In the Matter of the Complaint Against

CONAN RESEARCH
P. O. Box 442
at Twinsburg, OH 44087

P.S. Docket No. 12/7;

07/29/82

Cohen, James A.

APPEARANCE FOR COMPLAINANT:
Sandra C. C L U WMcFeeley, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260

APPEARANCE FOR RESPONDENT:
J K 4 S A ack Paller, Esq.
atz, Paller and Land
70 E. Paces Ferry Road
Suite 2000 Atlanta, GA 30363

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 product Bio-Genesis, Respondent is engaged in a scheme to obtain money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

BACKGROUND

On August 17, 1981, the Consumer Protection Division of the Law Department, United States Postal Service (Complainant), filed a Complaint alleging that Respondent was selling a hair and scalp product through the mail, marketed under the trade name Bio-Genesis, by means of false representations in violation of 39 U.S.C. § 3005. Specifically, Paragraph III of the Complaint alleges that Respondent falsely represents that:

"a. BIO-GENESIS will prevent the hair loss and balding associated with hereditary tendency to baldness;

b. 80% of all bald or balding users of BIO-GENESIS may expect, as a result of such use, to regrow hair;

c. BIO-GENESIS will cause growth of new hair on a bald or balding scalp;

d. Cholesterol causes the formation of the male hormone, testosterone, and DHT Dihydrotestosterone in the scalp; and removal of cholesterol will result in growth of hair on the bald or balding scalp;

e. BIO-GENESIS will neutralize or remove cholesterol from the scalp;

f. BIO-GENESIS will cause regeneration of the hair follicle;

g. Topically applied, BIO-GENESIS will cause structural changes in the skin elements;

h. Dr. Kai Setala, a Finnish medical scientist, endorses the use of Bio-Genesis to achieve the results identified in paragraphs a through g above."

Respondent filed an Answer denying all of the Complaint's allegations.

The parties stipulated that this matter should be decided on the written record, based on specified portions of the hearing transcript and exhibits in Cosvetic Labs, et al., P.S. Docket No. 8/160, et al., which, in part, also concerned alleged misrepresentations in connection with the sale of Bio-Genesis. Both parties filed Proposed Findings of Fact and Conclusions of Law.

On January 28, 1982, the Administrative Law Judge issued an Initial Decision which found that Respondent made the representations alleged in the Complaint, that these representations are material, and that they are false, except that he found Respondent did not make the representation alleged in Paragraph III g of the Complaint. The Administrative Law Judge also rejected several legal arguments which had been raised by Respondent.

Respondent appealed the Initial Decision to the Judicial Officer on February 19, 1982. Both parties have filed written briefs.

RESPONDENT'S EXCEPTIONS TO THE INITIAL DECISION

Respondent has filed five exceptions to the Initial Decision which are discussed, in turn, below.

Exception 1

"The Administrative Law Judge erred in concluding that the claims represented by the 1974 and 1978 studies have been rejected by the consensus of medical practitioners."

Respondent makes several different arguments under this exception. It first argues that it "relied upon what it accepted as being well controlled scientific inquiry and only reported as to those studies' (Resp. Brief at 5). Presumably it believes that such reliance excuses any false representations which are contained in its advertising. However, good faith reliance on these studies is irrelevant to whether the representations made are true. It is unnecessary to establish intent to deceive in order to find the existence of a violation under 39 U.S.C. § 3005. Wilmont Products, P.S. Docket No. 6/46 (P.S.D. July 19, 1979 at 9-10).

Respondent next argues that it made "no claim that those studies were generally accepted, but that the product was safe and sold on a money back guarantee in order to give the consumer the opportunity to determine its efficacy based upon personal experience" (Resp. Brief at 6). The plain language of the advertisements attached to the Initial Decision belies this argument. Exhibit A headlines in block letters: "NEW HAIR GROWTH IN ONE TO THREE MONTHS." The advertisements prominently displays a copy of an official-looking document which appears to be signed by Dr. A. Curtze "Notary Public and Examiner of Medical Preparations appointed by the Chamber of Commerce and Industry Frankfurt/Main, Federal Republik of Germany." The title of the document is "A New Remedy for the Prevention and Correction of Progressive Baldness." Similarly, Exhibit B headlines in block letters "FROM FINLAND, A HAIR RESTORATIVE STRONG ENOUGH TO FIGHT HEREDITARY BALDNESS." The advertisement's discussion of the Bio-Genesis product begins: "After 35 years of research comes the incredible results in 8 of every 10 cases. Bio-Genesis grows hair." Thus, the advertisements do represent the general acceptance of the studies.

Respondent also argues that the conclusions of the two Finnish studies were rejected solely because the existing medical literature does not recognize the preparation's effectiveness in halting or reversing male pattern baldness. It asks: "Could not Respondent have sold its product without being cited for misrepresentation if it had more carefully qualified its advertising by making disclosures such as the 1974 and 1978 studies, while interesting, have not been accepted by the majority of enlightened medical scientists . . . Is not the issue the truth of the advertisement as opposed to the proof of the product's efficacy" (Resp. Brief at 6).

Respondent correctly states that, in determining whether an advertisement has violated 39 U.S.C. § 3005, only the express and implied representations made in the advertisements in issue are considered. In this case, however, the advertisements in question on their face make clear representations regarding the efficacy of Bio-Genesis in treating male pattern baldness. Therefore, evidence relating to the efficacy of this product is relevant in determining whether these representations are false.

Finally, Respondent argues that the testimony of the Respondent's witnesses in the Cosvetic case either met or overcame the objections raised regarding the validity of the Finnish studies by Complainant's witnesses in that case. This argument does not require extended discussion. A review of the portions of the Cosvetic record applicable to this proceeding supports the Administrative Law Judge's conclusion in this case that "too much doubt has been cast on the scientific validity of those studies to accord them persuasive weight as against the contradictory consensus" (I.D. at 38; also see Finding 15 at 18-19 and Findings 39-45 at 30-34).

In this regard, Respondent's own witnesses in Cosvetic cast doubt as to the significance of these studies. Dr. Schreck-Purola, a Finnish medical doctor and researcher who helped conduct these studies and co-authored the reports, conceded that the 1974 study was "preliminary" and "is scientifically not really adequate" (Tr. 543-544; 562). She stated that the Bio-Genesis formula is not a cure for baldness and that the implication that 80% of the participants in the 1978 study regrew all their hair is a misstatement (Tr. 566-567). Dr. Nordstrom, a dermatologist who also participated in the 1978 study, conceded that the instruction that subjects could use the preparation once or twice daily might have affected results (Tr. 636). He further stated that he has not observed even one cure of male pattern baldness with this preparation and does not treat any of his patients with it (Tr. 642). Finally, a letter from Dr. Kai Setala, a Finnish medical doctor and researcher who also conducted the studies and co-authored the reports, stated that "it is to be underlined here that we never utilized the words 'bald' v. 'baldness' v. 'cure of baldness' in our scientific arties" and that "neither I myself nor Dr. Schreck-Purola have ever written 'Bio-Genesis to be effective in restoring hair in 80% of all patients treated'" (CX-14).

In arguing against rejection of the Finnish studies as not being subject to rigorous scientific controls, Respondent equates the concern that the studies' results may have been subject to a placebo effect with the conclusion that "a part of hair loss due to male pattern baldness is psychosomatic" (Resp. Brief at 11). However, the placebo effect in this type of situation does not refer to possible positive results from the application of an inert substance due to a psychological expectation of success, but rather to the possible perception of such results due to psychological causes. As Dr. Karl Kramer, a dermatologist who testified on behalf of Complainant in Cosvetic, stated: "I believe it's accurate to state that in almost any treatment for any illness ranging from high blood pressure, to depression, to cancer . . . one can produce glowing testimonials . . . I think that people do get excited and do want positive results, particularly in such a psychologically important area as hair growth" (Tr. 859).

The record further shows that the claims made by Respondent which are attributed to the two Finnish studies have been rejected by the consensus of medical practitioners (see Cosvetic Laboratories, et al., P.S. Docket No. 8/160 (P.S.D. July 22, 1982, at 8-9). Accordingly, the Administrative Law Judge's conclusion that these claims have been so rejected is affirmed.

Exception 2

"The Administrative Law Judge erred in concluding that the Bio-Genesis product will not prevent excessive hair loss."

In support of this argument, Respondent relies on the citations to the Cosvetic record specified in its brief under the first exception. However, these citations cannot overcome the serious questions raised regarding the Finnish studies on which Respondent bases its claim that Bio-Genesis prevents excessive hair loss (see discussion, supra), or the ultimate conclusion that this claim has been rejected by a consensus of medical practitioners (see, e.g., Tr. 325; 449). Accordingly, the Administrative Law Judge's conclusion that Bio-Genesis will not prevent excessive hair loss is affirmed.

Exception 3

"The Administrative Law Judge erred in concluding that the claim 80 percent (80%) of all bald or balding users of Bio-Genesis may expect as a result of such use to regrow hair was false."

Respondent argues that its advertisement neither states nor reasonably implies that 80% of the users may regrow a full head of hair--only that they may expect to regrow some hair. It further argues that this claim is supported by the reports of the two Finnish studies and by the testimony of Drs. Schreck-Purola and Nordstrom in Cosvetic.

The standard for determining both the express and implied representations contained in an advertisement is the advertisement's impression on the ordinary reader. Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387, 1389-1390 (5th Cir. 1977); Vibra Brush Corp. v. Schaeffer, 152 F.Supp. 461, 465 (S.D.N.Y. 1957). Under this standard, Respondent's advertisements reasonably represent that 80% of those afflected with male pattern baldness can expect that their lost hair will be fully restored by using Bio-Genesis. In this regard, the same advertisement that states that "80 percent of those treated regrew their hair with Bio-Genesis," supra, also states: "Now in the U.S. Thousands of European men and women who are losing their hair have flocked to the newly created treatment centers . . . to get their hair to grow lush and full once again. Now you can do it for yourself right at home for hundreds of dollars less" (I.D., Exh. B; emphasis added). The advertisement further states that: "80% of those treated had regrown hair. That's right, regrown hair, even in areas that had been bald for over twenty years" (Id.; emphasis added).

As discussed supra, this representation was rejected, not only by the expert witnesses who testified for Complainant in the Cosvetic case, but also by Dr. Schreck-Purola and Dr. Setala, who were most responsible for the studies and who co-authored the reports. Accordingly, the Administrative Law Judge did not err in finding as false the claim that 80% of all bald or balding users of Bio-Genesis may expect to regrow hair.

Exception 4

"The Administrative Law Judge correctly found that Drs. Setala and Purola had by contract agreed for their name and pictures to be associated with the sale of the product and thereby endorsing the product sic but erred in finding based upon meeting with Inspector Powers that Dr. Setala's name and picture were used improperly."

Respondent argues that "the evidence was clear that both Dr. Setala and Dr. Purola sold their rights to the Bio-Genesis formulation and that as a part of the sale, they also sold the rights to the use of their names and photographs in connection with the sale of the product" (Resp. Brief at 20).

The question of whether the Finnish doctors endorsed Bio-Genesis is only relevant insofar as such endorsement is alleged in the advertisements at issue and thereby induced consumers to purchase the product. The underlying contractual relationship, if any, between these doctors and Respondent is not relevant to this proceeding and will not be considered.

Regardless of whether Drs. Setala and Schreck-Purola may have agreed to allow their names and pictures to be used in Respondent's advertisements, the record reflects that the characterizations of their studies contained in these advertisements misrepresented their personal views. As previously noted, Dr. Setala's letter makes clear that he does not endorse the claim that the Bio-Genesis preparation cures baldness or that it is effective in restoring hair in 80% of all patients treated. While Respondent argues that any attributions to Dr. Setala should be discounted because he was unavailable for cross-examination in Cosvetic, this argument cannot be extended to Dr. Schreck-Purola, who was called as Respondent's witness and was questioned extensively by the same counsel who represents the instant Respondent. As discussed, Dr. Schreck-Purola's testimony supports the statements made in Dr. Setala's letter. Moreover, in contrast to the advertisement's implication (see I.D., Exh. B, supra) that Bio-Genesis is effective regardless of the duration of baldness, she stated that "If it's used on the earlier occasions it may help a person" (Tr. 563; emphasis added).

Accordingly, the Administrative Law Judge's finding that Dr. Setala's name and picture were used improperly is affirmed.

Exception 5

"The Administrative Law Judge while not reaching this point directly, erred in concluding that Bio-Genesis is not effective in reducing excessive hair loss, that is hair loss in excess of 120 hairs per day."

Respondent argues that the evidence and testimony adduced in the Cosvetic case support the claim that use of Bio-Genesis stopped excessive hair loss. This argument appears to be similar, if not identical, to that raised under Exception 2, and therefore requires no further discussion. Accordingly, the Administrative Law Judge did not err in concluding that Bio-Genesis is ineffective in reducing excessive hair loss.

CONCLUSION

After consideration of the entire record and Respondent's exceptions, 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. A remedial order under 39 U.S.C. § 3005 is being issued with this decision.