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Picking Your Business Dance Partner: The New Age of Contractual Relationships

Last week, e-commerce giant Amazon took aim at own label distributors (OLDs) selling e-tailed products after the fallout from an injunction filed by the U.S. Department of Justice against a contract manufacturer (CM) late December of last year. While it turned out that one of the own label distributors was targeted unfairly as they were found to have no longer been using the contract manufacturer in question, it highlights the importance of Good Manufacturing Practices (GMPs) and picking partners wisely. Just like in Indiana Jones and the Last Crusade, you don’t want to hear the authoritative figure’s resounding echo that you have chosen poorly.

OLDs need to do their homework. There is a domino effect when a contract manufacturer is shut down through an injunction that cascades from the CM to retailers. This final agency action on the CM affects anyone who has entered into contractual agreements with them. The case also illustrates that quality in manufacturing is still an important issue to FDA and DOJ and that the government is not just issuing paper in the form of warning letters. Injunctions like these constitute final agency action and active regulation of the U.S. dietary supplement industry.

Those contractual relationships between CM and OLD are also a two-way street. Who is at fault when a misbranded label, developed by the OLD, is applied to the product by the contract manufacturer or labeler? The answer is both. Both need to hold each other accountable with regulatory oversight regarding current Good Manufacturing Practices, label misbranding, and unauthorized claims. Retailers selling those products are equally affected. They are highlighted in negative stories for selling those products. Even CMs with no history of compliance issues receive a black eye from the fallout of an injunction. The entire industry is affected, so choose wisely because consumer confidence is at stake.

Corey Hilmas
Corey Hilmas, MD, PhD
Chief Regulatory Officer
KGK Science