U.S. v. Lane Labs-Usa, Inc.

Decision Date09 July 2004
Docket NumberNo. CIV. 99-5782(WGB).,CIV. 99-5782(WGB).
PartiesUNITED STATES of America, Plaintiff, v. LANE LABS-USA, INC., a corporation, and Andrew J. Lane, an individual, Defendant(s).
CourtU.S. District Court — District of New Jersey

United States Department of Justice, Washington, DC by Gerald C. Kell, Office of the United States Attorney, Newark, NJ, by Michael Chagares, Department of Health and Human Services, By Alex M. Azar II, Food and Drug Administration, By Daniel E. Troy, Eric M. Blumberg, Paige Harrison Taylor, of Counsel for Plaintiff.

Sills Cummis Epstein & Gross, P.C., Newark, NJ, by Jack Wenik, James Hirschhorn, Ullman, Shapiro & Ullman, LLP, New York City, by Robert Ullman, New York, NY, for Defendants.

Emord & Associates, P.C., Burke, VA, by Jonathan R. Goodman, Jonathan W. Emord, for American Association for Health Freedom, Amicus curiae.

OPINION

BASSLER, District Judge.

The central issue in this case is whether plaintiff United States of America ("the Government" or "Plaintiff") is entitled to a permanent injunction prohibiting defendants Lane Labs-USA, Inc. and Andrew J. Lane (collectively "Defendants") from marketing certain products — one made from shark cartilage, one from rice bran treated with Shiitake mushroom, and one from glycoalkaloid, which is an extract of sand brier — as treatments for cancer, skin cancer, and HIV/AIDS.

This matter comes before the Court on the Government's motion for summary judgment pursuant to Federal Rule of Civil Procedure 56. Defendants oppose the Government's motion and cross-move to exclude portions of the Government's expert reports and testimony.1

The Government brought this enforcement action on behalf of the United States Food and Drug Administration ("FDA") on December 10, 1999, charging Defendants with violating the Federal Food, Drug, and Cosmetic Act ("FDCA"), 21 U.S.C. §§ 301 et seq., by improperly promoting and marketing three products — BeneFin(R), SkinAnswerTM and MGN-3TM (collectively "the Products") — for the cure, mitigation or treatment of disease, thereby rendering these products misbranded and unapproved new drugs. Lane Labs contends that it has fully complied with federal law and has marketed the Products not as drugs but as dietary supplements, pursuant to the 1994 Amendments to the FDCA, the Dietary Supplement Health & Education Act of 1994 ("DSHEA"). The Government seeks a permanent injunction, pursuant to 21 U.S.C. § 332(a), restraining Defendants from marketing the Products as well as any other products with the same or similar ingredients. The Government also seeks an order requiring Defendants to make restitution and disgorgement to consumers who purchased the Products.

The Court exercises jurisdiction pursuant to 28 U.S.C. § 1331. Venue is proper pursuant to 28 U.S.C. § 1391(b).

For the reasons set forth below, the Government's motion for summary judgment is granted.

FACTUAL BACKGROUND

Both parties have submitted 56.1 Statements in compliance with Local Civil Rule 56.1. The facts below are undisputed unless otherwise noted.

I. LANE LABS AND ITS PRODUCTS

Defendant Lane Labs-USA, Inc. ("Lane Labs") is a Delaware corporation that maintains its principal place of business in Allendale, New Jersey. Lane Labs describes itself as "a prominent supplier of high quality dietary supplements." (Defs. Opp. Br. at 4.) Lane Labs has more than 40 employees and approximately $30 million in annual sales. Defendant Andrew Lane is the president of Lane Labs, as well as its director and sole shareholder.

Lane Labs sells the Products at issue in this action directly to consumers, both in and outside of New Jersey, through Lane Labs' CompassioNet division. BeneFin is a product distributed in either powder or caplet form, containing shark cartilage. MGN-3, distributed in capsule form, is a polysaccharide dietary fiber formula made from rice bran (hemicellulose B) that is produced by the hydrolysis of rice bran with the enzymatic extract of Shiitake mushroom. The main ingredient in MGN-3 is arabinoxylan. SkinAnswer is a skin cream that is applied topically and labeled as containing glycoalkaloid, an extract of sand brier.

Lane Labs obtains the Products from overseas manufacturers. Specifically, Lane Labs purchases BeneFin and SkinAnswer from Lane-Labs Australia. Defendants purchase MGN-3 from Daiwa Pharmaceuticals ("Daiwa"), located in Japan.

B. BUSINESS RELATIONSHIP BETWEEN DRS. LANE AND GHONEUM AND LANE LABS

A.I. William Lane, Ph.D.

I. William Lane, Ph.D. ("Dr.Lane") is defendant Andrew Lane's father and has worked as a paid consultant for Lane Labs since at least 1997. Dr. Lane began studying the anti-angiogenic effects of shark cartilage in 1983.2 Dr. Lane formed Cartilage Consultants, Inc. in 1990 to research the benefits of shark cartilage as an angiogenesis inhibitor. Dr. Lane is the sole shareholder and chairman of that corporation.

Shortly after forming Cartilage Consultants, Dr. Lane was retained as a consultant by Cartilage Technologies, a company which was in the process of developing a shark cartilage product called Cartilade. In September 1993, defendant Andrew Lane, Dr. Lane's son, also joined Cartilage Technologies. Defendants claim that Dr. Lane became disillusioned with the poor quality of shark cartilage used by Cartilage Technologies for its Cartilade product. After allegedly expressing his concerns to Cartilage Technologies in 1994, Dr. Lane's consulting position was terminated and Andrew Lane was also fired.

Dr. Lane then began working with a Cartilade distributor in Australia to develop an allegedly superior method of processing shark cartilage. On August 11, 1994, Andrew Lane formed Lane Labs in order to market this new form of shark cartilage in the United States.3 Thereafter, Dr. Lane, through Cartilage Consultants, became a paid consultant for Lane Labs. Dr. Lane's ties to the Australian manufacturer of shark cartilage products enabled the formation of a business relationship between the manufacturer and Lane Labs. That Australian distributor later became Lane Labs-Australia, which Defendants claim is an entity entirely independent of Lane Labs. Lane Labs-Australia develops and manufactures BeneFin and SkinAnswer, both of which are distributed by Lane Labs in the United States.

Dr. Lane has written a myriad of articles, books, papers and pamphlets and has participated in interviews in which he touted the positive effects of BeneFin, SkinAnswer and MGN-3. Many of these sources are available to consumers over the Internet. Specifically, Dr. Lane has promoted shark cartilage, particularly BeneFin, as an effective treatment for cancer. (E.g. Pl.Ex. 15-18, Ex. 23, Tabs B and M.) Dr. Lane has claimed glycoalkaloids, such as SkinAnswer, are safe and effective treatments for skin cancer. (E.g. Pl.Ex. 14 and 19.) Dr. Lane has also made assertions that MGN-3 is a safe and effective treatment for cancer and Human Immunodeficiency Virus ("HIV"). (E.g. Pl.Ex. 20-22, Ex. 23, Tab T.)

In addition to the many articles Dr. Lane has written on the alleged benefits of the Products, he has co-authored three books on shark cartilage as an effective treatment for cancer — Sharks Don't Get Cancer, Sharks Don't Get Cancer: How Shark Cartilage Could Save Your Life and Sharks Still Don't Get Cancer: The Continuing Story of Shark Cartilage Therapy. Dr. Lane has also produced one videotape on the same subject, Shark Cartilage: A Promise Kept, and one book on how glycoalkaloid cream can help treat skin cancer, The Skin Cancer Answer. (Pl.Ex. 23, Tab M.)

The Government claims that part of Dr. Lane's role as a paid consultant for Lane Labs has been to promote the Products as treatments for cancer and HIV through his position as "researcher-spokesperson." The Government further argues that the relationship between Lane Labs and Dr. Lane is so closely intertwined and financially mutually beneficial that any claims about the Products made by Dr. Lane may be attributed to Defendants.

However, Defendants contend that Dr. Lane has been compensated by Lane Labs only for his "critical" role in discovering the existence of the Products and forming business relationships with various distributors, particularly Lane Labs-Australia. Defendants assert that Dr. Lane has not been compensated to promote BeneFin, MGN-3 and SkinAnswer for the cure, mitigation or treatment of disease.

B. Mamdooh Ghoneum, Ph.D.

Mamdooh Ghoneum, Ph.D. ("Dr.Ghoneum") has also worked closely with Lane Labs. Dr. Ghoneum is an Associate Professor and Chief of Research in the Department of Otolaryngology at Charles D. Drew University. Dr. Ghoneum is one of the leading researchers of MGN-3. He has written many scientific abstracts and articles summarizing his research findings and discussing MGN-3 as a possible effective treatment for cancer, HIV and Acquired Immune Deficiency Syndrome ("AIDS").

Lane Labs has an agreement with Dr. Ghoneum such that Defendants pay Dr. Ghoneum a royalty of 9.5 percent for every kilogram of MGN-3 that Lane Labs purchases from Daiwa, the Japanese distributor. Lane Labs also agreed to pay Dr. Ghoneum an additional 8.5 percent, which is specifically earmarked for research purposes, for every kilogram of MGN-3 that Lane Labs purchases from Daiwa.

The Government asserts that Dr. Ghoneum's role in Lane Labs' business has been that of "researcher-spokesperson." The Government contends Defendants purposefully and consistently link the Products with statements, articles and research by Dr. Ghoneum through promotional mailings, the Internet, and statements by Defendants' employees. Therefore, the Government argues that the promotional claims made by Dr. Ghoneum may also be attributed to Defendants.

Defendants paint a different picture of Dr. Ghoneum's association with Lane Labs. Similar to the purported relationship between Dr. Lane and Lane Labs, Defendants contend that Dr. Ghoneum is compensated...

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