May 13, 1993
In the Matter of the Complaint against
PURITAN’S PRIDE, INC.
105 Orville Drive
P.O. Box 495
Bohemia, NY 11716-2599
NATURE’S BOUNTY, INC.
90 Orville Drive
Bohemia, NY 11716-2513
P. S. Docket No. 37/44
APPEARANCES FOR COMPLAINANT:
Geoffrey A. Drucker, Esq.
Peter J. Wheeler, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260-1144
APPEARANCE FOR RESPONDENTS:
Robert Ullman Esq.
Bass & Ullman
747 Third Avenue
New York, NY 10017-2875
POSTAL SERVICE DECISION
By joint motion the parties have requested that the Judicial Officer determine whether Cease and Desist Order No. CD-3175 should be amended to add an additional paragraph prohibiting Respondents (Puritan’s Pride, Inc. and Nature’s Bounty, Inc.) from representing that a product has an effect on the human body unless the representation is substantiated by competent and reliable evidence. Complainant, the United States Postal Service, contends the additional paragraph is necessary to protect the public from future false representations. Respondents argue that the Postal Service lacks authority to include such a paragraph in a cease and desist order and that the paragraph is unnecessary because the Order already provides sufficient protection to the public.
I.
BACKGROUND
Complainant initiated this proceeding by filing a Complaint alleging that Respondents are engaged in conducting a scheme or device for obtaining money or property through the mail by means of advertisements for numerous health-related products which make false representations in violation of 39 U.S.C. § 3005. Respondents filed a timely Answer denying they make the false representations alleged in the Complaint.
Thereafter, the parties entered into a Settlement Agreement in which Respondents agreed to the issuance of a cease and desist order prohibiting them from making the representations alleged in the Complaint. On joint motion of the parties and by Order of the Judicial Officer, the Settlement Agreement was made a part of the record and Cease and Desist Order No. CD-3175 was issued. In addition, all proceedings were suspended indefinitely, except for this proceeding to determine whether the Cease and Desist Order should be amended to include the following paragraph (hereinafter referred to as an “ad substantiation” provision):
“The persons identified in Paragraph II [Respondents] are further ordered to cease and desist from representing that a product has an effect on the human body; unless this representation, when made, is substantiated by competent and reliable evidence.
For the purposes of this order, ‘competent and reliable evidence’ means:
(a) independently replicated tests and studies
(i) employing a methodology that members of the scientific or medical community would expect to yield accurate and reliable results, and
(ii) conducted and evaluated in an objective manner by qualified persons; or
(b) such other evidence, if any, that members of the scientific or medical community would regard as probative” (Settlement Agreement, ¶ 3).
In determining whether the Cease and Desist Order should be amended, the parties agreed the Judicial Officer could treat as “uncontested” the allegations that Respondents make the false representations alleged in the Complaint.
For the purpose of deciding whether the Cease and Desist Order should be amended, the following findings of fact are made.
II.
FINDINGS OF FACT
1. Respondent Nature’s Bounty is a Delaware corporation with its principal place of business at 90 Orville Drive, Bohemia, New York 11716 (Statement of Uncontested Facts (Statement) ¶ A).
2. Respondent Puritan’s Pride, Inc. is a wholly owned subsidiary of Respondent Nature’s Bounty, Inc. (Statement, ¶ C).
3. Respondents, by means of advertisements promoting health-related products, make numerous false representations regarding the efficacy of a number of diet and health-related products (Statement, ¶ F; Complaint).
4. Respondents also advertise and sell through the mail additional health-related products which Complainant has not alleged are misrepresented in Respondents’ promotional materials (Declaration of Harvey Kamil (Declaration), Exhibits A, B & C; Complaint, Exhibits 1-19).
5. Cease and Desist Order No. CD-3175 directs Respondents to cease and desist from making the false representations which are the subject of this proceeding. With the exception of a few specifically named products, the Cease and Desist Order prohibits Respondents from falsely representing the efficacy of any product in treating the conditions described in the Complaint.
6. No other Postal Service cease and desist orders have been issued against Respondents (Declaration, ¶ 3).
7. Prior to the initiation of this proceeding, Respondent Nature’s Bounty purchased the assets of the mail order division of General Nutrition Corporation (“GNC”) (Statement, ¶ B).
8. Prior to the purchase of GNC’s mail order assets by Respondent Nature’s Bounty, the Postal Service issued several cease and desist orders against GNC directing it to discontinue making false representations concerning the efficacy of various health-related products (Cease & Desist Order Nos. CD-68 & CD-237 to 249; Statement, ¶ D).
9. Until the Complaint in this matter was filed, Respondents had no knowledge that any cease and desist orders had been issued by the Postal Service against GNC (Statement, ¶ E; Declaration, ¶ 7).
10. Other than purchasing GNC’s mail order assets and being represented by the same law firm in an unrelated lawsuit, Respondents have no relationship with GNC (Declaration, ¶ ¶ 4-6).
III.
DISCUSSION
The issues presented for decision are (a) whether the Postal Service has authority to issue a cease and desist order containing the proposed ad substantiation provision, (b) whether the proposed provision is being selectively applied against Respondents, and (c) whether amendment of the existing Cease and Desist Order is necessary to prevent future false representations in view of its existing prohibitions. These arguments are addressed below.
A.
Cease and Desist Authority
Respondents contend that the Postal Service does not have the authority under either 39 U.S.C. § 3005 or its legislative history to issue a cease and desist order which includes an ad substantiation provision. While Respondents concede that the Federal Trade Commission (FTC) may have such broad authority, they argue § 3005 was not modeled after the Federal Trade Commission Act, and that the Postal Service’s cease and desist authority is more limited than the FTC’s authority because § 3005 applies only to misconduct which is shown to be related to a “scheme.” Since the failure to substantiate product claims is not a part of the “scheme” alleged in the Complaint, Respondents argue that the Postal Service may not include the ad substantiation provision in the Cease and Desist Order issued in this proceeding.
Complainant in turn argues that nothing in either § 3005 or its legislative history restricts the Postal Service from issuing a cease and desist order which contains an ad substantiation provision. Complainant further contends that the Postal Service’s authority to issue such orders is consistent with existing federal case law.
As Complainant contends, the Postal Service has authority under 39 U.S.C. § 3005 to issue cease and desist orders1/ limiting future misconduct, American Genealogies, Inc. v. USPS, 717 F. Supp. 895, 898-99 (D.D.C. 1989), and nothing in the statutory language or legislative history precludes the inclusion of an ad substantiation provision in any such order.2/ The primary purpose of 39 U.S.C. § 3005 is to protect the public from false representation schemes.3/ In order to provide such protection to the public and to prevent future false representations, § 3005 authorizes the issuance of cease and desist orders in connection with “any such scheme[s].” While Respondents contend this language is narrow in focus and precludes the issuance of a cease and desist order with an ad substantiation provision, we conclude otherwise. In order to effectuate the purpose of the statute, the “scheme” referred to in § 3005 must be viewed in terms of the entire promotion. Cf. American Genealogies, 717 F.Supp. at 898-900. In this proceeding, Respondents are involved in various schemes involving the advertisement and sale of health-related products. As a result, a cease and desist order may be issued which includes an ad substantiation provision for health-related products inasmuch as advertisements for health-related products are the subject of the Complaint.
Although both parties refer to the legislative history of the Mail Order Consumer Protection Act, Pub. L. 98-186, Nov. 30, 1983, 97 Stat. 1315, to support their respective positions, such references are unnecessary in view of the determination that the term “scheme,” as used in the Act, allows the inclusion of an ad substantiation provision in a cease and desist order.4/ Nonetheless, the legislative history has been reviewed and found to support the conclusion that ad substantiation provisions may be included in Postal Service cease and desist orders. Contrary to Respondents’ assertion, the Postal Service’s cease and desist enforcement authority was in fact modeled after the enforcement authority of the FTC.5/ As is clear from review of the legislative history of the Mail Order Consumer Protection Act, the civil penalty and cease and desist provisions are interdependent and therefore the references to the similarity of the Postal Service and FTC civil penalty authority in the legislative history are equally applicable to the cease and desist authority. Since the enforcement powers of the two agencies are intended to be similar, it follows that the Postal Service, like the FTC,6/ was intended to have authority to issue cease and desist orders containing ad substantiation provisions. Cf. American Genealogies, 717 F. Supp. at 898-99; Finderhood, Inc., P.S. Docket No. 34/102 at 23 (P.S.D. Mar. 20, 1992), aff’d, (P.S.D. July 24, 1992). Accordingly, the Postal Service has authority to amend the existing Cease and Desist Order to include the ad substantiation provision in issue in this proceeding.
B.
Selective Enforcement
Respondents also contend that since the Postal Service has not included the same ad substantiation provision in cease and desist orders directed against others violating 39 U.S.C. § 3005, it may not include such a provision in the Order issued in this proceeding. However, contrary to Respondents’ contention, cease and desist orders containing similar ad substantiation provisions have been sought and issued against other § 3005 violators.7/ Decisions to include such provisions are made on a case-by-case basis, see FTC v. Mandel Bros., Inc., 359 U.S. 385, 392 (1959), and depend on the specific circumstances of each case. See FTC v. Colgate-Palmolive Co., 380 U.S. 374, 394 (1965); Mandel Bros., Inc., 359 U.S. at 392; American Home Products Corp. v. FTC, 695 F.2d 681, 709 (3d Cir. 1983); Litton Indus., Inc. v. FTC, 676 F.2d 364, 371 (9th Cir. 1982); American Genealogies, 717 F. Supp. at 899. See also Heckler v. Chaney, 470 U.S. 821, 831 (1985); Gottlieb v. Schaffer, 141 F. Supp. 7, 19 (S.D.N.Y. 1956). No showing has been made in this case that the Postal Service has abused its discretion in seeking the inclusion of an ad substantiation provision in the Cease and Desist Order issued against Respondents. Therefore, there is no merit to Respondents’ selective enforcement contention.
C.
Necessity of Amending Cease and Desist Order No. CD-3175
Having determined that the Postal Service has authority to amend the Cease and Desist Order to include the proposed provision, the final issue to be addressed is whether the ad substantiation provision is necessary to prevent future false representations. According to Complainant, Respondents have made so many past false representations regarding such a wide variety of health-related products that an ad substantiation provision is necessary to prevent them from (1) making future misrepresentations regarding any product not covered by the existing Order; (2) evading the Order by changing the name or formula of a product; and (3) making other misrepresentations which may cause consumers to forego medical treatment and take unnecessary health risks. In urging the inclusion of the proposed provision, Complainant asserts that GNC’s past misconduct in making false representations regarding the efficacy of health-related products is attributable to Respondents since they should have known of the pending cease and desist orders against GNC when they purchased its assets.
Respondents object to amending the existing Cease and Desist Order to include the ad substantiation provision claiming that the Order is already comprehensive enough to deter them from making future false representations since it applies to “any” product sold through the mail. According to Respondents, the inclusion of the ad substantiation provision is also not warranted in this case because the Complaint does not allege that Respondents falsely represent a scientific basis for their products.8/ Respondents in addition contend that inclusion of the proposed provision is unnecessary since they are unlikely to resume the prohibited activities due to the potential sanctions under 39 U.S.C. § 3012 for violation of the existing Order.9/ Respondents also point out that they have no record of prior violation of the false representation statute and should not be held liable for GNC’s misconduct since they had no knowledge of the cease and desist orders issued against GNC and have no connection with GNC except for their purchase of its assets and a common interest in an unrelated lawsuit.
An ad substantiation provision is a form of a fencing-in provision which may be included in a cease and desist order to prevent future false representations.10/ The propriety of including such a provision depends on the specific circumstances of each case. See Colgate-Palmolive Co., 380 U.S. at 394; Mandel Bros., 359 U.S. at 392; Litton Indus., 676 F.2d at 371; American Genealogies, 717 F. Supp. at 899. While such provisions should be broad enough to prevent Respondents from making false representations in future advertisements, Litton Indus., 676 F.2d at 370, they should also be reasonably related to the unlawful act found to exist, Jacob Siegel Co. v. FTC, 327 U.S. 608, 613 (1946), and limited to the product category which is subject to the violation. See Sterling Drug, 741 F.2d at 1157; Bristol-Myers Co., 738 F.2d at 561. Ad substantiation provisions which are limited to products in specific categories have generally been upheld as reasonable11/ while those broadly covering “any” product, without limitation by category or characteristic, have not been favored.12/
The ad substantiation provision which Complainant seeks to have included in the Cease and Desist Order issued in this proceeding would prevent Respondents from representing that a product has an effect on the human body unless the representation is substantiated by competent and reliable evidence. The provision would apply not only to the products and the conditions which are the subject of the Complaint, but to “any” product which is advertised to have “an effect on the human body.” Such a broad provision is not necessary in this case. The existing Cease and Desist Order not only prohibits Respondents from making the false representations alleged in the Complaint as to specific named products, but also prevents them from making the same false representations with regard to “any” product (FOF ¶ 5; Cease & Desist Order No. CD-3175). The Order also prohibits Respondents from making false representations as to the efficacy of any product in treating the numerous physical conditions described in the Complaint (Id.). Thus contrary to Complainant’s contentions, under the terms of the Order as it presently exists, Respondents are precluded from changing the name or formula of a product and continuing to represent that it will have an effect on the physical conditions which are the subject of the Complaint.
Further, nothing in the record establishes that Respondents have previously falsely represented additional health-related products. Although Respondents purchased the assets of the mail order division of GNC, no showing has been made that this was not an arms-length transaction, that the two companies are not totally separate entities, or that GNC’s prior misrepresentations should otherwise be attributed to Respondents (FOF ¶ 9).
Under the circumstances presented in this case, the Cease and Desist Order appears to be sufficiently comprehensive to protect the public while at the same time allowing Respondents to continue to conduct their mail order business. Any broader provision would expand the coverage far beyond the product categories and representations involved in this proceeding and would not be reasonable in scope. See American Home Products, 695 F.2d at 710; Standard Oil Co. of California v. FTC, 577 F.2d 653, 661 (9th Cir. 1978).
IV.
CONCLUSION
After considering the parties’ arguments and the facts and issues relevant to this proceeding, it is concluded that the existing Cease and Desist Order is sufficient to prevent Respondents from making false representations similar to those previously made or likely to be made and to protect the public from future false representations in connection with the efficacy of their products. Accordingly, Complainant’s request that Cease and Desist Order No. CD-3175 be amended to include the ad substantiation provision in issue in this proceeding is denied.
James A. Cohen Judicial Officer
3/ See Donaldson v. Read Magazine, Inc., 333 U.S. 178, 184 (1948); Commissioner v. Heininger, 320 U.S. 467, 474 (1943); American Genealogies, 717 F.Supp. at 899; Consumer Research, Inc., P.S. Docket No. 18/33 at 9 (P.S.D. Nov. 9, 1984); James E. Smith, P.S. Docket No. 14/61 at 4 (P.S.D. Nov. 9, 1983).
9/ Contrary to Respondents’ contention, potential § 3012 sanctions alone are not sufficient to deter future false representations. See, e.g., Litton Indus., 676 F.2d at 371; Sergio & Spiegel Television for Oncor, Inc., P.S. Docket No. 37/105 at 9-13 (Mar. 12, 1993).
This page was posted on July 16, 2004.
