Petition — PAY'N SAVE CORP. v. FEDERAL TRADE COMMISSION (No. 79-1090)

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Supreme Court, U.& ~

FILED

IN THE

Supreme Court of the United tog 1 00 |

ICHAE u K

OCTOBER TERM, 1979 L_RODAK, JR CLER

= et MERON eee SEY Pe

NO.

79-1090

PAY'N SAVE CORPORATION, a corporation

| Petitioner,

Vv.

FEDERAL TRADE COMMISSION,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

RYAN, SWANSON, HENDEL &

CLEVELAND

By Michael R. Rayton

Office & PO Address:

3201 The Bank of California Center

Seattle, WA 98164

Telephone: (206) 464-4224

ABCD AT CRAFTSMAN PRESS, SEATTLE

TABLE OF CONTENTS

Page

Citations to Opinion Below. ......... 2

WUPTRRPCR OMe 6 les Eee te eRe he ee 2

GRORCVONE Fregemems cine ee ee we 8 ee 3

Constitutional Provisions and Statutes .... 4

SUM OO I as ig ke ew we 4

Reasons for Granting the Writ. ........ 11

1. The Decision Below Conflicts with the

Decisions of Other Courts of Appeal

as to the Proper Standard of Liabil-

ity to Be Applied Under Section 12... ll

2. This Is a Case of First Impression Inas-

much as the FTC Has Never Before At-

tempted to Impose Liability in an

Adjudicatory Proceeding Upon a Re-

tailer For Utilizing Advertisements

Prepared by its Supplier ........ 16

3. The Seventh Circuit's Adherence to a

Literal Interpretation of Section 12

Disregards the Legislative History and

Historical Context From Which Section

i2 AVORE =. <i". Bas ee is de ts se 18

4. The FTC Order Imposing Strict Liability

Under Section 12 Against a Retailer Who

Has No Involvement in the Preparation

of the Advertisements Raises Serious

‘ Constitutional Issues of Prior

I ee te ee ee se 6 eo 20

Combe UGR 6280<. Gud aces £ batch Ok HS. 23

Appendices:

URGE A 6 oe 0 we 0 0 et 0 ea ee aie A-1

Ey ee ea oe Ok Oe ee B-1

Appendix C .. 2. + e222 eee Pina ar aa oo |

TABLES OF AUTHORITY

Table of Cases

Bates v. State Bar of Arizona, 433 U.S. 350,

t. . . Ed. 610 (1977) ...

Batten, Barton, Durstine & Osborn, 84 FTC

SAL RSP TE TS eh a eer eek 8 apa Sea ae aa 14

Bigelow Vv, he aed 421 U.S.°'809, 9& S. Ct.

e ~ 75). 2 e ee - e « e * 20

Carter Products, Inc. v. FTC, 323 F.2d 523,

ee Cs ee eke ee oe ee - eC kava

Doherty, Clifford, Steers & Shenfield, Inc.

ITT Continental Baking Co., 83 FTC 865 (1973) 13,14

Montgomery Ward & Co. v. FIC, 379 F.2d 666

(7th CT A) pe 17

National Commission on Egg Nutrition v. F.T.C.,

cir. ), cert. denied,

439 U. Bi 821, 99 S; €t;-06 {i8fele 8s 22

En Less rug Store Northwest, Inc., 82 FIC ;

* a es a o a a e a a7 2 os ° oo s e 1

Standard 011 of Caifornia v. FTC, 557 F.2d 653

[UUe OUP. POF Ot sk ek eae cei ee oe ISDS

United Steelworkers of America v. Weber, .

U.S. , 20 FEP Cases 1 (U.S. Sup. Ct.

(1979). Oe OR a Be Bee BEN 8 OO Be CLD s 18,19

Page

Virginia State Board of Pharmacy v. Virginia

Citizens Consumer Council, Inc., 425 1

748, 96 S. Ct. 1817 (1976) We ear eae ek oa 20

Warner-Lambert Co. v. F.T.C., 562 F.2d 749

(D.C. Cir. 1977), cert. denied, 435 U.S.

950, 905 S$. Ct...1576 Fevers 2 oe eee 22,23

Constitutional Provisions

BS. Canes. Se 8b ee ee ee wee 3,4,20,22

8.3, Gamat GE. Bewk ik eS He pecdein +d rs 3,4,22

Statutes

15 U.S.C. § 41 et seq. (Federal Trade

Commission Act

10: O.8sGs 98 ee ee Ae eb 4,6,7,8,12,

et seq.

15-55-6539 Sot ere Pree eres 8

15 6G 5B Be kcal te Chee ees ae

et seq.

15 U.S.C. § 52(a) 8

ae Us Fee eee ee 3

Civil Rights Act of 1964 § 703(a)..... 18,19

Civil Rights Act of 1964 § 703(d)..... 18,19

Other Authority

CCH Trade Regulation Reporter

Se. 6 ae EO ke OR ee ew 14

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1979

NO,

ill

PAY'N SAVE CORPORATION, 4 corporation

Petitioner,

FEDERAL TRADE COMMISSION,

Respondent.

PETITION FOR WAIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

The petitioner Pay'n Save Corporation re-

spectfully prays that Writ of Certiorari issue to

review the judgment and opinion of the United

States Court of Appeals for the Seventh Circuit

entered in the above-entitied case on August 8,

1979, which affirmed, as modified, an order of the

Federal Trade’ Commission (the "FTC") dated December

20, 1977,

CITATIONS TO OPINION BELOW

The opinion of the Court of Appeals for the

Seventh Circuit {6 officially reported at 606 F.2d

204 (7th Cir, 1979), and 18 set forth in Appendix

A, along with the judgment, !

The record of the administrative proceedings

before the FTC is offfetally reported at 90 FIC

170, et seq., all of witch {6 set forth at Appendix

6 as follows: Complaint (Bel); Initial Decision

(f«12); Opinion of Commission (B-123); Final Order

(B-171); Separate Statement of Commissioner Collier

in which Commissioner Clanton concurs (0=177).

JURISDICTION

The judgment of the Court of Appeals for the

Seventh Circuit was entered on August 8, 1979.

1 The case ie reported under the name of a

co-respondent in the FTC proceeding, Porter 6

Dietech, Inc. et al. v. Federal Trade Commission.

Petitioner filed a timely petition for rehearing

"en banc” on August 14, 1979, which petition was

denied on October 16, 1979; this petition for

certiorari was filed within 90 days of that later

date, This Court's jurtedicion is invoked under 26

U.S.C. § 1264(1),

TIONS PR T

") Whether a retailer who utilizes newspaper

ads prepared by its supplier can be found in

violation of Section 12 of the Federal Trade

Commission Act, 16 U.S.C. § 62, In absence of any

knowledge or reason to know that such ads were

false,

2. 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 4 cease

and desist order which effectively eliminates al)

advertising of diet products.

CONSTITUTIONAL PROVISIONS AND STATUTES

The constitutional provisions involved herein

ave the First and Fifth Amendments to the Consti-

tution of the United States.

The statutory provision involved herein is

the federal Trade Commission Act, §§ 12 and 15, 15

U.5.C. $6 45 and 52.

The above-referenced provisions are set forth

in Appendix C.

STATEMENT OF THE CASE

Petitioner Pay'n Save Corporation (hereafter

“Pay'n Save") operates a chain of drugstores in the

Western United States. Each drugstore carries at

least 3,000 different over-the-counter drug items

in its inventory é

Since 1969 or 1970, Pay'n Save has sold a

diet product known as the X-11 Plan, consisting of

tablets, each containing 25 milligrams of an

appetite suppressant, phenylpropanolamine hydro-

chloride (hereafter "PPA"), and 25 milligrams of

caffine, among other ingredients. Along with each

bottle of tablets the consumer is given a suggested

dietary regimen to follow. In deciding to seli the

X-11 Plan, Pay'n Save relied upon the representa-

tions of a manufacturer's representative, the fact

that others had advertised X-11, and a Pay'n Save

Pharmacy Supervisor's recollection tht he had been

told in pharmacy school that PPA was an appetite

suppressant (Appendix B, page 8-147). During the

course of selling X-11, Pay'n Save never received

any consumer complaints (Appendix B, page B-147).

The X-11 Plan is marketed by mail order and

through retail stores by Porter & Dietsch, Inc.

William H. Fraser is the sole shareholder and

President of Porter & Dietsch. Kelly Ketting Furth

of Chicago, Illinois, was the advertising agency

which assisted Porter & Dietsch in the creation and

placing of the X-11 advertising, and Joseph Furth

was the account executive responsible for the X-11

account.

2 Porter & Dietsch, Inc., Fraser, Kelly Ketting

Furth and Joseph Furth were co-respondeats in the

Pay'n Save involvement with the X-11 advertis-

ing was accurately described by the Court of

Appeals as follows:

All petitioners except Pay'n Save took an

active role in the creation of the advertise-

ments in question and were aware that repre-

sentations in them posed potential 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 advertis-

ing 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 repre-

sentations in the advertisements were false or

unsubstantiated.

(Appendix A, page A-2)

On July 29, 1975, the FTC issued a complaint

alleging that all of the respondents heretofore

metioned, including Pay'n Save, had disseminated

unsubstantiated, false and misleading advertise-

ments for the X-11 Plan in violation of Sections 5

Footnote 2 continued.

FTC proceeding and in the appeal to the Seventh ©

Circuit Court of Appeals. The FTC order against

these other respondents was affirmed as modified

by the Court of Appeals. These other respondents

have also petitioned this Court for Writ of

Certiorari.

and 12 of the Federal Trade Commission Act. (15

U.S.C. §§ 45 and 52) (See Appendix B, pages

B-1 - B-12) The complaint was issued over the

strong dissent of Commissioner Thompson who ob-

jected to the singling out of Pay'n Save as just

one of numerous retailers whose names appeared in

the X-11 ads but who had nothine to do with the

preparation of the ads. In his dissent, Commis-

sioner Thompson stated:

So there we have it. The staff wants

establish a new principle of trade iaeiaaton

law. Any retailer who runs an ad ared b

a supplier is legally liable for the truthful

ness of eve thing in it. Never mind that he

didn't participate in the preparation of the ad

and that it would be economically prohibitive

_ for 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

fe y , the ad at your

(Appendix B, page B-11) (Emphasis the Commis-

sioner's.)

After an evidentiary hearing, an FTC Adminis-

trative Law Judge rendered an initial decision that

certain representations in and omissions from the

X-11 advertisements were unsubstantiated, false

and misleading and constituted unfair and deceptive

acts and practices in violation of Sections 5 and

12 of the Federal Trade Commission Act (15 U.S.C.

$§ 45 and 52). On appeal to the FTC, the Admin-

istrative Law Judge's findings, conclusions and

recommended order were adopted with minor modifi-

cations: however, as to Pay'n Save, the FIC held

Pay'n Save liable only under Section 12 (15 U.S.C.

§ 52) and not under Section 5 of the Act.3

(Appendix A, page A-29, Appendix B, page B-155.)

The FTC's Order, upheld by the Seventh Cir-

cuit,4 requires Pay'n Save to state in any future

advertising for diet products marketed by Porter &

Dietsch the following, in print as large as the

largest type in the ad:

3 Liability under Section 12 is confined to

false advertisements for food, drugs, devices or

cosmetics. (15 U.S.C. § 52(a).)

4 Following the FTC decision, Pay'n Save

appealed to the United States Court of Appeals for

the Ninth Circuit pursuant to 15 U.S.C. § 45(c)

(1970), and then secured an order transferring the

appeal to the Seventh Circuit where it was consol-

idated with the appeal earlier filed by the other

respondents.

"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."

In concluding that Pay'n Save was liable

under Section 12 for false advertisements prepared

by others, the Court of Appeals for the Seventh

Circuit reasoned as follows:

1. It was within the FTC's power to determine

whether it was in the public interest to prosecute

a retailer who had no part in the creation of false

advertisements. (Appendix A, page A-29).

2. Section 12 imposes a strict or per se

liability standard upon disseminators of false

advertising. Therefore, Pay'n Save is liable,

regardiess of the fact that it did not participate

in the creation of the ads and had no knowledge

that the ads were false. (Appendix A, pages

A-29 - A-31.)

While affirming Pay'n Save's liability under

Section 12, the Court of Appeals for the Seventh

Ciruit narrowed the scope of the Order as to Pay'n

Save, concluding that there was no reason to "fence

in" the innocent retailer. The Court provided that

the Order with respect to Pay'n Save would only

apply to the advertising of Porter & Dietsch

products. (Appenaix A, pages A-31 - A-32.)

In affirming Pay'n Save's liability under

Section 12 of the Act, the Court of Appeals re-

jected (1) Pay'n Save's contention that it was not

in the public interest to name a retailer who had

nothing to do with the preparation of the X-11

advertisements, and (2) cases from other circuits

involving advertising agencies which requried

knowledge or reason to know of falsity before

imposing liability under Section 12.5 (Appendix

A, pages A-29 - A-31).

5 Pay'n Save was supported in its appeal to

the Court of Appeals for the Seventh Circuit by the

brief of amici curiae Washington Retail Council,

én:

—

REASONS FOR GRANTING THE WRIT

1. The Decision Below Conflicts with the Decision

of Other Courts o eal as to :

Section 12 of the FTC Act (15 U.S.C. § 52

provides, in relevant part:

It shall be unlawful for any person, part-

nership or corporation to disseminate, or

Cause to be disseminated, any false advertise-

ment. ...

The decision of the Court of Appeals for

the Seventh Circuit imposes a standard of strict or

per se liability upon all who "disseminate, or

cause to he disseminated, any false advertise-

ment. . ." According to the Seventh Circuit, lack

of knowledge or reason to know of such falsity is

no defense.

Under this rigid interpretaton, the various

media, such as radio, television and newspapers,

Footnote continued.

American Retail Federation and National Association

of Chain Drugstores, all of whom have filed an

amicis curiae brief in support of this petition for

Writ of Certiorari.

can be found liable under Section 12, regardless of

any absence of knowledge or reason to know that the

advertisements are false. Carrying the Seventh

Circuit's Standard of liability to ridiculous

extremes, liability can be imposed against news-

stands or other retail stores selling periodicals

containing misleading ads or against newspaper

carriers delivering newspapers containing mislead-

ing ads.

Other circuits have held that principles

of strict libility cannot apply to all parties

involved in false or deceptive advertising matters

proscribed by Sections 5 or 12. In Doherty,

Clifford, Steers & Shenfield, Inc. v. FTC, 392

F.2d 921 (6th Cir. 1968), the FTC attacked ads

for Sucrets under Sections 5 and 12 of the FTC Act,

naming as respondents both the manufacturer and the

advertising agency. In discussing the liability of

the advertising agency, the Sixth Circuit stated:

of thie kind'as: to whother aronauerond aootee

order should issue against the advertising

agency is "the extent to which the advertising

a racy actually partictpated in the deception.

1S 18 essentially a problem for the Commis-

sion." ° In order to be held to be a partici-

ant in such deception, th t know

(Id. at p. 928) (Emphasis added)

In Carter Products, Inc. v. FTC, supra,

the Fifth Circuit addressed the question of an

advertising agency's liability under Section 5 of

the FTC Act. The court stated:

It appears to us that the proper criterion

for deciding this question should be the

extent to which the advertising agency ac-

tually participated in the deception.

(Id. at p. 534)

The standard of absolute liability has been

rejected by the FTC itself. In ITT Continental

Baking Co., 83 FTC 865 (1973), a Section 12 charge

against an advertising agency, the FTC stated:

In order to be held to be a participant in

such deception, the agency must know or have

reason to know of the falsity of the adverti-

sing.

(Id. at p. 696, n. 31) (Emphasis the Commis-

sion's).§

The FTC and the courts of appeals in the

other circuits have made no distinction between

liability arsing under Section 5 of the FTC Act and

liability arising under Section 12, as against

advertising agencies. For exampte, in Standard

O11 of California and Batten, Barton, Durstine

& Osborn, 84 FTC 1401 (1974), the FTC, in a Section

5 case, stated:

The legal standard which must be applied

in determining the liability of an advertising

agency in a case like the present one requires

that the agency actively participated in the

deception and as or na a rease n to know the

ceptive ng two Section cases --

Doherty and ITT Continental].

(Id. at p. 1475) (Emphasis added). On review

6 The FTC, on the other occasions, has re-

jected the principle of strict or per se liability

against respondents for the actions of others.

National Housewares, Inc. et al. (Dkt. 8733);

Emdeko International Inc. et al. (Dkt. 8973)

(November 18, 1977) CCH Trade Regul

ra egulation Reporter,

§ 21,367.

the Ninth circuit in Standard 011 of California

v. FTC, 557° F.2d 653 (9th Cir. 1978) stated:

The standard of care to be exercised by

an .adertising agency in determining what

express and implied representations are

contained in an ad and in assessing the truth

or falsity of those representations increases

in direct relation to the advertising agency's

participation in the commercial project

[Citing a Section 12 case -- Doherty].

(Id. at p. 659).

In attempting to distinguish the cases cited

above, the Seventh Circuit simply pointed out that

in each instance, the advertising agency knew the

ads were false, and that "[iJn none of them was the

Court required to decide whether the agency was

liable in the absence of knowledge." (Appendix A,

page A-31.) Nevertheless, in at least three other

circuits (Carter - Fifth; Doherty - Sixth; and

Standard Oi] of California - Ninth) the courts have

required actual knowledge of falsity or reason to

know of such knowledge. The fact that the courts

have not yet had to decide liability where the

agency had no actual knowledge of falsity in no way

repudiates or dilutes the rule announced by the

other circuits. In absence of actual knowledge,

the other circuits would still require a finding

that the advertising agency should have owl “that

the ads were false. This standard falls far short

of the standard of strict liability imposed upon

Pay'n Save in this case, even though Pay'n Save's

involvement as a retailer is far less extensive

than that of an advertising agency which actually

participates in the creation of the advertisement.

These conflicts justify the grant of certio-

rari to review the judgment below.

2. This Is a Case of First Impression Inasmuch as

the FTC Has Never UeTore Attenpted to Impose

a n an udicatory Proceeding Upon a

etailer For zing Advertisements Prepared by

its Supplier

Never before in its history has the FTC

attempted to impose liability upon a retailer

under Sections 5 or 12 of the FTC Act for running

tal ares 9 ee

advertisements prepared by its supplier and without

knowledge that the advertisements were false./

The impact of this decision imposing absolute

liability upon an unsuspecting retailer who par-

ticipates in a supplier's cooperative advertising

program affects every retailer in the country who

seeks to utilize ads prepared by its suppliers.

The Seventh Circuit's decision, in effect, makes

each retailer the guarantor of the representations

made in such supplier-prepared ads. Such a per se

liability standard will result in either (1) the

demise of all cooperative advertising programs, or

(2) the hiring of a staff of lawyers and scientists

to screen all supplier-prepared ads with the cost

7 This is true under both Sections 5 and

12 of the FTC Act. There are some consent decrees

holding the retailer liable under such circum-

stances. For example, Allied Stores Corp., Dkt.

C-2760 (1975); Pay Less Drug Stores Northwest

Inc., 82 FTC 1467 (1973). ObviousTy~ consent

decrees have no precedential value. Even litigated

oa proceedings have little compelling precedential

value. Montgomery Ward & Co. v. FIC, 379 F.2d

666 (7th Cir: cae

passed on to the consumer. (See dissenting state-

ment of Commissioner Thompson, Appendix B, pages

B-9 - B-12.)8

3. The Seventh Circuit's Adherence to a Literal

Interpretation of Section 12 Disregards the Legis-

Tative History and Historical Context From Which

Section 12 Arose

In United Steelworkers of America v. Weber,

___ U.S. ___, 20 FEP Cases 1 (U.S. Sup. Ct. 1979),

the Supreme Court held that the prohibition against

racial discrimination contained in Sections 703(a)

and (d) of the Civil Rights Act of 1964 does not

condemn all private, voluntary, race-conscious

affirmative action plans. In reaching this deci-

sion, the Court first noted that Title VII protects

whites as well as blacks from certain forms of

8 The intense interest and concern generated

by all retailers who use supplier-prepared ads is

seen in the amicus curiae brief filed by Washington

Retail Council, American Retail Federation and

National Association of Chain Drug Stores in

support of Pay'n Save's petition for Writ of

Certiorari.

racial discrimination. (Id. at 20 FEP Cases ry

4-5.) The Court then rejected a literal construc-

tion of Section 703(a) and (d), which would have

required a finding of discrimination, stating:

It is a “familiar rule, that a thing may

be within the letter of the statute and yet

not within the statute, because not within its

spirit, nor within the intention of its

makers." Holy Trinity Church v. United

States, 143 U.S. 5 . e pro-

on against racial discrimination in §§

703(a) and (d) of Title VII must therefore be

read against the background of legislative

history of Title VII and the historical

context from which the Act arose.

(Id. at 20 FEP Cases 1, 5.)

Although the Seventh Circuit did cursorily

examine the legislative history of Section 12,

Pay'n Save respectfully suggests that the Court

misread and misconstrued the legislative history

insofar as it pertains to a retailer's use of ads

prepared by its supplier. A thorough examination

of the legislative history of Section 12 will lead

the Supreme Court to reject a literal reading of

Section 12, as it did in the Weber case, Supra, and

conclude that Section 12 was never intended to

atic ertheless xe ni wie cde .

impose strict or per se liability against a re-

tailer who utilizes ads prepared by its supplier.

4. The FTC Order Imposing Strict Liability Under

Section IZ Against a Retailer Who Has No Involve-

ment in the Preparation of the Advertisements

Raises Serious Constitutional Issues of Prior

Restraint

The Supreme Court has extended First Amendment

protection to commercial speech. Bates v. State

Bar of Arizona, 433 U.S. 350, 97 S. Ct. 2691, 53 L.

Ed. 810 (1977); Virginia State Board of Pharmacy

v. Virginia Citizens Commercial Council, Inc., 425

U.S. 748, 96 S. Ct. 1817 (1976); Bigelow v.

Virginia, 421 U.S. 809, 95 S. Ct. 2222 (1975).

While there are distinctions between the

degree of protection afforded commercial versus

noncommercial speech (See, e.g. Virginia State

Board, supra), the Supreme Court has not had

occasion to explore those distinctions under

Section 12 of the FTC Act with respect to possible

prior restraints.

The Seventh Circuit's decision effectively

imposes an unconstitutional prior restraint upon

Pay'n Save in two important respects. First, the

imposition of. strict liability will effectively

eliminate all cooperative advertising programs

under which retailers can use ads prepared by its

suppliers. The suppression of this valuable type

of advertising program constitutes a substantial

prior restraint inasmuch as the retailer's inno-

cence of any knowledge that its supplier's ads

are false is no defense under the Seventh Circuit's

decision. A retailer's only prudent course of

action will be to reject all supplier-prepared

advertising. |

secondly, the FTC Order which the Seventh

Circuit affirmed requires Pay'n Save to place

in all Porter & Dietsch advertising, in print at

least as large as the largest print appearing in

the advertisement, a statement as follows:

"DIETING IS REQUIRED"

and

Rae usERs EA MT ino ROS,“

DISEASE, DIABETES AND THYROID DISEASE. READ

THE LABEL CAREFULLY BEFORE USING."

The requirement that such a warning be in

print at least large as the largest print appearing

in the advertisement effectively eliminates Pay'n

Save's future advertisements of Porter & Dietsch

diet products and goes far beyond the corrective

advertising approved in National Commission on

Egg Nutrition v. F.T.C., 570 F.2d 157 (7th Cir.

1977), cert. denied, 439 U.S. 821, 99 S. Ct. 86

(1978}; and Warner-Lambert Co. v. F.T.C., 562 F.2d

749 (D.C. Cir. 1977), cert. denied, 435 U.S. 950,

985 S. Ct. 1576 (1978). In those cases, the

disclosure requirement had to be “clear and con-

spicuous." National Commission, 570 F.2d at 160;

Warner-Lambert, 562 F.2d at 753.

Such an Order results in an unconstitutional

prior restraint in that it totally eliminates

any advertisements of diet products marketed by one

Of Pay'n Save's Suppliers. This total ban upon an

innocent retailer's right to participate in its

supplier's cooperative advertising program violates

Pay'n Save's First and Fifth Amendment rights.

Certiorari will enable the Supreme Court to

clarify and set the limits upon affirmative dis-

closures 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,

Supra, and the Seventh Circuit herein. The problem

of the limits on the FTC's power with regard to

affirmative disclosures in commercial advertising

is a recurring problem certain to continue.

CONCLUSION

For these reasons, a Writ of Certiorari should

issue to review the judgment and opinion of the

Seventh Circuit.

Respectfully submitted,

MICHAEL R. RAYTON of

RYAN, SWANSON, HENDEL &

CLEVELAND

Counsel for Petitioner

Pay’n Save Corporation

Appenudicen

Appendix A

In The

United States Court of Appeals

For the Seventh Circuit

Nos. 78-1324 and 78-1497

PORTER & DIETSCH, INC., a corporation, WILLIAM

H. FRASER, individually and as officer of said

corporation, KELLY KETTING FURTH, INC., a corpo-

ration and JOSEPH FURTH, individually and as

officer of said corporation, and PAY'N SAVE

CORPORATION,

Petitioners,

FEDERAL TRADE COMMISSION,

Respondent.

Petitions for Review of Orders of the

Federal Trade Commission

ARGUED JANUARY 9, 1979-DECIDED AUGUST 8, 1979

Before PELL and TONE, Circuit Judges, and

KIRKLAND, District Judge.*

* Judge Alfred Y. Kirkland of the Northern Dis-

trict of Illinois sat on this case at the time of

oral argument by designation. On May 1, 1979,

A-2

TONE, Circuit Judge. This case comes to us on

a petition to review a Federal Trade Commission

false advertising order relating to non-prescrip-

tion weight reducing tablets. Petitioners raise

a variety of issues, which include the propriety of

participation in the decision by two of the commis-

sioners, collateral estoppel, sufficiency of the

evidence, procedural due process, and the appropri-

ateness 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; Kelly

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 active

role in the creation of the advertisements in

question and were aware that representations in

them posed potential 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.

Footnote * continued.

Judge Kirkland became a senior district judge of

the Northern District of Illinois and is continuing

to sit on this case by redesignation.

1 porter & Dietsch labelled and advertised the

product as the "X-11 Reducing Plan," but for

reasons discussed infra at note 4, we agree with

the Commission that the advertised product was the

tablets.

A-3

After an evidentiary hearing, an FTC Admini-

strative 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 ingredi-

ent.

In addition, the ALJ found, petitioners omitted the

following material facts from their X-11 advertise-

ments:

1) The typical and ordinary experiences of

consumers 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 physi-

cian.

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 consti-

tuted unfair 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.

A-4

Participation in the Decision by Commissioners

Who Were Not Active Commiss oners at

the Time of Oral Argument.

Petitioners’ first contention is that two

of the five commissioners of the FIC 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-Presi-

dent of the United States, and Chairman Pertschuk

was not yet a member of the Commission. Commis-

sioner Dole resumed her duties as a commissioner

and Chairman 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 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, Com-

missioner Dole was permitted by rule to partici-

pate in the decision.

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

argument. If one in his position could partici-

pate, 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 Commission. Neither

A-5

argument is persuasive. Even if we were willing to

assume a President would act in bad faith, which we

are not, prohibiting a commissioner appointed 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 impartiality in

that tribunal. Cf. Friedman v. Rogers, U.S.

, 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. 1565), that participation in a decision by a

member of the Securities and Exchange Commission

appointed after oral argument was proper when the

parties had agreed to that participation. The

court then added:

The decisions of numerous courts and

administrative agencies establish that, even

without agreement of the parties, a member

of an administrative agency who did not hear

oral argument 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 Tts

earlier decision in WIBC, Inc. v. FCC, 259 F.2d 941

(D.C. Cir.), cert. dented sub nom. Crosley Broad-

casting Corp. v. WIBC, Inc., 358 U.S. :

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(b), requires

oral argument. See 348 F.2d at 802 n. 14. The FTC

is not similarly restricted by statute and has a

rule, 16 C.F.R. § 3.52(f), quoted above, permitting

A-6

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 participating members became

members of the agency after the oral argument.

Accord, Arthur Lipper Corp. v. SEC, 547 F.2d 171,

IFZ n.8 (2d Cir. 1376) cert. denied, 434 U.S.

1009 (1978).

The participation of Chairman Pertschuk

and Commissioner Dole in the decision of the case

at bar was proper.

Il.

Confusion of the Issues.

Petitioners allege that they were misled to

their detriment 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 effective 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 representations made in the X-11

tablets advertisements, and that the efficacy of

PPA was relevant only for its hearing on whether

X-11 fulfilled those representations. Although

petitioners contend that they were misled by the

confusion and were unable effectively to cross-ex-

amine the Commission's expert witness on the

efficacy 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 cross examination. In addition, the record

also contains numerous studies and excerpts from

learned treatises on this subject. As the Commis-

sion correctly held, petitioners were not misled in

the manner alleged.

A-7

Ill.

- Collateral Estoppel.

Petitioners argue that determinations of fact

made in three prior administrative proceedings

preclude relitigation 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, consolidated for

hearing before the ALJ, In re Hanover House and

Romar Sales Corp., Postal Service Docket Nos. 2/143

an ce). These three cases involve

allegedly 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

Prgetiel Lak of issues actually litigated and

determined in the prior suit..." Lawlor v.

National Screen Service Corp., 349 U.S. J22, 326

(1955); Montana v. United States, U.S. ‘

99 S.Ct. . - ; Parklane Hosier

Co. v. Shore, U.S. , 99 §.Ct. 645, 645 n.

(1979). The doctrine may apply even though the

party asserting it was not a party in the prior

case. Parklane Hosiery Co. v. Shore, supra, 99

S.Ct. at 649-652; Blonder-Tongue Laboratories,

Inc. v. University of Illinois Foundation, 402 U.S.

313, 334 (1971). It may be applied to adjudicative

2 For purposes of this argument, we will assume

that Hungrex and X-1l are identical products. Both

are tablets containing 25 mgs. of PPA, which is the

appetite suppressing ingredient that purportedly

makes the product effective in weight reduction.

A-8

determinations of administrative agencies. Park-

lane Hosiery Co. v. Shore, supra, 99 S.Ct. at

652; | Tted States v. Utah Construction & Mining

Co., 384 U.S. 394, 422 (1966); Bowen v. United

States, 570 F.2d 1311, 1321 (7t r. :

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 required

to give the Postal Service decisions preclusive

effect. Relitigation of an issue is not precluded

even between the original parties when "[t]here jis

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 parties to the

initial action. . wy Restatement (Second) of

Judgments § 68.1(e)(i) (Tent. Dra 0. 4; .

Tome h to this section of the Restatement

gives as an example of the § 68.1(e)(i) exception

an action by "an agency 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

government to protect the public from both health

risks and false advertising; it deals with a body

of knowledge in the fields of medical and pharma-

cological science that is constantly increasing.

The government is not precluded from subsequently

relitigating against a new respondent under these

circumstances. Cf. FTC v. Raladam Co., 316 U.S.

149, 150-151 (1942) (alTowing 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);

A-9

see Montana v. United States, supra, 99 S.Ct.

at 976-977, 2 Davis, Administrative Law Treatise

§ 18.04 at 571 (1958).3

IV.

Sufficiency of the Evidence.

Petitioners assert that the findings on which

the Commission 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 impression-

istic determination 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. ‘

cert. denied, 430 U.S. 983 (1977). Giving due

regard to the FTC's expertise, FIC v. Colgate-

Palmolive Co., 380 U.S. 374, 385 (1965), and

National Commission on Egg Nutrition v. FTC, 570

; : th Cir. 77), cert. denied,

U.S. » 99 S.Ct. 86 (1978), we must sustain the

FTC's findings if they are supported by substantial

evidence on the record viewed as a whole, Uni-

versal Camera Corp. v. NLRB, 340 U.S. 474, 491

(Y95T).

3 Petitioners also refer to a Postal Service

complaint issued against Porter & Dietsch for

advertisements of X-ll. This complaint was dis-

missed without prejudice pursuant to a stipulation,

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 harassment in the form of repeated

agency prosecutions.

A-10

Petitioners contend that in some instances the

evidence does not support the finding that the

representations 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 4 can lose weight

without restricting their accustomed caloric Thtske

ti to eat the f

and while they continue e foods of their

choice.

Petitioners attack this finding as inaccurate,

arguing that their advertising advises the reader

that the tablets function merely as an appetite

4 Petitioners contend here, as they did unsuc-

cessfully before the Commission, that the product

advertised was the "X-11 Reducing Plan.” The

Commission correctly found that the advertised

product was the tablets, not the plan, and pro-

ceeded 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-starva-

tion" diet. Nothing indicates that this diet

would work better than any other diet X-1ll 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 Commission found the advertisements falsely

represented that dieting was unnecessary. Conse-

quently, we too treat the product as consisting

solely of the tablets.

A-11

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 reducing

diets." Other statements in the advertisements

relied 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 Commission 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 consumed and set forth an

“eating program for reducing overweights" which is

to be used in conjunction with the tablets. This

program, which purportedly proposed "3 sensible

meals a day" was characterized by expert witnesses

at the hearing before the ALJ as a "starvation" 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

contrast, 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 unless the user follows a

severely restricted caloric diet. We have no

difficulty in concluding that the Commission

correctly found this representation to be false.

A-12

2. That petitioners have a reasonable basis

consisting of scientific evidence from which to

conclude that substantially all users of X-1l1

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-ll1, accompanied by such statements as,

“thousands of women throughout America" are losing

"5, 10, 25 or even more pounds." The large weight

losses are characterized as "automatic." Adding to

this impression is the invariable guarantee:

"RESULTS ARE GUARANTEED--OR MONEY 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, laboratory science has perfected a tiny

tablet . . .," "X-1l1 is the PROVEN and SOUND method

- + +," “Clinic tested ingredients," and “medically

recognized as an effective plan to lose ugly fat."

The Commission properly found, based on these

facts, that petitioners made what amounted to a

representation 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 represen-

tation but challenge the finding that it was false.

They argue first that "[t]here is no evidence to

Support the Commission's finding that ‘Scientific

Testing’ is the only reasonable basis for substan-

tiation 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 scientific evidence, the

A-13

Commission did not reach the issue,° 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 appro-

priately 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 ¥,B,4, infra, where we consider

whether the provision of the Commission's order

prohibiting representations about the efficacy of

the product unless they are supported by "competent

pe adh or medical tests or studies" is sustain-

able.

We have examined the evidence supporting the

Commission's determination that petitior~/’s did not

have scientific evidence forming a reasonable basis

for the claim that substantially all X-11 users

would lose significant amounts of weight, including

5 The ALJ and the Commission looked to more than

"scientific testing" in attempting to find a

reasonable basis; they considered scientific

studies and reports, medical texts and references,

the testimony of medical doctors and other experts,

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

In 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

besis." 81 F.T.C. at 64. The case at bar, in

which the representations concern the efficacy of a

drug, is such a case.

A-14

the findings of fact from Alleghany Pharmacal,

supra. That evidence is set Forth In detail tn the

opin gn of the Commission and need not be repeated

here.°.

The scientific evidence on which petitioners

rely? provides at most a reasonable basis for the

6 Petitioners urge that we take judicial notice

of the fact that the Food and Drug Administration

Over-the-Counter Miscellaneous Internal Drugs Panel

voted PPA “safe and effective” as an appetite

Suppressant. Even if we could consider evidence

that was not before the agency, this evidence would

be of no help to petitioners. The vote was

taken in August of 1978, long after petitioners

-made the representations in question. Moreover,

the transcript 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 concluded 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 con-

clude that substantially all users of PPA will lose

significant amounts of weight.

7 One study relied on by petitioners showed

“clinically insignificant" difference in weight

loss between a group using PPA and a group using a

placebo. The closest any evidence came to estab-

lishing the effects of PPA on “all users" was a

study in the Alleghany Pharmacal record which

showed that 80 per cent of PPA users lost signifi-

cant amounts of weight. Even this would not

Support a claim of success for “substantially all

users.”

A-15

conclusion that PPA is an effective appetite

suppressant for some people, helping them to lose

weight if taken in conjunction with a strict diet.

But the evidence falls far short of being suffi-

cient 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 formula," coupled with statements that

“laboratory science" had "recently" or "“now"

developed the tablets, considered in the light of

the admission of Porter & Dietsch that these

statements referred to PPA, support this finding.

The finding that it was false is also sup-

ported. 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 ampheta-

mine-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 nervous system stimulation and is therefore

the only drug of its class available without a

prescription. Nonetheless, the ALJ and the Commis-

sion 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 un-

equaled in efficacy and, in view of the assertions

about the recent achievement of laboratory science,

newly discovered. We agree with the Commission's

8 the sympathomimetic amines.

A-16

assessment of Porter & Dietsch's shabby huckster-

ism; “an otherwise false advertisement is not

rendered acceptable merely because one possible

interpretation of it is not untrue." National

Commission on Egg Nutrition v. FIC, supra,

at 161 n.4.

B. Omissions of Material Facts.

1. The typical and ordinary experiences of

consumers do not parallel 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 advertise-

ments implied, are extremely rare in any diet

regimen. Its holding that the failure to disclose

that such losses are rare rendered the advertise-

ments false and misleading is sustained.

2. Persons with nigh blood pressure, heart

disease, diabetes, or thyroid disease should only

use X-11l tablets as directed by a physician.

The ALJ found that the failure to include a

health warning in the X-11 advertisements consti-

tuted an omission of material fact, and the Commis-

sion 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

A-17

disease except under the supervision of a physi-

cian. A warning to this effect is printed on

the back of ‘the X-11 package, in compliance with

FDA Regulations, 21 C.F.R. § 369.1, et seq.

The erroneous impression that X-11 is safe for

use by all potential consumers is created by the

statement, "No dangerous drugs," the effect of

which is aggravated by the statement, "Laboratory

science has perfected a tiny pre-meal tablet...

"Petitioners sold large quantities of X-11

tablets to mail order purchasers, who would not

have an opportunity to read the health warning. on

the package until they had 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 aggravate 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,

high blood pressure and heart disease occur more

9 The record shows that all sympathomimetic

amines, including PPA, exert a "pressor" effect,

which means they cause vascular constriction. This

constriction causes an elevation of the blood

pressure, which is hazardous for persons already

suffering from high blood pressure. The constric-

tion also forces the heart to work harder, creating

a danger for persons with heart disease. PPA also

has a tendency to elevate the blood glucose level,

thus aggravating diabetes in persons suffering from

that disease. PPA apparently also exacerbates the

effects of an overactive thyroid.

A-18

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. 10

a. A highly restricted caloric diet is a part of

the X-II Stent

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.

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. FIC, 327 U.S. 608, 612-613

T1946):

10 Petitioners again point to the ex st 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 potential for

adverse reaction, PPA has been contraindicated for

persons with high blood pressure, heart disease,

diabetes, and thyroid disease.

A-19

The Commission is the expert body to

determine what remedy is necessary to

eliminate the unfair or deceptive trade

practices which have been disclosed. It has

wide latitude for judgment and the courts

will not interfere except where the remedy

selected has no reasonable relation to the

unlawful practices found to exist.

B. Portions of the Order sop licable to Petition-

ers Porter etsch an am Fraser.

1. The First Amendment.11

Petitioners contend that the order violates

their rights under the First Amendment, which

protects ‘commercial speech." Bigelow v. Virginia,

421 U.S. 809 (1975). They concede, however, as

they must, that the First Amendment allows the

prohibition of false and misleading advertising.

Ohralik v. Ohio State Bar Association, 436 U.S.

a - ; Bates v. ar of Arizona,

433 U.S. 350, 381-384 (1977); Virginia State

Board of Pharmacy v. Virginia Citizens Consumer

Council, Inc., 75 U.S. 748, 771-772 (1976),

National Commission on Egg Nutrition v. FTC, supra,

‘ at - ; ecause 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.

11 Petitioners’ assertion that the affirmative

disclosures required by Paragraph I,E of the order

violate the First Amendment are treated separately

in Part V,B,7, infra.

A-20

2. Product coverage.

Paragraph I of the order restricts the repre-

sentations Porter & Dietsch and Fraser may make

concerning any “food,” “drug," “cosmetic,” or

"device" as these terms are defined in the Federal

Trade Commission Act. Petitioners contend that

this breadth of product coverage makes the order

overly broad, because there is no rational connec-

tion between the Commission's findings and restric-

tions placed on representations of products other

than X-11. 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 compar-

atively cheaply. Fraser and wholly-owned subsid-

iaries of Porter & Dietsch have violated ths

Federal Trade Commission Act in the past.

These facts and the evidence of petitioners’

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.

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 being deceptively adver-

tised as a cure for ulcers. Fraser is also sub-

ject to an FTC consent order, In re Ru-Ex, 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, rather than in

aggravation, on the point of the necessity of a

broad order.

A-21

3. Paragraph I,A.

Paragraph I,A of the order prohibits represen-

tations 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 raragraph 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 assump-

tion is false, they argue, because PPA is an

effective appetite suppressant which unconsciously

and automatically reduces food intake. Petition-

ers' 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 caloric diet to be effective and

Paragraph I,A merely prohibits petitioners from

making representations to the contrary. Paragraph

I,A is reasonably related to the unlawful practice

and is valid.

4. Paragraph I,B.

Paragraph I,B prohibits representations that a

user of a product “can achieve any result" unless

the representation is, when made, substantiated by

competent scientific or medical tests and studies

and requires 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. Peti-

tioners contend that Paragraph I,B improperly

relieves the Commission of the burden of proving

their advertising representations false and imposes

on petitioners the burden of proving the truthful-

ness of any claims they make. The Commission

defends Paragreoh 1,B as a “fencing in" provision

justified by the petitioners’ false representation

A-22

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. FIC, 398 F.2d 253 (2d Cir.

» Tor the proposition that “in no event is the

Commission warranted 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 petition-

ers from representing themselves as wholesalers,

but provided that “it shall be a defense in any

enforcement proceeding under this order for [petit-

joners] to show" that they actually operated as

wholesalers. 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. Para-

graph I,B of the order before us resembles the

modified order in Federated Nationwide more closely

than the objectionable order In that case. Essen-

tially, Paragraph I,B prohibits petitioners from

making representations unless they are true; it

does not make the truthfulness of the representa-

tion an affirmative defense petitioners must prove

once the Commission establishes that petitioners

have made representations. The burden of proof

remains entirely on the Commission.

The authority of the Commission to impose

"fencing in" restrictions is stated in FTC v.

Colgate-Palmolive Co., supra, 380 U.S. at 3955,

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. 470, 473: "TTIhe

Commissfon Ts not limited to prohibiting the

illegal practice in the precise form in

ee ee

A-23

which it is found to have 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 propens/ ty of the principal

respondents to violate the Act.

5. Paragraph 1,C.

Paragraph I,C prohibits representing that any

testimonial for a product "represents the typical

or ordinary experience of members of the public who

use the product unless this is the case." As we

held in Part IV,B,1, supra, the advertisements did

falsely and deceptively represent that the testi-

monials were indicative of the typical experience

of X-ll 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. dented, 381 U.S.

938 (1965), “[wle take this to mean no more than

13 Petitioners also assert the efficacy of meth-

yleellulose, another ingredient of X-ll, or the

combination of PPA and methylcellulose, but peti-

tioners have waived their right to appeal the ALJ's

findings as to methylcellulose by not appealing

them to the Commission. See In Re Porter &

Dietsch, FIC Docket No. 9047, Dec. 20, 1977, at 15

n.l7.

A-24

that petitioners must not speak falsely in adver-

CIRIAG 6 ke Paragraph 1,C is reasonably

Fotis to the unlawful practices and valid as

ssued.

6. Paragraph I,D.

Paragraph I,D prohibits representations that a

product contains “one or more unique ingredients or

components, unless respondents can establish that

any such ingredients or components are unavailable

in products sold by others." Petitioners contend

that Paragraph 1,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

[petitioners] can establish" improperly shifts the

burden of proof, but Western Radio again controls.

Paragraph I1,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

REQUIRED" 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 unsup-

ported by substantial evidence, creates an incon-

sistency in the treatment given to different

A-25

persons engaged in Fhe 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 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 premised 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 diferent product,

14 petitioners do not appear to dispute the

existence of FIC authority to require such disclo-

sures. In Warner-Lambert Co. v. FIC, 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 National Commission on

Egg Nutrition v. FIC, supra, 570 F.2d at 164.

15 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.

A-26

which did not include PPA, and consequently compar-

ison is not justified. In Alleghany Pharmacal,

which did involve the ‘same product, the advertise-

ment quoted in the Commission's opinion made no

representations concerning weight loss without

dieting, the Commission found the advertisements

contained no representations concerning safety, and

the complaint apparently 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.

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, 44 F.2d 59, 64 (7th Cir.),

cert. denied, 419 U.S. 896 (1974), quoting Collier

& Son Forp. v. FIC, 427 F.2d 261, 276 (6th Cir.

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 treatment re-

quires 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.

A-27

The First Amendment permits the imposition of

disclosure requirements in appropriate cases.

Virginia State Board of Pharmacy v. Virginia

zens Consumer Council, supra, 425 re 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

disclosure in National Commission on Egg Nutri-

tion 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

necessary 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

deceptive. We therefore uphold the requirement

that the phrase "DIETING IS REQUIRED" be included

in future advertisements.

Unnecessarily broad, however, is the require-

ment that the advertising by Porter & Dietsch and

Fraser of any product contain the words: "WARNING:

THIS PRODUCT 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 products

that do not contain PPA or similar compounds,

because 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 suffi-

ciently specific even as to products to which they

may appropriately be applied. So far as the

evidence shows, PPA is dangerous only to users who

suffer from certain ailments.

A-28

The order is modified by making the warning

requirement applicable only to products that

contain PPA or similar compounds and changing it to

read, “WARNING: THIS PRODUCT POSES A SERIOUS

HEALTH RISK FOR USERS WITH HIGH BLOOD PRESSURE,

HEART DISEASE, DIABETES, OR THYROID DISEASE. READ

THE LABEL CAREFULLY BEFORE USING."

C. Portions of the Order Applicable to Petition-

ers Kelly Ketting Furth and Joseph Furth.

As we understand the position of the Furth

petitioners, they join in the objections of Porter

’ & Dietsch and William Fraser to Paragraph I, but

make no arguments concerning the propriety 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 11.18 Fed. R. App. P. 28. Insofar as

it applies 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

18 Given the level of involvement of these

petitioners indicated by the record, see, e.g.,

note 15, supra, any such objections undoubt edly

would have proven fruitless. See, e.g., Carter

Products, Inc. v. FTC, 323 F.2d 523, 5335534 (Sth

Cir. 1963).

A-29

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 discre-

tion in determining what constitutes the “public

interest. FTC v. Rhodes Pharmacal Co., 191 F.2d

744, 747 (7th Cir. I951). 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 minimus activity.

Montgomery Ward & Co. v. FTC, 379 F.2d 666, 672

THR Cir- 1367) The Comfes ion has not sought to

vindicate private rights here, and Pay'n Save's

activity 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. At to whether Pay'n Save should have

known of the misrepresentations, the Commission

concluded that "[Lilf Pay'n Save had critically

examined the advertising 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, jt in our discussion

of liability because § 121 imposes a strict

liability standard on disseminators of false

advertising.

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 liable under § 5 directly,

so we are concerned only with liability under § 12.

i ia i

A-30

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 liabil-

ity for parties not involved in the creation of the

false advertising or for unwitting disseminators of

false advertising. When Congress intended to make

such an exemption it did so expressly. Section

14(a) makes certain violations of § 12 misdemean-

ors, but § 14(b) creates an exemption from criminal

liability for advertising 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. Pic,

310 F.2d 89, 92 (lst Cir. 1962); Carter Products,

Inc. v. FTC, 323 F.2d 523, 533-534 (5th cir.

1963); Dohert Clifford, Steers & Shenfield

Inc. v. FIC, 392 F.2d 921, 927-525 (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

Colgate-Palmolive 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

A-31

agency that did not have knowledge of the decep-

tion. Carter Products is similar. There the Fifth

Circuit enforced an order against an advertising

agent that had “actually participated in the

deception." 323 F.2d at 533-534. In Doherty,

Clifford the Sixth Circuit did say that Knowing

participation in the deception was necessary but

found it to exist. 392 F.2d at 928, 929. Thus in

ez-h 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 ponerty Clifford recognized

that “the fact that an advertiser made its repre-

sentations in good or bad faith is not determina-

tive of whether such statements are deceptive and

misleading." 392 F.2d at 925. It is settled that

the advertiser's intent to deceive is not an

element of the violation. E.g., Chrysler Corp. v.

FTC, S61 F.2d 357, 363 n.5 (D.C. CTr. IST}

Montgomery Ward & Co. v. FIC, supra, 379 F.2d at

- 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 knowingly 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

A-32

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 program is not sufficient

to support an inference that there is a substantial

danger that Pay'n Save's future advertising 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 respect

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:

Taste:

Clerk of the United States

Court of Appeals for the

Seventh Circuit

A-33

Opinion by Judge Tone

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

August 8, 1979

Before

Hon. WILBUR F. PELL, JR., Circuit Judge

Hon. PHILIP W. TONE, Circuit Judge

Hon. ALFRED Y. KIRKLAND, Senior District Judge*

Nos. 78-1324 & 78-1497

PORTER AND DIETSCH, INC., a

corporation, WILLIAM H. FRASER,

individually and as officer of

said corporation, KELLY KETTING

FURTH,INC., a corporation, and

JOSEPH FURTH, individually and

as officer of said corporation,

and PAY'n SAVE CORPORATION)

Peititions for

Review of Orders

TION, of the Federal

Petitioners, Trade Commission.

vs.

FEDERAL TRADE COMMISSION,

Respondent.

be ee

* Judge Alfred Y. Kirkland of the Northern Dis-

trict of Illinois sat on this case at the time of

oral argument by designation. On May l, 1979,

Judge Kirkland became a senior district judge of

the Northern District of Illinois and is continuing

to sit on this case by redesignation.

A-34

This cause came on to be heard on the tran-

script of the record from the Federal Trade Commis-

sion, and was argued by counsel.

On consideration whereof, it is ordered and

adjudged by this court that the order of the

Federal Trade Commission be, and the same is hereby

ENFORCED AS MODIFIED, with costs, in accordance

with the opinion of this court filed this date.

A-35

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 Aifred Y. Kirkland of the Northern Dis-

trict of Illinois sat on this case at the time of

oral argument by designation. 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.

A-36

ORDER ON REHEARING

Treating the “Petition of Pay'N Save Corpora- |

tion for Rehearing In Banc" as a petition for re-

hearing 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 aster-

isk 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.

APPENDIX B

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, i977

This order, among other things, requires a St.

Paul, Minn. distributor of non-prescription

drugs, its Chicago, I1]1. advertising agency,

and a Seattle, Wash., drug store chain to

cease making unsubstantiated claims or mis-

representing that products contain a unique

ingredient, or that users of weight control

products can achieve weight loss without re-

stricting their caloric intake or limiting

their choice of foods. Further, the firms are

required to include prescibed disclosure state-

ments 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 Yo

City for Porter & Dietsch, Inc., et al. and

Michael Rayton, Seattle, Washington for Pay'n Save

Corporation.

COMPLAINT

The Federal Trade Commission, having reason

to believe that Porter & Dietsch, Inc., a corpora-

tion, and William H. Fraser, individually and as an

officer of said corporation, and Kelly Ketting

Furth, Inc., a corporation, and Joseph Furth,

B-2

individually and as an officer of said corporation,

and Pay'n Save Corporation, a corporation, herein-

after 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 com-

plaint 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 hereinafter set forth. His

address is the same as that of said corporation.

Respondent Kelly 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 corpo-

ration organized, existing and doing business under

' and by virtue of the laws of the State of Washing-

ton, with its office and principal place of busi-

ness located at 1511 Sixth Ave., Seattle, Washing-

ton.

PAR. 2. For purposes of this complaint, the

term “commerce” shall mean commerce as defined in

the Federal Trade Commission Act.

PAR. 3. Respondents Porter & Dietsch, Inc.

and William H. Fraser are now and have been engaged

B-3

in the packaging, advertising, offering for sale

and sale of various products at wholesale and

retail levels. Among such products is a non-pre-

scription 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 0.5 mg.

Vitamin Bo 0.5 mg.

Vitamin Bg 1.0 mg.

Vitamin C 15.0 mg.

Calcium Pantothenate 1.0 mg.

[3] Niacinami de 5.0 mg.

Vitamin E— 5.0 int. units

Vitamin By9 0.5 mg.

Pheny Ipropanol amine

Hydrochloride 25.0 mg.

Methy1cel lulose 25.0 mg.

Caffeine 25.0 mq.

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 publica-

tion advertising material, including but not

limited to the advertising referred to herein, to

B-4

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 adver-

tising business. |

PAR. 5. Respondent Pay'n Save Corporation

operates a chain of drug and sundries store 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 an 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 adver-

tisements for said preparation to be published in

media of interstate circulation.[4]

Respondents maintain, and at all times men-

tioned herein have maintained a substantial course

of trade in the aforesaid preparation and adver-

tisements, in or affecting commerce.

PAR. 7. In the course and conduct of their

businesses, respondents have disseminated, and

B-5

caused the dissemination of, certain advertisements

concerning said preparation by the United States

mail and by various means in or having an effect

upon commerce, including but not limited to adver-

tisements 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 and caused the

dissemination of advertisements concerning said

reparation by various means, including but not

Timi ted 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 repre-

sentations in said advertisements, but not all

inclusive thereof, are the following:

Fat 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...

* * + w * * *

You do not deny yourself.

7 * * * * * *

. . « 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 dress sizes

1l or 12's, rather than size 20-1/2...

; of the humdrure methods you have Rowan = Seals a caw’.

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No Starvation Dieting - No Strenuous Exercise

RESULTS ARE GUARANTEED - OR MONEY BACK

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B-7

* x * * * * *

Part of the secret of this method is a unique

ingredient . . which puts a “brake” on your

cravings for sweets, candy, pastries, rich gravies.

[6] PAR. 9. Through the use of said adver-

tisements 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 ingred-

jient.

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 mist 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 reduction and

other figure improvements purportedly attained by

lay users of the aforesaid preparation, when such

B-8

stated results do not reflect the typical or

ordinary experience of consumers with said prepar-

ation 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 direct-

ed by a physician. Inasmuch as a substantial num-

ber 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 dis-

closing in the advertising thereof that a 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 advertise-

ments," as that term is defined in the Federal

Trade Commission Act, and the statements, represen-

tations and omissions described in Paragraphs Nine,

Eleven, Twelve and Thirteen were and are mislead-

ing, deceptive and unfair acts or practices.

PAR. 15. The use by respondents of the

aforesaid misleading, deceptive and unfair state-

ments, representations, acts and practices, and the

dissemination of the aforesaid “false advertise-

ments,” 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 compe-

tition in or affecting commerce in vic'ation of

Sections 5 and 12 of the Federal Trade commission

Act.

Commisstoner Thompson dissenting.

DISSENTING STATEMENT OF COMMISSIONER MAYO J.

THOMPSON

July 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 to take it, he ought

B-10

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 sould be sub-

jected 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 loca a chains, including

Pay'n Save Corporation, a Seattle-based ent

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 cooper-

ating 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? ther drug chains

have been similarly “involved,” including Fred

Meyer (Portland); Western Drug (Montana); Pay Less

(Tacoma); Skaggs and Grand Central Stores (Botse);

Tiffany (2) Drugstores (Eugene, Oregon); Drug Fair

(Washington, 0.C.); and Walgreens (Chicago). The

staff explains the selection of Pay'n Save by

simply noting that it 1s the largest of the partic-

ipating 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.

$ conceded that Pay'n Save “had a signif-

icantly lower level of involvement" in the ads than

Porter & Dietsch and its president, Mr. Fraser, but

1 porter & Dietsch is the “exclusive national

distributor" of this product, the "X-11" reducing

pill.

B-11

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 advertis-

ing retatler, Pay'n Save Corporation, as a named

respondent." A retailer who uses a deceptive ad,

we're told, ought to be held fust 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-merchan-

dise retailers are frequently involved and/or

specifically identified as the advertiser in highly

questionable ads devoted to a single product, our

research has disclosed no clearcut instances of

such retaflers being held responsible for mani-

festly deceptive product claims appearing {in such

ads. Subjection of Pay'n Save to the ‘cease and

desist’ provisions of this order will help to

reestablish this responsibility principle in the

context of this type of advertising."

So there we have it. The staff wants to

establish a new principle of trade regulation law.

Any retailer who runs an ad prepared a supplier

ng in it. Never min at he didn p

tn 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 con-

fronted 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 1s unwise because it defies common sense.

It is dangerous because it imposes an intolerable

B-12

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

a to seine all the downstream tributar-

es.

I would dismiss Pay'n Save from this com-

plaint.

INITIAL DECISION BY DANIEL H. HANSCOM,

ADMINISTRATIVE LAW JUDGE

May 21, 1976

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 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

1 Then Commissioner Thompson dissented from the

naming of Pay'n Save Corporation, a large West

Coast drug chain, as a respondent in this proceed-

ing 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 issued with the complaint.

B-13

that respondents disseminated advertisements which

misrepresented, directly or by implication, that

"Culsers 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’ advertisements included testimonials

reciting weight reduction and other figure improve-

ments 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 advertise-

ments 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 af-

fected 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

B-14

raising a number of affirmative defenses. Respon-

dents 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 substan-

tially all users of X-11 tablets [would] lose a

significant amount of weight." Respondents con-

tended 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 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 hear-

ings 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 contending

that "Complaint Counsel is precluded from bringing

this proceeding under the principles of res judi-

cata, collateral estoppel and/or stare decisis."

According to respondents, three litigated deci-

sions, Alleghany Pharmacal Corporation, 75 F.T.C.

B-15

990 (1969), Hanover House and Romar Sales, proceed-

ings before the Postal Service,“ preclude trial

in this proceeding of issues relating to the

"safety and efficacy of phenylpropanolamine as an

appetite suppressant for weight reduction.

PROCEDURAL HISTORY

Complaint was served on the various respon-

dents 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 4

Dietsch, Inc., William H. Fraser, Kelly Ketting

Furth, Inc., and Joseph Furth, a prehearing confer-

ence was held on October 7, 1975, [5] and a time-

table 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

2 Hanover House and Romar Sales Corp., P.S. Dkt. Nos.

2/143 and 2/149 decision of December 5, 1975.

3 Original counsel for Pay'n Save Corporation

withdrew on October 2, and Albert A. Caretta,

counsel for Porter & Dietsch, Inc., William H.

Fraser, Kelly Ketting Furth, Inc. and Joseph Furth,

took over as counsel for all 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 other respondents. Original

counsel for Pay'n Save Corporation then reeat ered

the proceeding.

B-16

complaint counsel were located, and in Washinaton

D.C., to take the testimony of East Coast ei

nesses. Hearings in Chicago, Illinois, to accomo-

date Porter & Dietsch, Inc., William H. Fraser

Kelly Ketting Furth and Joseph Furth were alsc

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 fi ling an answer on the ground that the Commis-

sion'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

Pe granted the motion for such correction.

Thereafter, discovery and various oth -

trial proceedings continued. The law Nuke tested

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 memorandum

of Porter & Dietsch, Inc., William H. Fraser, Kelly

oo Furth, Inc., and Joseph Furth to “Dismiss

Complaint Before Trial For Lack Of Public Interest

On December 29, 1975, counsel for res

pondents

formally declined hearings in Chicago, Illinois

and evidentiary hearings were not held at this

location.

B-17

Sufficient To Justify Issuance Of A Cease And

Desist Order" and their motion and supporting

memorandum 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, 1975.

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 Washing-

ton, D.C., rather than in one location “convenient

to all parties," violated the due process clause of

the Fifth Amendment, 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

ae and thereafter dismissed the complaint

Hearings on the merits commenced in Seattle,

Washington, on January 7 and concluded in Washing-

ton, 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 Corpora-

tion, and the testimony of three witnesses was

entered in the record by stipulation. Complaint

B-18

counsel called four medical or scientific experts,

Drs. Margen, Drenick, Prout and Sorer, and respon-

dents Porter: & Dietsch, Inc., William H. Fraser,

Kelly Ketting Furth, Inc,, and Joseph Furth called

three, Dr. Fineberg, a medical doctor, Dr. Silver-

man, a pharmacologist, and Dr. Hoebel, a specialist

in physiological psychology.

At the conclusion of the case-in-chief respon-

dents 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 comprehensive 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 com-

plaint, 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, aré 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]

B-19

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 pharma-

ceutical products, principally by mail and through

retail drug stores (Ans. P&D, para 1; Fraser, Tr.

753-54). Porter & Dietsch has sold its X-11

tablets since 1967 (Ans. P&D, para. 3; Fraser, Tr.

769, 823) and, although a few other products are

sold, the tablets are by far its largest volume

item, amounting -: aan 80 percent of all sales

, Tr. 757-61).

Bw 2 Individual respondent William H. Fraser is

the president and sole owner of Porter & Dietsch

(Fraser, Tr. 753-54). As such, Mr. Fraser formu-

lates, directs and controls the policies, acts and

practices of ie pe respondent Porter & Dietsch

. P&D, para. 1).

ae 3. ‘ In the course and conduct of their busi-

ness, 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 corpora-

tions, firms and individuals in the sale of pro-

ducts and services for weight reduction (Ans. P&D,

para. 16).

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&,

para. 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, para. 4; Fraser, Tr. 805;

Furth, Tr. 927-32).[9]

B-20

5. Individual respondent Joseph F

vice-president of Kelly Ketting Furth tha ta the

advertising account executive for respondent Porter

& Dietsch (Ans. P&D, para. 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 its acts

and practices, including those alleged in the

complaint Ms P&D, para. 1).

A n the course and conduct of -

ness Kelly Ketting Furth and Joseph With abe nos

et have been, throughout the period that Kelly

biel Furth has been the advertising agency for

orter & Dietsch, in substantial competition in or

affecting commerce (as "commerce" is defined in the

Hh vd Na oe Srgitds Act) with other corpora-

, $ and individual

oye nen (Ans. P&D, para. 4). ad

- Pay'n Save Corporation is a W

corporation with its headquarters feeatie th

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, paras. 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

BP eR f P&D, para. 5; Palmer, Tr. 507-08).

: e course and conduct of i

and throughout the period of its ah Het ing: savor

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 weigh

yao BP Tan ght reduction (Ans. P&S, paras.

B-21

X-11 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-ll1 tablets were, and are, advertised

and marketed extensively 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

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 milligrams of phenylpro-

panolamine, 25 milligrams each of methylcellulose

and caffeine and vitamins A (1388 U S P units),

By (0.5 mg), Bg (0.5 mg), Be (1 mg), C (15 mg),

calcium pantothenate (1 mg), niacinamide (5 mg),

E (5 int. units), and By2 (0.5 mcg) (Ans. P&D,

para. 3). The ingredients in the X-11 tablets

B-22

allegedly conducive to weight loss are phenylpro-

Zee ape and methylcellulose. The former is an

11] amphetamine-related compound, which is claimed

to ast as an appetite suppressant. The character-

istics of phenylpropanolamine will be considered in

subsequent findings dealing with the representa-

tions contained in respondents’ advertising.

Methylcellulose is also represented in the market-

ing of X-1l1 tablets as an aid to weight loss, and

the characteristics of this substance will also be

considered.

11. The promotional approach of respondents

with respect to phenylpropanolamine and methylcel-

lulose in marketing X-11 tablets is illustrated by

statements in a advertisement given wide circula-

tion 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 phenylpropanolamine, ji.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, 63-64, 67-68,

77-80, 82-85 and 87-88).

fe 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."

B-23

Insofar as this [12] contention involves a defense

that representations were not made to the public in

respondents’ advertisements as tc the characteris-

tics and qualities of the X-l1 tablets, and the

weight losses achievable from their use, it is

contrary to the evidence and is rejected. Respon-

dents' advertisements, directly and by implication,

conveyed the net impression to the public that a

“wonder” preparation for easy weight reduction -

the X-11 tablets - was available. The advertise-

ment in the Seattle Times September 10, 1972,

reprinted herein, 1s 11Tustrative (CX 18). This

advertisement begins with the banner headline "X-11

IS 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 "I LOST 80 LBS!" The advertise-

ment announces to the overweight reader that you

"satisfy your appetite while you take off pounds

and inches" without "“strenous exercises” and

“without starvation dieting hunger," that "[YJou 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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B-24

Appendix B

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Appendix B

Initial Decision

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B-27

[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 8, 1973, also reprinted, emphasizes

testimonials of ladies reporting very substantial

weight losses (CX 19). It also contains a picture

of two fingers holding the X-11 tablet, and 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 adjacent paragraphs

entitled "COUNTERACTS HUNGER," "ACTS AS APPETITE

APPEASER," containing the same text referred to in

Finding 12, and "FORTIFIED WITH VITAMINS, MINER-

ALS." The advertisement concludes by announcin

"42 Tablets 2.98," "105 Tablets 4.98." [19

B-28

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

advertiscment 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 advertise-

ments designed for insertion in newspaper columns,

or in fractions of pages in periodicals, condense

the representations contained in the larger adver-

tisements and refer to X-11 simply as a "tiny

tablet." The following is an example (CX 42):

| Be OT ae

‘GET RID OF

UGLY FAT

Emoy “eating the loods you choose while you

lose excess, ugly fat. 111 Reducing Plan can

heig you sh down. X-11 15 a tiny tablet, easiy

swallowed, (hat Comoimes iagrecients [9 com:

bat hunger, accesse appetite, supplement wta

mins. No dangerous drugs No strenuous exer

cise. Over $00 milhon of X11 tablets used aii

over Amerca Company ‘aunded in 1928. 11

Reducing Plaa costs $3 - large economy sue

S Get S11 now. Your money refunded dy

your Gruggist f you don't lose pounds = a9

questions asked.

(See also CX 5-7 and 77).

B-29

[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 "[LA]sk the pharmacist for a 42 tablet

pack of X-11 Reducing Aid" (CX 53 and 66).

18. With few exceptions, respondents’ adver-

tisements 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 promi-

nently 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 x

talked with you from Walgreen Drug here in Norfolk,

Nebraska, last week, about your X-11 diet pills"

(CX 147). In publishing these testimonials respon-

dents changed all such product references to read

"Y¥-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]

~ B-30

couldn't buy these pills directly from you..."

(CX 187); " . . . I need 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-1l 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

- + o's "PS. The name of the diet pills are X-11

reducing plan" (CX 195); “Please send me another

wxzil is the best reducing tablet sold" (CX 199);

Will you please let me know if there jis 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 box of pills" (CX 202); ".

- + send me some X-11 Reducing Plan Tablets . ..

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); ".

ae Ci] 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:

* *: * * * * * *

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.

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 insur-

ance business.

[23] I don't know if the new 42 line ad will

work. That's what tests are for. Ads like Appe-

drine (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

B-32

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 whan a minimum of calories are con-

sumed," 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 advertis-

ing, marketing and sale of X-11 tablets. The

representations to the public in respondents'

advertisements were about X-11 tablets and their

efficacy in facilitating weight loss. Such

representations were made for the sole purpose of

eer and inducing the sale of X-11 tablets.

ADVERTISING OF X-11 TABLETS

24. Although the pictures, language and format

varied, essentially similar statements and themes

pervaded respondents' advertisements of X-11

tablets. Respondents agree that "from 1969 to

date, the advertising of the 'X-11 Reducing Plan'

had remained substantially unchanged" (see Memoran-

dum In Support of Motion to Dismiss, etc., filed

October 30, 1975, p. 11; see also Furth, Tr. 952,

968-69 and 978-80).

5 all advertising slicks or mats in the record

(CX 50 through 91) were published by respondents in

some media (Frasier, Tr. 804 and 883).

B-33

25. Porter & Dietsch's advertising expendi-

tures 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, predom-

inately 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 discus-

sed to some degree. Major metropolitan dailies

such as the Seattle Post-Intelligencer (CX 1-4),

ba Seattle Hess (CX Ry 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 Amnon age

Daily Times (CX 33), ™ Longview Daily News

é e Greensboro Da y sews (CX 75} and the

Peoria Journal-Star ( ~ Specialized publica-

tions such as TV Guide (CX 10-13) were also em-

ployed in the dissemination of X-11 advertisements.

27. Ads occuping a small portion of a news-

paper 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 news-

papers. CX 46 was inserted in the Baltimore Sun

for Sunday, April 20, 1969, CX 47 in the Washing-

ton Post on the same date, and CX 49 in the

Chicago Tribune on February 11, 1973.

B-34

REPRESENTATIONS CONVEYED TO THE PUBLIC BY

RESPONDENTS’ ADVERTISEMENTS FOR X-11 TABLETS:

ts Representation that users of X-11 tablets

can lose weight without restricting their accus-

tomed caloric intake and while they continue to eat

the foods of their choice

28. The advertisement published in the Seattie

Times, September 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 purchasers 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."

30. The advertisement published June 24, 1973,

in the Seattle Post-Intelligencer TV Section (CX 2)

likewise featured in black, prominent type “Eat

Well . . . Losthat Fat!" The advertisement

referred to the "X-11 Plan" as "an extr

B-35

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 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 adver-

tisement 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 state-

ments "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” “with-

out 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

25 1972 (CX 15), 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

poundes. You lose weight . . . while you eat

well.”

35. The elaborate “free standing stuffer"

in the Sunday Baltimore Sun on April 20, 1969

(CX 46) featured banner headlines which read “Lose

Ugly Fat" with an "Amazingly Easy Reducing Plan."

B-36

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 ~ Washington Post on the same Sunday (CX 47).

- Another advertisement disseminated by

vighicaion announced “Are you ona 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 communicated similar represen-

tations, 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-11 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 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).

B-37

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 to the public.

The overall effect of respondents’ advertisements

was to convey the net impression to the public that

users of X-1l tablets could lose body Wt

without dieting or consciously or material]

changing their eating habits, in the language of

the complaint, “without restricting their accus-

tomed caloric intake and while they continue to eat

the foods of their choice."

2. Representation that substantially all

users Of tablets would lose a significant

amount of weight and that Se had a

reasonable basSisS Trom W Oo conclude

this

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. Respon-

dents' advertisements were of a nature to attract

the attention of the seriously overweight, espe-

cially 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 throughout the X-11 advertisements, as

follows: [29] "I Used to Weigh 160 Ibs. 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

Ibs. too” (CX 1, 16, 19, and 76); “I Lost 80 Ibs"

(CX 2, 9, 18, 20, 22-24, 30-31, 33-35, 44, and 81);

ree

B-38

"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-£9, 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, 70-75, 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 Ibs Of Ugly Fat" (CX 68); "Now . . . Remove

Pounds And Inches From Thighs, Nec, 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’ advertise-

ments. These testimonials reported weight losses,

as just. quoted, of 55 lbs., over 40 lIbs., 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 refer-

ences in respondents’ advertisements to "Laboratory

Science" having developed a "Tiny Tablet" coupled

with the words "NOW," "TODAY," or [30] "RECENTLY"

conveyed the impression that the X-11 tablets were

the culmination of scientific research, and rein-

forced 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).

B-39

45. Significant large weight losses, in fact,

were represented, as “automatic” (CX 74-75).

"So why carry around needless, excess weight--

when it's so easy to lose ugly fat automatically

with the new X-11 Reducing Plan" (Emphasis in

original).

The overweight were assured that “thousands of

women throughout America are discovering an extra-

ordinary new plan that automatically helps get rid

of 5, 10, 25 or even more pounds .. ." (CX 74,

75). The public was promised that the X-11 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: “RESULTS ARE GUARANTEED--OR MONEY

BACK" (CX 1, 16-17, 19); "CIJf 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 Ponape 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 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-11l

tablets reoresented to the public that substan-

tially all users of X-11 tablets would lose a

significant, in fact, as large an amount of weight

as they desired, and that respondents had a reason-

able basis from which to conclude this.

B-40

3. Representation that the X-11 tablets

contained a “unique” ingredient

48. An examination of respondents’ X-11

advertising reveals that, through the use of

explicit words and phrases, these advertisements

conveyed to the public the representation that X-11

tablets contained something new, different and

unusual--a “unique ingredient" (CX 3-4, 10, 14-15,

18, 48, 50, 63, 68, 70-80, 82, and 87). Respon-

dents Porter & Dietsch, William H. Fraser, Kelly

Ketting Furth and Joseph Furth admitted in their

answer that their advertisements represented

directly or by implication that the X-11 tablet

contained a “unique” ingredient (Ans. P&D, para.

9), and subsequently identified this "unique"

ingredient as phenylpropanolamine (Supp. Adm. P&D,

No. 41).

49. In addition to specific reference to a

"unique" ingredient, many advertisements described

the X-11 tablet as: "a unique formula” (CX 8, 10,

14, 48, 59, 67, 78-80, 82, and 87-88); a “unique

preparation" (CX 52, 56, 61 and 84-85); a “special

formula" (CX 54); a "specialized, laboratory-ap-

proved tablet" (CX 74-75); an “unusual combination

of ingredients" (CX 49, 52, 56, 61, 74, and 83-85);

a combination of "clinic-tested ingredients" (CX

46-47, 49, 74-75, and 83), and "one of the STRONG-

EST DIET AIDS available without a prescription" (CX

3-4, 10-11, 58, 63, 68, 78, 80, 82 and 88). These

phrases were copiously utilized in respondents’

advertisements to reinforce the claimed “unique-

ness" of X-11 tablets to the purchasing public.

[32]

DECEPTIONS IN THE ADVERTISING OF X-11 TABLETS

} Users of X-l1l tablets cannot lose

weight without restricting their accustomed

Caloric intake nor while continuing to eat

the foods of their choice

B-41

50. Excess body weight results from ingestion

of more food than the body uses (Dr. Drenick, Tr.

345). A reduction in calories taken in by the body

or an increase in calories used by the body must

occur for a person to lose any weight, and the

weight lost is directly related to the reduction in

calories consumed and/or calories utilized (Dr.

Drenick, Tr. 350). However, in programs for the

overweight or obese, reduction in caloric intake is

emphasized. Dr. Thaddeus E. Prout, an expert in

endocrinology and metabolism from John Hopkins

University Medical School, testified (Tr. 706):

In general, one does not attack obesity

on the outgoing side for the most part,

since it is not profitable to try to run off

pounds, in the usual sense of the word,

without caloric reduction.

For a person to lose a pound of excess fat, a

calorie deficit of about 3,500 must be incurred

(Dr. Margen, Tr. 264).

51. The X-11 tablets do not, and cannot, in

and of themselves, remove weight, fat or excess

poundage from the human body (CX 164; Dr. Drenick,

Tr. 411; Dr. Margen, Tr. 162; Dr. Fineberg, Tr.

1380-82, and 1392-93).

52. As set forth in prior findings, respon-

dents' advertisements represented that X-11 tablet

users could “Eat Well" and lose weight, and con-

veyed the net [33] impression to prospective

purchasers that ingestion of X-11 tablets would

result in a loss of weight without restriction of

accustomed caloric intake and while they continued

to eat the foods of their choice. Although this

representation was made repeatedly in X-11 adver-

tisements, respondents acknowledged in the package

insert that “weight loss is only accomplished when

a minimum of calories are consumed" (CX 37, 40, and

133). The leaflet admonished X-11 tablet users not

to eat between meals and to follow the diet en-

closed with the X-11 tablets “or any other low

B-42

calorie diet." The diet enclosed with the X-11

tablets provided for a drastically restricted

caloric intake. Estimates of the caloric intake

permitted under this diet ranged from 650 to 1,000

calories (Dr. Margen, Tr. 169; Dr. Drenick, Tr.

404; Furth, Tr. 986 and 990), and expert witnesses

characterized it as a starvation or semi-starvation

diet (Dr. Margen, Tr. 169; Dr. Drenick, Tr. 406;

Dr. Fineberg, Tr. 1330). Respondents’ diet was

also described as "ketogenic" and “unphysiologic."

Such a diet causes the person following it to

experience a feeling of illness and general weak-

ness, and has other undesirable physical effects

(Dr. Margen, Tr. 169-72; Dr. Drenick, 415-16).

53. Counsel for respondents Porter & Dietsch,

William H. Fraser, Kelly Ketting Furth and Joseph

Furth admit that users of X-11 tablets “cannot lose

weight without restricting their accustomed caloric

intake" (Tr. 661).

54. Respondents’ advertisements also repre-

sented, as described, that users of X-11 tablets

could lose weight while continuing to eat the foods

of their choice. Porter & Dietsch admit that in

order to lose weight users of X-11 tablets must

diet and not consume high-calorie foods such as

gravies, nuts, candy, mayonnaise, pastries, whole

milk, fried foods, rich dressings and rich des-

serts, and must reduce or minimize their intake of”

salt, butter and hign-calorie foods generally (Adm.

P&D, No. 28). The insert in the package of X-11

tablets admonishes X-11 users to take coffee or tea

without sugar or cream, to eat no gravy, to trim

the [34] fat off all ‘meat, to cut down on cream,

butter and other high-calorie foods, and to avoid

all fried foods, nuts, candy and rich dressings (CX

37, 40 and 133). This extensive enumeration of

dietary restrictions makes it clear that users of

X-11 tablets cannot continue to eat the foods of

their choice. They must restrict the foods and

quantities they consume to those permitted under

the X-11 diet or other low-calorie diets. The

B-43

representations of respondents in their advertise-

ments that users of X-11 tablets could lose weight

without restricting their accustomed caloric

intake, and while continuing to eat foods of their

choice, were false, misleading and deceptive.

2. Respondents had no reasonable basis

when they introduced their X-ll tablets and

now have no reasonable basis from which to

concliuce that substantially all users of

X-11 tablets would lose a significant amount

of weight

55. As stated earlier, the X-11 tablets

contain some vitamins, caffeine, methylcellulose

and phenylpropanolamine. Users were to take one

(1) tablet a half-hour before each meal, and then

to follow the menu enclosed in the box of X-1ll

tablets “or any other low-calorie diet." According

to respondents’ advertising the X-11 tablets

“counteracted hunger," "curbed," "appeased," or

"depressed" the appetite, put a “brake” on cravings

for high-calorie foods--"everything," and enabled

users to adhere to the drastically low-calorie

intake provided. The alleged appetite “depres-

sant," “appeaser,” "brake" or "diet aid" in the

X-11 tablet is phenylpropanolamine, and the alleged

hunger “counteracter" is methylcellulose, a vege-

table extract. Respondents’ advertisements repre-

sented that, because of the presence of phenylpro-

panolamine and methylcellulose in X-1ll tablets,

all users would achieve significant weight losses

of virtually any amount desired.[35]

A. Respondents had conducted no tests,

and were in possession of no reports, tests

or studies providing dyreasonable basis from

which to conclude that substantially all

users of X-1l1 tablets would lose a signifi-

cant amount of weight

B-44 B-45

56. Individual respondent William H. Fraser, 59. Mr. Fraser testified that he placed

president, of corporate respondent Porter & Dietsch, complete reliance upon Mr. Gettleman for having

admitted that-he had nothing to support the claims — support and authority for the advertising repre-

made in advertisements for the X-11 tablets. He sentations made for X-11 tablets. Mr. Fraser

testified (Tr. 822): testified (Tr. 877):

Q. Mr. Fraser, at the time you received When Mr. Gettleman sent an ad to me he

that letter and in 1974 what tests or marked it okay. I did not cross aT nor dot

studies or reports of studies or reports an I. He was the king. He was the man that

of tests or other evidence of effec- knew the obesity field. He knew the law.

tiveness of the X-11 product did you have He knew the regulationa and I relied en-

in your possession? tirely on him.

A.° 1 did not have any. .

Q. Mr. Fraser, at the time the complaint 60. Mr. Gettleman had no information, research

in this matter issued in August 1975, what reports, studies or competent test evidence, which

tests or studies or reports of tests or provided a reasonable basis for the representations

other evidence of effectiveness did you of weight loss contained in respondents’ X-11

have in your possession? advertising. Individual respondent Joseph Furth,

A. I had none. who handled the advertising of the X-11 tablets,

testified that in 1968, when his firm, Kelly

57. In 1969 and 1970 the FDA sent one of its Ketting Furth, took over the X-11 account, Mr.

investigators to Porter & Dietsch as a result of Gettleman showed him two documents (Tr. 1001 and

the advertising claims which were being published 1006), the 1967 Certification of Record by then

“around the country" (Tr. 904-07). The FDA inves- Hearing Examiner Poindexter in Alleghany Pharmacal

tigator asked Mr. Fraser for any “information or 2 Corp., et al., Dkt. 7176, 75 a C. and the

reports on the efficacy of the product which would Court of Appeals decision in [37] Carlay Co.

indicate that it [36] was effective for the claims v. Federal Trade Commission, 153 F.2d sO TE

that were being made for it" (Tr. 909-10). Mr. 1946). In 1972 when the Commission's staff con-

Fraser's response was that he had none (Tr. 910). tacted respondent Pay'n Save Corporation in this

58. The moving force behind the formation of matter requesting substantiation of the represen-

Porter & Dietsch, and the initiation and marketing tations in the X-11 advertisements, the Commi s-

of the X-11 tablets, was Frank Gettleman, a Chicago sion's letter of inquiry (CX 112) was sent by Pay'n

attorney, now deceased. In 1967 he contacted Mr. Save to Porter & Dietsch for reply, inasmuch as

Fraser, who had just suffered a business reverse, “Pay'n Save had conducted no scientific studies of

telling him that he had something that Mr. Fraser X-11" (Affidavit of Calvin Hendricks, Executive

could make a "comeback" at. At a subsequent Vice-President of Pay'n Save Corporation, attached

meeting in Chicago, Mr. Gettleman told Mr. Fraser to Motion to Dismiss Complaint Before Trial Or, In

about "this diet plan,” the X-11 tablets (Tr. the Alternative, For Summary Decision dated Novem-

823-24). ber 28, 1975, p. 3). Mr. Gettleman answered this

inquiry on behalf of Porter & Dietsch and Pay'n

CII

B-46

nd forwarded to the Commission, as substan-

eietien for the X-11 advertising, copies of the

Alleghan wegiggnte ag supra, and the Carlay

CX 122-26).

ee ona Mr. Gettleman discussed the

evidence introduced in the Alleghany proceeding,

contending that it supported the claims ee se

respondents’ advertising. A thorough reading 0

the Alleghany certification discloses that it does

not substantiate respondests' advertising represen-

tations of weight losses achievable through the use

of their X-11 tablets. The complaint in Alleghany

Pharmacal did not allege that claims of specific

and significant weight losses of virtually any

amount from the use of diet pills or tablets were

false. The issue was whether “Hungrex tablets,

the active ingredient of which was pheny Ipropan-

olamine, had any sicnificant pharmacological value

as an appetite depressant or weight-reducing agent,

or were adequate or effective in the treatment,

control or management of obesity. 75 F.T.C. at

997. The hearing examiner thought that the a

dence was conflicting and that the allegations 0

the complaint had not been established by a prepon-

derance of the evidence. 75 F.T.C. at 1034. On

review, the Commission expressly disavowed any

opinion "as to the accuracy of [these] findings and

conclusions," but dismissed the complaint. The

Commission, on the hearing examiner's recommenda-

tion, [38] however, ordered that the cease and

desist order issued earlier in Alleghany Pharma-

cal, 55 F.T.C. 705 (1958), remain in effect. That

order prohibited di ssemination of any advertise-

ments for “Hungrex" which represented, directly or

indirectly, “that any predetermined weight

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