Warner-Lambert Company v. Federal Trade Commission

The Warner-Lambert Company petitions for review of an order of the Federal Trade Commission requiring it to cease and desist from advertising that its product, Listerine Antiseptic mouthwash, prevents, cures, or alleviates the common cold. The FTC order further requires Warner-Lambert to disclose in future Listerine advertisements that: "Contrary to prior advertising, Listerine will not help prevent colds or sore throats or lessen their severity."1 We affirm but modify the order to delete from the required disclosure the phrase "Contrary to prior advertising."

The order under review represents the culmination of a proceeding begun in 1972, when the FTC issued a complaint charging petitioner with violation of Section 5(a)(1) of the Federal Trade Commission Act2 by misrepresenting the efficacy of Listerine against the common cold.

Listerine has been on the market since 1879. Its formula has never changed. Ever since its introduction it has been represented as being beneficial in certain respects for colds, cold symptoms, and sore throats. Direct advertising to the consumer, including the cold claims as well as others, began in 1921.

Following the 1972 complaint, hearings were held before an administrative law judge (ALJ). The hearings consumed over four months and produced an evidentiary record consisting of approximately 4,000 pages of documentary exhibits and the testimony of 46 witnesses. In 1974 the ALJ issued an initial decision sustaining the allegations of the complaint. Petitioner appealed this decision to the Commission. On December 9, 1975 the Commission issued its decision essentially affirming the ALJ's findings. It concluded that petitioner had made the challenged representations that Listerine will ameliorate, prevent, and cure colds and sore throats, and that these representations were false. Therefore the Commission ordered petitioner to:

(1) cease and desist from representing that Listerine will cure colds or sore throats, prevent colds or sore throats, or that users of Listerine will have fewer colds than non-users;3

(2) cease and desist from representing that Listerine is a treatment for, or will lessen the severity of, colds or sore throats; that it will have any significant beneficial effect on the symptoms of sore throats or any beneficial effect on symptoms of colds; or that the ability of Listerine to kill germs is of medical significance in the treatment of colds or sore throats or their symptoms;

(3) cease and desist from disseminating any advertisement for Listerine unless it is clearly and conspicuously disclosed in each such advertisement, in the exact language below, that: "Contrary to prior advertising, Listerine will not help prevent colds or sore throats or lessen their severity." This requirement extends only to the next ten million dollars of Listerine advertising.4

Petitioner seeks review of this order. The American Advertising Federation and the Association of National Advertisers have filed briefs as amici curiae.

The first issue on appeal is whether the Commission's conclusion that Listerine is not beneficial for colds or sore throats is supported by the evidence. The Commission's findings must be sustained if they are supported by substantial evidence on the record viewed as a whole.5 We conclude that they are.

Both the ALJ and the Commission carefully analyzed the evidence. They gave full consideration to the studies submitted by petitioner. The ultimate conclusion that Listerine is not an effective cold remedy was based on six specific findings of fact.

First, the Commission found that the ingredients of Listerine are not present in sufficient quantities to have any therapeutic effect. This was the testimony of two leading pharmacologists called by Commission counsel. The Commission was justified in concluding that the testimony of Listerine's experts was not sufficiently persuasive to counter this testimony.6

Second, the Commission found that in the process of gargling it is impossible for Listerine to reach the critical areas of the body in medically significant concentration. The liquid is confined to the mouth chamber. Such vapors as might reach the nasal passage would not be in therapeutic concentration. Petitioner did not offer any evidence that vapors reached the affected areas in significant concentration.7

Third, the Commission found that even if significant quantities of the active ingredients of Listerine were to reach the critical sites where cold viruses enter and infect the body, they could not interfere with the activities of the virus because they could not penetrate the tissue cells.8

Fourth, the Commission discounted the results of a clinical study conducted by petitioner on which petitioner heavily relies. Petitioner contends that in a four-year study schoolchildren who gargled with Listerine had fewer colds and cold symptoms than those who did not gargle with Listerine. The Commission found that the design and execution of the "St. Barnabas study" made its results unreliable. For the first two years of the four-year test no placebo was given to the control group. For the last two years the placebo was inadequate: the control group was given colored water which did not resemble Listerine in smell or taste. There was also evidence that the physician who examined the test subjects was not blinded9 from knowing which children were using Listerine and which were not, that his evaluation of the cold symptoms of each child each day may have been imprecise, and that he necessarily relied on the non-blinded child's subjective reporting. Both the ALJ and the Commission analyzed the St. Barnabas study and the expert testimony about it in depth and were justified in concluding that its results are unreliable.10

Fifth, the Commission found that the ability of Listerine to kill germs by millions on contact is of no medical significance in the treatment of colds or sore throats. Expert testimony showed that bacteria in the oral cavity, the "germs" which Listerine purports to kill, do not cause colds and play no role in cold symptoms. Colds are caused by viruses. Further, "while Listerine kills millions of bacteria in the mouth, it also leaves millions. It is impossible to sterilize any area of the mouth, let alone the entire mouth."11

Sixth, the Commission found that Listerine has no significant beneficial effect on the symptoms of sore throat. The Commission recognized that gargling with Listerine could provide temporary relief from a sore throat by removing accumulated debris irritating the throat.12 But this type of relief can also be obtained by gargling with salt water or even warm water.13 The Commission found that this is not the significant relief promised by petitioner's advertisements. It was reasonable to conclude that "such temporary relief does not 'lessen the severity' of a sore throat any more than expectorating or blowing one's nose 'lessens the severity' of a cold."14

In its attack on the Commission's findings, petitioner relies heavily on a recent study of over-the-counter cold remedies by the Food and Drug Administration15 which petitioner alleges found Listerine "likely to be effective."16 Its argument is two-pronged: first, that the fact that the Commission's findings differ from the FDA's proves that the Commission's findings are wrong; and second, that it was error for the Commission to refuse to reopen its proceedings when the FDA study was released. We conclude that both of these arguments are without merit for the simple reason that the FDA study does not, to any significant degree, contradict the Commission's findings.

The FDA study is the product of an expert panel appointed in 1972 to study all over-the-counter cold, cough, allergy, bronchodilator, and anti-asthmatic drug products some 180 ingredients used in as many as 50,000 products.17 The panel's draft report was issued in February 1976, two months after the FTC issued its order against Listerine. The FTC refused to reopen its proceedings to consider the draft report. In September 1976 the expert panel's report was published, but it has not yet been adopted by the Commissioner of the FDA.18

The only evidence pertinent to the effectiveness of Listerine that the FDA panel considered was the St. Barnabas study, and it appears that reference to it was included in the report only as an afterthought.19 More importantly, the reference which does appear does not endorse or adopt the St. Barnabas study; the FDA report merely describes it and recounts the results.20 The panel's own conclusions are reflected in the operative language repeated for each ingredient of Listerine:

There are no well-controlled studies documenting the effectiveness of (eucalyptol/eucalyptus oil, menthol, thymol) as an (antitussive, expectorant, nasal decongestant).

For use as a mouthwash: Data to demonstrate effectiveness will be required * * * .21

Each ingredient of Listerine was placed in Category III, defined as "the available data are insufficient to classify such condition under either (Category I, generally recognized as safe and effective) or (Category II, not generally recognized as safe and effective) and for which further testing is therefore required."22 Petitioner's assertion that this is equivalent to finding the product "likely to be effective" is not supported by the facts.23

In sum, the FDA study does not reflect any new data not considered by the FTC. Since the FDA did not consider the extensive record compiled in the FTC proceedings, its conclusion that there is insufficient data about the ingredients of Listerine to justify classifying it as effective or ineffective is not necessarily inconsistent with the FTC's conclusion that Listerine's advertising claims are deceptive. The FTC did not err in refusing to reopen its proceedings to consider the draft FDA study, and the FDA findings do not establish that the FTC's conclusions are wrong.

Petitioner contends that even if its advertising claims in the past were false, the portion of the Commission's order requiring "corrective advertising" exceeds the Commission's statutory power. The argument is based upon a literal reading of Section 5 of the Federal Trade Commission Act, which authorizes the Commission to issue "cease and desist" orders against violators and does not expressly mention any other remedies.24 The Commission's position, on the other hand, is that the affirmative disclosure that Listerine will not prevent colds or lessen their severity is absolutely necessary to give effect to the prospective cease and desist order; a hundred years of false cold claims have built up a large reservoir of erroneous consumer belief which would persist, unless corrected, long after petitioner ceased making the claims.

The need for the corrective advertising remedy and its appropriateness in this case are important issues which we will explore infra. But the threshold question is whether the Commission has the authority to issue such an order.25 We hold that it does.

Petitioner's narrow reading of Section 5 was at one time shared by the Supreme Court. In FTC v. Eastman Kodak Co. the Court held that the Commission's authority did not exceed that expressly conferred by statute. The Commission has not, the Court said, "been delegated the authority of a court of equity."26

But the modern view is very different. In 1963 the Court ruled that the Civil Aeronautics Board has authority to order divestiture in addition to ordering cessation of unfair methods of competition by air carriers.27 The CAB statute, like Section 5, spoke only of the authority to issue cease and desist orders, but the Court said, "We do not read the Act so restrictively. * * * (W)here the problem lies within the purview of the Board, * * * Congress must have intended to give it authority that was ample to deal with the evil at hand." The Court continued, "Authority to mold administrative decrees is indeed like the authority of courts to frame injunctive decrees * * * . (The) power to order divestiture need not be explicitly included in the powers of an administrative agency to be part of its arsenal of authority * * * ."28

Later, in FTC v. Dean Foods Co., the Court applied Pan American to the Federal Trade Commission.29 In upholding the Commission's power to seek a preliminary injunction against a proposed merger, the Court held that it was not necessary to find express statutory authority for the power. Rather, the Court concluded, "It would stultify congressional purpose to say that the Commission did not have the * * * power * * * . * * * Such ancillary powers have always been treated as essential to the effective discharge of the Commission's responsibilities."30

Thus it is clear that the Commission has the power to shape remedies which go beyond the simple cease and desist order. Our next inquiry must be whether a corrective advertising order is for any reason outside the range of permissible remedies. Petitioner and amici curiae argue that it is because (1) legislative history precludes it, (2) it impinges on the First Amendment, and (3) it has never been approved by any court.

Petitioner relies on the legislative history of the 1914 Federal Trade Commission Act31 and the Wheeler-Lea amendments to it in 193832 for the proposition that corrective advertising was not contemplated. In 1914 and in 1938 Congress chose not to authorize such remedies as criminal penalties, treble damages, or civil penalties, but that fact does not dispose of the question of corrective advertising.33

Petitioner's reliance on the legislative history of the 1975 amendments to the Act34 is also misplaced. The amendments added a new Section 19 to the Act authorizing the Commission to bring suits in federal District Courts to redress injury to consumers resulting from a deceptive practice. The section authorizes the court to grant such relief as it "finds necessary to redress injury to consumers or other persons, partnerships, and corporations resulting from the rule violation or the unfair or deceptive act or practice," including, but not limited to,

rescission or reformation of contracts, the refund of money or return of property, the payment of damages, and public notification respecting the rule violation or the unfair or deceptive act or practice * * * .35

Petitioner and amici contend that this congressional grant to a court of power to order public notification of a violation establishes that the Commission by itself does not have that power.

We note first that "public notification" is not synonymous with corrective advertising; public notification is a much broader term and may take any one of many forms.36 Second, the "public notification" contemplated by the amendment is directed at past consumers of the product ("to redress injury"), whereas the type of corrective advertising currently before us is directed at future consumers. Third, petitioner's construction of the section runs directly contrary to the congressional intent as expressed in a later subsection: "Nothing in this section shall be construed to affect any authority of the Commission under any other provision of law."37 Moreover, this intent is amplified by the conference committee's report:

The section * * * is not intended to modify or limit any existing power the Commission may have to itself issue orders designed to remedying (sic ) violations of the law. That issue is now before the courts. It is not the intent of the Conferees to influence the outcome in any way.38

We conclude that this legislative history cannot be said to remove corrective advertising from the class of permissible remedies.39

Petitioner and amici further contend that corrective advertising is not a permissible remedy because it trenches on the First Amendment. Petitioner is correct that this triggers a special responsibility on the Commission to order corrective advertising only if the restriction inherent in its order is no greater than necessary to serve the interest involved.40 But this goes to the appropriateness of the order in this case, an issue we reach in Part IV of this opinion. Amici curiae go further, arguing that, since the Supreme Court has recently extended First Amendment protection to commercial advertising,41 mandatory corrective advertising is unconstitutional.

A careful reading of Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council42 compels rejection of this argument. For the Supreme Court expressly noted that the First Amendment presents "no obstacle" to government regulation of false or misleading advertising. The First Amendment, the Court said,

as we construe it today, does not prohibit the State from insuring that the stream of commercial information flow(s) cleanly as well as freely.43

In a footnote the Court went on to delineate several differences between commercial speech and other forms which may suggest "that a different degree of protection is necessary * * * ." For example, the Court said, they may

make it appropriate to require that a commercial message appear in such a form, or include such additional information, warnings, and disclaimers, as are necessary to prevent its being deceptive.44

The Supreme Court clearly foresaw the very question before us, and its statement is dispositive of amici's contention.45

According to petitioner, "The first reference to corrective advertising in Commission decisions occurred in 1970, nearly fifty years and untold numbers of false advertising cases after passage of the Act."46 In petitioner's view, the late emergence of this "newly discovered"47 remedy is itself evidence that it is beyond the Commission's authority. This argument fails on two counts. First the fact that an agency has not asserted a power over a period of years is not proof that the agency lacks such power.48 Second, and more importantly, we are not convinced that the corrective advertising remedy is really such an innovation. The label may be newly coined, but the concept is well established. It is simply that under certain circumstances an advertiser may be required to make affirmative disclosure of unfavorable facts.

One such circumstance is when an advertisement that did not contain the disclosure would be misleading. For example, the Commission has ordered the sellers of treatments for baldness to disclose that the vast majority of cases of thinning hair and baldness are attributable to heredity, age, and endocrine balance (so-called "male pattern baldness") and that their treatment would have no effect whatever on this type of baldness.49 It has ordered the promoters of a device for stopping bedwetting to disclose that the device would not be of value in cases caused by organic defects or diseases.50 And it has ordered the makers of Geritol, an iron supplement, to disclose that Geritol will relieve symptoms of tiredness only in persons who suffer from iron deficiency anemia, and that the vast majority of people who experience such symptoms do not have such a deficiency.51

Each of these orders was approved on appeal over objections that it exceeded the Commission's statutory authority.52 The decisions reflect a recognition that, as the Supreme Court has stated,

If the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity.53

Affirmative disclosure has also been required when an advertisement, although not misleading if taken alone, becomes misleading considered in light of past advertisements. For example, for 60 years Royal Baking Powder Company had stressed in its advertising that its product was superior because it was made with cream of tartar, not phosphate. But, faced with rising costs of cream of tartar, the time came when it changed its ingredients and became a phosphate baking powder. It carefully removed from all labels and advertisements any reference to cream of tartar and corrected the list of ingredients. But the new labels used the familiar arrangement of lettering, coloration, and design, so that they looked exactly like the old ones. A new advertising campaign stressed the new low cost of the product and dropped all reference to cream of tartar. But the advertisements were also silent on the subject of phosphate and did not disclose the change in the product.

The Commission held, and the Second Circuit agreed, that the new advertisements were deceptive, since they did not advise consumers that their reasons for buying the powder in the past no longer applied. The court held that it was proper to require the company to take affirmative steps to advise the public.54 To continue to sell the new powder

on the strength of the reputation attained through 60 years of its manufacture and sale and wide advertising of its superior powder, under an impression induced by its advertisements that the product purchased was the same in kind and as superior as that which had been so long manufactured by it, was unfair alike to the public and to the competitors in the baking powder business.55

In another case56 the Waltham Watch Company of Massachusetts had become renowned for the manufacture of fine clocks since 1849. Soon after it stopped manufacturing clocks in the 1950's, it transferred its trademarks, good will, and the trade name "Waltham" to a successor corporation, which began importing clocks from Europe for resale in the United States. The imported clocks were advertised as "product of Waltham Watch Company since 1850," "a famous 150-year-old company."

The Commission found that the advertisements caused consumers to believe they were buying the same fine Massachusetts clocks of which they had heard for many years. To correct this impression the Commission ordered the company to disclose in all advertisements and on the product that the clock was not made by the old Waltham company and that it was imported. The Seventh Circuit affirmed, relying on "the well-established general principle that the Commission may require affirmative disclosure for the purpose of preventing future deception."57

It appears to us that the orders in Royal and Waltham were the same kind of remedy the Commission has ordered here. Like Royal and Waltham, Listerine has built up over a period of many years a widespread reputation. When it was ascertained that that reputation no longer applied to the product, it was necessary to take action to correct it.58 Here, as in Royal and Waltham, it is the accumulated impact of past advertising that necessitates disclosure in future advertising.59 To allow consumers to continue to buy the product on the strength of the impression built up by prior advertising an impression which is now known to be false would be unfair and deceptive.60IV. THE REMEDY

Having established that the Commission does have the power to order corrective advertising in appropriate cases, it remains to consider whether use of the remedy against Listerine is warranted and equitable. We have concluded that part 3 of the order should be modified to delete the phrase "Contrary to prior advertising."61 With that modification, we approve the order.

Our role in reviewing the remedy is limited. The Supreme Court has set forth the standard:

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.62

The Commission has adopted the following standard for the imposition of corrective advertising:

(I)f a deceptive advertisement has played a substantial role in creating or reinforcing in the public's mind a false and material belief which lives on after the false advertising ceases, there is clear and continuing injury to competition and to the consuming public as consumers continue to make purchasing decisions based on the false belief. Since this injury cannot be averted by merely requiring respondent to cease disseminating the advertisement, we may appropriately order respondent to take affirmative action designed to terminate the otherwise continuing ill effects of the advertisement.63

We think this standard is entirely reasonable. It dictates two factual inquiries: (1) did Listerine's advertisements play a substantial role in creating or reinforcing in the public's mind a false belief about the product? and (2) would this belief linger on after the false advertising ceases? It strikes us that if the answer to both questions is not yes, companies everywhere may be wasting their massive advertising budgets. Indeed, it is more than a little peculiar to hear petitioner assert that its commercials really have no effect on consumer belief.

For these reasons it might be appropriate in some cases to presume the existence of the two factual predicates for corrective advertising.64 But we need not decide that question, or rely on presumptions here, because the Commission adduced survey evidence to support both propositions. We find that the "Product Q" survey data and the expert testimony interpreting them65 constitute substantial evidence in support of the need for corrective advertising in this case.

We turn next to the specific disclosure required: "Contrary to prior advertising, Listerine will not help prevent colds or sore throats or lessen their severity." Petitioner is ordered to include this statement in every future advertisement for Listerine for a defined period.66 In printed advertisements it must be displayed in type size at least as large as that in which the principal portion of the text of the advertisement appears and it must be separated from the text so that it can be readily noticed. In television commercials the disclosure must be presented simultaneously in both audio and visual portions. During the audio portion of the disclosure in television and radio advertisements, no other sounds, including music, may occur.67

These specifications are well calculated to assure that the disclosure will reach the public. It will necessarily attract the notice of readers, viewers, and listeners, and be plainly conveyed. Given these safeguards, we believe the preamble "Contrary to prior advertising" is not necessary. It can serve only two purposes: either to attract attention that a correction follows or to humiliate the advertiser. The Commission claims only the first purpose for it, and this we think is obviated by the other terms of the order.68 The second purpose, if it were intended, might be called for in an egregious case of deliberate deception,69 but this is not one. While we do not decide whether petitioner proffered its cold claims in good faith or bad, the record compiled could support a finding of good faith.70 On these facts, the confessional preamble to the disclosure is not warranted.

Finally, petitioner challenges the duration of the disclosure requirement. By its terms it continues until respondent has expended on Listerine advertising a sum equal to the average annual Listerine advertising budget for the period April 1962 to March 1972. That is approximately ten million dollars.71 Thus if petitioner continues to advertise normally the corrective advertising will be required for about one year. We cannot say that is an unreasonably long time in which to correct a hundred years of cold claims. But, to petitioner's distress, the requirement will not expire by mere passage of time. If petitioner cuts back its Listerine advertising, or ceases it altogether, it can only postpone the duty to disclose.72 The Commission concluded that correction was required and that a duration of a fixed period of time might not accomplish that task, since petitioner could evade the order by choosing not to advertise at all. The formula settled upon by the Commission is reasonably related to the violation it found.

Affirmed.

I agree with the majority that there is substantial evidence in the record to support an order requiring Warner-Lambert to cease and desist from advertising Listerine as a remedy for colds and sore throats. I therefore agree that Parts I, II, IV and V of the Commission's order must be affirmed.

I dissent from the affirmance of Section III of the order which (1) forbids Warner-Lambert to disseminate any advertisement for Listerine unless accompanied by a corrective statement relating to past advertising, and (2) provides that this "duty to disclose the corrective statement shall continue until respondent has expended on Listerine advertising a sum equal to the average annual Listerine advertising budget for the period of April 1962 to March 1972." a sum of approximately ten million dollars.1 In my judgment this requirement of corrective advertising is beyond the statutory authority of the Federal Trade Commission. The Commission's authority to enter cease and desist orders is prospective in nature; the purpose of cease and desist orders is "to prevent illegal practices in the future", FTC v. Ruberoid Co., 343 U.S. 470, 473, 72 S.Ct. 800, 803, 96 L.Ed. 1081 (1952), not "to punish or to fasten liability on respondents for past conduct". FTC v. Cement Institute, 333 U.S. 683, 706, 68 S.Ct. 793, 806, 92 L.Ed. 1010 (1948). The cases that have construed the Commission's remedial power, e. g., FTC v. Sperry & Hutchinson Co., 405 U.S. 233, 244, 92 S.Ct. 898, 31 L.Ed.2d 170 (1972); FTC v. Mandel Brothers, Inc., 359 U.S. 385, 392-93, 79 S.Ct. 818, 3 L.Ed.2d 893 (1959); FTC v. Ruberoid Co., supra; FTC v. National Lead Co., 352 U.S. 419, 428-29, 77 S.Ct. 502, 1 L.Ed.2d 438 (1957); Jacob Siegel Co. v. FTC, 327 U.S. 608, 610-12, 66 S.Ct. 758, 90 L.Ed. 888 (1946), stand only for the proposition that the Commission has broad discretion in determining what conduct of a respondent shall be forbidden prospectively. I think this authority does not encompass the power to employ the retrospective remedy of corrective advertising; and I find no other basis for that asserted power.

As the majority recognizes, Congress by amendment of the Federal Trade Commission Act in 1975 authorized the Commission to commence civil actions in federal district courts, to remedy unfair or deceptive acts or practices "with respect to which the Commission has issued a final cease and desist order". As part of the relief granted in such an action the court was given the power to order "public notification respecting the . . . unfair or deceptive acts or practices". So far as pertinent the amendment reads as follows:

(2) If any person, partnership, or corporation engages in any unfair or deceptive act or practice (within the meaning of section 45(a) of this title) with respect to which the Commission has issued a final cease and desist order which is applicable to such person, partnership, or corporation, then the Commission may commence a civil action against such person, partnership, or corporation in a United States district court or in any court of competent jurisdiction of a State. If the Commission satisfies the court that the act or practice to which the cease and desist order relates is one which a reasonable man would have known under the circumstances was dishonest or fraudulent, the court may grant relief under subsection (b) of this section.

(b) The court in an action under subsection (a) of this section shall have jurisdiction to grant such relief as the court finds necessary to redress injury to consumers or other persons, partnerships, and corporations resulting from the rule violation or the unfair or deceptive act or practice, as the case may be. Such relief may include, but shall not be limited to, recission or reformation of contracts, the refund of money or return of property, the payment of damages, and public notification respecting the rule violation or the unfair or deceptive act or practice, as the case may be; except that nothing in this subsection is intended to authorize the imposition of any exemplary or punitive damages.

15 U.S.C. § 57b(a)(2) and 57b(b). (Emphasis supplied)

The majority comments briefly that the 1975 Amendment "cannot be said to remove corrective advertising from the class of permissible remedies"; the expressed "congressional intent", says the majority, is to the contrary. I think the 1975 legislation cannot be so lightly dismissed. The amendment indicates to me that at least in the judgment of