In the Matter of the Complaint Against

STANDARD RESEARCH LABS
Post Office Box 9667 at
Ft. Lauderdale, FL 33310

and

STANDARD RESEARCH LABS
Post Office Box 9547 at
Ft. Lauderdale, Florida 33310

P.S. Docket No. 7/78; P.S. Docket No. 7/86;

Cohen, James A.

APPEARANCE FOR COMPLAINANT:
ThomasA. Ziebarth, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260-1100

APPEARANCE FOR RESPONDENT:
Jack Paller, Esq.
Katz, Paller & Land
470 East Paces Ferry Road
Suite 2000 Atlanta, GA 30305

POSTAL SERVICE DECISION

Respondent has appealed from the Initial Decision of Administrative Law Judge Quentin E. Grant which holds that, with regard to the sale of its products JOJOBA EXTRACT and NUCLEIC HAIR RE-GENERATOR, Respondent is engaged in a scheme for obtaining money through the mail by means of false representations in violation of 39 U.S.C. § 3005.

BACKGROUND

On August 10, 1979, the Consumer Protection Division, Law Department, United States Postal Service, filed a complaint docketed as P.S. Docket No. 7/78 alleging that Respondent, in connection with the sale of JOJOBA EXTRACT, is engaged in a scheme for obtaining money through the mail in violation of 39 U.S.C. § 3005. Specifically, in paragraphs 3 and 4, the complaint alleges:

"(3) By means of such materials, and others similar thereto, Respondent represents, directly or indirectly, in substance and effect, whether by affirmative statements, omissions or implication that:

(a) Several applications of JOJOBA EXTRACT will cut the rate of hair loss in half;

(b) The application of JOJOBA EXTRACT will stop hair loss completely in about two and a half weeks;

(c) The major cause of hair loss and baldness is the excess accumulation of sebum and not hereditary factors as once believed;

(d) JOJOBA EXTRACT, unlike ordinary shampoos, soaps, or scalp preparations, will penetrate beneath the scalp and remove hardened, growth-inhibiting sebum accumulations; and

(e) The efficacy of JOJOBA EXTRACT is proved conclusively by independent clinical tests in Mexico and the United States.

(4) The aforesaid representations are materially false as a matter of fact."

On September 7, 1979, the Consumer Protection Division filed a second complaint against Respondent docketed as P.S. Docket No. 7/86. This complaint alleges that the Respondent, in connection with the sale of NUCLEIC HAIR RE-GENERATOR, is engaged in a scheme for obtaining money through the mail in violation of 39 U.S.C. § 3005. Specifically, in paragraphs 3 and 4, it alleges:

"(3) By means of such materials, and others similar thereto, Respondent represents, directly or indirectly, in substance and effect, whether by affirmative statements, omissions or implication that:

(a) The topical application of NUCLEIC HAIR RE-GENERATOR (NHR) will reverse the balding process by revitalizing and regenerating sic hair growth activity;

(b) NHR will convert a thinning, balding scalp to a revitalized head of thick, healthy hair;

(c) NHR is effective in the alleviation, treatment or cure of at least 70% of the cases of male pattern baldness; and

(d) The advertising claims made for NHR have been substantiated by up-to-date laboratory research and competent clinical tests.

(4) The aforesaid representations are materially false as a matter of fact."

A consolidated hearing was held on the complaints at which the testimony of a medical doctor and a nutritionist was presented along with various exhibits in support of the positions advanced by the parties. Neither party presented evidence concerning consumer interpretation of Respondent's advertising or the effect of such advertising on the decision of consumers to purchase Respondent's product.

On the basis of the testimony received and the exhibits in the record, Judge Grant concluded that Respondent makes the representations alleged, that such representations are material and that they are false. Accordingly, he concluded that Respondent is engaged in activities which are in violation of 39 U.S.C. § 3005.

RESPONDENT'S EXCEPTIONS TO THE INITIAL DECISION

Respondent has taken sixteen exceptions to the Initial Decision, each of which is addressed below.

Exception 1

"1. The Presiding Officer erred in Finding of Fact No. 2 that Respondent's advertising materials make the representations alleged in Paragraph 3 of the Complaints. ^1/

In Finding of Fact no. 2 it is found:

"Respondent's advertising materials make, directly or indirectly, in substance and effect, whether by affirmative statements, omissions or implication, the representations alleged in paragraph 3 of the Complaints...."

In the remainder of Finding of Fact No. 2, there are quoted specific portions of Respondent's advertisements which support the finding. At Conclusion of Law Nos. 1 and 2, the Initial Decision recites the test applied in concluding that Respondent's advertisements for its two products make the representations substantially as characterized in the complaints.

Respondent attacks the finding that the representations alleged in paragraph 3 of the complaints are made in its advertising on the grounds that (1) The presiding officer "parsed" and "disected" phrases and statements from Respondent's advertising and failed to read the advertisements as a whole as required by Donaldson v. Read Magazine, 333 U.S. 178 (1948) and M.K.S. Enterprises, Inc. v. United States Postal Service, 449 F.Supp. 1180 (E.D.N.Y. 1978); and (2) there is no evidence in the record that any reader or consumer would interpret the advertisements as making the representations alleged in the complaint or that these representations are material.

Respondent's position with regard to "disecting" its advertising was recently addressed in Standard Research Labs, P.S. Docket No. 7/76 (P.S.D. 1980). In that decision it was stated:

"In Finding of Fact No. 3 of the Initial Decision Judge Grant quoted the specific portions of Respondent's advertising which he concluded make the representations alleged. In addition, however, in Conclusions of Law Nos. 3 and 4 he recited, with citation to appropriate case law, and applied the proper test for determining whether Respondent makes the representations alleged in the complaint. Although M.K.S. Enterprises, supra, and Cates, supra, were not cited in the decision they establish essentially the same test and rely on the same line of authority as the cases cited by Judge Grant. Moreover, contrary to Respondent's assertions, reading the portions of the advertising quoted in the Initial Decision in the context of the remainder of the language of the advertisements substantially enhances rather than diminishes the accuracy of Judge Grant's finding that the representations alleged in the complaint are made in Respondent's advertising. Respondent cites examples of language of its advertising which it argues when properly and reasonably read in context do not make the representations alleged in the complaint. The examples cited by Respondent, when taken in the context of the remainder of the advertising and, considered in the light of the effect they would most probably produce on ordinary minds, do make the representations alleged in the complaint to the extent found in the Initial Decision."

Like the cited case, reading Finding of Fact no. 2, together with Conclusions of Law Nos. 1 and 2, clearly establishes that Judge Grant applied the proper test to determine whether Respondent's advertising makes the representations alleged in the complaint. Moreover, also as in the cited case, when the portions of the advertising quoted in the Initial Decision are read in the context of the remainder of the advertising materials, including the portions of the advertisements quoted by Respondent, the accuracy of Judge Grant's finding is enhanced rather than diminished. Accordingly, Respondent's argument that Judge Grant improperly disected its advertisement to find the representations alleged in the complaint is without merit.

Respondent's argument that there is no testimony to establish the meaning of the advertising representations and their materiality has been raised previously by Respondent and found to be without merit. See Standard Research Laboratories, P.S. Docket No. 7/48, (P.S.D. 1980); Standard Research Labs, P.S. Docket No. 7/76, (P.S.D. 1980). However, in the present appeals, Respondent, for the first time, cites American Brands, Inc. v. R. J. Reynolds Tobacco Company, 413 F.Supp. 1352 (S.D.N.Y. 1976) and American Home Products Corp. v. Johnson & Johnson, 577 F.2d 160 (2nd Cir. 1978). These two decisions pertain to actions under § 43(a) of the Lanham Trademark Act, 15 U.S.C. § 1125(a), which, in general, authorizes the recovery of damages in a suit between private parties where one party has been damaged or is likely to be damaged by the other party's use of false descriptions or representations. In American Brands, supra, at 1357, the Court, citing 1 Callman, Unfair Competition, Trademarks and Monopolies at § 19.2(a)(1)(3d ed. 1976), concluded that evidence of consumer reaction was necessary to determine the meaning and effect of statements which are literally true and gramatically correct but nevertheless have a tendency to mislead, confuse or deceive. In American Home Products, the Court citing American Brands, concluded that the Judge in the District Court:

" W as warranted in examining, and may have been compelled to examine, consumer data to determine first the messages conveyed in order to determine ultimately the truth or falsity of the message." (American Home Products, supra, at 165-66).

However, the Court distinguished the cases in which it has been held that the Federal Trade Commission could properly interpret the meaning of advertising. In this regard the Court states:

"In short, we do not have the same expertise as the Federal Trade Commission when it interprets the language of an advertisement to determine whether an advertisement is an unfair or deceptive practice in violation of 15 U.S.S. ?? 45 and 52. See, e.g., Resort Car Rental System, Inc. v. FTC, 518 F.2d 962, 964 (9th Cir.) (per curiam), cert. denied sub nom. MacKenzie v. United States, 423 U.S. 827, 96 S.Ct. 41, 46 L.Ed.2d 42 (1975). Accordingly, we, as judges, must rely more heavily on the reactions of consumers, as found by the finder of fact." American Home Products, supra, at p. 172, fn 27.

The Federal Trade Commission proceedings referred to by the Court are not unlike proceedings conducted by the Postal Service under the False Representation and Lottery Statute, 39 U.S.C. § 3005 (as Respondent appears to recognize on p. 13 of its brief). Like the Federal Trade Commission the Administrative Law

Judges and the Judicial Officer of the Postal Service are fully capable of determining without the assistance of lay or expert testimony whether representations are made, their effect on the ordinary mind and their materiality.^2/ See Body Persuasion Systems, Inc. v. United States Postal Service, Docket No. CV 75 1996-JWC (Unpub. C.D. Cal. 1976) aff'd Docket No. 76-1829 (Unpub. 95th Cir. 1978); Baslee Products Corp. v. United States Postal Service, 356 F.Supp. 841 (D. N.J. 1973); Vibra Brush Corp. v. Schaffer, 152 F.Supp. 461 (S.D. N.Y. 1957) rev on other grounds 256 F.2d 681 (2d Cir. 1957); Gottlieb v. Schaffer, 141 F.Supp. 7 (S.D. N.Y. 1956); See also FTC v. Colgate Palmolive Co., 380 U.S. 374 (1965). The interpretation of advertising by the Postal Service and the procedures followed in determining violations of 39 U.S.C. § 3005 based upon the statutory standard of "evidence satisfactory to the Postal Service" has been the subject of extensive review by the Courts, e.g., Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Public Clearing House v. Coyne, 194 U.S. 497 (1904); Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387 (5th Cir. 1977); Cates v. Haderlein, 189 F.2d 269 (7th Cir. 1951); M.K.S. Enterprises, Inc. v. United States Postal Service, 459 F.Supp. 1180 (E.D.N.Y. 1978); Weight Masters System, Inc. v. United States Postal Service, 733219 CIV

1002-73 (D. N.J. 1974); American Image Corporation v. United States, 370 F.Supp. 964 (S.D. N.Y. 1974); Stein's v. Pilling, 256 F.Supp. 238 (D. N.J. 1966); G.H. Howard Company v. Cassidy, 162 F.Supp. 568 (E.D. N.Y. 1958); Unique Ideas, Inc. v. United States Postal Service, 416 F.Supp. 1142 (S.D. N.Y. 1957) and in no case has it been held that the Postal Service lacks the ability to determine the representations made, the effect of those representations on the ordinary mind, or their materiality.

Accordingly, Respondent's first exception is without merit.

Exception 2

"2. The Presiding Officer erred in Finding of Fact #3 that Dr. Kramer has particular expertise in baldness and scalp problems."

In Finding of Fact No. 3 Judge Grant found that Dr. Karl J. Kramer, Complainant's expert witness, was a well qualified doctor of medicine specializing in internal medicine and dermatology and that an important part of Dr. Kramer's practice involved baldness and scalp problems. While acknowledging that the doctor testified that scalp and baldness problems constituted an important part of his practice, Respondent contends this is a self-serving statement which should have been disregarded. Respondent argues that since the doctor has not published any articles with regard to the hair or scalp, run any controlled studies, or had any particular experience with the use of Respondent's products he is not qualified to testify as an expert or to state the consensus of medical opinion.

Complainant counters noting that even if the doctor's testimony is disregarded his curriculum vitae shows that he is well qualified to testify in this proceeding. Citing United States v. One Device, etc., 160 F.2d 194 (10th Cir. 1947), Complainant argues that it is not necessary for an expert to have actually used or tested a product in order to give testimony about its lack of efficacy.

Complainant's position is correct. Its expert is a medical doctor possessing board certifications in dermatology and internal medicine. As such he is qualified to testify about conditions of the scalp and their treatment. While Respondent contends that Dr. Kramer's testimony about the nature of his practice should be disregarded, there is no basis in the record to support this contention. The lack of published articles on the hair or scalp does not disqualify the witness from testifying as an expert on the subject, or to express the consensus of informed medical opinion. Moreover, the record contains no persuasive contrary testimony which would cast a doubt on any of the testimony given by the witness.

The witness' lack of experience with Respondent's products also does not disqualify him from testifying in this proceeding. As was stated in Michigan Bulb Company, P.S. Docket No. 7/43 (P.S.D. 1970)

"Expert opinion testimony need not be based on personal knowledge of a specific product and a prima facie case may be established on the basis of an expert's overall knowledge and his opinion as to the probability of something occurring or existing. Reilly v. Pinkus, 338 U.S. 269, 274 (1949); J.E. Todd, Inc. v. FTC, 145 F.2d 858 (D.C. Cir. 1944); Charles of the Ritz Dist. Corp. v. FTC, 143 F.2d 676, 678 (2nd Cir. 1944); 2 K.Davis, Administrative Law Treatise, § 14.13 (1958). With regard to the truthfulness of representations made about a specific product, such opinion evidence may be readily rebutted by the reputable dealer through the presentations of studies, tests, contrary opinion or other data upon which the representations it makes for its product are based."

Accordingly, there is no merit to Respondent's second exception.

Exception 3

"3. The Presiding Officer erred in Finding of Fact #5 that Dr. Kramer was qualified to testify as to the effects of the ingredients of Jojoba."

Finding of Fact No. 5 of the Initial Decision lists the contents of JOJOBA EXTRACT and, on the basis of Dr. Kramer's testimony, describes the use or purpose of each of the ingredients. Respondent contends that since Dr. Kramer is not a pharmacologist he is not qualified to testify as to the effects of the ingredients.

Respondent's position is not supported by the record. As previously stated Dr. Kramer is board certified in dermatology and internal medicine. The doctor's testimony establishes his familiarity with the properties of the various ingredients of the product, to the extent indicated in the decision. This testimony was subject to cross-examination and rebuttal. Respondent's cross-examination of the doctor provides no basis for questioning the accuracy of Finding of Fact No. 5. Respondent presented no evidence which challenged, let alone established, that the facts set forth in the Finding are incorrect.

Respondent's third exception is, therefore, without merit.

Exception 4

"4. The Presiding Officer erred in Finding of Fact No. 8 that excess sebum production is not a generally recognized cause of hair loss."

Respondent argues that Finding of Fact No. 8 of the Initial Decision incorrectly states that neither seborrheic dermatitis, nor seborrhea, nor excess sebum production is generally recognized as a cause of hair loss. According to Respondent this finding is contrary to the testimony of Complainant's expert, Dr. Kramer, and its expert, Dr. Bradfield, both of whom testified that hair loss could result from such conditions.

Finding of Fact No. 8 states, in part:

"...If one gets a severe infection of the scalp, one could conceivably get a hair loss (Tr. 32, 33). However, except in this rare instance, neither seborrheic dermatitis nor seborrhea nor excess sebum production is generally recognized as a cause of hair loss. (Tr. 21, 32, 98-99; CX-6)."

This finding recognizes that in rare instances hair loss could occur as the result of an infection caused by seborrheic dermatitis. It does not recognize sebum accumulation (a condition not severe enough to be considered seborrheic dermatitis) as a cause of hair loss. This finding is based on the testimony of Complainant's expert. While it may not be totally consistent with the testimony of Respondent's expert, who is a nutritionist, it is persuasive. Accordingly, Respondent's fourt exception is without merit.

Exception 5

"5. The Presiding Officer erred in Finding of Fact #21 that Dr. Kramer was qualified to testify as to the effects of the ingredients of Nucleic."

Finding of Fact No. 21 lists the ingredients contained in Respondent's product, NUCLEIC HAIR RE-GENERATOR and describes their use or purpose. Respondent argues that for the reasons set forth in connection with Exception 3, Dr. Kramer was not qualified to testify about the effect of the ingredients of NUCLEIC HAIR RE-GENERATOR. For the reasons it was concluded that Respondent's Exception No. 3 is without merit, this exception is also without merit.

Exception 6

"6. The Presiding Officer erred in Finding of Fact #24 that Nucleic is totally ineffective in treating or reversing male pattern baldness."

Finding of Fact No. 24 is based on the testimony of Dr. Kramer and to some extent the testimony of Dr. Bradfield, Respondent's expert. Respondent's exception to this Finding of Fact, like its prior exceptions, is based on its position that Dr. Kramer lacks experience with the use of its products and that is expertise is not of sufficient quality to allow his testimony to serve as a basis for the determination of the consensus of informed medical opinion. As previously concluded Dr. Kramer is well qualified to testify in this proceeding and to express the consensus of informed medical opinion. Respondent has presented no evidence establishing that Dr. Kramer's testimony is not reliable and accurate.

Accordingly, it is concluded that Finding of Fact No. 24 is supported by the evidence in the record and there is not merit to Respondent's Exception No. 6.

Exception 7

"7. The Presiding Officer erred in Finding of Fact #28 that Dr. Kramer represents the informed medical consensus."

Respondent argues that Finding of Fact No. 28 is based on the testimony of Dr. Kramer which is a self-serving statement that should be given no weight.

The testimony of Respondent's expert witness does ot challenge the accuracy of Dr. Kramer's statement that his testimony is consistent with the consensus of informed medical opinion (Tr. 195-196). Moreover, Respondent presented no contrary evidence, nor did it raise any substantial doubt with regard to the accuracy of Dr. Kramer's testimony through cross-examination. Accordingly, there is no merit to Respondent's seventh exception.

Exception 8

"8. The Presiding Officer erred in Finding of Fact #30 that there are no known substances which will arrest or reverse the progress of male pattern baldness."

Finding of Fact No. 30 states that except for estrogen hormones and similar antiandrogenic substance there are no known substances which will arrest or reverse the progress of male pattern baldness. This finding is based on the testimony of Dr. Kramer (Tr. 20). Respondent, in effect, argues that Dr. Kramer was not in a position to prove that new research unknown to him and the medical profession would not show that Appellant's products could reverse the progress of male pattern baldness.

Respondent cannot prevail merely by alleging the possible existence of data unknown to the medical profession. If it is aware of data which would support its representations, it has the duty to come forward and produce such data. If it does not do so, it may be presumed that such data does not exist. See Standard Research Laboratories, P.S. Docket No. 7/48 (P.S.D. 1980) and the decisions cited therein.

Respondent argues that sebum accumulation causes balding and that the use of its products will control the excess accumulation of sebum. Thus, it argues that its products will reverse the progress of male pattern baldness. This position is contrary to the testimony of Dr. Kramer which, in connection with essentially the same argument made to support Exception No. 4, was found to be persuasive. Accordingly, Respondent's eighth exception is without merit.

Exceptions 9 and 10

"9. The Presiding Officer erred in Finding of Fact #31 that neither Jojoba nor Nucleic can have any effect on the mechanics which produce male pattern baldness.

10. The Presiding Officer erred in Finding of Fact #32 that the products have no effects on the underlying causes of hair loss and baldness."

These exceptions are essentially the same as exceptions four and eight and for the same reasons, are without merit.

Exceptions 11 through 16

"11. The Presiding Officer erred in Conclusion of Law #2 that the advertisements for Jojoba and Nucleic make the representations as characterized in the Complaints.

12. The Presiding Officer erred in Conclusion of Law #3 that Dr. Kramer represents the informed medical consensus of the falsity issues.

13. The Presiding Officer erred in Conclusion of Law #4 that expert opinion testimony, in order to constitute sufficient evidence of false representations, need not be based upon tests of the particular product at issue.

14. The Presiding Officer erred in Conclusion of Law #5 that these false representations are material because their natural effect is to induce purchasers to buy the products.

15. The Presiding Officer erred in Conclusion of Law #7 that Respondent is engaged in the conduct of schemes for obtaining remittances through the mails by means of materially false representations in violation of 39 U.S.C. ?3005.

16. The Presiding Officer erred in Conclusion of Law #8 that 39 U.S.C. § 3005 orders should be issued against Respondent."

These exceptions advance the argument that the conclusions of law in the Initial Decision are incorrect because the findings of fact on which they are based are incorrect. Respondent has not established that the findings of fact are incorrect. Therefore, these exceptions are without merit.

To the extent that these exceptions raise legal arguments, those arguments have been addressed and found to be incorrect in connection with the conclusions set forth pertaining to the findings of fact.

CONCLUSION

After consideration of the entire record and Respondent's exceptions, it is concluded that Respondent is engaged in a scheme or device for obtaining money through the mail by means of materially false representations. Accordingly, Respondent's appeal is denied and a remedial order under 39 U.S.C. § 3005 is being issued contemporaneously with this decision.

1/ This and the underlined statements of alleged error which follow are verbatim quotations taken from Respondent's appeal brief.

2/ On numerous occasions the Courts have recognized the appropriateness of flexibility in administrative proceedings and have accorded substantial weight to good faith judgments of those charged with issuing administrative decisions (see Matthews v. Eldridge, 424 U.S. 319, 348 (1976); Morrissey v. Brewer, 408 U.S. 471, 481 (1972); Cafeteria and Restaurant Workers Union v. McElroy, 367 U.S. 886, 895 (1961); Cohen v. Hurley, 366 U.S. 117, 130 (1961); Market Street R.R. Co. v. R.R. Commission of California, 324 U.S. 548, 561 (1945); Robbins v. United States Railroad Retirement Board, 594 F.2d 448, 551 (5th Cir. 1979); Lute v. United States, 535 F.2d 624, 627 (Ct. Cl. 1976).