National Dietary Research, Inc., et al.; Proposed Consent Agreement with Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[Dkt. 9263]

National Dietary Research, Inc., et al.; Proposed Consent

Agreement with Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

prohibit, among other things, a Florida-based corporation and its owner

from making claims regarding weight loss, hunger reduction, calorie

absorption, cholesterol reduction, effects on cellulite or body

measurements, or any other health benefits of any product or program

they advertise or sell, unless the respondents possess competent and

reliable scientific evidence to substantiate the claims. Also, the

consent agreement would prohibit the respondents from misrepresenting

test results, from representing that any advertisement is something

other than a paid advertisement, and from representing that an

endorsement is typical of the experience of consumers who use the

product, unless the claim is substantiated. In addition, the consent

agreement would require National Dietary Research to pay $100,000 to

the Commission.

DATES: Comments must be received on or before July 24, 1995.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Joel Winston or Richard Cleland, FTC/

S-4002, Washington, DC 20580. (202) 326-3153 or 326-3088.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 3.25(f) of

the Commission's rules of practice (16 CFR 3.25(f)), notice is hereby

given that the following [[Page 27306]] consent agreement containing a

consent order(s) to cease and desist, having been filed with and

accepted, subject to final approval, by the Commission, has been placed

on the public record for a period of sixty (60) days. Public comment is

invited. Such comments or views will be considered by the Commission

and will be available for inspection and copying at its principal

office in accordance with Sec. 4.9(b)(6)(ii) of the Commission's rules

of practice (16 CFR 4.9(b)(6)(ii)).

Agreement Containing Consent Order to Cease and Desist

In the matter of National Dietary Research, Inc., a corporation;

The William H. Morris Company, a corporation; and William H. Morris,

individually and as an officer of said corporations. Docket No.

9263.

The agreement herein, by and between National Dietary Research,

Inc., and The William H. Morris Company, corporations, by their duly

authorized officer; and William H. Morris, individually and as an

officer of said corporations, hereinafter sometimes referred to as

respondents, and their attorneys, and counsel for the Federal Trade

Commission, is entered into in accordance with the Commission's rule

governing consent order procedures. In accordance therewith the parties

hereby agree that:

1. Respondent National Dietary Research, Inc. is a corporation

organized, existing, and doing business under and by virtue of the laws

of the State of Florida, with its office and principal place of

business located at 1377 K Street, NW., Suite 553, Washington, DC

20005.

Respondent The William H. Morris Company is a corporation

organized, existing, and doing business under and by virtue of the laws

of the State of Florida, with its office and principal place of

business located at 2804 Smitter Road, Tampa, Florida, 33618.

Respondent William H. Morris is an officer of said corporations. He

formulates, directs, and controls the policies, acts, and practices of

said corporations. His home address is 2906 Smitter Road, Tampa,

Florida, 33618.

2. Respondents have been served with a copy of the complaint issued

by the Federal Trade Commission charging them with violations of

sections 5(a) and 12 of the Federal Trade Commission Act, and have

filed answers to said complaint denying said charges.

3. Respondents admit all the jurisdictional facts set forth in the

Commission's complaint in this proceeding.

4. Respondents waive:

(a) Any further procedural steps;

(b) The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law;

(c) All rights to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this agreement;

and

(d) Any claim under the Equal Access to Justice Act.

5. This agreement shall not become a part of the public record of

the proceeding unless and until it is accepted by the Commission. If

this agreement is accepted by the Commission it will be placed on the

public record for a period of sixty (60) days and information in

respect thereto publicly released. The Commission thereafter may either

withdraw its acceptance of this agreement and so notify the

respondents, in which event it will take such action as it may consider

appropriate, or issue and serve its decision, in disposition of the

proceeding.

6. This agreement is for settlement purposes only and does not

constitute an admission by respondents that the law has been violated

as alleged in the complaint, or that the facts as alleged in the

compliant, other than jurisdictional facts, are true.

7. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 3.25(f) of the

Commission's rules, the Commission may without further notice to

respondents, (1) Issue its decision containing the following order to

cease and desist in disposition of the proceeding, and (2) make

information public in respect thereto. When so entered, the order to

cease and desist shall have the same force and effect and may be

altered, modified or set aside in the same manner and within the same

time provided by statute for other orders. The order shall become final

upon service. Delivery by the U.S. Postal Service of the decision

containing the agreed-to order to respondents' addresses as stated in

this agreement shall constitute service. Respondents waive any right

they might have to any other manner of service. The complaint may be

used in construing the terms of the order, and no agreement,

understanding, representation, or interpretation not contained in the

order or in the agreement may be used to vary or to contradict the

terms of the order.

8. Respondents have read the complaint and the order contemplated

hereby. They understand that once the order has been issued, they will

be required to file one or more compliance reports showing that they

have fully complied with the order. Respondents further understand that

they may be liable for civil penalties in the amount provided by law

for each violation of the order after it becomes final.

9. If it is accepted by the Commission, this Agreement constitutes

a full settlement between the Commission and respondents as to the

activities alleged in the complaint to have constituted violations of

the Federal Trade Commission Act and which occurred prior to the date

of entry of the order. As to those activities alleged in the complaint,

and which occurred prior to the date of entry of the order, the

Commission hereby releases the respondents from all other further

liability to the Commission.

Order

I

It is ordered That respondents National Dietary Research, Inc., a

corporation, its successors and assigns, and its officers, agents,

representatives, and employees, The William H. Morris Company, a

corporation, its successors and assigns, and its officers, agents,

representatives, and employees, and William H. Morris, individually and

as an officer of the corporate respondents, directly or through any

partnership, corporation, subsidiary, division or other device, in

connection with the advertising, packaging, labeling, promotion,

offering for sale, sale or distribution of any product or program in or

affecting commerce, as ``commerce'' is defined in the Federal Trade

Commission Act, do forthwith cease and desist from representing, in any

manner, directly or by implication, that the product or program

a. Provides any weight loss benefit;

b. Is an effective treatment for obesity;

c. Reduces hunger or is an effective appetite suppressant;

d. Decreases the intestinal absorption of calories;

e. Reduces, can reduce or helps reduce serum cholesterol;

f. Provides, can provide or helps provide any other health benefit; or

g. Has any effect on cellulite or on the user's body measurements,

unless, at the time they make such representation, respondents possess

and rely upon competent and reliable scientific evidence that

substantiates the representation. For purposes of this Order, competent

and reliable scientific evidence shall mean tests, analyses, research,

studies, or other evidence based on the expertise of professionals in

the relevant area, that has been conducted and evaluated in an

objective [[Page 27307]] manner by persons qualified to do so, using

procedures generally accepted in the profession to yield accurate and

reliable results.

II

It is further ordered That respondents National Dietary Research,

Inc., a corporation, its successors and assigns, and its officers,

agents, representatives, and employees, The William H. Morris Company,

a corporation, its successors and assigns, and its officers, agents,

representatives, and employees, and William H. Morris, individually and

as an officer of the corporate respondents, directly or through any

partnership, corporation, subsidiary, division or other device, in

connection with the advertising, packaging, labeling, promotion,

offering for sale, sale or distribution of any product or program in or

affecting commerce, as ``commerce'' is defined in the Federal Trade

Commission Act, do forthwith cease and desist from misrepresenting, in

any manner, directly or by implication,

a. The existence, contents, validity, results, conclusions, or

interpretations of any test or study;

b. The amount of fiber or any other nutrient or dietary constituent

contained in or provided by the product or program, whether described

in quantitative or qualitative terms;

c. That the product or program contains or provides a high, rich,

excellent or superior source of fiber or any other nutrient or dietary

constituent using those words or words of similar meaning; or

d. The research activities or other activities of National Dietary

Research or any other organization affiliated with respondents.

III

It is further ordered That respondents National Dietary Research,

Inc., a corporation, its successors and assigns, and its officers,

agents, representatives, and employees, The William H. Morris Company,

a corporation, its successors and assigns, and its officers, agents,

representatives, and employees, and William H. Morris, individually and

as officer of the corporate respondents, directly or through any

partnership, corporation, subsidiary, division or other device, in

connection with the advertising, packaging, labeling, promotion,

offering for sale, sale or distribution of any product or program in or

affecting commerce, as ``commerce'' is defined in the Federal Trade

Commission Act, do forthwith cease and desist from creating, producing,

selling or disseminating any advertisement that misrepresents, in any

manner, directly or by implication, that it is not a paid

advertisement.

IV

It is further ordered That respondents National Dietary Research,

Inc., a corporation, its successors and assigns, and its officers,

agents, representatives, and employees, The William H. Morris Company,

a corporation, its successors and assigns, and its officers, agents,

representatives, and employees, and William H. Morris, individually and

as an officer of the corporate respondents, directly or through any

partnership, corporation, subsidiary, division or other device, in

connection with the advertising, packaging, labeling, promotion,

offering for sale, sale or distribution of any product or program in or

affecting commerce, as ``commerce'' is defined in the Federal Trade

Commission Act, do forthwith cease and desist from representing, in any

manner, directly or by implication, that any endorsement (as

``endorsement'' is defined in 16 CFR 255.0(b)) of a product or program

represents the typical or ordinary experience of members of the public

who use the product or program, unless at the time of making such

representation, the representation is true, and respondents possess and

rely upon competent and reliable evidence, which when appropriate must

be competent and reliable scientific evidence, that substantiates such

representation, provided, however, respondents may use such

endorsements if the statements or depictions that comprise the

endorsements are true and accurate, and if respondents disclose clearly

and prominently and in close proximity to the endorsement what they

generally expected performance would be in the depicted circumstances

or the limited applicability of the endorser's experience to what

consumers may generally expect to achieve, that is, that consumers

should not expect to experience similar results.

V

Nothing in this Order shall prohibit respondents from making any

representation that is specifically permitted in labeling for any

product by regulations promulgated by the Food and Drug Administration

pursuant to the Nutrition Labeling and Education Act of 1990.

VI

Nothing in this Order shall prohibit respondents from making any

representation for any drug that is permitted in labeling for any such

drug under any tentative final or final standard promulgated by the

Food and Drug Administration, or under any new drug application

approved by the Food and Drug Administration.

VII

It is further ordered That no later than the date that this Order

becomes final, respondents National Dietary Research, Inc., a

corporation, its successors and assigns, The William H. Morris Company,

a corporation, its successors and assigns, and William H. Morris,

individually and as officer of the corporate respondents, shall deposit

into an escrow account, to be established by the Commission for the

purpose of receiving payment due under this Order (``escrow account''),

the sum of one hundred thousand dollars ($100,000).

The funds paid by respondents, together with accrued interest,

shall, in the discretion of the Commission, be used by the Commission

to provide direct redress to purchasers of Food Source One in

connection with the acts or practices alleged in the complaint, and to

pay any attendant costs of administration. If the Commission

determines, in its sole discretion, that redress to purchasers of this

product is wholly or partially impracticable or is otherwise

unwarranted, any funds not so used shall be paid to the United States

Treasury. Respondents shall be notified as to how the funds are

distributed, but shall have no right to contest the manner of

distribution chosen by the Commission. No portion of the payment as

herein provided shall be deemed a payment of any fine, penalty, or

punitive assessment.

At any time after this Order becomes final, the Commission may

direct the escrow agent to transfer funds from the escrow account,

including accrued interest, to the Commission to be distributed as

herein provided. The Commission, or its representative, shall, in its

sole discretion, select the escrow agent.

Respondents relinquish all dominion, control and title to the funds

paid into the escrow account, and all legal and equitable title to the

funds vested in the Treasurer of the United States and in the

designated consumers. Respondents shall make no claim to or demand for

return of the funds, directly or indirectly, through counsel or

otherwise; and in the event of bankruptcy of respondents, respondents

acknowledge that the funds are not part of the debtor's estate, nor

does the estate have any claim or interest therein. [[Page 27308]]

VIII

It is further ordered That, for five (5) years after the last date

of dissemination of any representation covered by this Order,

respondents, or their successors and assigns, shall maintain and upon

request make available to the Federal Trade Commission for inspection

and copying:

1. All materials that were relied upon to substantiate any

representation covered by this Order; and

2. All test reports, studies, surveys, demonstrations or other evidence

in their possession or control, or of which they have knowledge, that

contradict, qualify, or call into question such representation or the

basis upon which respondents relied for such representation, including

complaints from consumers.

IX

It is further ordered That the corporate respondents shall notify

the Federal Trade Commission at least thirty (30) days prior to any

proposed change in the corporations such as dissolution, assignment, or

sale resulting in the emergence of a successor corporation, the

creation or dissolution of subsidiaries or any other change in the

corporations which may affect compliance obligations arising under this

Order.

X

It is further ordered That the corporate respondents shall

distribute a copy of this Order to each of their operating divisions

and to each of their officers, agents, representatives, or employees

engaged in the preparation or placement of advertisements, promotional

materials, product labels or other such sales materials covered by this

Order.

XI

It is further ordered That the individual respondent shall, for a

period of five (5) years from the date of issuance of this Order,

notify the Commission within thirty (30) days in the event of the

discontinuance of his present business or employment, the activities of

which include the advertising, offering for sale, sale, or distribution

of consumer products, and of his affiliation with any new business or

employment involving such activities. Each notice of affiliation with

any new business or employment shall include respondent's new business

address and telephone number, current home address, and a statement

describing the nature of the business or employment and his duties and

responsibilities.

XII

It is further ordered That respondents shall, within sixty (60)

days after service of this Order upon them and at such other times as

the Federal Trade Commission may require, file with the Commission a

report, in writing, setting forth in detail the manner and form in

which they have complied or intend to comply with this Order.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement to a proposed consent order from National

Dietary Research, Inc., William H. Morris Company and William H.

Morris, the president and sole owner of the corporate respondents. The

respondents sell various tablets made of compressed fiber and other

ingredients, which are advertised for their alleged weight loss and

cholesterol lowering benefits.

On November 9, 1993, the Commission issued an administrative

complaint in this matter (described below), and a complaint and

corresponding motion for preliminary injunctive relief was filed in the

U.S. district Court for the Middle District of Florida, Tampa Division

on November 17, 1993. The administrative complaint was withdrawn from

adjudication on January 23, 1993 for the purpose of considering the

proposed consent agreement. The preliminary injunctive action was

dismissed without prejudice on February 20, 1995.

The proposed consent order has been placed on the public record for

sixty (60) days for receipt of comments by interested persons. Comments

received during this period will become part of the public record.

After sixty (60) days, the Commission will again review the agreement

and the comments received and will decide whether it should withdraw

from the agreement and take other appropriate action, or make final the

proposed order contained in the agreement.

This matter concerns advertising claims made in connection with the

sale of two of the respondents' products, Food Source One (``FS-1''), a

purported weight loss and cholesterol lowering tablet containing small

amounts of dietary fiber and other ingredients, and Vancol 5000

(`'Vancol''), a purported cholesterol lowering tablet containing small

amounts of psyllium fiber, chromium picolinate and other ingredients.

The Commission's complaint in this matter charges the respondents

with making unsubstantiated claims, in advertisements and promotional

materials, regarding the efficacy of FS-1 for weight loss and lowering

serum cholesterol and unsubstantiated claims regarding the efficacy of

Vancol for lowering serum cholesterol. With regard to FS-1, the

complaint alleges that the respondents have represented, directly or by

implication, that the product: Causes significant weight loss; causes

significant weight loss without dieting or otherwise changing normal

eating patterns; is an effectives treatment for obesity; reduces hunger

and is an effective appetite suppressant; decreases the intestinal

absorption of calories; and may significantly reduce serum cholesterol.

The complaint charges that the respondents failed to possess and rely

upon a reasonable basis for these representations.

The complaint alleges that the respondents also represented,

directly or by implication, that: Scientific studies of certain

ingredients contained in FS-1, including studies published in the

British Journal or Nutrition and the American Journal of Clinical

Nutrition, demonstrate that FS-1 causes significant weight loss;

scientific studies of certain ingredients contained in FS-1, including

a study published in the British Journal of Nutrition, demonstrate that

FS-1 causes significant weight loss without dieting; FS-1 has a high

fiber content; National Dietary Research is a bona fide, independent

research organization that has conducted research seeking nutritional

solutions to world-wide health problems; and certain of the

respondents' advertisements for FS-1 are independent newspaper stories

and not paid advertisements. The complaint alleges that these

representations are false and misleading.

With regard to Vancol, the complaint alleges that the respondents

have represented, directly or by implication, that the product

significantly reduces serum cholesterol and that it significantly

reduces serum cholesterol without dieting or otherwise changing normal

eating patterns. The complaint charges that the respondents failed to

possess and rely upon a reasonable basis for these representations. The

complaint also alleges that the respondents represented, directly or by

implication, that scientific studies of certain ingredients contained

in Vancol demonstrate that Vancol significantly reduces serum

cholesterol. The complaint charges that this representation is false

and misleading.

In addition to the above-mentioned complaint allegations, the

complaint also alleges that through the use of statements in certain

advertisements for [[Page 27309]] FS-1 and Vancol, the respondents have

represented, directly or by implication, that testimonials from

consumers appearing in advertisements for FS-1 and Vancol reflect the

typical or ordinary experience of members of the public who have used

the products. The complaint charges that the respondents failed to

possess and rely upon a reasonable basis for these representations.

The proposed order contains provisions designed to remedy the

alleged violations. The proposed order also provides for consumer

redress of $100,000. In the event that consumer redress is not

feasible, the proposed order provides that the funds will be deposited

in the United States Treasury.

Part I of the proposed order requires the respondents to cease from

making any representation that any product or program provides any

weight loss benefit, is an effective treatment for obesity, reduces

hunger or suppresses the appetite, decreases the intestinal absorption

of calories, reduces serum cholesterol, provides, can provide or helps

provide any other health benefit or has any effect on cellulite or on

the user's body measurements, unless they possess and rely upon

competent and reliable scientific evidence that substantiates the

representation. Part II(a) of the order prohibits the respondents from

misrepresenting the existence, contents, validity, results,

conclusions, or interpretations of any test or study. Part II (b) and

(c), respectively, prohibit misrepresentation of the amount of fiber or

any nutrient contained in a product and prohibit false claims that a

product is a high source of fiber or any other nutrient. Part II(d)

prohibits misrepresentation of the research activities or other

activities of National Dietary Research or any other organization

affiliated with the respondents.

Part III of the proposed order prohibits the respondents from

disseminating any advertisement for any product or program that

misrepresents, in any manner, that it is not a paid advertisement. Part

IV of the order prohibits representations that testimonials represent

the typical or ordinary experience of consumers who use the product,

unless the representations are true and the respondents have competent

and reliable evidence that substantiates such representations. An

additional provision in this Part permits the respondents to use a

truthful, non-typical testimonial, if they disclose clearly and

prominently in close proximity to the testimonial what the generally

expected performance would be in the depicted circumstances, or the

limited applicability of the endorser's experience to what consumers

may generally expect to achieve, that is, that consumers should not

expect to experience similar results.

Parts V and VI of the proposed order contain provisions permitting

certain claims that are approved for labels by the FDA, under either

the Nutrition Labeling and Education Act, a tentative final or final

monograph, or any new drug application approved by the FDA.

Part VII of the proposed order requires the respondents to pay

$100,000 in consumer redress, or if that is impracticable, to pay the

same amount to the U.S. Treasury.

Parts VIII, IX, X, XI and XII of the proposed order are compliance

reporting provisions that require the respondents to: retain all

records that would bear on the respondents' compliance with the order;

to notify the Commission of any changes in the structure of the

corporate respondents that may affect their compliance obligations

under the order, or any changes in the business affiliations of the

individual respondent relating to the advertising, offering for sale,

sale or distribution of consumer products; to distribute copies of the

order to the corporate respondents' operating divisions and to those

persons responsible for the preparation and review of advertising

material covered by the order; and to report to the Commission their

compliance with the terms of the order.

The purpose of this analysis is to facilitate public comment on the

proposed order. It is not intended to constitute an official

interpretation of the agreement and proposed order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 95-12587 Filed 5-22-95; 8:45 am]

BILLING CODE 6750-01-M