safety, or efficacy of any such product or service, unless, at the time the representation is made, proposed respondents possess and rely upon competent and reliable scientific evidence that substantiates the representation.

The proposed order defines “purchaser for resale” as any purchaser of any proposed respondents' Herbal Outlook product or HerbVeil 8 product, who: (a) Is a distributor of, or operates a wholesale or retail business that sells, any such product(s); or (b) orders twenty (20) or more units of any such products(s) in any three (3) month period. Parts VI A and VI B of the proposed consent order require proposed respondents to deliver to the Commission lists containing information regarding purchasers for resale and consumers of Herbal Outlook, respectively. Parts VI C and VI D require proposed respondents to deliver to the Commission lists containing information regarding purchasers for resale and consumers of HerbVeil 8, respectively. Parts VI E and VI F require proposed respondents to send a notice to all purchasers of Herbal Outlook and HerbVeil 8 informing them of the Commission's complaint allegations and the terms of the settlement. Part VII of the proposed order requires proposed respondents to provide refunds upon request to consumer purchasers of HerbVeil 8. Part VIII requires proposed respondents to submit a report specifying the steps it has taken to comply with Part VI (notice provisions) and Part VII (refund provision).

Part IX requires proposed respondents to take reasonable steps to monitor and ensure that all employees and agents engaged in sales, order verification, and other customer service functions comply with Parts I through V of the order and requires proposed respondents to terminate any employee who knowingly engages in conduct that violates these parts of the order. Part X A requires proposed respondents to send each purchaser for resale for a period of five years following entry of the order, the notice provisions required by Part VI E (to the extent such purchasers for resale have not already received such notice pursuant to Part VI E). Part X B requires proposed respondents to institute a purchaser for resale order compliance surveillance program and Part X C states that proposed respondents must terminate sales to those purchasers for resale they know or should know are violating Parts I through V of the proposed order. Part XI would allow proposed respondents to make any representation for any drug that is permitted by the FDA in the drug's labeling, and would allow proposed respondents to make any representation that is specifically permitted in the labeling for any product by regulations promulgated by the FDA pursuant to the Nutrition Labeling and Education Act of 1990.

Part XII of the proposed order contains record keeping requirements for materials that substantiate, qualify or contradict claims covered by the proposed order. Part XIII of the proposed order requires distribution of a copy of the order to current and future officers, employees, and agents. Part XIV provides for Commission notification upon a change in the proposed corporate respondent and Part XV requires Commission notification when the proposed individual respondent changes his business or employment. Part XVI requires the proposed respondents to file with the Commission a report demonstrating compliance with the terms and provisions of the order. Part XVII provides for the termination of the order after twenty (20) years under certain circumstances.

The purpose of this analysis is to facilitate the public comment on the proposed order, and it is not intended to constitute an official interpretation of the agreement and the proposed order or to modify in any way their terms.

By direction of the Commission.

Donald S. Clark,

Secretary.