Got Hand Sanitizer? Business and Legal Considerations for New Market Entrants

March 24, 2020

With the COVID-19 pandemic, the demand for hand sanitizer is extremely high, and the supply chain has not kept pace with that demand. In an effort to meet public need, several federal agencies, including the Food and Drug Administration and the Alcohol and Tobacco Tax and Trade Bureau (TTB), have relaxed some of their regulations regarding manufacturing and distributing hand sanitizer, which is considered an over-the-counter (OTC) drug.

However, even with the relaxing of these regulations, manufacturers/distributors and potential manufacturers/distributors need to ensure that they are following the correct regulations and that product labeling and marketing do not lead to future issues or litigation.

OTC Drug Monograph: An OTC drug monograph is a formula by which any manufacturer can make a drug and launch it into the marketplace. OTC drugs are unique in that, provided they meet the monograph, they may be launched into the market without prior approval by FDA. Fortuitously, FDA finalized the OTC monograph for hand sanitizers on April 12, 2019, with an effective date of April 13, 2020. That effective date at this point is irrelevant and companies may treat the monograph as final. Eligible OTC drugs for hand sanitizing may be made with 60 to 95 percent alcohol, among other approved active ingredients. OTC drugs must comply with labeling requirements under 21 CFR 201.66. Manufacturers must register with FDA and follow all applicable current good manufacturing practices. No clinical trials or approvals are required, making OTC drugs easy entry categories for manufacturers.

FDA Guidance: FDA has, for the first time in recent memory, suspended the rules of the game for the manufacture of OTC drugs. According to March 2020 guidance, FDA will no longer take enforcement action against anyone making OTC hand sanitizer. Entities not registered with FDA or who are part of the regulated drug industry may begin manufacture provided they ensure the following:

  1. Alcohol (ethanol) USP or Food Grade is used; isopropyl alcohol made in accordance with TTB regulation 27 CFR Part 20 is also permissible.
  2. The manufacturing firm ensures the ratios are correct for all products.
  3. All products are made in sanitary conditions.
  4. The firm uses accurate measuring methods for verifying alcohol content in samples.
  5. The hand sanitizer is labeled properly.
  6. The firm quickly registers with FDA, at which time they will receive automatic confirmation from FDA to begin operations.

TTB Guidance: On March 18, 2020, the TTB waived certain provisions of internal revenue law for the taxation of spirits in order to manufacture alcohol for hand sanitizers without tax liability. Specifically, the alcohol used must be denatured ethanol in order to avoid taxation, if the manufacturer is not an alcohol fuel plant or a distilled beverage plant. AFPs and DSPs are allowed to make denatured or undenatured ethanol without obtaining formula approval from TTB and will not be taxed. AFPs and DSPs must continue to record the ethanol made for these purposes in order to show TTB why tax is exempt for these products, if audited.

Potential Litigation: As with any consumer product, a manufacturer, designer or distributor may risk individual and class action lawsuits regarding the product (design or manufacturing defect), product labeling (deceptive/false or failure to warn) and marketing (deceptive/false or failure to warn). To help prevent potential lawsuits, it is vital that companies have well-designed and well-manufactured products and that the product labeling and marketing are accurate, truthful and well-thought-out.

Gojo Industries, Inc., the manufacturer and distributor of Purell Healthcare Advanced Hand Sanitizer, recently received an FDA warning letter. The letter knocked claims made without proper FDA approval on Gojo’s website and social media that the company’s Healthcare Advanced Hand Sanitizer was effective against diseases such as Ebola, norovirus and the flu. This led, in turn, to plaintiffs filing class action lawsuits against Gojo in New York, Ohio and California shortly thereafter. The New York case, for instance, includes claims such as negligent misrepresentation, violations of consumer protection from deceptive acts under New York General Business Law §§ 349 and 350, breaches of implied and express warranties, a violation of the Magnuson-Moss Act, fraud and unjust enrichment. See Gonzalez v. Gojo Industries, Inc., Case No. 1:20-cv-00888, S.D.N.Y., ECF Doc. No. 1 (2/1/2020).

Another manufacturer of hand sanitizer, Vi-Jon Inc., who makes Germ-X, was the target of another class action filed recently in California federal court. See Geraldine David et al. v. Vi-Jon Inc., Case No. 3:20-cv-00424 (S.D. Cal.) (3/5/2020). To the extent a company would like to make any health-related claims on its hand sanitizer products, it should ensure the product strictly complies with all regulatory requirements, given that FDA and class-action lawyers will be closely scrutinizing such claims, and ensure that its product labeling and marketing are accurate and truthful. Types of claims made against manufacturers and distributors for product labeling have included the following:

  • Made in the USA Claims. Manufacturers assembling their products within the United States may be tempted to declare their products as “Made in the USA.” However, regulators have strict interpretations of when products may declare this. For instance, the Federal Trade Commission requires that a product making an unqualified “Made in the USA” claim be derived “all or substantially all” from parts and processing of U.S. origin and “should contain no — or negligible — foreign content.” Similarly, California law requires that no more than 5 percent of a product’s final wholesale “articles, units, or parts” be obtained outside the United States. Improper “Made in the USA” claims can be costly to manufacturers. For instance, in 2018, Tabasco’s manufacturer settled a “Made in the USA” class complaint for $650,000. To the extent a company would like to make such a claim on its hand sanitizer products, it should ensure the product and its constituent ingredients comply with the regulatory requirements.

  • Social Media Content. While manufacturers’ regulatory teams are used to ensuring their on-pack claims comply with regulations, a company’s social media managers likely have much less experience with what claims are appropriate. Plaintiffs and their attorneys may not rely exclusively on the label, but may highlight claims made by a manufacturer’s social media accounts as the basis for a lawsuit. For instance, in Galvan v. Smashburger IP Holder LLC, plaintiffs relied in part on marketing posted to the restaurant’s Twitter account in alleging that Smashburger falsely marketed its burgers as containing “Double the Beef.” Manufacturers should make it clear to their marketing and public relations teams that they cannot make any unsupported claims or otherwise implicitly suggest the product can do something unsupported, including in promoting, liking or responding to customer comments.

  • Halo Claims. A manufacturer may check all the regulatory boxes for its labeling and marketing, yet find itself responding to one of an increasing number of “halo” lawsuits. These suits get their name from the implicit feeling (or “halo”) labeling and marketing create around the product, even when no explicit labeling or marketing claim is targeted as violating regulations. In Milan v. Clif Bar & Co., the plaintiffs alleged that while label claims on Clif Bar’s products like “Made with Organic Rolled Oats” may be technically true, the claims nonetheless deceived consumers by creating a healthy halo around the bars despite allegedly high levels of sugar. Images on the bars’ labels, such as a rock climber, allegedly gave the bars an appearance of being part of a healthy and active lifestyle. When conducting a label review, manufacturers should not only check that each claim complies with the applicable regulations, but should also take a step back and confirm their labeling and marketing doesn’t leave consumers with a false or deceiving impression about the product or its capabilities on the whole.

McGuireWoods has a 24-hour hotline to answer time-sensitive food safety/labeling and product labeling inquiries. This service provides real-time answers to questions on topics such as product labeling, manufacturing practices and regulatory compliance, among others. Email labelinghotline@mcguirewoods.com or call +1 804 775 7878. Learn more about McGuireWoods’ food and beverage industry team.

Additionally, McGuireWoods has a new COVID-19 Response Team to help clients navigate urgent and evolving legal and business issues arising from the novel coronavirus pandemic. Lawyers in the firm’s 21 offices are ready to assist quickly on questions involving healthcare, labor and employment, education, real estate and more. For assistance, contact a team member or email covid-19@mcguirewoods.com.

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