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Parties Involved:
Federal Trade Commission
Respondent
Grocery Manufacturers Of America, Inc.
Amicus Curiae
Novartis Consumer Health, Inc.
Petitioner
Novartis Corporation
Petitioner
Washington Legal Foundation
Amicus Curiae for Petitioner

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 8, 2000 Decided August 18, 2000

No. 99-1315

Novartis Corporation and

Novartis Consumer Health, Inc.,

Petitioners

v.

Federal Trade Commission,

Respondent

On Petition for Review of an Order of the

Federal Trade Commission

Michael L. Denger argued the cause for the petitioners.

Miguel A. Estrada was on brief for the petitioners.

Daniel J. Popeo and Gene C. Schaerr were on brief for

amicus curiae Washington Legal Foundation.

Thomas A. Thompson was on the brief for amicus curiae

Grocery Manufacturers of America, Inc.

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John F. Daly, Assistant General Counsel, Federal Trade

Commission, argued the cause for the respondent. Debra A.

Valentine, General Counsel, Federal Trade Commission, was

on brief for the respondent.

Before: Williams, Henderson and Randolph, Circuit

Judges.

Opinion for the court filed by Circuit Judge Henderson.

Karen LeCraft Henderson, Circuit Judge: Novartis Corporation and Novartis Consumer Health, Inc (collectively

Novartis), subsidiaries of Novartis Holding AG, petition for

review of a Federal Trade Commission (FTC, Commission)

cease-and-desist order. The Commission found that Novartis's advertisements of its Doan's back pain remedies were

"deceptive" in violation of the Federal Trade Commission Act

(Act), 15 U.S.C. ss 41 et seq., because they contained an

unsubstantiated implied claim of superior efficacy. Accordingly, it ordered Novartis to cease the deceptive advertising

and to include in future Doan's advertisements a corrective

disclaimer of superiority. For the reasons set out below, we

reject Novartis's challenge both to the FTC's finding of

deceptiveness and to the corrective advertising remedy it

provided.

I.

Doan's over-the-counter back pain products have been marketed for over ninety years. After Novartis's predecessor-ininterest Ciba-Geigy Corporation (Ciba), and Ciba's subsidiary, Ciba Self-Medication, Inc.,1 purchased Doan's in 1987,

Ciba conducted a marketing study which concluded: "Doan's

has a weak image in comparison to the leading brands of

analgesics and would benefit from positioning itself as a more

effective product that is strong enough for the types of

backaches sufferers usually get." Joint Appendix (JA) 194-

95. To strengthen the Doan's image, Ciba undertook two

measures. First, Ciba instituted an aggressive television and

__________

1 Novartis was formed in 1996 through the merger of Ciba-Geigy

AG and Sandoz AG.

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newspaper advertising campaign, which lasted from May 1988

through June 1996. The new advertisements characterized

Doan's as a remedy effective specifically for back pain and as

containing a special ingredient (magnesium salicylate) not

found in other over-the-counter analgesics. At least some of

the advertisements displayed images of competing over-thecounter pain remedies. Second, Ciba expanded the Doan's

product line, introducing "Extra Strength Doan's" in late

1987 (renaming its existing product "Regular Strength

Doan's") and "Doan's P.M." in September 1991.

On June 21, 1998 the FTC issued an administrative complaint alleging Ciba's advertisements violated section 5 of the

Act by making an unsubstantiated claim that Doan's products, because of their special ingredients, were more effective

at relieving back pain than other over-the-counter products.

Following a trial the administrative law judge (ALJ) issued a

decision dated March 9, 1998 in which he found that the

advertisements were deceptive in violation of sections 5 and

12 of the Act, which prohibit, respectively, unfair methods of

competition and unfair or deceptive acts or practices generally, 15 U.S.C. s 45, and in particular dissemination of false

advertisements, id s 52. Based on these findings the ALJ

issued an order prohibiting Novartis from asserting unsubstantiated claims of superior efficacy for Doan's products.

The ALJ rejected the FTC's request for corrective advertising, finding so "drastic" a remedy unjustified. Novartis

appealed the deceptiveness finding to the Commission and the

FTC's counsel cross-appealed the denial of corrective advertising.

In an opinion issued May 13, 1999 the Commission affirmed the ALJ's determination that the advertising claims

were deceptive in violation of sections 5 and 12 of the Act.

Like the ALJ, the Commission concluded the advertisements' dual claims--that Doan's products are particularly

effective for relieving back pain and that they contain an

active ingredient not found in other over-the-counter analgesics--while each literally true, in combination implied that

Doan's was superior to other analgesics in relieving back

pain because of its special ingredient, for which claim there

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was no substantiation. The Commission reversed the ALJ's

corrective advertising determination, concluding such a remedy was warranted because the Doan's advertisements had

created or reinforced consumer misbelief in Doan's superior

efficacy and the misbelief was likely to continue. Accordingly, the Commission ordered Novartis to include in future

advertisements the following disclaimer: "Although Doan's is

an effective pain reliever, there is no evidence that Doan's is

more effective than other pain relievers for back pain."

Commission Order at 3. The Commission ordered that the

remedy "continue for one year and until respondent has

expended on Doan's advertising a sum equal to the average

spent annually during the eight years of the challenged

campaign," subject to an exemption "for any television or

radio advertisement of 15 seconds or less in duration." Id.2

Novartis has petitioned for review of both the deception

finding and the corrective advertising directive.

II.

Novartis first challenges the Commission's finding that the

advertisements were "deceptive" in violation of sections 5 and

12 of the Act. The FTC applies a three-pronged test to

determine deceptive advertising, asking whether "(1) a claim

was made; (2) the claim was likely to mislead a reasonable

consumer and (3) the claim was material." Commission

Decision (Comm'n Dec.) at 5 (citing, e.g., In re Cliffdale

Assocs., Inc., 103 F.T.C. 110, 165 (1984)); see generally 1983

FTC Policy Statement on Deception (Deception Statement),

appended to Cliffdale Assocs., 103 F.T.C. at 176-184. Novartis does not dispute that the Doan's advertisements made the

implied claim charged or that it is likely to deceive but does

contest the Commission's finding that the claim was material.

We conclude the materiality finding is adequately supported.

Under the Commission's test, a material claim is one that

"involves information that is important to consumers and,

__________

2 The Commission determined "that the corrective message would

be difficult to communicate in such a short ad without unduly

restricting Respondent's ability to also convey its advertising message." Comm'n Dec. 35.

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hence, likely to affect their choice of, or conduct regarding, a

product." Cliffdale Assocs., 103 F.T.C. at 165. The Commission has historically presumed materiality for certain categories of claims: (1) all express claims, (2) intentional implied

claims and (3) claims that "significantly involve health, safety,

or other areas with which the reasonable consumer would be

concerned," including a claim that "concerns the purpose,

safety, efficacy, or cost of the product or service," its "durability, performance, warranties or quality" or "a finding by

another agency regarding the product." Deception Statement, 103 F.T.C. at 182 (footnotes omitted). The Commission

applied the presumption here because it found the implied

claim was intentional and involved both a health matter and

the products' purpose and efficacy. Nevertheless, given "the

evidence adduced by Novartis," the Commission deemed it

"necessary to look beyond a simple presumption of materiality" to the particular facts. Comm'n Dec. 20. After reviewing

the evidence, the Commission concluded: "The extensive

record amassed in this proceeding strongly confirms the

common-sense proposition that efficacy is a pivotal consideration for consumers in selecting an analgesic, and that claims

of superior efficacy are highly material to those consumer

choices." Commission Dec. at 20. The Commission's finding

of materiality is substantially supported by the evidence it

cited, including the opinions of both sides' experts, see JA 831,

759, 956, and numerous consumer and marketplace studies,

see JA 640, 329, 270, 282. See Comm'n Dec. 14-15. Accordingly, we reject Novartis's challenge3 and uphold the Commission's finding of an implied deceptive claim in violation of the

Act. See Thompson Med. Co. v. FTC, 791 F.2d 189, 196 (D.C.

__________

3 In contesting the finding, Novartis argues most vigorously that

materiality of the implied claim is belied by the fact that Doan's

market share grew little or none during the relevant period. The

FTC's definition of materiality, however, embraces any claim that is

"likely to mislead a reasonable consumer." There is no requirement of actual deceit. If a claim is material because likely to

deceive, it is not rendered otherwise simply because it is unsuccessfully advertised.

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Cir. 1986), cert. denied, 479 U.S. 1086 (1987) (court's "task" is

"to determine if the Commission's finding is supported by

substantial evidence on the record as a whole").4

III.

Next, Novartis asserts the corrective advertising remedy is

without sufficient record support. In Warner-Lambert Co. v.

FTC, 562 F.2d 749, 762 (D.C. Cir. 1977), cert. denied, 435 U.S.

950 (1978), we affirmed the Commission's statutory authority

to impose corrective advertising and approved the standard it

adopted for doing so:

(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.

Warner-Lambert, 562 F.2d at 762 (quoting In re WarnerLambert Co., 86 F.T.C. 1398, 1499-1500 (1975)) (alteration in

original). This language "dictates two factual inquiries: (1)

did [respondent's] advertisements play a substantial role in

creating or reinforcing in the public's mind a false belief

__________

4 Novartis contends we should review the Commission's findings

de novo, relying on Bose Corp. v. Consumers Union of United

States, Inc., 466 U.S. 485 (1984), in which the Supreme Court

rejected the "clearly erroneous" standard for appellate review of

the district court's "actual malice" finding in a defamation case in

favor of "independent appellate review" to "determine whether the

record establishes actual malice with convincing clarity." 466 U.S.

at 511. This court, however, has already concluded that Bose "does

not change the standard of review in deceptive advertising cases."

FTC v. Brown & Williamson Tobacco Corp., 778 F.2d 35, 41 n.3

(D.C. Cir. 1985); accord Kraft, Inc. v. FTC, 970 F.2d 311, 316-18

(7th Cir. 1992).

about the product? and (2) would this belief linger on after

the false advertising ceases?" Warner-Lambert, 562 F.2d at

762. While the evidence is thin and somewhat fragmentary,

we have weighed the expert testimony and, taken as a whole,

we find that the record supports the Commission's conclusion.

On the standard's first prong, the Commission concluded

the evidence demonstrated that the challenged advertising

played a "substantial role" in creating or reinforcing a false

belief based almost exclusively on the opinion of the FTC

counsel's expert witness Michael B. Mazis that the Doan's

advertising campaign created a continuing belief in the products' superiority. Mazis, in turn, based his opinion primarily

on two studies: the "Attitude and Usage Telephone Study"

(A&U Study) commissioned by Ciba in 1987, before the

implied claim advertising campaign, and the study conducted

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by NFO Research, Inc. (NFO Study) in 1996, after the

campaign ended. Relying on Mazis's comparison of the study

results, the Commission found that the A&U Study "showed

that Doan's had a weak image" and that the NFO Study

"show[ed] that in 1996, a disproportionately high percentage

of Doan's users and aware non-users believed that Doan's was

more effective than other OTC pain relievers for back pain

relief." Comm'n Dec. at 25-26.5 The Commission relied

particularly on Mazis's testimony that a comparison of the

two studies showed that " 'superior efficacy' beliefs for Doan's

relative to Advil, Bayer, and Tylenol increased (between 0.5

and 1.25 scale points on a seven-point scale) between 1987 and

1996 relative to other brands, as did beliefs that Doan's has a

__________

5 Based on Mazis's testimony, the Commission also found that the

Brand Equity Study, conducted by Ciba in 1993 (more than halfway

through the 8-year campaign), "provides strong evidence that the

advertising had already influenced consumer beliefs." Understandably, however, neither Mazis nor the Commission placed much

emphasis on this study. To determine whether the advertising

campaign produced an increased perception of Doan's superiority

that will continue after its termination, the crucial points to compare

are the start and end of the campaign. See JA 782-83 (Mazis

explaining that, by comparing A&U and NFO studies, "we can see,

'Did beliefs change?' ").

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'special ingredient' (between 0.75 and 1.875 points)," while

"[a]t the same time, consumer beliefs that Doan's 'is safe to

use'--a claim not made in its advertising campaign--declined

in rough proportion to the other products." Comm'n Dec.

26.6 We conclude that Mazis's opinion testimony constitutes

substantial evidence in support of the Commission's holding

that the Doan's advertisements created or reinforced false

beliefs in the products' efficacy.

We also believe that the record sufficiently supports the

Commission's finding that the advertisements' effects are

likely to linger. The Commission rested its finding primarily

on the conclusion of the NFO Study that six months after the

advertising ended in 1996, "77% of Doan's users and 45% of

those who were aware of but did not use Doan's believed that

the product was superior to other brands for the treatment of

back pain." Comm'n Dec. 29. Characterizing these percentages as "disproportionately high for both groups relative to

other brands," the Commission concluded that "at least six

months after the challenged ads stopped being aired, their

effect continued to linger." Comm'n Dec. 29. We cannot say

this was an irrational inference from the study data on which

the Commission relied.7

IV.

Finally, Novartis challenges the corrective remedy on the

ground that it impermissibly restricts Novartis's free speech

__________

6 While Mazis found that the A&U and NFO studies showed only

"a slight increase in beliefs about Doan's from 1987 to 1996," JA

788, he opined that even a slight increase was significant because

consumer belief in the efficacy of the other three pain-reliever

brands studied went down during the same period.

7 The Commission also relied on three circumstances to infer the

advertising's lingering effect: "[T]he challenged claims were (1)

very salient to consumers (because superior efficacy is among the

primary considerations for a consumer in selecting a back pain

remedy), (2) clearly and consistently conveyed by the challenged

ads, and (3) an integral part of an eight-year campaign," in which

Novartis "spent approximately $65,000,000 disseminating these

claims." Comm'n Dec. 30.

in violation of the First Amendment. We perceive no First

Amendment impediment to the remedy.

In Central Hudson Gas & Elec. Corp. v. Public Serv.

Comm'n, 447 U.S. 557, 563 (1980), the United States Supreme

Court set out the standards applicable to governmental restrictions on commercial speech:

The State must assert a substantial interest to be

achieved by restrictions on commercial speech. Moreover, the regulatory technique must be in proportion to

that interest. The limitation on expression must be

designed carefully to achieve the State's goal. Compliance with this requirement may be measured by two

criteria. First, the restriction must directly advance the

state interest involved; the regulation may not be susUSCA Case #99-1315 Document #537581 Filed: 08/18/2000 Page 8 of 9
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tained if it provides only ineffective or remote support

for the government's purpose. Second, if the governmental interest could be served as well by a more limited

restriction on commercial speech, the excessive restrictions cannot survive.

447 U.S. at 563. The remedy here advances precisely the

"interest involved," namely the avoidance of misleading and

deceptive advertising. Further, as this court noted in

Warner-Lambert, whether a corrective remedy imposes a

restriction "greater than necessary to serve the interest

involved ... goes to the appropriateness of the order" under

the Commission's two-pronged standard addressed above.

Warner-Lambert, 562 F.2d at 758. Because the standard has

been satisfied here, as it was in Warner-Lambert, we conclude the Commission's remedy is not overly broad.

For the preceding reasons Novartis's petition for review is

Denied.

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