In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 07-1662

FEDERAL TRADE COMMISSION,

Plaintiff-Appellee,

v.

QT, INC., Q-RAY COMPANY, BIO-METAL,

INC., and QUE TE PARK,

Defendants-Appellants.

____________

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 03 C 3578—Morton Denlow, Magistrate Judge.

____________

ARGUED OCTOBER 31, 2007—DECIDED JANUARY 3, 2008

____________

Before EASTERBROOK, Chief Judge, and BAUER and

WILLIAMS, Circuit Judges.

EASTERBROOK, Chief Judge. WIRED Magazine recently

put the Q-Ray Ionized Bracelet on its list of the top ten

Snake-Oil Gadgets. See http://blog.wired.com/gadgets/

2007/11/10-awesome-gadg.html.

The “Gold Deluxe” Q-Ray Ionized Bracelet
2 No. 07-1662

The Federal Trade Commission has an even less honorable

title for the bracelet’s promotional campaign: fraud. In

this action under 15 U.S.C. §§ 45(a), 52, 53, a magistrate

judge, presiding by the parties’ consent, concluded after

a bench trial that the bracelet’s promotion has been

thoroughly dishonest. The court enjoined the promotional claims and required defendants to disgorge some

$16 million (plus interest) for the FTC to distribute to

consumers who have been taken in. 448 F. Supp. 2d 908

(N.D. Ill. 2006), modified in part by 472 F. Supp. 2d 990

(N.D. Ill. 2007).

According to the district court’s findings, almost everything that defendants have said about the bracelet is

false. Here are some highlights:

! Defendants promoted the bracelet as a miraculous cure for chronic pain, but it has no therapeutic effect.

! Defendants told consumers that claims of

“immediate, significant or complete pain relief” had been “test-proven”; they hadn’t.

! The bracelet does not emit “Q-Rays” (there are

no such things) and is not ionized (the bracelet

is an electric conductor, and any net charge

dissipates swiftly). The bracelet’s chief promoter chose these labels because they are

simple and easily remembered—and because

Polaroid Corp. blocked him from calling the

bangle “polarized”.

! The bracelet is touted as “enhancing the flow

of bio-energy” or “balancing the flow of positive and negative energies”; these empty

phrases have no connection to any medical or

scientific effect. Every other claim made about

the mechanism of the bracelet’s therapeutic

effect likewise is techno-babble.
No. 07-1662 3

! Defendants represented that the therapeutic

effect wears off in a year or two, despite knowing that the bracelet’s properties do not

change. This assertion is designed to lead

customers to buy new bracelets. Likewise the

false statement that the bracelet has a “memory cycle specific to each individual wearer” so

that only the bracelet’s original wearer can

experience pain relief is designed to increase

sales by eliminating the second-hand market

and “explaining” the otherwise-embarrassing

fact that the buyer’s friends and neighbors

can’t perceive any effect.

! Even statements about the bracelet’s physical

composition are false. It is sold in “gold” and

“silver” varieties but is made of brass.

The magistrate judge did not commit a clear error, or

abuse his discretion, in concluding that the defendants

set out to bilk unsophisticated persons who found themselves in pain from arthritis and other chronic conditions.

Defendants maintain that the magistrate judge subjected their statements to an excessively rigorous standard of proof. Some passages in the opinion could be read

to imply that any statement about a product’s therapeutic effects must be deemed false unless the claim

has been verified in a placebo-controlled, double-blind

study: that is, a study in which some persons are given

the product whose effects are being investigated while

others are given a placebo (with the allocation made at

random), and neither the person who distributes the

product nor the person who measures the effects knows

which received the real product. Such studies are expensive, not only because of the need for placebos and

keeping the experimenters in the dark, but also because

they require large numbers of participants to achieve
4 No. 07-1662

statistically significant results. Defendants observe that

requiring vendors to bear such heavy costs may keep

useful products off the market (this has been a problem

for drugs that are subject to the FDA’s testing protocols)

and prevent vendors from making truthful statements

that will help consumers locate products that will do

them good.

Nothing in the Federal Trade Commission Act, the

foundation of this litigation, requires placebo-controlled,

double-blind studies. The Act forbids false and misleading

statements, and a statement that is plausible but has

not been tested in the most reliable way cannot be condemned out of hand. The burden is on the Commission to

prove that the statements are false. (This is one way in

which the Federal Trade Commission Act differs from the

Food and Drug Act.) Think about the seller of an adhesive

bandage treated with a disinfectant such as iodine. The

seller does not need to conduct tests before asserting

that this product reduces the risk of infection from cuts.

The bandage keeps foreign materials out of the cuts and

kills some bacteria. It may be debatable how much the

risk of infection falls, but the direction of the effect

would be known, and the claim could not be condemned

as false. Placebo-controlled, double-blind testing is not a

legal requirement for consumer products.

But how could this conclusion assist defendants? In our

example the therapeutic claim is based on scientific

principles. For the Q-Ray Ionized Bracelet, by contrast, all

statements about how the product works—Q-Rays, ionization, enhancing the flow of bio-energy, and the like—are

blather. Defendants might as well have said: “Beneficent

creatures from the 17th Dimension use this bracelet as

a beacon to locate people who need pain relief, and

whisk them off to their homeworld every night to provide help in ways unknown to our science.”
No. 07-1662 5

Although it is true, as Arthur C. Clarke said, that “[a]ny

sufficiently advanced technology is indistinguishable

from magic” by those who don’t understand its principles

(“Profiles of the Future” (1961)), a person who promotes

a product that contemporary technology does not understand must establish that this “magic” actually works.

Proof is what separates an effect new to science from a

swindle. Defendants themselves told customers that the

bracelet’s efficacy had been “test-proven”; that statement was misleading unless a reliable test had been used

and statistically significant results achieved. A placebocontrolled, double-blind study is the best test; something

less may do (for there is no point in spending $1 million

to verify a claim worth only $10,000 if true); but defendants have no proof of the Q-Ray Ionized Bracelet’s

efficacy. The “tests” on which they relied were bunk. (We

need not repeat the magistrate judge’s exhaustive evaluation of this subject.) What remain are testimonials, which

are not a form of proof because most testimonials represent a logical fallacy: post hoc ergo propter hoc. (A person

who experiences a reduction in pain after donning the

bracelet may have enjoyed the same reduction without

it. That’s why the “testimonial” of someone who keeps

elephants off the streets of a large city by snapping

his fingers is the basis of a joke rather than proof of

cause and effect.)

To this defendants respond that one study shows that

the Q-Ray Ionized Bracelet does reduce pain. This study,

which the district court’s opinion describes in detail,

compared the effects of “active” and “inactive” bracelets

(defendants told the experimenter which was which), with

the “inactive” bracelet serving as a control. The study

found that both “active” and “inactive” bracelets had a

modest—and identical—effect on patients’ reported levels

of pain. In other words, the Q-Ray Ionized Bracelet

exhibits the placebo effect. Like a sugar pill, it alleviates
6 No. 07-1662

symptoms even though there is no apparent medical

reason. The placebo effect is well established. See, e.g.,

Anne Harrington, The Placebo Effect: An Interdisciplinary

Exploration (1999); Asbjorn Hrobjartsson & Peter C.

Gotzsche, Is the Placebo Powerless? An Analysis of

Clinical Trials Comparing Placebo with No Treatment,

344 New England J. Medicine 1594 (2001); Ted Kaptchuk,

Intentional Ignorance: A History of Blind Assessment and

Placebo Controls in Medicine, 72 Bulletin of the History

of Medicine 389 (1998). Defendants insist that the

placebo effect vindicates their claims, even though they

are false—indeed, especially because they are false, as the

placebo effect depends on deceit. Tell the patient that

the pill contains nothing but sugar, and there is no pain

relief; tell him (falsely) that it contains a powerful analgesic, and the perceived level of pain falls. A product that

confers this benefit cannot be excluded from the market,

defendants insist, just because they told the lies necessary to bring the effect about.

Yet the Federal Trade Commission Act condemns

material falsehoods in promoting consumer products; the

statute lacks an exception for “beneficial deceit.” We

appreciate the possibility that a vague claim—along the

lines of “this bracelet will reduce your pain without the

side effects of drugs”—could be rendered true by the

placebo effect. To this extent we are skeptical about

language in FTC v. Pantron I Corp., 33 F.3d 1088 (9th

Cir. 1994), suggesting that placebo effects always are

worthless to consumers. But our defendants advanced

claims beyond those that could be supported by a placebo

effect. They made statements about Q-Rays, ionization,

and bio-energy that they knew to be poppycock; they stated

that the bracelet remembers its first owner and won’t work

for anyone else; the list is extensive.

One important reason for requiring truth is so that

competition in the market will lead to appropriate prices.
No. 07-1662 7

Selling brass as gold harms consumers independent of any

effect on pain. Since the placebo effect can be obtained

from sugar pills, charging $200 for a device that is represented as a miracle cure but works no better than a

dummy pill is a form of fraud. That’s not all. A placebo

is necessary when scientists are searching for the marginal effect of a new drug or device, but once the study

is over a reputable professional will recommend whatever works best.

Medicine aims to do better than the placebo effect, which

any medieval physician could achieve by draining off a

little of the patient’s blood. If no one knows how to cure

or ameliorate a given condition, then a placebo is the

best thing going. Far better a placebo that causes no harm

(the Q-Ray Ionized Bracelet is inert) than the sort of

nostrums peddled from the back of a wagon 100 years ago

and based on alcohol, opium, and wormwood. But if a

condition responds to treatment, then selling a placebo

as if it had therapeutic effect directly injures the consumer. See Kraft, Inc. v. FTC, 970 F.2d 311, 314 (7th Cir.

1992) (a statement violates the FTC Act “if it is likely

to mislead consumers, acting reasonably under the circumstances, in a material respect”).

Physicians know how to treat pain. Why pay $200 for a

Q-Ray Ionized Bracelet when you can get relief from an

aspirin tablet that costs 1¢? Some painful conditions do not

respond to analgesics (or the stronger drugs in the pharmacopeia) or to surgery, but it does not follow that a

placebo at any price is better. Deceit such as the tall tales

that defendants told about the Q-Ray Ionized Bracelet

will lead some consumers to avoid treatments that cost

less and do more; the lies will lead others to pay too much

for pain relief or otherwise interfere with the matching

of remedies to medical conditions. That’s why the placebo

effect cannot justify fraud in promoting a product. Doctor

Dulcamara was a charlatan who harmed most of his
8 No. 07-1662

customers even though Nemorino gets the girl at the end of

Donizetti’s L’elisir d’amore.

Now for the remedy. Defendants do not contest the

terms of the injunction. They do, however, say that the

financial award was excessive. The magistrate judge set

as his goal the disgorgement of the profits that defendants made while the Q-Ray Ionized Bracelet was heavily

promoted with infomercials on late-night television.

Disgorging profits is an appropriate remedy. See FTC v.

Febre, 128 F.3d 530, 534 (7th Cir. 1997); FTC v. Amy

Travel Service, Inc., 875 F.2d 564, 571–72 (7th Cir. 1989).

But defendants say that the record does not contain

evidence about their profits. True, the FTC compiled

balance sheets showing profits running in the millions

every year. These should not be considered, defendants

insist, because when Que Te Park (defendants’ principal

investor and CEO) testified about the subject, he was

asked only whether he could “see” the enterprise’s net

income (he conceded that he could), not whether the

figures are correct, and the FTC’s lawyer then forgot to

offer the balance sheets themselves as evidence.

This is too clever by half. The FTC made estimates of

profits from the Q-Ray Ionized Bracelet business and

gave defendants an opportunity to respond. They chose

not to do so. Park’s noncommittal answers avoided any

risk of prosecution for perjury but did not meet the FTC’s

prima facie showing. The magistrate judge was entitled

to treat the evasion as an admission that the FTC’s

computation is in the ballpark. A monetary award often

depends on estimation, for defendants may not keep (or

may conceal) the data required to make an exact calculation. Defendants’ business was a profitable one; that

much, at least, they concede. (It is so profitable that

they continue to carry it on despite the injunction that

requires them to stop making most of their old claims

for its efficacy. Today it is sold with testimonials and
No. 07-1662 9

vaporous statements.) A court is entitled to proceed with

the best available information; if defendants thought

that their profits for these years were below $16 million,

they should have produced their own figures—for once

the FTC produces a reasonable estimate, the defendants

bear the burden of showing that the estimate is inaccurate. Febre, 128 F.3d at 536.

Although defendants complain that the magistrate judge

failed to separate ill-got gains from legitimate profits, they

offer no reason to think that any of their profits are

“legitimate.” Defendants’ sole business is the sale of Q-Ray

products.

On top of paying $16 million (plus interest) into a fund

for distribution to all of their customers, defendants

must refund the full purchase price of some bracelets

purchased over the Internet. Defendants’ infomercials

promised buyers that the purchase price would be refunded any time during 30 days after the sale if the

buyers were not satisfied with their bracelets. Defendants

honored that promise for bracelets purchased by telephone

but not for bracelets purchased from their web sites.

Internet purchasers were allowed only 10 days to return

their bracelets. The district court held that defendants

must refund the purchase price of anyone who bought

from the web sites and returned the merchandise between days 11 and 30. Defendants protest that their web

sites disclosed the 10-day refund period, but this does not

meet the FTC’s point. The infomercials promised a 30-day

return period, then suggested that customers purchase

online. Anyone who followed that advice received only

a 10-day return period. The disclosure of this shorter

period was buried several clicks away in the web site. The

district court was entitled to conclude the switch deceived

reasonable persons who relied on what the infomercials

told them.
10 No. 07-1662

Finally, Park contends that he should not have been

held jointly and severally responsible for the financial

aspects of the judgment. Yet he not only participated in

the false promotional activities but also had the authority

to control them. Either participation or control suffices.

Amy Travel, 875 F.2d at 573. Park insists that he believed

the representations to be accurate (or at least thought

them to be such transparent prattle that they could not

be false), but the district court found otherwise—and

sensibly.

AFFIRMED

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—1-03-08