In the Matter of the Complaint Against

STANNIS RESEARCH INTERNATIONAL
at 175 Fifth Avenue - Suite
3030 New York, NY 10010-7703

and
P. O. Box 1779 New York, NY 10016-1779

and
18 West 27th Street
New York, NY 10001-6904

and
P. O. Box 1061
Valley Stream, NY 11582-1061

P.S. Docket No. 17/60;

Cohen, James A.

APPEARANCES FOR COMPLAINANT:
Thomas A. Ziebarth, Esq.
Brendan J. O'Brien, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260-1100

APPEARANCES FOR RESPONDENT:
Lawrence H. Roth, Esq.
Sheldon S. Lustigman, Esq.
Bass, Ullman & Lustigman
747 Third Avenue
New York, NY 10017-2803

POSTAL SERVICE DECISION

Respondent has appealed from the Initial Decision of an Administrative Law Judge which holds that, with regard to the sale of the hair product FOLLICIN-NH3, Respondent is engaged in a scheme to obtain money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

Background

The Consumer Protection Division, Law Department, United States Postal Service (Complainant) initiated this proceeding by filing a Complaint which, in Paragraphs III and IV, alleges that Respondent falsely represents, directly or indirectly, in substance and effect that:

"(a) Follicin-NH3 will stop balding;
(b) Follicin-NH3 will prevent baldness;
(c) Follicin-NH3 will prevent hair loss and balding associated with hereditary tendency to baldness;
(d) Follicin-NH3 will cause growth of new hair on a bald or balding scalp;
(e) Follicin-NH3 will stop and reverse hereditary baldness;
(f) Follicin-NH3 will cause the growth of healthy new hair;
(g) Follicin-NH3 is safe to use;
(h) 95% of all bald or balding users of Follicin-NH3 may expect, as a result of such use, to regrow hair."

In a timely filed Answer, Respondent admitted the use of advertising materials attached to the Complaint, but denied that it seeks remittances through the mail by means of materially false representations. Respondent affirmatively asserted that its advertisements describe a program of hair supplantation which is discussed in a free publication titled "Baldness Conquered" and that Complainant ignored or confused the reference to the publication with the representations for its product.

By stipulation, the parties waived a hearing and agreed to submit the matter on the record consisting of the stipulation and Complainant's Exhibits 1-7. In the stipulation the parties agreed that the issue to be decided is whether Respondent's advertising makes the representations regarding FOLLICIN-NH3 which are alleged in Paragraph III of the Complaint. Respondent stipulated that it would not contest the truth or falsity of the representations, and Complainant stipulated that it makes no contentions respecting the content of the publication "Baldness Conquered." The parties further stipulated that the Complaint should be dismissed if Complainant fails to establish that FOLLICIN-NH3 is represented as alleged in Paragraph III, but if the contrary is established, an order under 39 U.S.C. § 3005 would be issued.

Based on an examination of the evidence, including the advertisements in question and the parties' stipulation, the Administrative Law Judge issued an Initial Decision in which he found that Respondent makes the representations alleged in the Complaint with respect to FOLLICIN-NH3 and that they are materially false in violation of 39 U.S.C. § 3005.

Respondent's Exceptions to the Initial Decision

In its appeal Respondent alleges that the conclusions reached in the Initial Decision are not supported by "substantial evidence" and that constitutional issues are raised which must be addressed. Each of these contentions is hereafter addressed.

"I. The Proposed False Representation Order Is Not Supported by Substantial Evidence."

Respondent's first exception misstates the evidentiary standard applied in a proceeding under 39 U.S.C. § 3005. The preponderance of the evidence test, not the substantial evidence test, is employed by Administrative Law Judges in reaching Initial Decisions and by the Judicial Officer in issuing final agency decisions. TELEX and twx Directory, P.S. Docket No. 13/6 (P.S.D. April 1, 1983). Accordingly, the record will be reviewed to determine if the Initial Decision is supported by a preponderance of the evidence.

Respondent's principal argument on appeal is that Complainant has the burden of establishing the existence of the representations alleged in the Complaint and that the introduction of the advertisements alone, without evidence of consumer reaction, is insufficient to sustain this burden. According to Respondent it is improper for an Administrative Law Judge to draw his own conclusion of consumer reaction solely on the basis of the advertisements themselves. This argument has been addressed on numerous occasions and rejected. As recently stated in Delta Enterprises, P.S. Docket Nos. 14/72, 14/73, 14/74 and 14/75 (P.S.D. July 3, 1984), at pp. 9-10:

"The impression of advertising on the ordinary mind is a question of fact for the presiding officer to determine. The advertisements at issue are the most persuasive evidence on whether the alleged representations are made, and the determination may be made from the advertisements alone. Fort Morgan Vapor Jet, P.S. Docket No. 12/64 (P.S.D. Sept. 29, 1982). Thus, the holding in the Initial Decision that testimony on interpretation is not required to determine whether the representations are made is correct. Kimberly Jewels, Inc., P.S. Docket No. 9/65 (P.S.D. July 23, 1981). The Administrative Law Judge did not err in relying upon the advertisements instead of testimony or other evidence of record."

This position is consistent with court decisions considering the application of the postal false representation statutes. See Sean Michaels, Inc. v. United States Postal Service, 653 F.2d 591 (D.C. Cir. 1981); Vibra-Brush v. Schaffer, 152 F.Supp. 461 (S.D.N.Y.) rev'd on other grounds, 256 F.2d 681 (2d Cir. 1958). Thus, Complainant's burden can be sustained solely on the basis of the introduction of advertisements and no error was committed by the Administrative Law Judge in relying on those advertisements.

Respondent cites several court decisions involving judicial interpretations of the Lanham Act, 15 U.S.C. § 1125(a), which it contends establish that the ordinary impression of an advertisement cannot be established solely on the basis of the advertisement itself and a judge's reaction to it. Respondent argues the same principle should be applied in this case. Prior Postal Service decisions have held to the contrary. See Standard Research Labs, P.S. Docket Nos. 9/63 & 9/64 (P.S.D. Aug. 31, 1981); Standard Research Labs, P.S. Docket No. 7/78 (P.S.D. Oct 27, 1980). Respondent's arguments and the cases which it cites do not establish that the prior Postal Service decisions are in error.

The advertisements in the record support the Administrative Law Judge's findings and conclusions that the ordinary reader would understand that the representations relating to the treatment of baldness pertained to the product FOLLICIN-NH3. Respondent makes arguments concerning the interpretation of its advertisements such as pointing out the inclusion of the word "read," the context of the boxed statement in the advertisements, the response rate for the booklet and the product, the language of the coupon, and references to the cost of hair supplantation.

These arguments are not persuasive that the ordinary reader would understand Respondent's advertising representations to pertain only to its publication.

In determining the effect of representations on ordinary readers, it is not necessary to find that all or even a majority of readers would likely be deceived. It is sufficient to find that readers, whether gullible or wary, would interpret an advertisement as making the alleged false representations. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); United States v. 95 Barrels of Vinegar, 265 U.S. 438, 443 (1924); Rhodes Pharmacal Co. Inc. v. F.T.C., 208 F.2d 382, 387 (7th Cir. 1953); Gottlieb v. Schaffer, 141 F.Supp. 7, 16 (S.D.N.Y. 1956); Oriental Nurseries, P.S. Docket No. 9/116 (P.S.D. May 19, 1981). The overall impression of Respondent's advertisements is that the product will cause the results represented. Considered most favorably to Respondent, the advertisements are ambiguous with regard to whether the publication or the product is being described. As such they are still misleading and violative of 39 U.S.C. § 3005. Rhodes Pharmacal Co. Inc. v. F.T.C., supra; Moneymakers, P.S. Docket No. 16/1 (P.S.D. June 20, 1984).

Under this exception, Respondent has enumerated ten specific alleged erroneous conclusions in the Initial Decision. Each allegation has been considered and found to be without merit except with respect to allegations 8-10. In connection with these allegations, the Administrative Law Judge drew inferences which are not supported by a preponderance of the evidence. However, these inferences do not constitute reversible error, as the conclusion that the representations alleged in the Complaint are made with respect to FOLLICIN-NH3 is supported by a reading of Respondent's advertisements. Cf. Kurzon v. United States Postal Service, 539 F.2d 788 (1st Cir. 1976).

Accordingly, there is no merit to this exception.

"II. The Complaint Also Raises Important Constitutional Questions Under The First Amendment."

Respondent argues against issuance of a False Representation Order, citing decisions which address the relationship of commercial speech and First Amendment protections as well as the application of the First Amendment to various postal statutes. Respondent proposes as an alternative to the issuance of a False Representation Order that consumers be provided with information which would disclaim any false impressions found in its advertising.

For commercial speech to be entitled to Constitutional protection, it must concern lawful activity and not be misleading. Central Hudson Gas & Electric Co. v. Public Service Commission of New York, 447 U.S. 557, 563 (1980). Misleading advertising is not entitled to Constitutional protection and "may be prohibited entirely." In Re R.M.J., 455 U.S. 191, 203 (1982). As Respondent's advertisements are misleading, they are not entitled to First Amendment protection. Virginia Pharmacy Board v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976).

Respondent contends, however, that even where commercial speech is regulated, the least restrictive remedy should be applied. However, the remedy authorized by statute when this proceeding was initiated was a False Representation Order. 39 U.S.C. § 3005. The constitutionality of this provision has been upheld by the courts on numerous occasions. See United States Postal Service v. Athena Products, Ltd., 654 F.2d 362 (5th Cir. 1981), cert. denied, 456 U.S. 915 (1982), and cases cited therein. Thus, the Judicial Officer is not required to consider lesser alternatives to the issuance of a False Representation Order.

Finally, Respondent requests that a hearing and/or argument be conducted on the question of a less restrictive remedy before a False Representation Order is issued. While it is within the discretion of the Judicial Officer to order a hearing (see 39 C.F.R., § 952.26), Respondent has not shown circumstances warranting such action and its legal argument that consideration of lesser alternatives is required has no merit. Moreover, a hearing on a lesser remedy is particularly inappropriate here because of Respondent's stipulation that a False Representation Order would issue if Complainant prevails (Stipulation § 16). Accordingly, Respondent's request for a hearing is denied. Nonetheless, although a False Representation Order will be issued, the return portion will be stayed for a period of fifteen days in order to allow the parties to explore the possibility of a Consent Agreement. In the event the parties do not advise the Judicial Officer within the fifteen-day period that they expect to reach agreement on the terms of a Consent Agreement, the False Representation Order will be placed in full force and effect.

CONCLUSION

After consideration of the entire record and Respondent's exceptions to the Initial Decision, it is concluded that Respondent is engaged in a scheme to obtain money through the mail by means of materially false representations. Accordingly, Respondent's appeal is denied and a False Representation Order under 39 U.S.C. § 3005, with the return portion stayed, is being issued with this decision.