Petition — Porter & Dietsch, Inc. v. Federal Trade Commission
Supreme Court brief1980
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Supreme Court of the Hnited |
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October Term, 1979
No. 9-31
PORTER & DIETSCH, a corporation, WILLIAM H.
FRASER, individually and as an Officer of said corporation,
KELLY KETTING FURTH, a corporation, and JOSEPH
FURTH, individually and as an officer of said corporation,
Petitioners,
VS.
FEDERAL TRADE COMMISSION,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
SEVENTH CIRCUIT
SOLOMON H. FRIEND
JEROLD W. DORFMAN
FRIEND, PERLES, DORFMAN
& KLEEFELD
Attorneys for Petitioners
575 Madison Avenue
New York, New York 10022
(212) 759-3700
2819
H ]
TABLE OF CONTENTS
ee ee it cl weesuscccbovcbeccs
Jurisdiction ..... Re Pa ee aces
Questions Presented ...........ceceecesecscecececececes
Constitutional Provisions and Statutes ..................
ee dc ucdecctencecn
Reasons For Granting the Writ:
I.
II.
III.
Certiorari should be granted to define the scope of
the Federal Trade Commission’s authority consistent
with the free speech and due process provisions of
the First and Fifth Amendments respectively, to
issue a cease and desist order requiring a large type-
size disclosure in advertising which is based upon
findings in conflict with the findings of other federal
agencies involving the identical issues and which
constitutes a prior restraint by effectively foreclosing
petitioners from advertising their product. .......
ee. ee I re cep ccccecccees
ES AE OE
Certiorari should be granted to define the scope of
collateral estoppel in administrative proceedings...
Certiorari should be granted to determine whether a
quorum of administrative agency members hearing a
case can be overridden by agency members who
rejoin or who are appointed to such agency
subsequent to the submission of that case to the
DE CME CENSURESEND Li Wwhethccbccescccceces
1]
1]
13
14
ii
Contents Page
ELLE LE OTC POs GT MEE: BOS BPN ADT 18
TABLE OF CITATIONS
Cases Cited:
Alleghany Pharmacal Corp., 75 F.T.C. 990 (1969), reopen-
Se ee FORME: shan bodevecnetesaubape bends 6, 15
American Cyanamid Co. v. F.T.C., 363 F.2d 757 (6th Cir.
SO SuGam awe wend pin Vekokdeseveunenchderancaswebe es 17
Amos Treat & Co. v. S.E.C., 306 F.2d 260 (D.C. Cir.
RE NECEM Ae thee aahvesuhankbabeasediepeanepeeenis 17
Association of National Advertisers v. F.T.C., 460 F. Supp.
PE so Wk rs ahw dn Woe eee web een bo 400.6 64.0 17
Bates v. State Bar of Arizona, 433 U.S. 350 (1977) ......... 12
Blonder-Tongue Laboratories, Inc. v. University of Illinois
Foundation, GEE U.S. SIS CIST) 0 ccc ccccessesssees 14
Carlay Co. v. F.T.C., 153 F.2d 493 (7th Cir. 1946) ......... 8
Cutler v. Kennedy, No. 77-0734 (D.D.C. July 16, 1979 ..... 6
Firestone Tire and Rubber Co. v. F.T.C., 481 F.2d 246 (6th
Cir.), cert. denied, 414 U.S. 1112 (1973) .............. 14
Friedman v. Rogers, ___. U.S. —__, 47 U.S.L.W. 4151
SNE ta Cheds s bad Sake. o beak ois hee sat he ce KTR 12
PTC. vy. Raladam, 316 U.S. 14D (1982)... ccc cccccvenscs 8, 15
iii
Contents Page
F.T.C. v. Texaco, Inc., 517 F.2d 137 (D.C. Cir. 1975), cert.
Seek, AEE UE PICA iorrckAves cote ale 16
George H. Lee Co. v. F.T.C., 113 F.2d 583 (8th Cir. 1944)... 16
Hanover House and Romar Sales, Postal Service Docket
Nos. 2/143 and 2/149 (Judicial Officer December 5,
FTE dbeviwy wei Toda Ce Ere he hoe eels ene Be 6, 15
Jay Norris, Inc. v. F.T.C., 598 F.2d 1244 (2d Cir. 1979),
petition for cert. filed, No. 79-434 (September 14, 1979). 14 |
Montana v. United States, _.. U.S. ___, 99 S.. Ct. 970
SRPOE ob ha ahisbcbecihe Wed aa4ablaaibucunwaiics bu kes Lewis 14
National Commission on Egg Nutrition v. F.T.C., 570 F.2d
157 (7th Cir. 1977), cert. denied, ___. U.S. ___, 99 S.
Skee COPED yo beac ANuienaewicen neck e 8st ees rede 11, 12
National Dynamics, Inc., 82 F.T.C. 488 (1973) ............ 14
Parklane Hosiery Co. v. Shore, ___. U.S. ___,, 99 S.. Ct.
TE 0. i 90 0 cdks a de rain aewerkanhe bike 3, 14, 16
Fe, es Oe ie ts A I Wi hirib kod howe keeteaneec 14
Sears Roebuck & Co., F.T.C. Docket No. 9104 (A.L.J. Octo-
eS. i er Pee a OR rear et we mie TER 14
Sunshine Anthracite Coal v. Adkins, 310 U.S. 381 (1940) ... 16
United States v. 14 Cartons, More or Less... Ayds, No.
Sram Eke. WOO. FO TO, TOG iccakcccivcvaccececuse 16
United States v. National Association of Securities
SPI, Se Shh CO COE kb eee cba backs dedatacces 15
iv
Contents Page
United States v. Utah Construction and Mining Co., 384
SU wdncdnddndde cebubdeaieakas aaah ckubs 15
United States v. Willard Tablet Co., 141 F.2d 141 (7th Gr.
NN oni a Ce ei eee os 16
Virginia State Board of Pharmacy v. Virginia Citizens Con-
sumer Council, Inc., 425 U.S. 748 (1976) ............. 12
Warner-Lambert Co. v. F.T.C., 562 F.2d 749 (D.C. Cir.
1977), cert. denied, 435 U.S. 950 (1978) ......... 11, 12, 13
Weinberger v. Hynson, Wescott and Dunning; Inc., 412
Rui. AP GNOME 16:5 adn a ceeaieeotaamaidataiiadt sana ine 6
WIBC, Inc. v. F.C.C., 259 F.2d 941 (D.C. Cir.), cert.
denied sub nom. Crosley Broadcasting Corp. v. WIBC,
POR Sis BP ETI os 8 cas dabbchkscacscannsesedebeds 18
Statutes Cited:
BSE « «Zack snes csunthevsnnapeasgmaaiaesa 2
EF NAGA GF Wicca. cc sungesbanbuhevasabeeebuneneies 3,4
SP A. FOO nc tins hveccbentusaukeabhansiacetecese’ 5
Fed. Advisory Committee Act, 5 App. I (Supp.) wthetbcpalsd 3
United States Constitution Cited:
Pee Pa Bs is 6i'n kan ta eeke eerecdt< 2, 3, 11, 12, 13, 14
PUN PD o's. 00s ema neice ceca 2, 3, 11, 12, 13, 14
Vv
Contents Page
Other Authorities Cited:
ce | eee Peer eee ee ieee vas 9, 10, 17
Pe otis ovcks Gk cbse hee ei &
Kleinfeld and Dunn, Federal Food, Drug and Cosmetic
IE a6 chk Ghd ad acu rees oaks bnedduwvenwi 16
1979, which affirmed an order of the Federal Trade Commission
Pupreme Court of the Huited States
>
October Term, 1979
No.
PORTER & DIETSCH, a corporation, WILLIAM H.
FRASER, individually and as an Officer of said corporation,
KELLY KETTING FURTH, a corporation, and JOSEPH
FURTH, individually and as an officer of said corporation,
Petitioners,
VS.
FEDERAL TRADE COMMISSION,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
SEVENTH CIRCUIT
-
Petitioners pray that a writ of certiorari be issued to review
the judgment of the United States Court of Appeals for the
Seventh Circuit entered in the above-entitled case on August 8,
(the “Commission”) dated December 20, 1977.
2
CITATIONS TO OPINION BELOW
The opinion of the Court of Appeals for the Seventh
Circuit, not yet officially reported, is set forth in Appendix A.
The record of the administrative proceedings before the
Commission is officially reported at 90 FTC 770, et seg. all of
which is set forth at Appendix B as follows:
Complaint (29a), Initial Decision (37a), Final Order (141a),
Separate Statement of Commissioner Collier in which
Commissioner Clanton concurs (145a), Opinion of the
Commission (1 15a).
JURISDICTION
The judgment of the United States Court of Appeals for the
Seventh Circuit was entered on August 8, 1979. The jurisdiction
of this Court is invoked under 28 U.S.C. §1254(1).
QUESTIONS PRESENTED
1. Whether the Federal Trade Commission has statutory
authority, consistent with the free speech and due process
provisions of the First and Fifth Amendments respectively, to
issue a cease and desist order which requires petitioners to place
in all advertising, in print at least as large as the largest print
appearing in the advertisement, a statement as follows:
“DIETING IS REQUIRED”
and
“WARNING: THIS PRODUCT POSES A
SERIOUS HEALTH RISK FOR USERS
WITH HIGH BLOOD PRESSURE, HEART
DISEASE, DIABETES AND THYROID
3
DISEASE. READ THE LABEL CAREFULLY
BEFORE USING”.
v4: Whether the Federal Trade Commission has statutory
authority, consistent with the free speech and due process
provisions of the First and Fifth Amendments respectively, to
issue_a_cease_and desist order which requires petitioners, as a
condition of its right to advertise its over-the-counter drug
product, to establish by scientific and clinical testing, that its
product is effective for its intended use, where the Food and
Drug Administration Over-the-Counter Miscellaneous Internal
Drug Panel and prior cases adjudicated by the Commission and
Postal Service have determined that the drug product in issue
herein is effective for its intended use.
~ 3. Whether the principles of collateral estoppel as
enunciated in Parklane Hosiery Co. v. Shore, U.S.322 99
S. Ct. 645 (1979) and other applicable Supreme Court cases,
apply to estop the Commission from relitigating issues
determined adversely to it by the Commission itself and other
coordinate agencies of the federal government.
Y 4. Whether, consistent with the due process provision of the
Fifth Amendment, two Commissioners who joined the Federal
Trade Commission subsequent to the submission of petitioners’
appeal to a duly constituted quorum of three Commissioners,
can override a 2 to | decision in favor of petitioners and thereby
cause the Commission to rule against petitioners 3 to 2.
CONSTITUTIONAL PROVISIONS AND STATUTES
The constitutional provision involved herein are the First
and Fifth Amendments to the Constitution of the United States.
The statutory provisions involved herein are the Federal
Trade Commission Act, §5, 15 U.S.C. §45 and the Federal
Advisory Committee Act, 5 App. 1 (Supp.). All of the above-
referenced provisions are set forth in Appendix C.
Hy LW
4911
4
STATEMENT OF THE CASE
Petitioner Porter & Dietsch is a Minnesota corporation
which markets an over-the-counter (OTC) drug product for
weight loss, known as the X-11 Plan, consisting of tablets, each
containing 25 milligrams (mgs.) of a recognizéd appetite
suppressant, phenylpropanolamine hydrochloride, and 25 mgs.
of caffeine, among other ingredients.' Along with each bottle of
tablets the consumer is given a suggested dietary regimen to
follow. The company markets its product by mail order and
through retail stores.” Petitioner Kelly Ketting Furth of Chicago,
Illinois, was the advertising agency responsible for placing X-11
advertising and petitioner Joseph Furth was the account
executive responsible for the X-11 account.
The Commission served a complaint pursuant to 15 U.S.C.
§45, alleging that petitioners’ advertising for X-11 was false and
misleading in that:
“1. Readers were led to believe that they could
use X-Il1 and thereby lose weight without
consciously reducing their caloric intake and
without consciously changing their ea.i.z habits;
2. Readers were led to believe that petitioners
had reasonable substantiation for claiming that
on the basis of scientific evidence in _ its
possession, substantially all users of X-11 would
lose a significant amount of weight;
1. Vitamin A, Vitamin B, Vitamin B2, Vitamin B6, Vitamin C, Calcium
Pantothenate, Niacinimide, Vitamin E, Vitamin B12, Methylcellulose.
2. The retail drug chain, Pay *N Save, Inc., was a co-respondent in the
Commission proceeding and in the appeal to the Seventh Circuit Court of
Appeals. The Commission order entered against Pay’'N Save was affirmed as
modified by the Court of Appeals. A petition for reargument filed by Pay ’N
Save was denied October 16, 1979. (See Appendix A, page 28a).
5
3. Petitioners’ advertising failed to disclose that
X-I1 should not be taken by persons with high
blood pressure, heart disease, diabetes, or thyroid
disease except as directed by a physician; and
4. The advertising failed to disclose that a diet
was included in the package with a
recommendation that consumers follow it.”
The Commission order upheld by the Seventh Circuit?
requires petitioners to state in any future advertising for X-11
the following, in print as large as the largest type in the ad:
“DIETING IS REQUIRED”
and
“WARNING: THIS PRODUCT POSES A
SERIOUS HEALTH RISK FOR USERS
WITH HIGH BLOOD PRESSURE, HEART
DISEASE, DIABETES AND THYROID
DISEASE. READ THE LABEL CAREFULLY
BEFORE USING.”
The Commission and court upheld the warning
requirement apparently on the theory that many people who
suffer from the dise_ses mentioned in the warning tend to be
overweight, but the record contains no evidence that any
consumer of X-I1 was ever harmed by petitioners’ product or by
the use of the dozens of similar products sold by petitioners’
competitors. Indeed, the FDA’s Over-the-Counter Internal
3. Following the Commission decision, petitioners appealed to the United
States Court of Appeals for the Seventh Circuit pursuant to the judicial review
provisions of 15 U.S.C. §45(c) (1970).
4. Advertisements by petitioners’ competitors are not required to contain
the warning statement. As discussed infra, it is for this reason that
Commissioners Collier and Clanton, comprising a majority of the Commission
(Cont'd)
|
6
Miscellaneous Drug Panel has recently affirmed the safety of the
product and determined that there were no significant adverse
side effects in over 40 years of phenylpropanolamine use.
Petitioners’ proof showed that phenylpropanolamine is a
safe and effective appetite suppressant and weight loss aid and
has been so held in the past in cases involving identical products
and similar advertising by a Commission Hearing Examiner,5
the Postal Service,® and by the aforementioned Food and Drug
Administration Over-the-Counter Internal Miscellaneous Drugs
Panel.’ The cited administrative agency cases had affirmatively
found that a warning in advertising phenylpropanolamine for
weight loss was not required, and that a caution statement on
the label of the product pursuant to FDA regulation 21 C.F.R.
§369.20 was sufficient notice to any overweight persons having
the conditions mentioned in the warning.®
(Cont'd)
quorum to whom the agency appeal was submitted dissented from the decision
of the subsequently enlarged Commission.
5. Alleghany Pharmacal Corp., 75 F.T.C. 990 (1969), reopening 55 F.T.C.
705 (1958).
6. Hanover House and Romar Sales, Postal Service Docket Nos. 2/143
and 2/149 (Judicial Officer December 5, 1975) (consolidated for trial).
7. The Review Panel procedure in which petitioners’ product was voted
“Category I”, “generally recognized as safe and effective” for weight loss, has
been upheld and affirmed by the Supreme Court as the accepted method by
which the Food and Drug Administration, the agency with primary
responsibility for determining the safety and efficacy of drugs, is to determine
such questions based upon “adequate and well-controlled clinical tests” and
other appropriate data. Weinberger v. Hynson, Westcott «nd Dunning, Inc.,
412 U.S. 609 (1973); Cutler v. Kennedy, No. 77-0734 (D.D.C. July 16, 1979).
8.21 C.F.R. §369.20 (1978) provides, inter alia.
“PHENYLPROPANOLAMINE HYDROCHLORIDE PREPARATIONS,
ORAL. Caution — Individuals with high blood pressure, heart disease,
diabetes, or thyroid disease should use only as directed by physician.”
7
Phenylpropanolamine hydrochloride, sold over-the-counter
in the United States since the 1930's, is included as an ingredient
not only in numerous weight loss products, but also in such
heavily advertised products as Dristan, Contac, and Sine Aids.
The Commission order makes petitioners the only advertisers in
the United States required to place a warning in_ its
advertisements for its OTC phenylpropanolamine product.
Indeed, we believe that a safety warning is not required by the
FTC in advertisements for any OTC drug product. The Seventh
Circuit, in upholding the Commission order, did not deal with
the patently discriminatory aspect of the Commission order and
apparently approved it merely because the Commission issued it.
The Commission order also requires that petitioners not
make any performance claim for any food, drug, device or
cosmetic, whether true or not, unless petitioners have in their
possession, “full and complete substantiation” of such claims
through competent scientific tests or clinical tests (Appendix B,
page 142a). However, the substantiation requirement for
petitioners’ product claim, which was the predicate for this
portion of the Commission order, had already been established
not only by the FDA OTC Panel but by the previously
adjudicated Postal Service and Commission decisions.
While upholding this provision of the Commission’s order,
even the Court of Appeals acknowledged that it was
uncomfortably close to an unconstitutionally impermissible
“fencing-in” provision (Appendix A, page 19a).
Similarly, the Commission held that a user of X-11 required
conscious “strict dieting” in order to lose weight, and it required
petitioners to include such a statement in future advertisement
(Appendix B, page 143a),even though the FDA Miscellaneous
Internal Drug Panel, and the prior adjudicated agency cases had
ruled that the product was effective for weight loss without the
necessity of strict or conscious dieting. The rationale for these
rulings was that, since phenylpropanolamine was an effective
appetite suppressant, conscious dieting was not necessary in
order to lose weight. In this respect it is significant to note that
in Carlay Co. v. FTC, 153 F.2d 493 (7th Cir. 1946), the Seventh
Circuit applied this very rationale to vacate a Commission order.
The Seventh Circuit also rejected the findings of safety and
efficacy made by the FDA Panel on the ground that that
government agency’s reaffirmation of safety and efficacy of
phenylpropanolan. ne came “too late” (Appendix A, page 12a).
The court’s ruling is clearly erroneous because the Panel
recommendation was based upon pre-existing clinical studies
and data.
As to petitioners’ collateral estoppel defense, the Court of
Appeals held that the government is not precluded from
relitigating medical issues where knowledge is constantly
changing, citing FTC v. Raladam, 316 U.S. 149 (1942). This
ruling is likewise incorrect. The Commission made no showing
on this record that medical “knowledge” had changed to the
detriment of petitioners; rather, the “additional” knowledge
articulated by the FDA Panel report merely reinforced the prior
medical knowledge and agency rulings that
phenylpropanolamine was a safe and effective OTC weight loss
product.
This case also presents a significant due process issue not
heretofore considered by this Honorable Court. The issue arises
from the following facts:
Following the ruling against petitioners by the
Administrative Law Judge, the petitioners appealed to the then
duly constituted members of the Commission.
At the time the appeal was submitted, the Commission
consisted of Commissioners Dixon, Clanton and Collier.
Commissioner Dole, previously active as a Commissioner, had
taken a leave of absence to campaign for her husband, the
Republican vice-presidential candidate, while Chairman
9
Pertschuck had not yet been appointed to the Commission. As
such, a Commission quorum consisting of Commissioners
Collier, Clanton and Dixon heard the appeal in September 1976.
Almost a year later, the case remained sub judice and no
decision had yet been rendered.
In June 1977, petitioners were advised that Chairman
Pertschuck, who had been appointed in the interim, intended to
Participate in the decision of the case. In July 1977, petitioners
filed formal written objections to the participation of Chairman
Pertschuck, and also objected to the participation of
Commissioner Dole, who, after the submission of petitioners’
appeal to the three-member quorum, had by that time rejoined
the Commission following the presidential elections.
Petitioners’ objection was overruled by the Commission on
the ground that absent Commissioners could participate in the
decision of a case, citing 16 C.F.R. §3.52(f), which states in part:
“[A] member of the Commission absent from an
Oral argument may participate in the
consideration and decision of the appeal in any
case in which the oral argument is
stenographically reported.”
Most significantly, the Commission decision overruling
petitioners’ objection was made with the participation and
concurrence of the very two Commissioners whom the
petitioners sought to disqualify. Of equal significance, upon
publication of the Commission’s final decision herein, it became
evident that the Commission quorum to whom the appeal had
been submitted had actually ruled 2 to | in favor of the
petitioners’ position on the warning issue.? Moreover, since the
final decision had not been rendered until January 1978, it
9. See separate statement of Commissioners Collier and Clanton,
Appendix B, page 145a).
further appeared that the decision had been sub judice for
almost 18 months, apparently long enough to _ permit
Commissioners Pertschuck and Dole to alter the outcome of the
Commission quorum adversely to petitioners.
The Seventh Circuit held that even though Commissioner
Dole had been a non-member of the Commission by virtue of
her political leave of absence, she was merely an “absent”
Commissioner under 16 C.F.R. §3.52(f), and therefore eligible to
participate in the decision of this case (Appendix A, page 3a).
As to Commissioner Pertschuck, who was not a
Commissioner until after the submission of petitioners’ appeal,
the Seventh Circuit held that he could nevertheless participate
because no constitutional or statutory right of oral argument in
favor of petitioners had been violated (Appendix A, page 5a)..
REASONS FOR GRANTING THE WRIT
I. +
CERTIORARI SHOULD BE Guanes ‘TO DEFINE
THE SCOPE OF THE FEDERAL TRADE
COMMISSION’S AUTHORITY CONSISTENT WITH THE
FREE SPEECH AND DUE PROCESS PROVISIONS OF
THE FIRST AND FIFTH AMENDMENTS
RESPECTIVELY, TO ISSUE A CEASE AND DESIST
ORDER REQUIRING A LARGE TYPE-SIZE DISCLOSURE
IN ADVERTISING WHICH IS BASED UPON FINDINGS
IN CONFLICT WITH THE FINDINGS OF OTHER
FEDERAL AGENCIES INVOLVING THE IDENTICAL
ISSUES AND WHICH CONSTITUTES A PRIOR
RESTRAINT BY EFFECTIVELY FORECLOSING
PETITIONERS FROM ADVERTISING THEIR PRODUCT.
A. The Warning Notice
Significant questions are presented concerning the scope of
First Amendment protection to be accorded to truthful
commerical speech and the scope of the Commission’s authority
to issue remedial orders which effectively prohibit an advertiser
from engaging in truthful advertising of a product.
An unnecessary “WARNING” and “DIETING” notice in
print at least as large as the largest print appearing in the
advertisement effectively bans petitioners from engaging in any
advertising of its product. The “WARNING” and “DIETING”
type-size requirement clearly violates petitioners’ First
Amendment rights, operating as a freeze against any future
advertising; and it also violates the standard heretofore upheld
for affirmative disclosure in National Commission on Egg
Nutrition v. F.T.C., 570 F.2d 157 (7th Cir. 1977), cert. denied,
U.S. ___, 99 S. Ct. 86 (1978): and Warner-Lambert Co. vy.
F.T.C., 562 F.2d 749 (D.C. Cir. 1977), cert. denied, 435 U.S.
12
950 (1978). In those cases, the type-size standard was merely
“clear and conspicuous” disclosure, National Commission, 570
F.2d at 160; Warner-Lambert, 562 F.2d at 753, and was imposed
because of a finding that no less a remedy could correct
consumer impressions based upon massive advertising of false
representations. National Commission, 570 F.2d at 165; Warner-
Lambert, 562 F.2d at 762-63. Here, there were no such findings.
Indeed, the Commission imposed the “WARNING” and
“DIETING” requirement despite findings of safety and efficacy
of petitioners’ product in previously litigated cases, and the
Seventh Circuit affirmed despite a finding by an FDA panel that
the product is safe and effective for weight loss without regard to
dieting.
Clearly, the Commission order in this case is not merely a
restriction upon “false, deceptive and misleading advertising”
which requires corrective measures by affirmative disclosure;
rather, the present order is, for all practical purposes, an
absolute prohibition against any X-1I1 advertising even though
truthful. This is not a “reasonable prior restraint” on commercial
speech, referred to with approval as a valid theoretical
possibility in cases such as Friedman v. Rogers, _
47 U.S.L.W. 4151, 4153-54 (1979); Virginia State Board of
Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S.
748, 770-772 (1976); and Bates v. State Bar of Arizona, 433 U.S.
350, 383-384 (1977). This is an absolute prior restraint, the death
knell to any X-I1 advertising by petitioners. There is no way
petitioner can overcome the shock and dismay to its potential
customers who may wish to buy its safe and effective drug
product when they see an ad containing a health warning and .
“DIET” notice as large as the largest type in the ad. To impose
such a requirement for the advertising of an admittedly safe and
effective over-the-counter appetite suppressant drug, which has
been on the market since the 1930's, is without reason and
represents a callous disregard for petitioners’ First and Fifth
13
Amendment rights.” It is simply out of any reasonable
proportion to any violation of law.
Certiorari will enable this Court to clarify and set the limits
upon affirmative disclosures in commercial advertising where the
effect may be to preclude even truthful advertising and to
reconcile the apparently conflicting perception of such limits
articulated by the Court of Appeals for the District of Columbia
Circuit in Warner-Lambert Co., and the Seventh Circuit herein.
The problem of the limits on the FTC’s power with regard to
affirmative disclosure in commercial advertising is a recurring
problem certain to continue.
B. Substantiation
The Seventh Circuit concedes that the order provision
requiring petitioners to have in its possession “competent
scientific tests” before it can make even admittedly truthful
product claims, is “as extreme a fencing in provision as we
would sustain” (Appendix A, page 19a). Petitioners believe that
the “fencing in” provision is unconstitutionally “extreme”,
violating petitioners’ First and Fifth Amendment rights, because
the FDA OTC Panel, a panel of government recognized experts
established pursuant to congressional enactment, has already
confirmed, based upon adequate, well-controlled clinical tests
and other accepted scientific data, that petitioners’ drug product
is safe and effective for weight loss.
The Commission order, if upheld, would prohibit
admittedly truthful claims merely because petitioners do not
have in their possession full and complete substantiation
satisfactory to the FTC. The fact is, however, that such
substantiation already exists by virtue of the FDA Panel
findings. The Court of Appeals’ refusal to accept such findings
and to require petitioners to conduct needless tests is a clear
10. Even in the case of cigarettes, a proven killer, the FTC has not
required the Surgeon General's warning to be in type-size equal to the largest
type appearing in the ad. The FTC recognizes the obvious such a
requirement effectively prohibits all advertising.
14
violation of the Federal Trade Commission Act and, as applied
to the facts of this case, a violation of the First and Fifth
Amendments. Moreover, this is a problem of recurring
significance in that the FTC has repeatedly invoked its
“substantiation” requirement as a precondition to a company’s
right to advertise, regardless of the truth or falsity of its claims.
See, e.g., Jay Norris, Inc. v. F.T.C., 598 F.2d 1244 (2d Cir. 1979),
petition for cert. filed, No. 79-434 (September 14, 1979);
Firestone Tire and Rubber Co. v. F.T.C., 481 F.2d 246 (6th Cir.
1973), cert. denied, 414 U.S. 1112 (1973); Sears Roebuck & Co.,
F.T.C. Docket No. 9104 (A.L.J. October 11 1979); National
Dynamics, Inc., 82 F.T.C. 488 (1973); Pfizer, Inc., 81 F.T.C. 23
(1972). The instant case provides the Supreme Court with an
opportunity to clarify the law for regulators and advertisers
alike.
CERTIORARI SHOULD BE GRANTED TO DEFINE
THE SCOPE OF COLLATERAL ESTOPPEL IN
ADMINISTRATIVE PROCEEDINGS.
The Seventh Circuit rejected petitioners’ collateral estoppel
defense on the ground that the government is not bound by
prior decisions involving questions of pharmacological science
and can relitigate identical issues against the same or different
parties in subsequent cases without qualification. Although the
court grounded its holding on the presumption that
pharmacology is an area where knowledge is “constantly
advancing”, they did not require the Commission to make even a
prima facie showing that such knowledge had, in fact, changed
in favor of the government's position in this case. Without such
a showing, the Seventh Circuit’s holding clearly violates the rule
in favor of repose established by this Court in such cases as
Montana v. United States, U.S. 99 S. Ct. 970 (1979);
Parklane Hosiery Co. v. Shore, Js Laney OP hs GA, OED
(1979); Blonder-Tongue Laboratories, Inc. v. University of
15
Illinois Foundation, 402 U.S. 313 (1971) and United States v.
Utah Construction and Mining Co., 384 U.S. 394 (1966). If the
Seventh Circuit ruling is allowed to stand, it could lead to
numerous cases in which the government will continuously
relitigate its lost causes, even though advancing medical
knowledge may not have altered the effect of previous rulings.
The Seventh Circuit’s reliance on FTC v. Raladam, 316
U.S. 149 (1942) is misplaced. In the Raladam case, this Court
held that the FTC could relitigate the same issue against the
same party based on new facts, even though its previous order
was denied enforcement. 316 U.S. at 150-151. In the present
case, however, there was no attempt to relitigate an issue based
on new facts. Rather, the Commission here sought to relitigate
the issues of safety and efficacy of phenylpropanolamine, which
were previously determined adversely to the government, not
only by the Postal Service proceeding in Hanover House and
Romar Sales, but by a Commission proceeding as well.
Alleghany Pharmacal Corp. Moreover, these adverse rulings
were reaffirmed by a panel of FDA appointed medical experts,
constituted pursuant to the provisions of the Federal Advisory
Committee Act, who found phenylpropanolamine safe and
effective for weight loss without reference to conscious dieting.
Thus, the Seventh Circuit decision herein compromises the
authority of the FDA, the agency primarily responsible for the
determination of the safety and efficacy of drugs, and thereby
subjects petitioners to a “substantial danger” of “duplicative and
inconsistent standards”, condemned by this Court in United
States v. National Association of Securities Dealers, 422 U.S.
694, 729-730, 735 (1975).
In this connection, the decision of the Seventh Circuit
herein is at variance with a line of cases in the Seventh and other
circuits holding that the United States government and its
instrumentalities, including the Commission, are not entitled. to
argue that safety and efficacy representations, which have been
adjudged not to be false, are in fact false, because after the
16
government has had its full day on these issues and lost, it
cannot collaterally attack, directly or indirectly, the prior
determination against it. See Sunshine Anthracite Coal v.
Adkins, 310 U.S. 381, 403 (1940); F.7.C. v. Texaco, Inc., 517
F.2d 137, 147 (D.C. Cir. 1975), cert. denied, 431 U.S. 974 (1977);
United States v. Willard Tablet Co., 141 F.2d 14l¢(7th Cir.
1944); George H. Lee Co. v. F.T.C., 113 F.2d 583 (8th Cir.
1944); United States v. 14 Cartons, More or Less . . . Ayds, No.
3736 (E.D. Mo. June 10, 1946) [not officially reported, but
reprinted in (1938-1949) Kleinfeld and Dunn, Federal Food,
Drug, and Cosmetic Act 182 (1949)].
Review by this Court presents the opportunity to reconcile
the various court decisions regarding the extent to which the
principle of collateral estoppel, as enunciated in Parklane
Hosiery Co. v. Shore, is applicable to prevent different federal
agencies from relitigating and making contradictory findings on
the same issue.
CERTIORARI SHOULD BE GRANTED TO
DETERMINE WHETHER A QUORUM _. OF
ADMINISTRATIVE AGENCY MEMBERS HEARING A
CASE CAN BE OVERRIDDEN BY AGENCY MEMBERS
WHO REJOIN OR WHO ARE APPOINTED TO SUCH
AGENCY SUBSEQUENT TO THE SUBMISSION OF THAT
CASE TO THE AGENCY.
This case presents the significant question of when and to
what extent subsequently appointed Commissioners of the FTC
may participate in deciding an appeal which has previously been
submitted to a duly constituted quorum of the Commission. The
circumstances of the present case are particularly egregious in
that the quorum which heard petitioners’ appeal actually ruled
in petitioners’ favor on a crucial issue, but their decision was
then overridden by the participation of two subsequently
17
appointed Commissioners. This issue has never previously been
decided by this Court and involves a matter of major due
process rights to all litigants before the Commission.
In rejecting petitioners’ argument on this point, the Court of
Appeals below improperly focused upon whether a respondent
in an FTC proceeding is entitled to oral argument as a matter of
constitutional or statutory right. The court’s reasoning missed
the mark, although it should be noted that while oral argument
is not mandated by statute, it is mandated by the Commission’s
own Rules of Practice, 16 C.F.R. §3.52(f) (1978). What is
involved, however, is not merely whether oral argument is a
matter of statutory right, but whether a duly constituted quorum
of Commissioners, charged by statute with performing
adjudicative functions and sitting as a judicial tribunal, may be
enlarged after submission of an appeal in a manner which makes
possible a different decision from that which the original
tribunal would have rendered. In fact, the issue presented is
whether a judicial tribunal may be “packed” by subsequent
appointees to alter the outcome of a case which is sub judice
before the tribunal. Petitioners submit that if this practice
remains unchallenged, the integrity of the judicial process itself
will become seriously suspect. In proceedings before a judicial
tribunal, even the mere appearance of impropriety must be
avoided, if respect for the judicial process is to be honored and
enhanced.''! The present case is merely another example of the
type of frequently recurring improprieties by members of the
Federal Trade Commission, which various courts have been
called upon to correct in order to safeguard the integrity of
proceedings before that agency. American Cyanamid Co. v.
F.T.C., 363 F.2d 757 (6th Cir. 1966); Association of National
Advertisers v. F.T.C., 460 F. Supp. 996 (D.D.C. 1978); see also,
Amos Treat & Co. v. S.E.C., 306 F.2d 260 (D.C. Cir. 1962). The
instant case, therefore, presents this Honorable Court with the
11. The 18-month delay between the submission of the appeai to the
Commission and the final decision lends emphasis to the suspect nature of the
entire proceeding.
opportunity to define the limits beyond which Commissioners
may not go in adjudicating issues over a respondent’s timely
objection that became sub judice prior to the commencement of
the Commissioner's status as a “judge”.
In the present case, over the timely objection of petitioners,
not only were Commissioners, who joined or rejoined the
Commission after the case was submitted to a duly constituted
quorum of Commissioners, allowed to participate in the
decision, they changed the outcome of the case. The prejudice to
petitioners from such action is particularly grievous, because the
warning requirement imposed upon petitioners as a result of the
participation by the two added “Commissioners” has the
practical effect of putting petitioners out of business. We
respectfully submit that the procedures invoked against
petitioners in this case could never pass muster in any judicial
proceeding presided over by the Honorable Justices of this or
any other appellate tribunal. The defect in the present case is
apparent on its face, see WIBC, Inc. v. F.C.C., 259 F.2d 941
(D.C. Cir.), cert denied sub nom. Crosley Broadcasting Corp. v.
WIBC, 358 U.S. 920 (1958), and justifies a reversal on the
“warning” aspect of the Commission’s order, without the
necessity either for further briefing or a full Supreme Court
hearing.
CONCLUSION
For all the foregoing reasons, the petition for certiorari
should be granted. :
Respectfully submitted,
Solomon H. Friend
Jerold W. Dorfman
FRIEND, PERLES,
DORFMAN & KLEEFELD
Attorneys for Petitioners
la
APPENDIX A — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE SEVENTH CIRCUIT,
PORTER & DIETSCH, INC., ET AL. v. FEDERAL TRADE
COMMISSION, NOT OFFICIALLY REPORTED
4u the
United States Court of Appeals
Sor the Seventh Cirruit
Nos. 78-1324 and 78-1497
PORTER & DIETSCH, INC., a corporation, WILLIAM H.
FRASER, individually and as officer of said corpora-
tion, KELLY KETTING FuRTH, INC., a corporation, and
JOSEPH FURTH, individually and as officer of said cor-
poration, and PAYy’N SAVE CORPORATION,
Petitioners,
Vv.
FEDERAL TRADE COMMISSION,
Respondent.
Petitions for Review of Orders of the
Federal Trade Commission
ARGUED JANUARY 9, 1979—DeEcIDED AUGUST 8, 1979
Before PELL and TONE, Circuit Judges, and
KIRKLAND, District Judge.*
_ TONE, Circuit Judge. This case comes to us on a peti-
tion to review a Federal Trade Commission false adver-
tising order relating to non-prescription weight reducing
* Judge Alfred Y. Kirkland of the Northern District of II-
linois sat on this case at the time of oral argument by designa-
tion. On May 1, 1979, Judge Kirkland became a senior district
judge of the Northern District of Illinois and is continuing to
sit on this case by redesignation.
2a
Appendix A
tablets.! Petitioners raise a variety of issues, which in-
clude the propriety of participation in the decision by
two of the commissioners, collateral estoppel, sufficiency
of the evidence, procedural due process, and the ap-
propriateness of the relief granted. We approve the
order with minor exceptions.
Petitioners are Porter & Dietsch, Inc., which packages
the subject “X-11” tablets and sells them through retail
drug stores and the mail; William Fraser, its president
and sole shareholder; ney! Ketting Furth, Inc., its
advertising agency; Joseph Furth, the agency’s account
executive responsible for X-11 advertising; and Pay’n
Save Corporation, a retail drug store chain that sells X-
11 tablets. All petitioners except Pay’n Save took an ac-
tive role in the creation of the advertisements in ques-
tion and were aware that representations in them posed
poteritial legal problems. Pay’n Save’s only connection
with the X-11 advertising was its participation in Porter
& Dietsch’s co-operative advertising programs, through
which it received advertising materials and instructions
for their publication from Porter & Dietsch, and caused
them to be published bearing Pay’n Save’s name.
Nothing in the record indicates that Pay’n Save had any
knowledge that the representations in the adver-
tisements were false or unsubstantiated.
After an evidentiary hearing, an FTC Administrative
Law Judge rendered an initial decision finding that
petitioners had made the following representations in
their advertising, as the FTC complaint had alleged:
1) Users of X-11 tablets can lose weight without
restricting their accustomed caloric intake and
while they continue to eat the foods of their choice.
2) Petitioners have a reasonable basis from which
to conclude that substantially all users of X-11
tablets will lose a significant amount of weight.
3) The X-11 tablet contains a unique ingredient.
| Porter & Dietsch labelled and advertised the product as the
“X-11 Reducing Plan,” but for reasons disc infra at note
4, we agree with the Commission that the advertised product
was the tablets.
3a
Appendix A
In addition, the ALJ found, petitioners omitted the
following material facts from their X-11 advertisements:
1) The typical and ordinary experiences of con-
sumers do not parallel the experiences reported in
testimonials appearing in the advertisements.
2) Persons with high blood pressure, heart disease,
diabetes, or thyroid disease should only use X-11
tablets as directed by a physician.
3) A low-caloric diet is a part of the X-11 plan.
The ALJ found that these representations and
omissions were false and misleading and constituted un-
fair and deceptive acts and practices in violation of §§ 5
and 12 of the Federal Trade Commission Act (15 U.S.C.
§ 45 and 52). On appeal to the Commission, the ALJ’s
proposed findings, conclusions, and recommended order
were adopted with minor modifications.
I.
Participation in the Decision by Commissioners
Who Were Not Active Commissioners at
the Time of Oral Argument.
Petitioners’ first contention is that two of the five com-
missioners of the FTC should not have participated in
the decision. Only three commissioners were present at
the oral argument before the Commission on September
29, 1976. At that time Commissioner Dole was on leave
of absence because of her husband’s candidacy for Vice-
President of the United States, and Chairman Pertschuk
was not yet a member of the Commission. Commissioner
Dole resumed her duties as a commissioner and Chair-
man Pertschuk assumed his office many months before
the case was decided.
Commissioner Dole remained a commissioner
throughout the period of her leave. 16 C.F.R. § 3.52(f),
which gives the FTC discretion to decide any case
without oral argument, states:
[A] member of the Commission absent from an oral
argument may participate in the consideration and
4a
Appendix A
decision of the appeal in any case in which the oral
argument is stenographically reported.
The oral argument before the Commission in this case
having been stenographically recorded, Commissioner
Dole was permi by rule to participate in the deci-
sion.
Petitioners argue that Chairman Pertschuk was not
similarly covered by the rule, because he was not a
member of the Commission at the time of oral argu-
ment. If one in his L geome could Fedo 10 they argue,
the President could “pack” the Commission, and also it
would be impossible for litigants to frame contentions
“in reliance” on the existing composition of the Commis-
sion. Neither argument is persuasive. Even if we were
willing to assume a President would act in bad faith,
which we are not, prohibiting a commissioner yy
after oral argument from participating in the decision
would not solve the problem. Nothing would prevent the
Commission, after the addition of the new member, from
ordering reargument or from rehearing the case after it
was decided. As for the reliance argument, a litigant
has no cognizable interest in the composition of the
tribunal that will decide his case and is entitled only to
gee in that tribunal. Cf. Friedman v. Rogers, .....
USS. ....., 99 S.Ct. 887, 898 (1979).
The District of Columbia Circuit held in Gearhart &
Otis, Inc. v. SEC, 348 F.2d 798 (D.C. Cir. 1965), that
participation in a decision by a member of the Securities
and Exchange Commission appointed after oral argu-
ment was reper when the parties had agreed to that
participation. The court then added:
The decisions of numerous courts and ad-
ministrative agencies establish that, even without
agreement of the parties, a member of an ad-
ministrative agency who did not hear oral argu-
ment may nevertheless participate in the decision
where he has the benefit of the record before him.
348 F.2d at 802 (footnotes omitted); see id. at nn. 12 & 13.
The court distinguished its earlier decision in WIBC, Inc.
v. FCC, 259 F.2d 941 (D.C. Cir.), cert. denied sub nom.
Sa
Appendix A
Crosley Broadcasting Corp. v. WIBC, Inc., 358 U.S. 920
(1958), on which petitioners in the case at bar rely, on
the ground, not only that there was no comparable
waiver in that case, but that the Communications Act,
75 Stat. 422, 47 U.S.C. § 409%), requires oral argument.
See 348 F.2d at 802 n.14. The FTC is not similarl
restricted by statute and has a rule, 16 C.F.R. § 3.52(f),
quoted above, permitting participation in the decision by
a commissioner who was not present at oral argument.
In Au Yi Lau v. United States Immigration and
Naturalization Service, 555 F.2d 1036, 1042 (D.C. Cir.
1977), the court affirmed an agency decision even
though a majority of the Orig mgear 9 members became
members of the agency after the oral argument. Accord,
Arthur Lipper Corp. v. SEC, 547 F.2d 171, 182 n.8 (2d
Cir. 1976), cert. denied, 434 U.S. 1009 (1978).
The participation of Chairman Pertschuk and Com-
missioner Dole in the decision of the case at bar was
proper.
II
Confusion of the Issues.
Petitioners allege that they were misled to their detri-
ment by the statements made during the hearing by the
ALJ and complaint counsel concerning the relevance of
whether the principal ingredient of X-11 tablets,
phenylpropanolamine hydrochloride (PPA), is an effec-
tive appetite suppressant. °
Some confusion as to the relevance of the efficacy of
PPA did exist at the hearing. The ALJ correctly stated,
however, that the issue was the veracity of the represen-
tations made in the X-11 tablets advertisements, and
that the efficacy of PPA was relevant only for its hear-
ing on whether X-11 fulfilled those representations.
Although petitioners contend that they were misled by
the confusion and were unable effectively to cross-
examine the Commission’s expert witness on the ef-
ficacy of PPA, the record shows the contrary.
Petitioners did cross-examine the experts on the efficacy
of PPA and were not hampered in any way in their
6a
Appendix A
cross examination. In addition, the record also contains
numerous studies and excerpts from learned treatises on
this subject. As the Commission correctly held,
petitioners were not misled in the manner alleged.
ITI.
Collateral Estoppel.
Petitioners argue that determinations of fact made in
three prior administrative proceedings preclude relitiga-
tion of the controlling issues here. The three decisions
relied upon are In re Alleghany Pharmacal Corp., 75
F.T.C. 990 (1969), and two Postal Service cases, con-
solidated for hearing before the ALJ, In re Hanover
House and Romar Sales Corp., Postal Service Docket
Nos. 2/143 and 2/149 (1975). These three cases involve
pert ge false and misleading advertising for a product
called “Hungrex,” which is said to be virtually identical
to X-11.? The Commission rejected the collateral estoppel
argument, as do we.
_ The doctrine of collateral estoppel “precludes relitiga-
tion of issues actually litigated and determined in the
prior suit....” Lawlor v. National Screen Service
Corp., 349 U.S. 322, 326 ener Montana v. United
States, ..... i & Repeat , 99 S.Ct. 970, 973-974 (1979);
Parklane Hosiery Co. v. Shore, ..... USS. ....., 99 S.Ct. 645,
649 n.5 (1979). The doctrine may apply even though the
Jade asserting it was not a party in the prior case.
arklane Hosiery Co. v. Shore, supra, 99 S.Ct. at 649-
652; Blonder-Tongue Laboratories, Inc. v. University of
Illinois Foundation, 402 U.S. 318, 334 (1971). It may be
applied to adjudicative determinations of administrative
agencies. Parklane Hosiery Co. v. Shore, supra, 99 S.Ct.
at 652; United States v. Utah Construction & Mining Co.,
* For purposes of this argument, we will assume that
Hungrex and X-11 are identical products. Both are tablets con-
taining 25 mgs. of PPA, which is the appetite suppressing in-
gredient that purportedly makes the product effective in
weight reduction.
Ta
. Appendix A
384 U.S. 394, 422 (1966); Bowen v. United States, 570
F.2d 1311, 1321 (7th Cir. 1978).
Alleghany Pharmacal involved issues different from
those in the case at bar. In the two Postal Service cases
the safety issue was similar to the safety issue in the
case at bar.
Nonetheless, the Commission was not x ing to give
the Postal Service decisions preclusive effect. Relitiga-
tion of an issue is not precluded even between the
original parties when “[tJhere is a clear and convincing
need for a new determination of the issue . . . because of
the potential impact of the determination on the public
interest or the interests of persons not themselves par-
ties to the initial action ... .” Restatement (Second) of
Judgments § 68.1(eXi) (Tent. Draft No. 4, 1977). Com-
ment h to this section of the Restatement gives as an ex-
ample of the § 68.1(ei) exception an action by “an agen-
cy of government. . . for the protection . . . of a broad
segment of the public.” This is such a case.
This is not only a proceeding by an agency of govern-
ment to protect the public from both health risks and
false advertising; it deals with a body of knowledge in the
fields of medical and pharmacological science that is
constantly increasing. The government is not precluded
from subsequently relitigating against a new respondent
under these circumstances. Ch C v. Raladam Co., 316
U.S. 149, 150-151 (1942) (allowing the FTC to relitigate
substantially the same issue against the same party
where its previous order was denied enforcement
because of insufficient evidence in the record); see Mon-
tana v. United States, supra, 99 S.Ct. at 976-977; 2
ase Administrative Law Treatise § 18.04 at 571
(1958).3
’ Petitioners also refer to a Postal Service complaint issued
against Porter & Dietsch for advertisements of X-11. This
complaint was dismissed without prejudice pursuant to a
(Footnote continued on following page)
8a
Appendix A
IV.
Sufficiency of the Evidence.
Petitioners assert that the findings on which the Com-
mission based the challenged order are not supported by
the evidence in the record.
“Whether particular advertising has a tendency to
deceive or mislead is obviously an impressionistic deter-
mination more closely akin to a finding of fact than to a
conclusion of law.” Beneficial Corp. v. FTC, 542 F.2d
611, 617 (3d Cir. 1976), cert. detied 430 U.S. 983 (1977).
Giving due regard to the FTC’s expertise, FTC v.
Colgate-Palmolive Co., 380 U.S. 374, 385 (1965), and
National Commission on Egg Nutrition v. FTC, 570
F.2d 157, 161 (7th Cir. 1977), cert. denied, ..... + ee
99 S.Ct. 86 (1978), we must sustain the FTC’s findin
if they are supported by substantial evidence on the
record viewed as a whole, Universal Camera Corp. v.
NLRB, 340 U.S. 474, 491 (1951).
Petitioners contend that in some instances the
evidence does not support the finding that the represen-
tations were made as charged or that material facts
were omitted. They also argue that no representation or
omission was proved false or misleading. With respect to
each representation we consider together the issues of
whether it was made and whether it was false.
A. False Affirmative Representations.
1. That users of X-11 tablets‘ can lose weight without
restricting their accustomed caloric intake and while they
continue to eat the foods of their choice.
3 continued ,
gn Postal Service Docket No. 3/63 (January 5, 1976),
and therefore can have no preclusive effect. Lawlor v.
National Screen Service Corp., supra, 349 U.S. at 326.
Petitioners have not been the subject of government harass-
ment in the form of repeated agency prosecutions.
‘ Petitioners contend here, as they did unsuccessfully before
the Commission, that the product advertised was the “X-11
(Footnote continued on following page)
9a
Appendix A
Petitioners attack this finding as inaccurate, arguing
that their advertising advises the reader that the tablets
function merely as an appetite suppressant which will
make users “want less” and therefore “eat less.” Many of
the advertisements, however, proclaim in large type,
“EAT WELL ... AND LOSE THAT FAT” or “EAT
WHAT YOU WANT—AND SLIM DOWN,” and follow
with statements that “no starvation dieting” was required
and that weight could be lost without “suffering through
starvation dieting hunger” or following “boring reducin
diets.” Other statements in the advertisements relie
upon by petitioners as clarifying the matter could
reasonably have been considered by the Commission to
be inadequate for that purpose not only because they
were buried in small print but because in any event they
did not withdraw the misleading statements. The Com-
mission properly found that the advertisements as a
_ whole conveyed the impression to consumers that they
could lose weight through the use of X-11 without
changing their eating habits and without restricting
their accustomed caloric intake.
The correctness of the Commission’s finding that this
representation was false is supported by Porter &
Dietsch’s own statements in a printed insert placed in
each X-11 package. The insert stated that weight loss is
only accomplished when a minimum of calories are con-
sumed and set forth an “eating program for reducing
overweights” which is to be used in conjunction with the
4 continued
Reducing Plan.” The Commission correctly found that the ad-
vertised product was the tablets, not the plan, and proceeded
accordingly. The “X-11 Reducing Plan” consisted of only the
tablets and a package insert which contained a proposed
“eating program for overweights.” This so-called program
was, in the opinion of experts, a “starvation” or “near-
starvation” diet. Nothing indicates that this diet would work
better than any other diet X-11 users chose to follow. More
important to our conclusion, the advertisements represented
the product to be the tablet and did not explain what the plan
entailed, beyond taking the tablets. Finally, as the Commis-
sion found, the advertisements falsely represented that dieting
was unnecessary. Consequently, we too treat the product as
consisting solely of the tablets.
10a
Appendix A
tablets. This program, which purportedly proposes “3
sensible meals a day” was characterized by expert
witnesses at the hearing before the ALJ as a “starva-
tion” or “semi-starvation” diet. The program does not
allow the consumption of any rich foods or sweets or
other snacks. A number of the advertisements, in con-
trast, assert that users can eat snacks and still lose
weight. Furthermore, it is undisputed that, as the ALJ
found, the tablets will not result in weight reduction un-
less the user follows a severely restricted caloric diet.
We have no difficulty in concluding that the Commission
correctly found this representation to be false.
2. That petitioners have a reasonable basis consisting of
scientific evidence from which to conclude that substan-
tially all users of X-11 tablets will lose a significant
amount of weight.
Although the advertisements did not state in so many
words that substantially all X-11 users would lose a
significant amount of weight, they are replete with
testimonials claiming weight losses in excess of 40, 50,
and even 80 pounds attributable to use of X-11, accom-
panied by such statements as, “thousands of women
throughout America” are losing “5, 10, 25 or even more
unds.” The large weight losses are characterized as
automatic.” Adding to this impression is the invariable
goaceniee: “RESULTS ARE GUARANTEED—OR
ONEY BACK” or “TAKE WEIGHT OFF WITH
THE VERY FIRST BOX OR MONEY BACK.” That
this claim was represented as resting on a scientific
basis appears from such statements as “Recently, labor-
atory science has perfected a tiny tablet .. .,” “X-11 is
the PROVEN and SOUND method . . .,” “clinic tested
ingredients,” and “medically recognized as an effective
poe to lose ugly fat.” The Commission properly found,
ased on these facts, that petitioners made what
amounted to a op agian waraee that they had scientific
evidence proving that substantially all X-11 users would
lose a significant amount of weight.
Petitioners do not deny making this representation but
challenge the finding that it was false. They argue first
lla
Appendix A
that “[tJhere is no evidence to support the Commission’s
finding that ‘Scientific Testing’ is the only reasonable
basis for substantiation of X-11 weight loss claims,” and,
second, that “scientific testing” supporting the claims
does exist.
We need not rule on the first argument, because it is
an attack on a finding the Commission did not make.
While the ALJ concluded that the efficacy of a product
such as X-11 could not be substantiated without scien-
tific evidence, the Commission did not reach the issue,5
finding it unnecessary to do so, because, even if some
other reasonable basis for the claims might have existed,
petitioners had represented that the basis was scientific
testing. The Commission might appropriately have
reached the issue decided by the ALJ in connection with
the relief granted in the order but chose instead to rely
on the “fencing in” doctrine. See Part V,B,4, infra,
where we consider whether the provision of the Com-
mission’s order prohibiting representations about the ef-
ficacy of the product unless they are supported by
“competent scientific or medical tests or studies” is
sustainable.
We have examined the evidence supporting the Com-
mission’s determination that petitioners did not have
scientific evidence forming a reasonable basis for the
claim that substantially all X-11 users would lose signifi-
cant amounts of weight, including the findings of fact
from Alleghany Pharmacal, supra. That evidence is set
* he ALJ and the Commission looked to more than “scien-
tific testing” in attempting to find a reasonable basis; the
considered scientific studies and reports, medical texts an
references, the testimony of medical doctors and other ex-
perts, and even the records and findings of the “Hungrex
cases, and concluded that no reasonable basis exists for the
claims made here. The Commission in Jn re Pfizer, Inc., 81
F.T.C. 23 (1972), recognized that “there may be some types of
claims for some types of products for which the only
reasonable basis, in fairness and in the expectations of
consumers, would be a valid scientific or medical basis.” 81
F.T.C. at 64. The case at bar, in which the representations
concern the efficacy of a drug, is such a case.
12a
Appendix A
forth in detail in the opinion of the Commission and
need not be repeated here.®
The scientific evidence on which petitioners rely’
provides at most a reasonable basis for the conclusion
that PPA is an effective appetite suppressant for some
people, helping them to lose weight if taken in conjunc-
tion with a strict diet. But the evidence falls far short of
being sufficient to establish “automatic” significant
weight losses for all users, as represented.
3. That X-11 tablets contain a unique ingredient.
The frequent references in the advertisements to a
“unique formula,” a “unique preparation,” a “special for-
mula,” coupled with statements that “laboratory science”
had “recently” or “now” developed the tablets, con-
sidered in the light of the admission of Porter & Dietsch
that these statements referred to PPA, support this find-
ing.
* Petitioners urge that we take judicial notice of the fact that
the Food and Drug Administration Over-the-Counter Mis-
cellaneous Internal Drugs Panel voted PPA “safe and effec-
tive” as an appetite suppressant. Even if we could consider
evidence that. was not before the agency, this evidence would
be of no map hog petitioners. The vote was taken in August of
1978, long r petitioners made the representations in ques-
tion. Moreover, the gwygt of the meetings in which the
FDA panel discussed the efficacy of PPA reveals that their
vote would not have served as a reasonable basis for making
the claims involved here even if it had come before the
representations in issue were made. Although the doctors con-
cluded that PPA is an effective appetite suppressant, they also
noted that diet control is also necessary for weight reduction.
Furthermore, the panel did not indicate that evidence exists
from which to conclude that substantially all users of PPA
will lose significant amounts of weight.
’ One study relied on by petitioners showed “clinically in-
siniteest differences in weight loss between a group using
PPA and a group using a placebo. The closest any evidence
came to establishing the effects of PPA on “all users” was a
study in the as rd Pharmacal record which showed that
80 per cent of PPA users lost significant amounts of weight.
Even this would not support a claim of success for “substan-
tially all users.”
13a
Appendix A
The finding that it was false is also supported. PPA
has been used for years in many products, including
other over-the-counter weight reduction products.
Petitioners, conceding that PPA is not unique to X-11,
contend that it is a unique pharmacological substance.
The ALJ found this assertion to be not wholly untrue.
PPA is a particularly weak member of a family of
amphetamine-like drugs.® It produces the same types of
responses as related drugs produce, but, because it is
weak, it produces fewer side effects and less central ner-
vous system stimulation and is therefore the only drug
of its class available without a prescription. Nonetheless, |
the ALJ and the Commission believed that the public
would not understand “unique” as describing this
property but would interpret it, as petitioners no doubt
intended, as meaning not available in other products
and unequaled in efficacy and, in view of the assertions
about the recent achievement of laboratory science, new-
ly discovered. We agree with the Commission’s assess-
ment of Porter & Dietsch’s shabby hucksterism; “an
otherwise false advertisement is not rendered acceptable
merely because one possible interpretation of it is not
untrue.” National Commission on Egg Nutrition v. FTC,
supra, 570 F.2d at 161 n.4.
B. Omissions of Material Facts.
1. The typical and ordinary experiences of consumers do
not pod the experiences reported in testimonials
appearing in the advertisements.
We have already approved the Commission’s findings
concerning the extravagant weight loss claims, which
were conveyed in substantial part through the use of
testimonials. See Part IV,A,2, supra. The Commission
further found, based on ample evidence, that weight
losses of the magnitude claimed, far from being typical,
as the advertisements implied, are extremely rere in
any diet regimen. Its holding that the failure to disclose
that such losses are rare rendered the advertisements
false and misleading is sustained.
8 The sympathomimetic amines.
14a
Appendix A
2. Persons with gh blood pressure, heart disease,
diabetes, or thyroid disease should only use X-11 tablets
as directed by a physician.
The ALJ found that the failure to include a health
warning in the X-11 advertisements constituted an omis-
sion of material fact, and the Commission affirmed, with
two commissioners dissenting. We approve the findings
of the majority of the FTC.
Petitioners, except Pay’n Save, admit that PPA should
not be ingested by persons with high blood pressure,
heart disease, diabetes, or thyroid disease except under
the supervision of a physician. A warning to this effect
is printed on the back of the X-11 age, in com-
pliance with FDA Regulations, 21 C.F_R. § 369.1, et seq.
The erroneous impression that X-11 is safe for use b
all potential consumers is created by the statement, “No
dangerous drugs,” the effect of which is aggravated by
the statement, “Laboratory science has rfected a tiny
pre-meal tablet . . . .” Petitioners sold arge quantities
of X-11 tablets to mail order purchasers, who would
not have an mt phan to read the health warning on
the package until they 1ad already paid out their money
and some of whom, having paid, would be likely to take
the chance of using the tablets.
The record shows that many people suffer from the
diseases PPA tends to avate and that many of those
people are overweight. An estimated 28,410,000 persons
in the United States suffered from a heart ailment or
high blood pressure in 1972. Of these, 22,950,000, one
out of every six adults, had high blood pressure. One out
of every 20 suffered from diabetes in 1975. Furthermore,
° The record shows that all sympathomimetic amines, in-
cluding PPA, exert a “pressor” e fect, which means they cause
vascular constriction. This constriction causes an elevation of
the blood pressure, which is hazardous for persons already
— rom high blood pressure. The constriction also
forces the heart to work harder creating a danger for persons
with heart disease. PPA also has a tendency to elevate the
ood glucose level, thus aggravating diabetes in persons suf-
fering from’that disease. PPA apparently also exacerbates the
effects of an overactive thyroid.
15a
Appendix A
high blood pressure and heart disease occur more
frequently among the overweight, and the likelihood of
being diabetic more than doubles with every 20 per cent
of excess weight. Thus the product and the advertising
are designed for persons most likely to suffer from the
serious side effects.
The finding that the failure to disclose health risks
rendered the ads false and misleading is sustained.”
3. A highly restricted caloric diet is a part of the X-11
plan.
The findings we affirmed in Part IV,A,1, supra, also
support the Commission’s finding that this omission
caused the advertisements to be false and misleading.
V.
Propriety of the Remedy.
A. Standard of Review.
The Supreme Court set forth the standard for
reviewing remedial provisions of an FTC order in Jacob
Siegel Co. v. FTC, 327 U.S. 608, 612-613 (1946):
The Commission is the expert body to determine
what remedy is necessary to eliminate the unfair or
deceptive trade practices which have been dis-
closed. It has wide latitude for judgment and the
courts will not interfere — where the remedy
selected has no reasonable relation to the unlawful
practices found to exist.
10 Petitioners again point to the ex post facto FDA panel vote
that PPA is “safe and effective.” See note 6, supra. The
doctors on the panel agreed, however, that because of its
tential for adverse reaction, PPA has been contraindicated
or persons with high blood pressure, heart disease, diabetes,
and thyroid disease.
16a
Appendix A
B. Portions of the Order Applicable to Petitioners Porter
& Dietsch and William Fraser.
1. The First Amendment."
Petitioners contend that the order violates their rights
under the First Amendment, which protects “commer-
cial speech.” eh core v. Virginia, 421 U.S. 809 (1975).
They concede, however, as they must, that the First
Amendment allows the prohibition of false and mis-
leading advertising. Ohralik v. Ohio State Bar Associa-
tion, 436 U.S. 447, 455-456 (1978); Bates v. State Bar of
Arizona, 433 U.S. 350, 381-384 (1977); Virginia State
Board of Pharmacy v. Virginia Citizens Consumer
Council, Inc., 425 U.S. 748, 771-772 (1976); Nationa!
Commission on Egg Nutrition v. FTC, supra, 570 F.2d
at 161-162. Because the advertising material subject to
the Commission’s order was false and misleading, see
Part IV, supra, it receives no protection from the First
Amendment.
2. Product coverage.
—— I of the order restricts the representations
Porter & Dietsch and Fraser may make concerning any
“food,” “drug,” “cosmetic,” or “device” as these terms are
defined in the Federal Trade Commission Act. Peti-
tioners contend that this breadth of product coverage
makes the order overly broad, because there is no
rational connection between the Commission’s findings
and restrictions placed on representations of products
other than X-1l. The record shows that Porter &
Dietsch is continuously testing and marketing new
products and, as a wholesale operation not faced with
the expense of modifying manufacturing facilities to add
new products to its line, it can do so comparatively
cheaply. Fraser and wholly-owned subsidiaries of Porter
& Dietsch have violated the Federal Trade Commission
1 Petitioners’ assertion that the affirmative disclosures re-
uired by Paragraph I,E of the order violate the First
endment are treated separately in Part V,B,7, infra.
|
17a
Appendix A
Act in the past.’? These facts and the evidence of peti-
tioners’ readiness, in carrying out the advertising
campaign for X-11, to go at least to the very limits of
what the law might be argued, with some modicum of
plausibility, to allow, justified the breadth of the order
against the principal offenders.
3. Paragraph IA.
Paragraph I,A of the order prohibits representations
that a user of a product can lose weight without
restricting caloric intake and while eating the foods of
his or her choice. Petitioners contend that Paragraph
I,A is not supported by substantial evidence, because it
is premised on the assumption that a user of X-11 must
consciously restrict caloric intake and consciously avoid
foods of his or her choice to lose weight. That
assumption is false, they argue, because PPA is an
effective appetite suppressant which unconsciously and
automatica > redone food intake. Petitioners’ position is
untenable in light of the findings upheld in Part IV,A,1,
supra, of this opinion. X-11 must be coupled with a
conscious adherence to a restricted calorie diet to be
effective and Paragraph I,A merely prohibits petitioners
from making representations to the contrary. Paragraph
net > reasonably related to the unlawful practice and is
valid.
4. Paragraph IB.
Paragraph I,B prohibits representations that a user of
a product “can achieve any result” unless the repre-
sentation is, when made, substantiated by competent
12 See In re Udga, Inc. and William Fraser, and Mary
Fraser, 24 F.T.C. 1245 (1937), wherein the FTC found that an
antacid was bein Senet Siveroens as a cure for ulcers.
Fraser is also subject to an FTC consent order, In re Ru-Ezx,
Inc., 59 F.T.C.'839 (1961), which is limited to products similar
to the one sold there as a remedy for arthritis or rheumatism.
The Commission considered this consent order in mitigation,
— or in aggravation, on the point of the necessity of a
road order.
18a
Appendix A
scientific or medical tests and studies and uires that
such tests or studies, the raw data gathered, and the
procedures followed,-be available to the Commission for
inspection for three years following the representation.
Petitioners contend that Paragraph I,B improperly
relieves the Commission of the burden of proving their
advertising representations false and im on -peti-
tioners the burden of proving the truthfulness of an
claims they make. The Commission defends Paragrap
I,B as a “fencing in” provision justified by the peti-
tioners’ false representation that they had scientific
evidence which formed a reasonable basis from which to
conclude that substantially all X-11 users would lose
significant amounts of weight.
Petitioners rely on Federated Nationwide Wholesalers
Service v. FTC, 398 F.2d 253 (2d Cir. 1968), for the
proposition that “in no event is the Commission war-
ranted in decreeing what in effect is clearly a shifting of
the burden of proof from itself to the petitioners.” 398
F.2d at 260. There the challenged order prohibited the
titioners from representing themselves as wholesalers,
ut provided that “it shall be a defense in any
enforcement proceeding under this order for [peti-
tioners] to show” that they actually operated as whole-
salers. 398 F.2d at 259. The court modified the order to
prohibit petitioners from representing that they are
wholesalers “unless they in fact” operate as wholesalers.
398 F.2d at 260. Paragraph I,B of the order before us
resembles the modified order in Federated Nationwide
more closely than the objectionable order in that case.
Essentially, Paragraph I,B prohibits petitioners from
making representations unless they are true; it does not
make the truthfulness of the representation an affirma-
tive defense gern must prove once the Commission
establishes that petitioners have made representations.
The burden of proof remains entirely on the Com-
mission.
_ The authority of the Commission to impose “fencing
in” restrictions is stated in FTC v. Colgate-Palmolive
Co., supra, 380 U.S. at 395,
19a
Appendix A
We think it reasonable for the Commission to frame
its order broadly enough to prevent respondents
from engaging in similarly illegal practices in
future advertisements. As we said in Federal Trade
Comm'n v. Ruberoid Co., 343 U.S. 479, 473: “(T]he
Commission is not limited to prohibiting the illegal
ractice in the precise form in which it is found to
hens existed in the past.” Having been caught
violating the Act, respondents “must expect some
fencing in.” Federal Trade Comm’n v. National
Lead Co., 352 U.S. 419, 431.
Although Paragraph I,B is as extreme a fencing in
provision as we would sustain, we think it is justified in
this case by the egregiousness of past representations
and the propensity of the principal respondents to
violate the Act.'8
5. Paragraph I,C.
Paragraph I,C prohibits representing that any testi-
monial for a product “represents the typical or ordinary
experience of members of the public who use _ the
a i unless this is the case.” As we held in Part
V,B,1, supra, the advertisements did falsely and
deceptively represent that the testimonials were indica-
tive of the typical experience of X-11 users. This is a
sufficient basis for Paragraph I,C.
Petitioners argue that the words “unless this is the
case” shift the burden of proof but we think they do not.
As we said of the words “unless they establish” in
Western Radio Corp. v. FTC, 339 F.2d 937, 940 (7th Cir.
1964), cert. denied, 381 U.S. 938 (1965), “[w]e take this to
mean no more than that petitioners must not speak
falsely in advertising ....” Paragraph I,C is rea-
— related to the unlawful practices and valid as
issued.
13 Petitioners also assert the efficacy of methylcellulose
another ingredient of X-11, or the combination of PPA and
methylcellulose, but petitioners have waived their right to
appeal the ALJ's findings as to ay iy ig coon by not appeal-
ing them to the Commission. See In Re Porter & Dietsch, FTC
Docket No. 9047, Dec. 20, 1977, at 15 n.17.
20a
Appendix A
6. Paragraph I,D.
Paragraph I,D prohibits representations that a prod-
uct contains “one or more unique [Pegs or
components, unless respondents can establish that any
such ingredients or components are unavailable in
intact sold by others.” Petitioners contend that
aragraph I,D is arbitrary in establishing only one
definition for the word “unique.” In Part IV,A,3, supra,
we sustained the FTC’s finding that “unique,” in the
context in which it was used, falsely represented to
consumers that none of petitioners’ competitors used
PPA. This is a sufficient basis for Paragraph I,D.
Petitioners also argue that the words “unless [peti-
tioners] can establish” improperly shifts the burden of
proof, but Western Radio again controls. Paragraph I,D
is reasonably related to the unlawful practices and is
valid as issued.
7. Paragraph I,E.
Paragraph I,E requires petitioners to include in all
advertisements the statements “DIETING IS RE-
QUIRED” and “WARNING: THIS PRODUCT POSES
A SERIOUS HEALTH RISK FOR SOME USERS.
READ THE LABEL CAREFULLY BEFORE USING.”
Petitioners urge us to vacate this much of the order
because it is unsupported by substantial evidence,
creates an inconsistency in the treatment given to
different persons engaged in the same conduct, and
violates the First Amendment."
Substantial evidence in the record as a whole supports
the underlying findings on which these affirmative
disclosures are based. In Part IV,A,1 and B,3, supra, we
4 Petitioners do not appear to dispute the existence of FTC
authority to require such disclosures. In Warner-Lambert Co.
v. FTC, 562 F.2d 749, 756-762 (D.C. Cir. 1977), cert. denied,
435 U.S. 950 (1978), the court performed a detailed analysis
and concluded that the Commission possessed the power to
order “corrective advertising.” We reached the same result in
a , — on Egg Nutrition v. FTC, supra, 570
2d a :
2la
Appendix A
affirmed the Commission’s findings concerning the
necessity of a low calorie diet regimen, and the health
risk caused by PPA.
Petitioners’ inconsistent treatment argument is prem-
ised upon the fact that the Commission did not impose a
“DIETING IS REQUIRED” disclosure requirement on
the manufacturer in Carlay Co. v. FTC, 153 F.2d 493
(7th Cir. 1946), and the Commission did not require the
inclusion of either disclosure in Alleghany Pharmacal,
supra. The Carlay case involved an entirely different
product, which did not include PPA, and eppeanentty
comparison is not justified. In Alleghany Pharmacal,
which did involve the same product, the advertisement
quoted in the Commission’s opinion made no representa-
tions concerning weight loss without dieting, the Com-
mission found the advertisements contained no repre-
sentations concerning safety, and the complaint appar-
ently did not allege the failure to include the warning as
an omission of material fact. In any event, when the
safety of consumers is involved, as it is here, we would
not preclude the Commission from imposing such a
sanction simply because it failed to do so years before in
another case.'6
The fact that other firms in the market are not
similarly burdened does not affect the validity of this
order. “The purpose of Commission orders is not to put
those employing deceptive acts or practices in pari
delicto with each other.” Spiegel, Inc. v. FTC, 494 F.2d
59, 64 (7th Cir.), cert. denied, 419 U.S. 896 (1974),
quoting Collier & Son Corp. v. FTC, 427 F.2d 261, 276
(6th Cir. 1970).!”
's Additionally, the record contained a letter from petitioner
Furth to Petitioner Fraser, in which Furth wrote “Appedrine
and Hungrex (even Odrinex) put emphasis on the _ tablets.
that’s murder, because the pills will not reduce weight one
iota. It is the ‘Plan’ that will keep us out of hot water.” As we
have noted earlier, see note 4, supra, the “Plan” is no more
than a suggested dietary. regimen.
16 =See part III, supra.
17 Petitioners rely on Marco Sales Co. v. FTC, 453 F.2d 1 (2d
Cir. 1971), as support for the proposition that the inconsistent
(Footnote continued on following page)
22a
Appendix A
The First Amendment permits the imposition of
disclosure requirements in aporope ie cases. Virginia
State Board of Pha v. Virginia Citizens Consumer
Council, supra, 425 U.S. at 771-772 n.24; Warner-
Lambert Co. v. FTC, supra, 562 F.2d at 758-759. We
described the limitations placed on the scope of the
authority to require disciosure in National Commission
on Egg Nutrition v. FTC, supra, 570 F.2d at 164:
The First Amendment does not permit a remedy
broader than that necessary to prevent deception, or
to correct the effects of past deception.
The “DIETING IS REQUIRED?” disclosure is neces-
to prevent deception. The record shows the X-11
tablets do not cause weight loss in the absence of a
restricted calorie diet regimen. An advertisement that
does not disclose this is ps tains We therefore uphold
the rogues that the phrase “DIETING IS RE-
QUIRED” be included in future advertisements.
Unnecessarily broad, however, is the requirement that
the advertising by Porter & Dietsch and Fraser of any
product contain the words “WARNING: THIS PROD-
UCT POSES A SERIOUS HEALTH RISK FOR
SOME USERS. READ THE LABEL CAREFULLY
BEFORE USING.” The Commission itself recognizes in
its brief that this warning should not be required for
bg that do not contain PPA or similar compounds,
ause PPA is the only ingredient in X-11 shown by
the record to cause a health risk. Yet the order is not so
limited.
Moreover, the quoted words are not sufficiently
specific even as to products to which they may
7 continued
treatment requires us to vacate the order. Marco Sales Co.,
however, is distinguishable from the case at bar. There the
Commission issued an order against a manufacturer which
was wholly inconsistent with an almost comtemporaneously
issued Trade Regulation Rule without even adverting to the
new regulation, much less explaining why it refused to adhere
to that regulation. Agency adjudications do not create
industry-wide standards as rulemaking does.
23a
Appendix A
appropriately be applied. So far as the evidence shows,
nf A is dangerous only to users who suffer from certain
ailments. :
The order is modified by making the warning
requirement applicable only to products that contain
PPA or similar come and nen it to read,
“WARNING: THIS PRODUCT POSE SERIOUS
HEALTH RISK FOR USERS WITH HIGH BLOOD
PRESSURE, HEART DISEASE, DIABETES, OR
THYROID DISEASE. READ THE LABEL CARE-
FULLY BEFORE USING.”
C. Portions of the Order Applicable to Petitioners Kelly
Ketting Furth and Joseph Furth.
As we understand the position of the Furth _peti-
tioners, they join in the objections of Porter & Dietsch
and William Fraser to Paragraph I, but make no
arguments concerning the "de. gaged of Paragraph II of
the order, which requires them to cease and desist from
disseminating advertisements for diet remedy or weight
reduction products that in any way violate Paragraph I
of the order. Petitioners have thus waived any objection
to Paragraph II.'* Fed. R. App. P. 28. Insofar as it
o— to the Furth petitioners Paragraph II is valid as
issued.
VII.
A. Pay’n Save’s Liability.
Petitioner Pay’n Save asserts that it should have been
neither prosecuted nor found liable. It contends that no
possible public interest is served by prosecuting a
retailer who had no part in the creation of the
advertisements. Section 5(b) vests the Commission, not
the court, with broad discretion in determining what
18 Given the level of involvement of these petitioners in-
dicated by the record, ee e.g., note 15, supra, any such objec-
tions undoubtedly would have proven fruitiess. See, ¢.g.,
Carter Products, Ine. v FTC, 323 F.2d 523, 533-534 (5th Cir.
24a
Appendix A
constitutes the public interest. FTC v. Rhodes Pharma-
cal Co., 191 F.2d 744, 747 (7th Cir. 1951). As we have
stated,
[W]e have no authority to determine what is in the
public interest, except negatively in the sense of
insuring the Commission does not attempt to use its
powers to vindicate private rights, and possibly in
the case of de minimis activity.
Montgomery Ward & Co. v. FTC, 379 F.2d 666, 672 (7th
Cir. 1967). The Commission has not sought to vindicate
private rights here, and Pay’n Save’s org cannot be
characterized as de minimis. Consequently Pay’n Save’s
public interest argument is without merit.
Pay’n Save also argues that it should not have been
held liable for its use of advertisements prepared by the
others in the absence of any knowledge of falsity.
Nothing in the record indicates that Pay’n Save actually
had knowledge of falsity. As to whether Pay’n Save
should have known of the _misrepresentations, the
Commission concluded that “{i]f Pay’n Save had crit-
ically examined the aclvertising in light of the package
insert, it should have been obvious that the advertising
at least did not coincide with the plan.” While this
conclusion is undoubtedly correct, we need not rely on it
in our discussion of liability because § 12'° imposes a
strict liability standard on disseminators of false adver-
tising.
Section 12(a) states in relevant part:
It shall be unlawful for any person, partnership,
or corporation to disseminate, or cause to be
disseminated, any false advertisement ... .
The statute does not make mental state an element of
violation and creates no exemption from liability for
parties not involved in the creation of the false
advertising or for unwitting disseminators of false
19 The Commission held Pay’n Save liable for a violation of
12, and, through § 12(b), of § 5. Pay’n Save was not held
iable under § 5 directly, so we are concerned only with
liability under § 12.
25a
Appendix A
advertising. When Congress intended to make such an
exemption it did so expressly. Section 14(a) makes
certain violations of § 12 misdemeanors, but § 14(b)
creates an exemption from criminal liability for adver-
tising agencies and media under certain circumstances.
15 U.S.C. § 54. Under these circumstances the omission
of any exemption from § 12 indicates that Congress did
not intend one.
_ Pay’n Save relies on a series of decisions which it says
indicates that the liability of an advertising agency may
depend upon the extent of its participation in the
deception, which in turn depends upon a knowledge of
the falsity of the advertisements. Colgate-Palmolive Co.
v. FTC, 310 F.2d 89, 92 (1st Cir. 1962); Carter Products,
Inc. v. FTC, 323 F.2d 523, 583-534 (5th Cir. 1963);
Doherty, Clifford, Steers & Shenfield, Inc. v. FTC, 392
F.2d 921, 927-929 (6th Cir. 1968). The Commission has,
on occasion at least, exercised its enforcement discretion
to dismiss complaints against advertising agencies that
were merely acting under the direction and control of
the advertiser. See In re Bristol Myers Co., 46 F.T.C.
162, 176 (1949). Noting that this was a matter of
administrative discretion, the First Circuit in the
she ergy oy case enforced an order based on a
finding that the agency was an “active . . . mover” in
the deception, 310 F.2d at 92, but did not intimate that
the FTC could not hold liable an agency that did not
have knowledge of the deception. Carter Products is
similar. There the Fifth Circuit enforced an order
against an advertising agent that had “actually partici-
pated in the deception.” 323 F.2d at 533-534. In Doherty,
Clifford the Sixth Circuit did say that knowing partici-
pation in the deception’: was necessary but found it to
exist. 392 F.2d at 928, 929. Thus in each of these cases
the advertising agency knew of the falsity, and the court
sustained liability. In none of them was the court
required to decide whether the agency was liable in the
absence of knowledge.
The court in Doherty, Clifford recognized that “the
fact that an advertiser made its representations in good
or bad faith is not determinative of whether such
statements are deceptive and misleading.” 392 F.2d at
26a
Appendix A
925. It is settled that the advertiser’s intent to deceive is
not an element of the violation. E.g., Chrysler Corp. v.
FTC, 561 F.2d 357, 363 n.5 (D.C. Cir. 1977); oo
Ward & Co. v. FTC, supra, 379 F.2d at 670. We find no
basis in the language of § 12 for not applying these
principles to an advertiser who is a retailer.
B. The Propriety of the Remedy as to Pay’n Save.
The extent of a party’s culpability has an important
bearing, however, on the nature of the relief that should
be granted. Paragraph II of the Commission’s order
subjects both Pay’n Save and the Furth defendants, who
did rgtci gd participate in the deception, to the same
broad relief with respect to all diet remedies. They are
prohibited from disseminating “any advertising which
contains a representation or testimonial for such product
prohibited by Paragraph I of the Order [which applies
to Porter & Dietsch and Fraser], or which omits a
disclosure for such product required by Paragraph I of
this Order.” We think the fact of Pay’n Save’s uncritical
participation in the X-11 co-operative advertising pro-
gram is not sufficient to support an inference that there
is a substantial danger that Pay’n Save’s future adver-
tising of diet remedies not manufactured or distributed
by Porter & Dietsch will be deceptive. No need has been
shown for “fencing in” Pay’n Save. This paragraph of
the order, therefore, goes too far with pho to Pay’n
Save and is modified to provide that, as to Pay’n Save, it
applies only to advertising of Porter & Dietsch products.
ENFORCED AS MODIFIED.
A true Copy:
Teste:
Clerk of the United States Court of
Appeals for the Seventh Circuit
27a
Appendix A
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
| Chicago, Illinois 60604
October 16, 1979.
Before
HON. WILBUR F. PELL, JR., Circuit Judge
HON. PHILIP W. TONE, Circuit Judge
HON. ALFRED Y. KIRKLAND, Senior
District Judge*
PORTER & DIETSCH, INC., etc., et al.,
Petitioners,
VS.
FEDERAL TRADE COMMISSION,
Respondent.
Nos. 78-1324 and 78-1497
Petitions for Review of Orders of the Federal Trade
Commission
* Judge Alfred Y. Kirkland of the Northern District of Illinois sat on this
case at the time of oral argument by designation. On May |, 1979, Judge
Kirkland became a senior district judge of the Northern District of Illinois and
is continuing to sit on this case by redesignation.
28a
Appendix A
ORDER ON REHEARING
Treating the “Petition of Pay’N Save Corporation for
Rehearing In Banc” as a petition for rehearing and suggestion
for rehearing in banc filed in the above-entitled cause, no judge
in active service has requested a vote thereon, and all of the
judges on the original panel have voted to deny a rehearing.
Accordingly,
IT IS ORDERED that the aforesaid petition for rehearing
be, and the same is hereby, DENIED.
The opinion is amended by inserting an asterisk following
the letters “PPA” in the fifth line of text under heading II on
page 5 of the slip opinion and adding the following footnote at
the bottom of the page:
After the issuance of this opinion the
attention of the court was called to United States
Trademark Registration No. 650,021 for
“P.P.A.” in International Class 5, former U.S.
Class 18, filed by Alleghany Pharmacal
Corporation. We used “PPA” as a convenient
abbreviation without being aware of whether it
had been used by others.
29a
APPENDIX B — OFFICIAL REPORT OF
ADMINISTRATIVE PROCEEDINGS, 90 F.T.C. 770, ET
SEQ.
Complaint
IN THE MATTER. OF
PORTER & DIETSCH, INC., ET AL.
ORDER, OPINION, ETC., IN REGARD TO ALLEGED VIOLATION OF
THE FEDERAL TRADE COMMISSION ACT
Docket 9047. Complaint, July 29. 1975 — Final Order. Dec. 20, 1977
This order, among other things, requires a St. Paul, Minn. distributor of non-
prescription drugs, its Chicago, Ill. advertising agency, and a Seattle, Wash.
drug store chain to cease making unsubstantiated claims or misrepresenting
that products contain a unique ingredient. or that users of weight control
products can achieve weight loss without restricting their caloric intake or
limiting their choice of foods. Further, the firms are required to include
prescribed disclosure statements in promotional materials for products
containing certain ingredients, and to recall all advertising data disseminated
during the past two years for X-11 tablets.
Appearances
For the Commission: Dean A. Fournier and William H. Patton.
For the respondents: Albert A. Carretta, Washington, D.C. and
Jerold W. Dorfman, New York City for Porter & Dietsch, Inc., et al.
and Michael Rayton, Seattle, Washington for Pay’n Save Corpora-
tion.
COMPLAINT
The Federal Trade Commission, having reason to believe that
Porter & Dietsch, Inc., a corporation, and William H. Fraser,
individually and as an officer of said corporation, and Kelly Ketting
Furth, Inc., a corporation, and Joseph Furth, individually and as an
officer of said corporation, and Pay’n Save Corporation, a corpora-
tion, hereinafter sometimes referred to as respondents, have violated
the provisions of the Federal Trade Commission Act, and it
appearing to the Commission that a proceeding by it in respect
thereof would be in the public interest, hereby issues this complaint
stating its charges as follows:
PARAGRAPH 1. Respondent Porter & Dietsch, Inc. is a corporation
organized, existing and doing business under and by virtue of the
laws of the State of Minnesota, with its office and principal place of
business located at 2453 University Ave., St. Paul, Minnesota.
Respondent William H. Fraser is president of said corporation. He
formulates, directs and controls the policies, acts and [2] practices of
this corporate respondent, including the acts and practices hereinaf-
ter set forth. His address is the same as that of said corporation.
30a
Appendix B
Compiaint
Respondent Keily Ketting Furth. Inc. is a corporation organized.
existing and doing business under and by virtue of the laws of the
State of Illinois, with its office and principal place of business located
at 400 North Michigan Ave., Chicago, Illinois. Respondent Joseph
Furth is an officer of said corporation and formulates. directs and
controls certain acts and practices of this corporate respondent.
including the acts and practices hereinafter set forth. His address is
the same as that of said corporation.
Respondent Pay'n Save Corporation is a corporation organized.
existing and doing business under and by virtue of the laws of the
State of Washington, with its office and principal place of business
located at 1511 Sixth Ave., Seattle, Washington.
Par. 2. For purposes of this complaint. the term “commerce” sha!!
mean commerce as defined in the Federal Trade Commission Act.
Par. 3. Resvondents Porter & Dietsch, Inc. and William H. Fraser
are now and have been engaged in the packaging, advertising.
offering for sale and sale of various products at wholesale and retail
levels. Among such products is a non-prescription preparation which
comes within the classification of. “drug” (as that term is defined in
the Federal Trade Commission Act) and which has the following
designation, directions for use and active ingredients:
Designation: “X-11 Tablets”
Dosage:
One tablet three times daily, one-half hour before each meal.
Active Ingredients:
Vitamin A 1388.0 U.S.P. units
Vitamin B 0.3 mg.
Vitamin B: 0.5 mg.
Vitamin By 1.0 mg.
Vitamin C 15.0 mg.
Calcium Pantothenate 1.0 mg.
[3]Niacinamide 3.0 mg.
Vitamin E 3.0 int. units
Vitamin Bi: 0.3 mg.
Phenylpropanolamine
Hydrochloride =2.0 meg.
Methylcellulose 25.0 mg.
Catteine 25.0 mg.
3la
Appendix B
Complaint
Par. 4. Respondent Kelly Ketting Furth, Inc. is now and has been
the advertising agency of Porter & Dietsch. Inc. Respondent Joseph
Furth is now and has been the account executive in such agency
responsible for advertising of products marketed by Porter &
Dietsch, Inc. As such, these respondents have prepared and placed
for publication advertising material, including but not limited to the
advertising referred to herein, to promote the sale of the aforesaid
preparation and other products. In the course and conduct of their
business, and at all times mentioned herein, these respondents have
been and are now in substantial competition, in or affecting
commerce, with other corporations, firms and individuals in the
advertising business.
Par. 5. Respondent Pay’n Save Corporation operates a chain of
drug and sundries stores in Washington, Oregon, Alaska, California,
Hawaii, and Canada. Said respondent is now and has been engaged
in the advertising, offering for sale and sale of various products
including the aforesaid preparation.
Par. 6. In the course and conduct of their business, respondents
Porter & Dietsch, Inc. and William H. Fraser ship, distribute and
cause to be shipped and distributed the aforesaid preparation from
their place of business in the State of Minnesota to retail stores and
purchasers located in various other States of the United States.
In the course and conduct of its business, respondent Pay'n Save
Corporation operates retail stores and storage warehouses in several
States of the United States. Said respondent causes the aforesaid
preparation to be shipped from Minnesota to storage points and
Pay'n Save stores located in various other States, for sale to the
general public.
In the further course and conduct of their businesses, and using
means and mechanisms of commerce, these respondents and
respondents Kelly Ketting Furth, Inc. and Joseph Furth cause
advertisements for said preparation to be published in media of
interstate circulation. [4]
Respondents maintain, and at all times mentioned herein have
maintained, a substantial course of trade in the aforesaid prepara-
tion and advertisements, in or affecting commerce.
Par. 7. In the course and conduct of their businesses, respondents
have disseminated, and caused the dissemination of, certain adver-
tisements concerning said preparation by the United States mail and
by various means in or having an effect upon commerce, including
but not limited to advertisements inserted in newspapers, for the
purpose of inducing and which were likely to induce, directly or
indirectly, the purchase of said preparation; and have disseminated
32a
Appendix B
Complaint
and caused the dissemination of advertisements concerning said
preparation by various means, including but not limited to the
aforesaid media, for the purpose of inducing and which were likely to
induce, directly or indirectly, the purchase of said preparation in or
having an effect upon commerce.
Par. 8. Typical of the statements and representations in said
advertisements, but not all inclusive thereof, are the following:
Eat well. . . and lose that fat! - without ever missing a meal...
You eat 3 satisfying balanced meals a day - plus snacks. You eat what you want...
You do not deny yourself.
-
. a s . “ s s
Laboratory Science has perfected a Tiny Tablet for EASY REDUCING ...
clinic-tested ingredients. . .
I lost 80 pounds! When I started on the X-11 Reducing Plan, I weighed 205 pounds.
Now my weight is down to 125 pounds. I enjoy wearing dresses sizes 11 or 12's, rather
than size 2011/2...
Part of the secret of this method is a unique ingredient . . . which puts a “brake” on
your cravings for sweets, candy, pastries, rich gravies.
’ < * tn 8 Pp
aM Tl < é
,
~~
+. . > —
3 he chk-5 ee
33a
Appendix B
Complaint
4, = a - —— “t
ra $
~ : ) & sev Mrs. George Stowe “I started on the X-2! Plan and started loving weight almost
$ « 5
a “anon. Georgie
save
Caule Viste,
Cellorme
we me there tle resulte,”
Mrs. George Stowe says:
anal ce MEME OWS...
WAS AM
Mrs. Bover'y Tellier |
+e Leet ie enh gee 170
og a & the, New Im leas ier
“229 Ihe. andl gure down,
© bPeve recammeniod yuee
pen ta @ lek Of porns bee
Vaud they past coutat
“om Ztrewsoulavileogens, >! ve
°
\WEGar 160 los. 10S ios ;
7 a J
\ME'GM Few
AA \ORESSSI2ZE 18 é
bh: aus? 38 *rr)
lwalst 22:5. 2h
mght away. J am so yrate’ul . .. | recommend tse X-it Plan
io everyone | see. i: 2 wonuerful.”
| ILOSTOVER .«
40LBS.,TOO
save Mrs. Ken Scrnnat
Norloin, Nebrasaa
"Whee [ssartent onthe Nutt
Mewue ag Vien. [ wewsod 184 Ibe.
Ao Paster 125 ete h orng
Ostet Sees The tls rather iter
2 Ls tl to drow theres
Awe to Owed vy lend dcop ay /
wre at 8 leves J reamed
' wf Svtng.” /
‘4 os
~/
FROM GEORGIA TO NEBRASKA TO CALIFORNIA
AMERICAN WOMEN HAVE FOUND A WAY
THAT REALLY HELPS OFF THAT UGLY FAT
No Starvation Dieting -
No Strenuous Exercise
RESULTS ARE GUARANTEED - OR MONEY BACK
Here, at iast, is that wonderiul hind of plan Now...
that offers \oua way toheip getridof 5.10, ded hungry. The X-11 Plan ix not aecrashor
25 or more pounds of unsightly fat. Not by starvation dict. Thats because XN-il is the
suffericg thru starvation dieting hunger... proved and sound method. used from one
not by sticking (0 boring reducing diets... end of -Amecrica to the other, to curb the
Not by extra-tuing exercises... not hy any appetite and siill eet 3 satislying. sensible
of the humdrum methods vou have known meals a daw.
and gives up.
. Lose Ugiv Fat... and don't go (to
42 Teblets
3.00
105 Teblers
5.00
\) J
You will eat, satisfying meals and eat He Seen aneeneannasaamnamy,
snacks, but you won't be the
prisoner of the overeating habit.
If you aren't 100% delighted,
return your first package for an
immediate refund — no questions asked,
EARE'n SIV
AVAILABLE AT ALL STORES
en tor PAT “e Lave BANGS ~ Boot a8,
ttt Gem OPE. SEATTLE, wate oares
CUPP OUEEOD ecco ccccecccescocccecece Pockoces aid ti
La Temere or haat ©... pen. Saves Tew
= 106 Tedrote 01 SE28 tes Dee Leos Tent
|
|
'
'
PLEASE PAINT YOUR NAME AND ACSACTE BELOW: 1
t
meowe 1
Aaeere 7
t
a
i
1
t
os
Cur Sree Pe
© Cosh onciosed CO Money Greer J Choc enclosed
GUARANTEE = You west Be TOO. deveried wn® roeure
Of your Leet petnege OF veRr oe or eit be re eneee @
ee eee
34a
Appendix B
Complaint
(6] Par. 9. Through the use of said advertisements and others
similar thereto but not specifically set out herein, respondents have
represented and are now representing, directly or by implication,
that:
A. Users of X-11 tablets can lose weight without restricting their
accustomed caloric intake and while they continue to eat the foods of
their choice.
B. Respondents have a reasonable basis from which to conclude
that substantially all users of X-11 tablets will lose a significant
amount of weight.
C. The X-11 tablet contains a unique ingredient.
Par. 10. In truth and in fact:
A. Users of X-11 tablets cannot lose weight without restricting
their accustomed caloric intake nor while they continue to eat the
foods of their choice. In fact, each X-11 package includes a diet
highly restricted as to calories and choice of foods, which must be
adhered to if weight loss is to be achieved.
B. Respondents have no reasonable basis from which to conclude
that substantially all users of X-11 tablets will lose a significant
amount of weight.
C. The X-11 tablet does not contain any unique ingredient.
Par. 11. Several of the advertisements described and alluded to in
Paragraph Eight hereof include testimonials reciting weight reduc-
tion and other figure improvements purportedly attained by lay
users of the aforesaid preparation, when such stated results do not
reflect the typical or ordinary experience of consumers with said
preparation under circumstances similar to those depicted in the
advertisements. These advertisements do not disclose or identify
such typical or ordinary experience in any way. Thus, respondents
have failed to disclose in their advertising a material fact which, if
known to consumers, would be likely to affect their consideration of
whether or not to purchase said preparation. [7]
Par. 12. Respondents have marketed and advertised X-11 tablets
without disclosing in the advertising thereof that persons with high
blood pressure, heart disease, diabetes or thyroid disease should use
said preparation only as directed by a physician. Inasmuch as a
substantial number of overweight persons are suffering from one or
more of said physical conditions, respondents have failed to disclose
in their advertising a material fact which, if known to such persons,
would be likely to affect their consideration of whether or not to
purchase said preparation.
Par. 13. Respondents have marketed and advertised the “X-11
Reducing Plan” without disclosing in the advertising thereof that a
3Sa
Appendix B
Dissenting Statement
highly restricted caloric diet is an integral part of said plan. Such
fact, if known to consumers, would be likely to affect their
consideration of whether or not to purchase said product. Thus,
respondents have failed to disclose a material fact in their
advertising.
Par. 14. The advertisements referred to in Paragraphs Eight,
Eleven, Twelve and Thirteen were and are misleading in material
respects, as alleged in Paragraphs Ten, Eleven, Twelve and Thirteen,
and constituted, and now constitute, “false advertisements,” as that
term is defined in the Federal Trade Commission Act, and the
statements, representations and omissions described in Paragraphs
Nine, Eleven, Twelve and Thirteen were and are misleading,
deceptive and unfair acts or practices.
Par. 15. The use by respondents of the aforesaid misleading,
deceptive and unfair statements, representations, acts and practices,
and the dissemination of the aforesaid “false advertisements,” have
had and now have the capacity and tendency to mislead members of
the consuming public into the erroneous and mistaken belief that
said statements and representations were and are true and complete,
and into the purchase of substantial quantities of X-11 tablets by
reason of said erroneous and mistaken belief.
Par. 16. In the course and conduct of their businesses, and at all
times mentioned herein, respondents Porter & Dietsch, Inc., William
H. Fraser and Pay’n Save Corporation have been and now are in
substantial competition, in or affecting commerce, with corporations,
firms and individuals in the sale of products and services for weight
reduction. [8]
Par. 17. The aforesaid acts and practices of respondents including
the dissemination of “false advertisements,” as herein alleged, were
and are all to the prejudice and injury of the public and of
respondents’ competitors and constituted, and now constitute, unfair
and deceptive acts and practices in commerce and unfair methods of
competition in or affecting commerce in violation of Sections 5 and
12 of the Federal Trade Commission Act.
Commissioner Thompson dissenting.
DISSENTING STATEMENT OF COMMISSIONER Mayo J. THOMPSON
JuLty 29, 1975
I share the majority’s view that the principal distributor of an
alleged weight-reducing pill ought to be able to substantiate the
claims he makes for it and that, if it is in fact dangerous for people
with heart disease, diabetes, high blood pressure, and other diseases
36a
Appendix B
Dissenting Statement
to take it, he ought to say so in his ads. But I cannot agree with my
Brethren that a retailer with no involvement in the preparation of
the ads in question should be subjected to liability here.
The advertisements in question are prepared by the distributor of
these pills, Porter & Dietsch,' with the actual copy being written by
its president and controlling owner, Mr. William H. Fraser.
Advertising mats are prepared and sent out to the major regional
and local drug chains, including Pay’n Save Corporation, a Seattle-
based drug retailer with some 90 stores located in five (5) states. The
distributor pays for approximately 90 percent of the cost of these ads,
with the cooperating retailer paying the remaining 10 percent. Since
the messages are directed to the ultimate consumer and generally
exhort him to buy from the drug chain, it is the latter's name rather
than that of the distributor which appears in the ads.
Why pick on Pay'n Save? Other drug chains have been similarly
“involved,” including Fred Meyer (Portland); Western Drug (Mon-
tana); Pay Less (Tacoma); Skaggs and Grand Central Stores (Boise);
Tiffany [2] Drugstores (Eugene Oregon); Drug Fair (Washington,
D.C.); and Walgreens (Chicago). The staff explains the selection of
Pay’n Save by simply noting that it is the largest of the participating
chains in the Pacific Northwest. (The investigation was conducted by
our Seattle regional office.) In other words, Pay’n Save was the most
convenient retailer target.
It is conceded that Pay’n Save “had a significantly lower level of
involvement” in the ads than Porter & Dietsch and its president, Mr.
Fraser, but the staff believes this factor is more than outweighed by
the need to establish a new legal precedent. An “important aspect of
this case,” the staff tells us, “is the inclusion of the advertising
retailer, Pay'n Save Corporation, as a named respondent.” A retailer
who uses a deceptive ad, we're told, ought to be held just as liable as
the fellow who created it in the first place. Had Pay'n Save made a
“thoughtful” examination of the packages in question. including the
disclosures on the package insert, it would have known something:
was wrong.
The problem, the staff reports to us, is that the country’s retailers
have been getting away with murder in this area. While “major
general-merchandise retailers are frequently involved and/or specif-
ically identified as the advertiser in highly questionable ads devoted
to a single product, our research has disclosed no clearcut instances
of such retailers being held responsible for manifestly deceptive
product claims appearing in such ads. Subjection of Pay’n Save to
' Porter & Dietach is the “exclusive national distmbutor™ of this product. the “X-11" reducing pill.
37a
Appendix B
Initial Decision
the ‘cease and desist’ provisions of this order will help to reestablish
this responsibility principle in the context of this type of advertis-
ing.”
So there we have it. The staff wants to establish a new principle of
trade regulation law. Any retailer who runs an ad prepared by a
supplier is legally liable for the truthfulness of everything in it. Never
mind that he didn’t participate in the preparation of the ad and that
it would be economically prohibitive for [3] him to maintain a staff of
scientists and lawyers to screen all the supplier ads that a
substantial retailer is confronted with in the course of a business
year. In short, strict “no-fault” liability. Run the ad at your peril.
I think the Commission is embarking on an unwise, dangerous,
and unnecessary course of action here. It is unwise because it defies
common sense. It is dangerous because it imposes an intolerable cost
burden on the nation’s retailers that can only be passed on to the
consumer in the form of still more inflated prices than those we now
labor under. And it is unnecessary because a cease and desist order
that stops the development of deceptive advertisements at the
headwaters clearly makes it unnecessary to seine all the down-
stream tributaries. °
I would dismiss Pay’n Save from this complaint.
INITIAL DECISION BY DANIEL H. HANSCOM, ADMINISTRATIVE
LAW JUDGE
May 21, 1976
I
STATEMENT OF THE CASE
ALLEGATIONS OF COMPLAINT
The complaint in this proceeding charged respondents Porter &
Dietsch, Inc., William H. Fraser, Kelly Ketting Furth, Inc., Joseph
Furth and Pay’n Save Corporation with the dissemination of false
advertisements and unfair, misleading and deceptive statements and
representations in the advertising, promotion and sale of X-11
tablets in violation of Sections 5 and 12 of the Federal Trade
Commission Act.' More specifically, the complaint alleged that
respondents disseminated advertisements which misrepresented,
* Then Commissioner Thompson dissented from the naming of Pay'n Save Corporation. a large West Coast
drug chain, as a respondent in this proceeding on the grounds. inter alia that he could not agree that “a retailer
with no involvement in the preparation of the ads in question should be subjected to liability here.” and that Pay'n
Save was being singled out among many drug store chains, as “the most convenient retailer target.” See statement
wseued with the complaint
38a
Appendix B
Initial Decision
directly or by implication, that “{u]sers of X-11 tablets can lose
weight without restricting their accustomed caloric intake and while
they continue to eat the foods of their choice,” that respondents had
a “reasonable basis from which to conclude that substantially all
users of X-11 tablets will lose a significant amount of weight,” and
that each “X-11 tablet contains a unique ingredient.”
The complaint further alleged that some of respondents’ advertise-
ments included testimonials reciting weight reduction and other
figure improvements purportedly attained by lay users of the
“aforesaid preparation” which did not reflect the “typical” or
“ordinary” experience of consumers “under circumstances [3]
similar to those depicted in the advertisements.” Failure of the
advertisements to disclose or identify the typical or ordinary
experience of persons using the tablets was alleged to constitute a
failure to disclose a material fact which, if known, would have
affected the consumer’s consideration of “whether or not to purchase
said preparation.”
The complaint also alleged that respondents “marketed and
advertised X-11 tablets without disclosing in the advertising thereof
that persons with high blood pressure, heart disease, diabetes or
thyroid disease should use [them] only as directed by a physician,”
and that in doing so respondents failed to disclose a material fact in
such advertising. Finally, the complaint charged that the “X-11
Reducing Plan” was marketed and advertised without disclosing
that “a highly restricted caloric diet [was] an integral part of said
plan,” and that such constituted a failure to disclose a material fact.
RESPONDENTS’ ANSWERS
Respondents filed answers denying most of the substantive
allegations of the complaint, and raising a number of affirmative
defenses. Respondents Porter & Dietsch, Inc., William H. Fraser,
Kelly Ketting Furth, Inc., and Joseph Furth denied that they ever
marketed a product designated “X-11 Tablets,” contending that they
were engaged in the sale of the “X-11 Reducing Plan” which
“includes for ingestion tablets having the ingredients set forth in
Paragraph Three of the Complaint.” The foregoing respondents also
denied representing that “users of X-11 tablets can lose weight
without restricting their accustomed caloric intake and while they
continue to eat the foods of their choice,” and denied representing
“that substantially all users of X-11 tablets [would] lose a significant
amount of weight.” Respondents contended that they had advertised
[4] only the “X-11 Reducing Plan,” not tablets and represented only
that users of the “X-11 Reducing Plan” would lose some weight, and
39a
Appendix B
Initial Decision
that they had a reasonable basis for this assertion. Lack of public
interest also was urged.
Respondent Pay’n Save maintained that it received the prepared
X-11 advertisements from Porter & Dietsch, Inc., and therefore
“cannot be held liable for the truthfulness of representations made
therein by others.”
Prior to the completion of evidentiary hearings respondents Porter
& Dietsch, Inc., William H. Fraser, Kelly Ketting Furth. Inc. and
Joseph Furth filed an amended answer contending that the Federal
Trade Commission is “precluded from bringing this proceeding...
under the principles of collateral estoppel and/or stare decisis.”
Respondent Pay’n Save likewise filed an amended answer contend-
ing that “Complaint Counsel is precluded from bringing this’
proceeding under the principles of res judicata. collateral estoppel
and/or stare decisis.” According to respondents, three litigated
decisions, Alleghany Pharmacal Corporation, 75 F.T.C. 990 (1969),
Hanover House and Romar Sales, proceedings before the Posial
Service,? preclude trial in this proceeding of issues relating to the
“safety and efficacy of phenylpropanolamine as an appetite suppres-
sant for weight reduction.”
PROCEDURAL HISTORY
Complaint was served on the various respondents between the end
of August and early September 1975. On September 10, the law judge
issued an order directing counsel to attempt agreement on a
timetable for completion of prehearing matters and a date and place
for hearings on the merits. Thereafter, at the request of counsel for
Porter & Dietsch, Inc., William H. Fraser. Kelly Ketting Furth. Inc..
and Joseph Furth, a prehearing conference was held on October 7,
1975, [5] and a timetable was issued the following day setting
hearings on the merits to commence January 6, 1976.
The parties disagreed as to the location of hearings. After
considering all submissions, the law judge ordered that hearings be
held in Seattle, Washington, where Pay'n Save Corporation and its
counsel? and a number of witnesses and complaint counsel were
located, and in Washington. D.C., to take the testimony of East Coast
witnesses. Hearings in Chicago, Illinois, to accomodate Porter &
* Hanover House and Romar Sales Corp. PS Dkt. Now L/L ikand 2 ti). decision of December 3, ) Rost
* Orginal counsel for Pay'n Save Corporation withdrew on Octover J. and Ajbert A. Carretta, counsel f +
Porter & Dietach, Inc., William I. Fraser, Kelly Kett:ng Furth, Inc. ard Joseph Purth, tok over as counsel for als
respondents However, on October 28. Mr Carretta withdrew as counsel for Pay'n Save Corporation because of a
possible conflict of interest between that respondent and one or more of the "her respondents. Original counsel for
Pay'n Save Corporation then reentered the proceeding.
40a
Appendix B
Initial Decision
Dietsch, Inc., William H. Fraser, Kelly Ketting Furth and Joseph
Furth were also offered if requested by those respondents.‘
In the meantime, Porter & Dietsch, Inc., William H. Fraser, Kelly
Ketting Furth, Inc., and Joseph Furth moved on September 24, 1975,
for a “Corrective News Release” and a stay of the date for filing an
answer on the ground that the Commission's News Release failed to
contain the usual caveat that the Commission issues a complaint
when it has “reason to believe” that the law has been violated, and
that such action did not imply adjudication of the matters alleged.
This motion for a “Corrective News Release” was certified to the
Commission recommending that it be granted, but the request for a
stay of the date for filing an answer was denied. On October 17, 1975,
the Commission granted the motion for such correction. [6]
Thereafter, discovery and various other pretrial proceedings
continued. The law judge issued a number of subpoenas requiring
the production of documents and information by respondents,
directed the production of specified Commission materials, ordered
the taking of certain depositions and disposed of a variety of motions.
Included among the latter were.a motion and supporting memoran-
dum of Porter & Dietsch, Inc., William H. Fraser, Kelly Ketting
Furth, Inc., and Joseph Furth to “Dismiss Complaint Before Trial
For Lack Of Public Interest Sufficient To Justify Issuance Of A
Cease And Desist Order” and their motion and supporting memoran-
dum for a “Supplementary Corrective News Release.” The latter
motion was certified to the Commission with a recommendation
pursuant to §3.22 of the rules and was denied by the Commission on
December 19, 1978.
Respondent Pay’n Save Corporation also filed a motion to “Dismiss
Complaint Before Trial Or, In The Alternative, For Summary
Decision” which was supported by a memorandum filed by Porter &
Dietsch, Inc., William H. Fraser, Kelly Ketting Furth, Inc., and
Joseph Furth. This motion was denied by the law judge on December
30, 1976.
On December 23, 1975, all respondents filed an action in the U.S.
District Court for the District of Columbia seeking a declaratory
judgment and restraint of further proceedings in this matter. They
alleged that a cease and desist order against them would not be in
the public interest, that the Commission’s News Releases were
improper, and that the scheduling of hearings in Seattle and
Washington, D.C., rather than in one location “convenient to all
parties,” violated the due process clause of the Fifth Amendment,
* On December 29, 1975, counsel for respondents formally declined hearings in Chicago, Illinois, and
evidentiary hearings were not held at this location.
4la
Appendix B
Initial Decision
the Administrative Procedure Act and the Commission's rules. On
January 5, 1976, after hearing oral argument, the District Court
denied respondents’ motion for a preliminary injunction and
thereafter dismissed the complaint. [7]
Hearings on the merits commenced in Seattle, Washington, on
January 7 and concluded in Washington, D.C., on January 26, 1976, 8
actual hearing days having been utilized during that period. The
_ record consisting of 220 exhibits, many of them multi-paged, and
1,405 pages of transcript was closed by order of the law judge on
February 10. Twelve witnesses testified including the individual
respondents and an official of Pay’n Save Corporation, and the
testimony of three witnesses was entered in the record by stipula-
tion. Complaint counsel called four medical or scientific experts, Drs.
Margen, Drenick, Prout and Sorer, and respondents Porter &
Dietsch, Inc., William H. Fraser, Kelly Ketting Furth, Inc., and
Joseph Furth called three, Dr. Fineberg, a medical doctor, Dr.
Silverman, a pharmacologist, and Dr. Hoebel, a specialist in
physiological psychology.
At the conclusion of the case-in-chief respondents orally moved to
dismiss on the ground that complaint counsel had not made out a
prima facie case (Tr. 1038-97). Ruling was deferred by the law judge
until decision on the entire case after all evidence had been received,
and permission was granted to respondents to reduce their motion to
writing supporting it with record references and legal authority. On
March 29, 1976, respondents (except Pay'’n Save) filed a comprehen-
sive written motion to dismiss with a separately bound appendix in
support. This motion will be referred to hereinafter as “Motion to
Dismiss” and will be ruled upon in this Initial Decision in accordance
with the findings, discussion and conclusions set forth.
This matter is now before the undersigned for decision based upon
the allegations of the complaint, the answers, the evidence and the
proposed findings of fact, conclusions and legal authority filed by all
parties. All proposed findings of fact, conclusions and arguments,
including those in the Motion to Dismiss, not specifically found or
accepted herein, are rejected. The law judge, having considered the
entire record, and all the contentions of the parties, makes the
following findings and conclusions and issues the order set out at the
end hereof: [8]
42a
Appendix B
Initial Decision
II
FINDINGS OF FACT
RESPONDENTS
1. Respondent Porter & Dietsch, Inc. (Porter & Dietsch), is a
Minnesota corporation with its office and principal place of business
in St. Paul. It is engaged in the packaging and sale of pharmaceutical
products, principally by mail and through retail drug stores (Ans.
P&D, %1; Fraser, Tr. 753-54). Porter & Dietsch has sold its X-11
tablets since 1967 (Ans. P&D, %3; Fraser, Tr. 769, 823) and, although
a few other products are sold, the tablets are by far its largest
volume item, amounting to over 80 percent of all sales (Fraser, Tr.
757-61).
2. Individual respondent William H. Fraser is the president and
sole owner of Porter & Dietsch (Fraser, Tr. 753-54). As such, Mr.
Fraser formulates, directs and controls the policies, acts and
practices of corporate respondent Porter & Dietsch (Ans. P&D, ~:).
3. In the course and conduct of their business, Porter & Dietsch
and William H. Fraser have been and now are in substantial
competition in or affecting commerce (as “commerce” is defined in
the Federal Trade Commission Act) with other corporations, firms
and individuals in the sale of products and services for weight
reduction (Ans. P&D, 916).
4. Respondent Kelly Ketting Furth, Inc. (Kelly Ketting Furth) is
an advertising agency incorporated in Illinois, with its office and
principal place of business in Chicago (Ans. P&D, {1). Since its
organization in 1968, Kelly Ketting Furth has been, and is, the
advertising agency for Porter & Dietsch in the marketing of X-11
tablets (Ans. P&D, 94; Fraser, Tr. 805; Furth, Tr. 927-32). [9]
5. Individual respondent Joseph Furth is a vice-president of Kelly
Ketting Furth and is the advertising account executive for respon-
dent Porter & Dietsch (Ans. P&D, "4; Furth, Tr. 927-36). Mr. Furth
participates in the management of Kelly Ketting Furth and is among
those responsible for the formulation, direction and control of it acts
and practices, including those alleged in the complaint (Ans. P&D,
q1).
6. In the course and conduct of their business Kelly Ketting Furth
and Joseph Furth are now, and have been, throughout the period
that Kelly Ketting Furth has been the advertising agency for Porter
& Dietsch, in substantial competition in or affecting commerce (as
“commerce” is defined in the Federal Trade Commission Act) with
43a
Appendix B
Initial Decision
other corporations, firms and individuals in the advertising business
(Ans. P&D, 4).
7. Pay’n Save Corporation is a Washington corporation with its
headquarters located in Seattle. It is a major chain of retail drug and
sundry stores with outlets located principally in the Northwest and
in northern California with some stores in Alaska and Hawaii (Ans.
P&D, "{ 1 and 5). Gross sales volume for the 12-month period ending
November 1, 1975, was approximately $290,000,000 (Stipulation. Tr.
435). Porter & Dietsch's X-11 tablets have been sold by Pay’n Save
since 1969 (Ans. P&D, "5; Palmer, Tr. 507-08).
8. In the course and conduct of its business and throughout the
period of its marketing and/or advertising of Porter & Dietsch's X-11
tablets, Pay’n Save has been and now is in substantial competition in
or affecting commerce (as “commerce” is defined in the Federal
Trade Commission Act) with other corporations, firms or individuals
in the sale of various products, including products sold as aids in
weight reduction (Ans. P&S, §§ 2, 4, 5). [10]
x-1l TABLETS
1. Nature and sales
9. Porter & Dietsch purchase the X-11 tablets they market from
the manufacturer in polyethylene pouches containing 21 tablets
each. These pouches are then packaged in cartons of two sizes - one
box containing two (2) pouches totaling 42 tablets and a larger size
containing five (5) pouches totaling 105 tablets (Fraser, Tr. 769-70).
The smaller box is normally sold at retail for $3.00 and the larger
size for $5.00 (Adm. P&D, No. 9b; CX 36, 39, and 62). In addition to
the tablets, each box contains a leaflet providing directions for the
purchaser in using the tablets and some advice about obesity, a
rudimentary low-calorie diet for a 5-week period, a “calorie value
chart” for a limited number of foods, a weight chart and a “warning”
against use by individuals with certain physical conditions unless
medically supervised (CX 37 and 40). The outside of the box
containing the X-11 tablets features in bold lettering “X-11
Reducing Plan” and the headline “EAT WELL!! — and LOSE THAT
FAT” (CX 36, 38, 39 and 41). The ingredients, the “adult dose,” and a
“Caution” (warning) are also provided.
10. X-11 tablets were, and are, advertised and marketed exten-
sively throughout the United States as a reducing aid or preparation
for the obese, and for those who wish to shed what they consider to
be excess body weight. Approximately 80 percent of all retail chain
stores in the nation sell X-11 tablets (Fraser, Tr. 783), and annual
44a
Appendix B
Initial Decision
sales for the year ending April 30, 1975, were in the area of
$1,789,000 (Fraser, Tr. 759-61). Each X-11 tablet contains 25
miliigrams of phenylpropanolamine, 25 milligrams each of methyl-
cellulose and caffeine and vitamins A (1388 U S P units), B: (0.5 mg),
B, (0.5 mg), Bs (1 mg), C (15 mg), calchum pantothenate (1 mg),
niacinamide (5 mg), E (5 int. units), and Bi: (0.5 mcg) (Ans. P&D,
{3). The ingredients in the X-11 tablets allegedly conducive to
weight loss are phenylpropanolamine/and methylcellulose. The
former is an [11] amphetamine-related fompound which is claimed
to act as an appetite suppressant. The ¢haracteristics of phenylpro-
panolamine will be considered in subsequent findings dealing with
the representations contained in respondents’ advertising. Methyl-
cellulose is also represented in the marketing of X-11 tablets as an
aid to weight loss, and the characteristics of this substance will also
be considered.
1l. The promotional approach of respondents with respect to
phenylpropanuiamine and methylcellulose in marketing X-11
tablets is illustrated by statements in an advertisement given wide
circulation in TV Guide for October 18 through 24, 1975, which
stated under a picture of two fingers holding a pill adjacent to the
headline “WHAT EACH TABLET CONTAINS” (CX 13):
25mg METHYLCELLULOSE A pure vegetable extract which expands and is
intended to give one a feeling of being fuller.
25mg PHENYLPROPANALOMINE [sic] An appetite depressant intended to
help give one the feeling of a restricted appetite.
. (See also CX 69-73 and 90-91.) Other advertisements hold out the
effects purportedly attributable to methylcellulose and phenylpropa-
nolamine, i.e., a feeling of fullness and depressed appetite, without
specifically identifying these substances (CX 4-8, 10, 14-15, 43, 46-47,
50, 52-56, 59, 61, 63-64, 67-68, 74, 77-80, 82-85 and 87-88).
2. Respondents were engaged in the advertising and sale of
diet tablets
12. Respondents place great emphasis on their contention that
they neither marketed nor advertised “tablets” but, rather, a “plan.”
Insofar as this [12] contention involves a defense that representa-
tions were not made to the public in respondents’ advertisements as
to the characteristics and qualities of the X-11 tablets, and the
weight losses achievable from their use, it is contrary to the evidence
and is rejected. Respondents’ advertisements, directly and by
implication, conveyed the net impression to the public that a
45a
Appendix B
Initial Decision
“wonder” preparation for easy weight reduction - the X-11 tablets -
was available. The advertisement in the Seattle Times September 10,
1972, reprinted herein, is illustrative (CX 18). This advertisement
begins with the banner headline “x-11 1s HERE!” and then tells
readers who are overweight and want to reduce that they can “EAT
WELL. . .AND LOSE THAT FAT! - without ever missing a meal.” Weight
losses of 5, 10, 25 or more pounds are represented, “GET RID oF 5, 10,
25 OR MORE POUNDS!,” as achievable with X-11 tablets. A picture of
"an attractive and trim lady is given prominence who is quoted as
saying “1 Lost 80 Las!” The advertisement announces to the
overweight reader that you “satisfy your appetite while you take off
pounds and inches” without “strenuous exercises” and “without
starvation dieting hunger,” that “[Y]Jou do not deny yourself,” and
that “you lose weight. . .while you eat well.” How is all this
accomplished? The advertisement answers: “here’s why” — a tablet
which:
1. COUNTERACTS HUNGER
*
Take one of these tablets a half-hour or so before your regular meals. It combines a
pure vegetable extract that has no calories, and quickly starts acting to provide the
feeling of a fuller, satisfied, contented stomach. You eat 3 satisfying balanced meals a
day - plus snacks. You eat what you want, but eat less because you don't feel so
hungry throughout the day.
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46a :
- 47a
Appendix B | Appendix B
Initial Decision ae “0
| Initial Decision
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48a
Appendix B
. Initial Decision
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49a
Appendix B
Initial Decision
(15] 2. ACTS AS AN APPETITE APPEASER
Part of the secret of this method is a unique ingredient that acts as a beneficial
appetite appeaser, which puts a“brake”on your cravings for sweets, candy, pastries.
rich gravies. High-Fat/High-Calorie foods - everything. It helps you conduct a kind of
psychological warfare with yourself as you break some bad old eating habits you
probably thought you were stuck with forever. Thus, your appetite is appeased while
you take off fat.
13. The advertisement appearing in the Seattle Times, July &,
1973, also reprinted, emphasizes testimoniais of ladies reporting very
substantial weight losses (CX 19). It also contzins a picture of two
fingers holding the X-11 tablet, ard advises the reader that if not 100
percent delighted, the “first package” of either 42 tablets or 105
tablets may be returned for an immediate refund.
14. The advertisement in The Idaho Statesman, September 9,
1973, likewise reprinted, contains two pictures of the X-11 tablet (CX
48). The first features the picture of a young lady holding up an X-11
tablet and states:
NOW. .. LABORATORY SCIENCE HAS PERFECTED A TINY PRE-MEAL
TABLET WITH A PLAN THAT LETS YOU ENJOY FOODS YOU CHOOSE
The bottom half of this advertisement emphasizes the X-11 tablet by
a much larger picture of two fingers holding the tablet with ad jacent
paragraphs entitled “COUNTERACTS HUNGER,” “ACTS AS APPETITE
APPEASER,” Containing the same text referred to in Finding 12, and
“FORTIFIED WITH VITAMINS, MINERALS.” The advertisement concludes
by announcing “42 Tablets 2.98," “105 Tablets 4.98.” [19]
15. The elaborate advertising supplement distributed in the
Chicago-Tribune, February 11, 1973, although varying in language,
is similar in its message and representations to the foregoing
advertisements (CX 49). A post card for mailing to the Walgreen
drug chain is printed within the advertisement with the admonition
to prospective purchasers: “IF YOUR STORE HAS RUN OUT OF x-11
TABLETS HURRY!!!" “FILL OUT AND MAIL THIS COUPON FOR YOUR
suPPLY.” This advertisement is headlined “x-11 is HERE" and gives
prominence to the picture of a tablet being held between two fingers,
telling Chicago-area readers that “.. . Laboratory Science has
perfected a Tiny Tablet for EASY REDUCING.”
16. Some of respondents’ smaller advertisements designed for
insertion in newspaper columns. or in fractions of pages in
periodicals, condense the representations contained in the larger
advertisements and refer to X-1l simply as a “tiny tablet.” The
following is an example (CX 42):
50a
Appendix B
Initial Decision
| Ay OF? mean t|
-GET RID OF
UGLY FAT
Enjoy “eating the loods you choose while you
lose excess, ugly fat. 111 Reducing Plaa can
heig you shim down. 1-11 is a tiny tablet, easily
swallowed, (hat combines iagrecients to com-
bat hunger, appease appetite. supplement wita
mans. No dangerous drugs No strenuous exer-
cise. Over $00 milhon of X11 tablets used ail
over America, Company founded in 1928. ©!
Reducing Plan costs $3 — large economy swe
5. Get X11 now. Your money refunded by
your druggist if you don't lose pounds = no
questions asked.
(See also CX 5-7 and 77.)
[20] 17. Other advertisements’told members of the public that they
could “LOSE THAT FAT” but “EAT SUFFICIENTLY” by taking “a pre-meal
X-11 Tablet before meals” (CX 51) and that “today” there is “an
amazing new reducing plan with X-11 Tablets” (CX 52, 61 and 84).
Still other advertisements were again specific in telling the public
“WHAT EACH TABLET CONTAINS” (CX 13, 69-73, 90 and 91). Occasional
advertisements stated “NO PRESCRIPTION NEEDED” (CX 12, 57 and 65),
and some told the public to “[A]sk the pharmacist for a 42 tablet
pack of X-11 Reducing Aid” (CX 53 and 66).
18. With few exceptions, respondents’ advertisements concluded
with a coupon or statement offering tablets to the public, usually 42
for $3.00 and 105 for $5.00 (see e.g, CX 18-19 and 49 reprinted in this
decision).
19. The ladies whose testimonials are prominently displayed in
the Seattle Times advertisement (CX 19), and published in other
newspapers (CX 1, 16, and 76), perceived the advertisements as
promoting pills or tablets. Mrs. George Stowe in her initial letter to
Porter & Dietsch refers to taking “X-11 tablets” (CX 149). Mrs.
Beverly Tellier begins by stating “I am a user of your X-11 diet pills”
(CX 148; see also CX 184(2)), and Mrs. Ken Schmidt states to Porter &
Dietsch that “I talked with you from Walgreen Drug here in Norfolk,
Nebraska, last week, about your X-11 diet pills” (CX 147). In
publishing these testimonials respondents changed all such product
Sla
Appendix B
Initial Decision
references to read “X-11 Plan” or “X-11 Reducing Plan,” rather
than “tablets” or “diet pills.”
20. Other members of the public writing to Porter & Dietsch also
looked upon what was marketed and advertised as “tablets,” “pills”
or “reducing pills.” Their perceptions of the product are evidenced
by the following statements: “I started on your X-11 Tablets...”
(CX 185); “I called up Saturday for an order of 2 boxes of diet X-11
pills” (CX 186); “We are wondering if we [21] couldn't buy these pills
directly from you. . ." (CX 187); ". . . Imeed these pills” (CX 188): “I
received your letter regarding getting X-11 tablets in Sutter Creek"
(CX 189); “On occasion my husband has the use of your X-11 diet
pills” (CX 190); “X-11 is the only diet pill I have found that works”
(CX 191); “I have tried your X-11 tablets for reducing. . ." (CX 192):
“I have been taking your reducing tablet for 4 months. . ." (CX 193):
“I was on vacation. . . and saw your pills (105)/(X-11) reducing pills
so I bought a box. . .” (CX 194); “I used your diet pills about four
years ago. . .", “P.S. The name of the diet pills are X-11 reducing
plan” (CX 195); “Please send me another box of 42 X-11 Reducing
pills. . .“ (CX 196); “X-11 is the best reducing tablet sold” (CX 199):
“Will you please let me know if there is a place. . . where I can
purchase the X-11 reducing Plan pills’ (CX 201): “So I tried X-11
and got down to 130 pounds on the first | x of pills’ (CX 202);
“. . .send me some X-11 Reducing Plan Tablets. . .I try some of the
other kind of Tablets, but I got sick from them. . .” (CX 203); “In
past years I have taken several kinds of reducing pills (from
Doctors). All they did was make me nervous. . . But on X-11 there
is no after effects” (CX 204); “. . .[i] ordered $5.00 worth of diet pills
from you. . .” (CX 206); and, “I would like for you to send me X-11
reducing tablets” (CX 207).
21. The purpose behind the repeated use of the word “plan” in
the advertising copy for X-11 tablets, and the use of “X-11 Reducing
Plan” as Porter & Dietsch’s designation for its product is evident in
the letter dated September 13, 1973, to Mr. Fraser. Porter &
Dietsch’s president, from Mr. Furth, vice-president of respondent
Kelly Ketting Furth and the account executive for X-11 tablet
advertising (CX 164): [22]
Dear Bill:
. s . a 7 . .
Appedrine is flirting with danger. It is the same kind of danger that hit us in the
head in the insurance business.
Appedrine and Hungrex (even Odrinex) put emphasis on the tablets. That's
murder, because the pills will not reduce weight an iota.
52a
Appendix B
Initial Decision
It is the “Plan” that will keep us out of hot water.
I've said it before. If you want me to put the same kind of “punch” into the
advertising, so be it. But we've been getting along swell, without it.
Let them make their claims, we'll make ours. But I'm afraid we're all going to get
into hot water because of Appedrine, Hungrex and Odrinex.
Because Hungrex won its case at one time, doesn't mean the sore cannot be
reopened.
I've seen it happen in the mail order insurance business.
{23} I don't know if the new 42 line ad will work. That's what tests are for. Ads like
Appedrine (from a copy standpoint) may work, but it may put us out of business
faster.
Cordially,
Joseph Furth
Vice President
22. Labeling the box of tablets the “X-11 Reducing Plan” and
including within the tablet box a leaflet (CX 37 and 40) containing a
low-calorie diet, a calorie value chart, a table of desirable weights
and advice, inter alia, that in most cases “obesity is caused strictly by
overeating and indiscretions of diet,” that “weight loss is only
accomplished when a minimum of calories are consumed,” that the
purchaser must not “expect a miracle overnight” but “must practice
a little ‘self-denial’ — plus, a will power to get thin,” and that if the
X-11 tablets are taken one-half hour before each meal and the
“Plan, or any other low-calorie diet” is followed, he or she “should
lose weight,” does not transform the advertising of ‘diet pills” into
the promotion of a reducing “Plan” so as to mean that no
representations were made to the public about X-11 tablets.
23. Respondents were engaged in the advertising, marketing and
sale of X-11 tablets. The representations to the public in respon-
dents’ advertisements were about X-11 tablets and their efficacy in
facilitating weight loss.* Such representations were made for the sole
purpose of promoting and inducing the sale of X-11 tablets. [24]
ADVERTISING OF X-ll TABLETS
24. Although the pictures, language and format varied, essential-
ly similar statements and themes pervaded respondents’ advertise-
ments of X-11 tablets. Respondents agree that “from 1969 to date,
the advertising of the ‘X-11 Reducing Plan’ had remained substan-
tially unchanged” (see Memorandum In Support of Motion to
* All advertising slicks or mats in the record (CX 50 through 91) were published by respondents in some media
(Fraser, Tr. 804 and 883).
53a
Appendix B
Initial Decision
Dismiss, etc., filed October 30, 1975, p. 11; see also Furth, Tr. 952,
968-69 and 978-80).
25. Porter & Dietsch’s advertising expenditures for X-11 tablets
were as follows (CX 179):
Year (Ending April 30) Dollars
1975 $882,570
1974 1,082,396
1973 862,986
1972 781,566
1971 593,723
1970 460,902
26. The record contains a large number of advertisements
published in various media, predominately newspapers, promoting
the X-11 tablets. As noted earlier, five examples have been reprinted
in this decision, four large ads and a small one (CX 18-19, 42, 48 and
49), and have already been discussed to some degree. Major
metropolitan dailies such as the Seattle Post-Intelligencer (CX 1-4),
the Seattle Times (CX 19), the Washington Post (CX 47), the
Baltimore Sun (CX 46), the Chicago Tribune (CX 49) were utilized, as
well as smaller circulation newspapers such as the Anchorage Daily
Times (CX 33), the Longview Daily News (CX 21), the Greensboro
Daily News (CX 74), and the Peoria Journal-Star (CX 83). Specialized
publications such as T'V Guide (CX 10-13) were also employed in the
dissemination of X-11 advertisements.
27. Ads occupying a small portion of a newspaper or periodical
page (CX 5-7, 9, 17, 20-34, 42-43, 51, 54, 64, 77, and 89), as well as
very large and prominent advertisements, were published (CX 1-4, 8,
10, 13-16, 18, 35, 44-48, [25] 50, 52-53, 66-76, 78-88, 90-91). Some of
the large advertisements were elaborate color inserts known as “free
standing stuffers” in the advertising trade (Furth, Tr. 930-33). These
were placed in the Sunday editions of the nation's leading newspa-
pers. CX 46 was inserted in the Baltimore Sun for Sunday, April 20,
1969, CX 47 in the Washington Post on the same date, and CX 49 in
the Chicago Tribune on February 11, 1973.
REPRESENTATIONS CONVEYED TO THE PUBLIC BY RESPONDENTS’
ADVERTISEMENTS FOR X-l1l TABLETS
1. Representation that users of X-11 tablets can lose weight
without restricting their accustomed caloric intake and while
they continue to eat the foods of their choice
28. The advertisement published in the Seattle Times, September
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Initial Decision
10, 1972 (CX 18), as indicated, told prospective users that “X-11 is
here” and they could “EAT WELL. . . AND LOSE THAT FAT—without
ever missing a meal,” that they could “satisfy [their] appetite” while
taking off “pounds,” that they could lose “5, 10, 25 or more pounds”
without denying themselves, without dieting hunger, that they
would “eat what [they] want,” but would eat less because they would
not “be the prisoner of the overeating habit.”
29. The advertisement published in the Seattle Times, July 8,
1973 (CX 19), also told prospective users of the X-11 tablets that they
could “EAT WELL. . . AND LOSE THAT FAT.” The ad advised that “No
STARVATION DIETING” was required, that unsightly fat could be lost
without “suffering through starvation dieting hunger” or following
“boring reducing diets,” or any of the “humdrum methods you have
known and given up.” The advertisement told prospective purchas-
ers of X-11 tablets that they could eat “satisfying meals and snacks,”
that they would not “go to bed hungry,” that the “X-11 Plan” was
“not a crash or starvation diet” but a “proved and sound method” “to
curb the appetite and still eat 3 satisfying, sensible meals [26] a
day,” and that laboratory science had perfected a “tiny pre-meal
tablet” which “lets you eat three sensible meals a day plus ‘tween
meal snacks.” 7
30. The advertisement published June 24, 1973, in the Seattle
Post-Intelligencer TV Section (CX 2) likewise featured in black,
prominent type “Eat Well. . . Lose That Fat!” The advertisement
referred to the “X-1l1 Plan” as “an extraordinary easy figure-
slimming Plan” that offered a way to “get rid of unsightly,
superfluous fat” without “missing a meal,” and told the prospective
X-11 tablet user that she or he could “Satisfy your appetite and peel
off those excess, extra pounds, too.”
31. The advertisement in the same newspaper on June 25, 1974
(CX 3), was again headed in boldtype “Eat Well. . . And Lose Ugly
Fat.” This advertisement continued the theme of the earlier ads that
X-11 tablet users could “EAT AND LOSE THAT EXCESSIVE WEIGHT."
could “satisfy” their appetites and yet “peel off extra pounds” and
could remove excessive weight “without ever going hungry.” An
identical ad was published in the Seattle Post-Intelligencer TV
Section January 1, 1975 (CX 4).
32. The advertisement in the Anchorage Daily Times of March
29, 1974 (CX 8) repeated the statements “Eat Well. . . and Lose
That Fat!”, that laboratory science had “PERFECTED A TINY PRE-MEAL
TABLET WITH A PLAN THAT LETS YOU ENJOY FOODS YOU CHOOSE,” that
X-11 users could “EAT AND LOSE THAT EXCESSIVE WEIGHT,” and could
“satisfy” their appetites and “peel off those extra pounds” “without
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Initial Decision
ever going hungry.” Users were promised “you will lose weight. . .
while you eat well.”
33. The full page advertisement in the Spokane Spokesman-
Review Sunday Magazine, October 22, 1972 (CX 135), similarly
announced “EAT WELL ... AND LOSE THAT FAT!’ “WITHOUT EVER
MISSING A MEAL,” and “You do not deny yourself.” [27 ]
34. A large advertisement in the Seattle Times, February 3, 1974
(CX 45), was headlined “Now EAT WELL” and “LOSE UGLY FAT!” The
text continued this theme with the statement “So enjoy eating that
satisfies your appetite as you peel off those extra pounds. You lose
weight. . . while you eat well.”
35. The elaborate “free standing stuffer” in the Sunday Balti-
more Sun on April 20, 1969 (CX 46) featured banner headlines which
read “Lose Ugly Fat” with an “Amazingly Easy Reducing Plan.” The
text promised that fat would be lost without “starvation dieting
hunger,” “boring reducing diets” or “humdrum methods so many
women have tried, and given up in despair.” Readers were assured
that users of X-11 tablets could “now” “EAT AND LOSE WEIGHT,”
could “satisfy” their appetites yet “remove pounds and inches,”
could “peel off that excessive weight,” and could “Enjoy eating the
foods” they chose while they lost “unsightly, superfluous fat.”
Readers were told in heavy letter type “X-11 IS HERE,” and that
they could “LOSE UGLY FAT. . . without ever missing a meal!” An
identical “free standing stuffer” was inserted in the Washington Post
on the same Sunday (CX 47).
36. Another advertisement disseminated by respondents an-
nounced “Are you on a diet? Or planning to go on one? WHY STARVE
YOURSELF WHILE YOU REDUCE? EAT. . . AND LOSE THAT FAT!” (CX 57)
Other advertisements told the public “TAKE OFF UGLY FAT WITH AN
‘EAT WELL’ EATING PLAN” (CX 64). Still others stated “Enjoy eating
the foods you choose while you lose excess, ugly fat’ (CX 77).
37. The “free standing stuffer’ inserted in The Greensboro
Record, January 26, 1969 (CX 74), featured “EAT WHAT YOU WANT -
AND SLIM DOWN,” as did the large insert of January 12, 1969, in the
Wisconsin State Journal (CX 75), and the insert of July 28, 1968, in
the Peoria Journal Star (CX 83). Other advertisements communicat-
ed similar representations, with occasional minor changes in
emphasis. See CX 5-7, 9-35, 42-45, and 47-91. [28]
38. Respondents’ advertising told the public that with the X-il
tablets people could “EAT WELL AND LOSE THAT UGLY FAT” (CX 2),
that X-11 tablets put “enjoyment into eating” while “unsightly,
superfluous fat” was lost (CX 52), that overweight persons could take
off ugly fat with an “EAT WELL” eating plan (CX 50), and that people
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Initial Decision
who wanted to lose weight could “eat” and lose “pounds” without
dieting hunger, or giving up meals, or by any of the “torturous
500/1000 calorie diets so many women try, and give up in despair”
(CX 72).
39. Incorporation deep in the advertising copy of occasional
phrases such as users will no longer be the prisoner of the
“overeating habit” or that users will ‘“‘want less” and therefore “eat
less” does not change the overall message conveyed to the public.
The overall effect of respondents’ advertisements was to convey the
net impression to the public that users of X-11 tablets could lose
body weight without dieting or consciously or materially changing
their eating habits, in the language of the complaint, “without
restricting their accustomed caloric intake and while they continue
to eat the foods of their choice.”
2. Representation that substantially all users of X-11
tablets would lose a significant amount of weight and that
Respondents had a reasonable basis from which to conclude
eee
40. Although the advertisements for X-11 varied in their format
and wording, as stated, the themes remained relatively constant.
Purchasers were assured they would realize significant weight losses
through use of the X-11 tablets. Respondents’ advertisements were
of a nature to attract the attention of the seriously overweight,
especially women, and to induce them to purchase X-11 tablets in
the hope of losing large amounts of excess fat.
41. Representations of significant, indeed, very large, weight
losses achievable through the X-11 tablets are prominent in the
advertisements respondents disseminated to the public. The impact
of these representations is evident by statements recurring through-
out the X-11 advertisements, as follows: [29] “I Used to Weigh 160
lbs. Now I’m Down to 105,” i.e., 55 pounds lost, (CX 1, 16, 19, and 76);
“I lost over 40 lbs.,” “And I lost over 40 lbs. too” (CX 1, 16, 19, and
76); “I Lost 80 lbs” (CX 2, 9, 18, 20, 22-24, 30-31, 33-35, 44, and 81);
“Lose Ugly Fat” (CX 3, 4, 10, 14, 25-29, 32, 45, 53-56, 60-61, 63-64,
66-67, 74-75, 78-80, 82-84, and 88); “Lose That Fat” (CX 8, 11, 48, 50-
51, 57-59, 69-73, 79, 87, and 90-91); “So You Want To Lose 5, 10, 25
Or More Pounds” (CX 1, 14, 48, 58-59, 63, 78-80, 82, and 87); “Get Rid
of 5, 10, 25 Or More Pounds” (CX 13, 15, 18, 46-47, 49, 50, 52, 57, 65,
10-75, 83, 86, and 90-91); “Get Rid of Ugly Fat” (CX 42, 77); “Lose 5,
10, 25 Or More Pounds Of Fat” (CX 67, 88); “College Student Lost 83
lbs Of Ugly Fat” (CX 68); “Now. . .Remove Pounds And Inches From
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Appendix B
Initial Decision
Thighs, Neck, Legs. Waist’ (CX 84-85); “I enjoy wearing dresses sizes
11-12’s rather than 20 1/2" (CX 44).
42. The X-11 advertisements also conveyed the impression of
slimness, and significant weight losses to be achieved through use of
X-11 tablets, by pictures of trim-looking women, and silhouettes of
slim female figures (CX 1-4, 8-11, 13, 29-31, 33-35, 44-49, 51-56, 58-
61, 63, 66-67, 69-76, 78-83, 85, 87-88 and 90-91).
43. Testimonials reporting very large weight losses and implying
that new users of X-11 tablets could anticipate like results appeared
frequently and were highlighted in respondents’ advertisements.
These testimonials reported weight losses, as just quoted, of 55 lbs..
over 40 lbs., and 83 Ibs. (CX 1-2, 9, 16, 18-20, 22-24, 33-35, 44, 68, 76,
and 81).
44. Respondents’ advertising portrayed the X-11 tablets as a
new, simple, easy, amazing, extraordinary way to lose many pounds
of fat. The achievement of such weight losses was, in fact. depicted as
a virtual certainty. Continual references in respondents’ advertise-
ments to “Laboratory Science” having developed a “Tiny Tablet”
coupled. with the words “Now,” “tTopay,” or [30] “RECENTLY”
conveyed the impression that the X-11 tablets were the culmination
of scientific research, and reinforced the representation that
substantially all users could and would lose any amount of pounds
desired, up to 80 and 83 lbs. (CX 8, 14, 46-47, 52, 56, 59, 61, 74-75, 79,
83-84, and 87).
45. Significant, large weight losses, in fact, were represented, as
“automatic” (CX 74-75):
So why carry around needless, excess weight — :vhen it's so easy to lose ugly fat
automatically with the new X-11 Reducing Plan” (Ew phasis in original).
The overweight were assured that “thousinds of women throughout
America are discovering an extraordinary new plan that automati-
cally helps get rid of 5, 10, 25 or even mere pounds. . .” (CX 74. 75).
The public was promised that the X-!! plan “automatically keeps
working at home, at work, at play — 24 hours a day.” (See also CX
46, 47 and 49 which contain similar language.)
46. Significant, large weight losses were guaranteed: “RISULiS
ARE GUARANTEED — OR MONEY BACK” (CX 1, 16-17, 19); “{I]f flabby
fat doesn’t disappear, just return the empty package for an
immediate refund” (CX 2 and 81; see also 57-58, and 65-66), and “If
flabby fat does not vanish ‘like magic’ when you follow the X-11
Reducing Plan, just return the empty package for an immediate
refund” (CX 15). This theme was constantly repeated in varying
language: “LOSE WEIGHT OR YOUR MONEY BACK” (CX 60); “LOSE FAT OR
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Initial Decision
MONEY BACK” (CX 43 and 77); and “TAKE WEIGHT OFF WITH VERY
FIRST BOX OR MONEY BACK” (CX 90). The advertisements repeatedly
assured members of the public that “You have nothing to lose but
pounds and inches,” and that large weight losses would be achieved
(CX 24, 50, and 79). [31]
47. Respondents’ advertisements for X-11 tablets represented to
the public that substantially all users of X-11 tablets would lose a
significant, in fact, as large an amount of we
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