In the Matter of the Complaint Against

NEW GENERATION CALIFORNIA PACIFIC RESEARCH, INC.
P. O. Box 22759
at Sacramento, CA 95822-0759

and
P. O. Box 2570
at Sparks, NV 89431-2570

P.S. Docket No. 11/152;

05/13/83

Cohen, James A.

APPEARANCES FOR COMPLAINANT:
Thomas A. Ziebarth, Esq.
Maureen C. Lindsey, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260-1112

APPEARANCE FOR RESPONDENT:
Jay Geller, Esq.
Geller & Bozeman
2049 Century Park East,
Suite 1200
Los Angeles, CA 90067

POSTAL SERVICE DECISION

Respondent has appealed from the Initial Decision of an Administrative Law Judge which holds that, with regard to the advertising and sale of the products New Generation Hair and Scalp Cleanser and New Generation Shampoo, Respondent is engaged in a scheme to obtain money or property through the mail by means of a materially false representation in violation of 39 U.S.C. § 3005.

BACKGROUND

On July 8, 1981, the Consumer Protection Division, Law Department, United States Postal Service (Complainant) filed a Complaint alleging that Respondent was selling hair products through the mail, marketed under the trade names New Generation Hair and Scalp Cleanser and New Generation Shampoo, by means of false representations in violation of 39 U.S.C. § 3005. Specifically, Paragraph 3 of the Complaint alleges that Respondent represents that:

"a. NEW GENERATION HAIR AND SCALP CLEANSER and NEW GENERATION SHAMPOO will stop hair loss in balding men; and

b. NEW GENERATION CLEANSER AND SHAMPOO will cause the regrowth of hair on bald heads; and

c. NEW GENERATION CLEANSER AND SHAMPOO will strengthen and thicken new hair as it grows back on bald heads." Paragraph 4 of the Complaint alleges that the above representations "are materially false as a matter of fact."

Respondent filed an Answer denying all of the allegations in the Complaint. At a hearing before an Administrative Law Judge, expert testimony was presented by Karl J. Kramer, M.D. (for Complainant), and by Burton E. Ballard, Doctor of Pharmacy, and Carol A. Scott, PhD. (for Respondent). Respondent also presented a number of other witnesses, including Robert E. Murphy, Jr., Respondent's President, and lay users of the products at issue.

At the hearing, the Administrative Law Judge granted a Motion to Amend the Complaint to include an additional address and received stipulations by the parties, which primarily concerned Complainant's test purchase of the products. After the hearing, the testimony of other lay product users and additional testimony of Dr. Kramer was taken by deposition. Also after the hearing, the Administrative Law Judge rejected Respondent's offer to introduce selected portions of transcribed testimony by Dr. Ilona Schreck-Purola and Postal Inspector Michael Powers, who had testified in Cosvetic Labs., et al., P.S. Docket No. 8/160, et al. However, he received in evidence affidavits and photographs of several witnesses who had testified in the present proceeding.

On April 9, 1982, the Administrative Law Judge issued an Initial Decision which found that Respondent represents that New Generation Scalp Cleanser and Shampoo will cause regrowth of hair on bald heads and that this representation is both material and false. However, he did not find "that Respondent's advertising and promotional material makes in any serious or material manner the other representations alleged in the Complaint" (I.D. at 14). With specific regard to the allegation in Paragraph 3a of the Complaint that Respondent's product "will stop hair loss in balding men," the Administrative Law Judge found that Respondent represents "that the product will stop excessive loss of hair, not that it will stop hair loss as alleged in the Complaint. There was no motion by Complainant to conform pleadings to proof. "I do not consider it fair and appropriate to amend the Complaint at this juncture" (Id.).

Both parties have appealed the Initial Decision to the Judicial Officer and have filed Appeal, Reply and Response Briefs. Respondent has also filed a Motion to Reopen the Hearing in the event that a False Representation Order is issued, for the purposes of determining which mail is in response to the August 16, 1980 advertisement in the Sacramento Bee (CX-1), and in order to adduce additional testimony with respect to Conclusion of Law No. 2(a) of the Initial Decision. By Order dated July 1, 1982, the motion was held in abeyance pending the issuance of this decision.

The exceptions filed by each party, and Respondent's motion, are discussed separately below.

I. RESPONDENT'S EXCEPTIONS TO THE INITIAL DECISION

Respondent has appealed from 13 Findings of Fact and 14 Conclusions of Law which are discussed, in turn, below. Exceptions have been combined, where appropriate.

1. Exceptions to Findings of Fact Nos. 1, 2, and 3

These findings state that Respondent sells New Generation Hair and Scalp Cleanser and New Generation Shampoo through the mail, that attention is initially attracted to these products by means of the newspaper advertisement admitted into evidence as CX-1, and that persons responding to this advertisement receive reprints of newspaper articles concerning the products, together with an advertisement headed "Results, So Far, Of Our Continuing Hair Improvement Program" and an order blank, all of which have been admitted into evidence as CX-2(a), (b), (c), and 3(d), page 2.

Respondent contends that the Administrative Law Judge's use of the present tense in these findings to describe Respondent's activities is improper, because the referenced newspaper advertisement only ran one time and, therefore, only attracted attention to these products for a limited period. Respondent further contends that the record is unclear as to the particular period during which it used any of the referenced promotional materials, citing its motion to reopen the hearing. In this regard, Complainant argues that it is entitled to a presumption that Respondent's current advertisements are substantially similar to those used at the time of the hearing, since Respondent did not provide information regarding its current advertisements as requested in pre-hearing interrogatories.

While the record does not disclose how long advertisement CX-1 has been in use (cf. Tr. 180), Robert E. Murphy, Jr., Respondent's President, testified that, as of the hearing, he still used the newspaper articles as promotional materials in marketing the products (Tr. 212). Even if the advertisement and promotional materials have since been discontinued, this would not moot the proceeding or preclude the issuance of a false representation order, since present customers could still be influenced by the prior representations. Profit and Churches of the New Octave, P.S. Docket No. 6/5 (P.S.D. Oct. 14, 1977); Cf. Cosvetic Laboratories, et al., P.S. Docket No. 8/160, et al. (P.S.D. On Motion for Recon., Dec. 22, 1982) and Raymond Milo, P.S. Docket No. 12/168, (P.S.D. on Motion for Clarification of Amendment to False Representation Order, July 16, 1982).

Findings of Fact Nos. 1 through 3 are accepted as describing the method by which Respondent has advertised and promoted its products. The duration and continuing impact, if any, of these advertising and promotional practices are addressed separately, infra.

2. Exceptions to Findings of Fact Nos. 7 and 8

These findings concern the expert testimony of Carol A. Scott, Ph.D., an associate professor of marketing at the Graduate School of Management, University of California at Los Angeles. Respondent objects to the Administrative Law Judge's characterization of this testimony.

A review of the record discloses that Dr. Scott's testimony, as a whole, was ambiguous and confusing. Her conclusions regarding whether Respondent's promotional materials made the representations at issue are therefore of little value. The Administrative Law Judge, and the Judicial Officer on review, may form their own conclusions, without reference to testimony, regarding whether the representations were made or implied. Vibra-Brush v. Schaffer, 152 F.Supp. 461 (S.D.N.Y. 1957); Beneficial Corp. v. F.T.C., 542 F.2d 611, 617 (3rd Cir. 1976), cert. denied, 430 U.S. 983 (1977).

While the Administrative Law Judge's findings are selective and may not accurately track Dr. Scott's testimony in all respects, the findings need not be disturbed in view of the present determination, based on a review of the record, that this witness's conclusions are unpersuasive, and that testimony is not necessary to determine whether a representation is made. Accordingly, Respondent's exceptions are rejected.

3. Exception to Finding of Fact No. 9

This finding states that "As of the time of the hearing Respondent has received about 6,000 orders for the products (Tr. 332) and about 470 requests for refund (Tr. 181)." Respondent contends that this finding is irrelevant to the issues in this case and may be misleading. This finding accurately reflects Mr. Murphy's testimony as to the total number of orders for the products as of the time of the hearing. Nonetheless, it does not affect the disposition of the case. Therefore, it will not be considered.

4. Exception to Finding of Fact No. 10

This finding states, in part, that "a non-scientific study" by Respondent during late 1979 and early 1980 is "the basis for the percentages of success in stopping excessive hair loss and producing new hair growth set forth in Respondent's advertising material." Respondent contends that the record does not support the finding that it represents its products as "producing new hair growth."

CX-2(c), cited by the Administrative Law Judge in support of his finding, represents that product users "have received 60 to 65 percent of the hair loss back within one year . . . with noticeable hair growth beginning in approximately 8 to 12 weeks." Further, Respondent's advertisement in the Sacramento Bee, CX-1, ends by inviting readers "to watch an upcoming PM Magazine feature on our successful approach to hair restoration" (emphasis added). While, as a technical matter, Respondent may claim that its products do not cause new hair growth, but rather permit growth as the result of their cleansing action, the net representation is that use of the products will result in new hair growth. Accordingly, this finding is affirmed.

5. Exception to Finding of Fact No. 12 Respondent excepts to the portion of this finding which states that "In his practice, Dr. Karl J. Kramer Complainant's expert witness deals with patients complaining of hair and scalp disorders." Respondent contends that this statement is prejudicial and irrelevant because male pattern baldness is not a "disorder."

Dr. Kramer, a dermatologist, specifically testified that "approximately 10 percent of my practice would involve hair problems, scalp diseases and balding" (Tr. 14, emphasis added). Accordingly, the quoted portion of Finding of Fact No. 12 is modified to read "In his practice, Dr. Kramer deals with patients complaining of hair and scalp disorders and balding." The finding that Dr. Kramer is experienced in hair and scalp disorders is not irrelevant to this proceeding, since he testified regarding the difference between male pattern baldness and disorders which also cause hair loss, and stated an opinion that one of the individuals who grew hair as a result of Respondent's products may have had one of these disorders (Tr. 31-32).

6. Exception to Finding of Fact No. 13

This finding, which is based on Dr. Kramer's testimony, discusses the nature of hair, hair growth, and male pattern baldness. Respondent contends that the Administrative Law Judge "picked and chose" only those portions of Dr. Kramer's testimony which supported his ultimate decision.

In summarizing witnesses' testimony, the Administrative Law Judge was entitled to weigh that testimony and highlight those portions which he considered most persuasive. As the term implies, findings of fact are not intended as complete summaries of the record but only as brief statements of those portions of the record relevant to ultimate determinations of fact. Immigration and Naturalization Service v. Bagamasbad, 429 U.S. 24, 25 (1976). Cf. Athena Products, Ltd., P.S. Docket No. 7/99 (P.S.D. June 26, 1981). When reviewing these findings on appeal, the entire record is examined to determine the propriety of the particular findings being challenged. Based on a review of Dr. Kramer's entire testimony, it is concluded that Finding of Fact No. 13 is consistent with the conclusions expressed by that witness regarding the points addressed.

Respondent also suggests that the Administrative Law Judge should have mentioned Dr. Kramer's lack of experience in hair and scalp research or with the products at issue. There was no need to do so. Expert opinion testimony is admissible even where not based on personal knowledge or testing of the specific product. Research Labs. v. United States, 167 F.2d 410, 416 (9th Cir. 1948); Omnitronics, P.S. Docket No. 12/9 (P.S.D. Oct. 7, 1982); Athena Products Ltd., P.S. Docket No. 11/77 (P.S.D. June 21, 1982). Moreover, Dr. Kramer was qualified as an expert witness without objection from Respondent's counsel (Tr. 17-18). Accordingly, Finding of Fact No. 13 is affirmed.

7. Exception to Finding of Fact No. 16

Respondent excepts to the finding that "Dr. Kramer's opinion, conforming to the informed medical consensus, is that neither Polysorbate 60 (the active ingredient of the cleanser) nor the shampoo, nor the two products used together, will prevent excessive hair loss or cause new growth of hair on bald scalps."

Respondent contends that Dr. Kramer only testified that his "views" conform to the informed medical consensus and never testified as to his "opinions." The witness testified to his "views" (Tr. 66). No practical difference exists between "views" and "opinions." See Webster's Third New International Dictionary, 1582 (1961).

Respondent further contends that a finding of consensus cannot be based on Dr. Kramer's testimony alone. However, in this case, the consensus testified to by Dr. Kramer was also based on his review of the medical literature (e.g., Tr. 14, 38). Moreover, Respondent did not present any testimony disputing Dr. Kramer's characterization of the consensus (Cf. Tr. 261-262).

As noted, supra, the Administrative Law Judge did not allow testimony transcribed in another Postal Service proceeding, Cosvetic Labs., et al, supra, finding that it involved a product different from Respondent's. Respondent contends that by relying on Dr. Kramer's testimony regarding Polysorbate 60 in making Finding of Fact No. 16, the Administrative Law Judge "is using the testimony of Dr. Kramer on this point to support his ultimate decision while at the same time finding that the study on which Dr. Kramer based his testimony is not relevant to the proceedings at hand" (Resp. Appeal Brief at 11). Dr. Kramer testified that his professional discussions regarding Polysorbate 60 were in connection with the other product, "Bio-Genesis" (Tr. 45-46).

It is concluded that the Cosvetic testimony offered by Respondent should have been admitted to the extent that it concerned the substance Polysorbate 60. Accordingly, all of the testimony given by Inspector Powers and Dr. Schreck-Purola in this proceeding has been reviewed.^1/ Only a small portion of Inspector Powers' testimony clearly pertains to Polysorbate 60. According to this testimony, the Finnish doctor stated that this substance stimulates cell division in the hair follicle and, with urea, loosens subcutaneous tissue (Cosvetic Tr. 250). The only portions of Dr. Schreck-Purola's testimony relating to Polysorbate 60 appear at pages 552-553 and 557 of the Cosvetic transcript. This witness stated that Polysorbate 60 increases mitotic activity in the epidermis. However, she stated that she did not know whether this substance could be identified as an emulsifier.

This testimony is of questionable relevance to the present proceeding, since it is clear from the record that Respondent's claims for Polysorbate 60 are based on its properties as an emulsifier and cleanser. Moreover, this testimony indicates that Bio-Genesis contains other allegedly active ingredients not relevant to Respondent's product (see Cosvetic Tr. 245). In any event, Bio-Genesis has been determined not to have been proven as effective in either stopping excessive hair loss due to male pattern baldness or causing the regrowth of hair. Cosvetic Labs., et al., P.S. Docket Nos. 8/160 and cases consolidated therewith (P.S.D. July 22, 1982). Accordingly, Finding of Fact No. 16 is affirmed.

8. Exception to Finding of Fact No. 17

This finding states, in part that "It is possible that Polysorbate 60 will remove cholesterol from the scalp . . ., but since cholesterol is not converted to testosterone in the scalp its removal is not related to MPB male pattern baldness . . ." Respondent contends that it has never relied on the theory that Polysorbate 60 removes cholesterol from the scalp and that, therefore, this finding is not relevant.

The theory that Polysorbate 60 affects male pattern baldness by removing cholesterol in the scalp was advanced in the studies published by Drs. Schreck-Purola and Setala. This theory is referenced in Respondent's promotional materials and testimony (CX-2A, 30; Tr. 7, 41, 161-162, 197, 232). The evidence suggests that Respondent relied on the cholesterol theory set forth in the Finnish studies in developing and marketing the products. It also appears that this theory was abandoned at the hearing in favor of another, presented by Dr. Ballard, that Polysorbate 60 should be able to solubilize di-hydrotestosterone, which Dr. Kramer previously testified was ultimately the cause of male pattern baldness (Tr. 24, 260-262). However, this theory, according to Dr. Ballard's own testimony, is merely a hypothesis that has yet to find its way into the medical literature (Tr. 262). Accordingly, Respondent's argument is without merit.

9. Exceptions to Finding of Fact No. 18 and

Conclusion of Law No. 9

The Administrative Law Judge found that suggesting a preparation will produce a certain result increases the likelihood of that result even where the preparation has no pharmacologic effect. This is the "placebo effect." It was also found that such suggestions were made to Respondent's witnesses. In Conclusion of Law 9, the placebo effect was held to be inadequate to support the efficacy of a product.

Respondent argues that the finding ignores qualifying testimony which limits applicability of the placebo effect in the case of hair growth preparations. Consideration of the qualifying testimony, it is contended, renders the finding irrelevant. Further, Respondent points out that only one user testified that he was told to expect results. Thus, Respondent contends the record does not support the second part of Finding of Fact No. 18.

Dr. Kramer defined the placebo effect as the finding states (Tr. 49-50). Although on cross-examination Dr. Kramer admitted that he was unaware of studies and had no personal knowledge of the placebo effect with respect to hair growth preparations (Kramer Dep. 25, 40), the finding is not irrelevant. Dr. Kramer also explained that the placebo effect is one of the reasons studies on the efficacy of products are controlled (Kramer Dep. 40-41). Thus, the placebo effect, however it is defined, is relevant to the method by which the efficacy of a product is determined and, more importantly, the failure to control for the placebo effect is relevant to the weight given to evidence in this proceeding (See also Finding of Fact No. 19, infra.).

Respondent correctly points out that only one witness testified directly to suggestions that the product would restore hair. However, Respondent need not have specifically stated that its products would work in order to have suggested, either knowingly or unknowingly, that they would work. This is evident from the testimony of Malcolm J. McKillip, one of the user-witnesses, who stated that while the newspaper articles did not represent to him that the product would in fact work, he interpreted the articles as representing that "most likely in most cases it would work and I felt that I might be one of those who might be helped by it" (Tr. 225). (Cf. also Karsh Dep. 6).

While the testimony of the other user-witnesses does not justify an unqualified finding that Respondent made this suggestion in all cases, this is not to say that some of the witnesses were immune to a placebo effect. It is possible that their perception of the results obtained was influenced by preconceptions regarding the products' effectiveness as a cleanser (see Nosler Dep. 11-12), by a personal relationship with Mr. Murphy (see Brannigan Dep. 5), by television publicity (see CX-3D, p. 2), or simply by a desire to grow hair. Nonetheless, the exception is sustained insofar as that portion of Finding of Fact No. 18 may be considered to relate to the direct testimony of more than one user. The disposition of the case is not affected, however, because the Administrative Law Judge found one of Respondent's representations to be false independent of the placebo effect.

Respondent excepts to Conclusion of Law No. 9 on the basis that the placebo effect has been discredited on the facts in this case and that it has never argued that its product causes a placebo effect. Conclusion of Law No. 9 is a correct statement of the law, amply supported by the cases cited. While the record does not support a finding that Respondent's witnesses experienced a placebo effect, the Administrative Law Judge correctly concluded that such an effect would not validate claims of product efficacy.

10. Exception to Finding of Fact No. 19

The Administrative Law Judge found that the results testified to by Respondent's witnesses constituted self-reporting and that self-reporting by users is not accorded validity in the scientific community. Photographic evidence was also found to be subject to too many variables to be reliable. Respondent argues that such reports are given validity in the scientific community, that the results, while self-reported, are supported by photographs, and that the photographs are reliable.

The record supports the finding of the Administrative Law Judge (Tr. 51, 131). Further, lay testimonials are specifically excluded as proof of product efficacy by the Rules of Practice, 39 C.F.R. § 952.18(f). The photographs, in addition to the testimony about varying conditions, suffer from the lack of controls employed during use of Respondent's product by witnesses. Even assuming that positive results are depicted, Respondent's failure to demonstrate that all of the test users were properly diagnosed (Tr. 61) and that its procedures eliminated other explanations for the witness's results, such as the placebo effect (Kramer Dep., 40-41), severely limits the probative value of the photographs. Accordingly, the Administrative Law Judge did not err in refusing to accord probative value to the user reports and photographs.

11. Exception to Conclusion of Law No. 1

This conclusion sets forth the legal principles under which advertisements are evaluated in proceedings brought under 39 U.S.C. § 3005. The conclusion restates the often-cited standard of Donaldson v. Read Magazine, 333 U.S. 178 (1948), that an advertisement should be viewed from the standpoint of the "ordinary mind." Respondent finds a contradiction between the "ordinary mind" standard and the Administrative Law Judge's further statement that "it is the net impression which the advertisement is likely to make on purchasers to whom it is directed which is important." These two statements are not contradictory, but rather supplement each other. The ultimate standard by which advertisements are judged for purposes of these proceedings is the impression they would most probably create in the ordinary minds of those to whom they are directed. See Cates v. Haderlein, 189 F.2d 369 (7th Cir. 1951); Telex & twx Directory, P.S. Docket No. 13/6 (P.S.D. April 1, 1983). For purposes of this case, it is recognized that Respondent's promotional material was directed at those who are concerned about hair loss and, specifically, male pattern baldness.

Respondent also takes exception to the portion of this conclusion which states that "even if an advertisement is so worded as not to make an express representation, if it is artfully designed to mislead those responding to it, the mail fraud statutes are applicable." Respondent contends that the term "artfully designed" is not applicable because the newspaper articles which comprised a major portion of the promotional activities were authored by others. While the conclusion that these articles were "artfully designed" may be justified (see infra), it is irrelevant to the disposition of this matter, since proof of intent is not necessary in order to find a violation of 39 U.S.C. § 3005.

Finally, Respondent contends that the statement in this conclusion that "the ultimate impression on the reader results not only from what is stated but also from what is reasonably implied therefrom" is irrelevant. This statement correctly reflects the manner in which Respondent's promotional materials have been evaluated and is therefore relevant.

Accordingly, this conclusion is affirmed except as indicated.

12. Exception to Conclusion of Law No. 2(a)

This portion of Conclusion of Law No. 2 states, in part, that "Respondent makes the representation that New Generation Scalp Cleanser and Shampoo will cause regrowth of hair on bald heads. This is so obviously the main thrust of such material that it requires no detailed discussion." Respondent contends that this conclusion is not supported by the expert testimony of Dr. Scott nor the testimony of the user-witnesses who read Respondent's promotional material. It further contends that the rights of cross-examination and confrontation of witnesses have been denied because the facts in support of this conclusion are omitted.

As discussed supra, Dr. Scott's testimony regarding the meaning of Respondent's promotional materials is unpersuasive. The user-witnesses who testified in this proceeding do not necessarily represent the viewpoint of the ordinary reader at whom these materials were directed. This group of users constitutes a selected portion of the community which may reasonably be considered more sophisticated than the ordinary interested reader of Respondent's materials. However, the purpose of the postal statutes is to protect the gullible as well as the wary reader. Fort Morgan Vapor Jet, P.S. Docket No. 12/64, (P.S.D. Sept. 29, 1982 at 9.)

Further, the reactions of these witnesses to Respondent's promotional materials varied. (Cf. Tr. 225-226, 393; Cose Dep. 7; O'Neill Dep. 9). The difference between whether the products "might" have a particular result and whether they "would" have that result would be a very find point when viewed in the context of a more gullible reader who is concerned about his hair condition.

Finally, as discussed, the Administrative Law Judge was authorized to review these promotional materials, independent of the testimony, and form his own conclusions regarding the representations made or implied. "Whether particular advertising has a tendency to deceive or mislead is obviously an impressionistic determination." Beneficial Corp. v. F.T.C., supra. A review of these materials confirms the conclusion that Respondent represents its products will cause the regrowth of hair on bald heads, as alleged in paragraph 3b of the Complaint.

Respondent also takes exception to the Administrative Law Judge's statement that "The text is cleverly laced with notes of skepticism and reports of isolated failure. . ." Respondent contends that the term "cleverly laced text" "imputes to the Respondents a quality of fraud, deception and intent to mislead readers of the material. . . It is really impossible to use this cleverly laced text argument since the promotional material was written by individuals totally unassociated with the Respondents" (Resp. Appeal Brief at 24).

While the record indicates that Respondent was not involved in the initial authorship of these articles, it appears that the articles were subsequently altered as promotional material. In this regard, the two reprints of the Sacramento Bee article which comprise CX-2(a) and 3(d), page 1, are not entirely identical. The reprint of this article at CX-3(d) deletes a portion of the statements by Dr. Arthur Huntley, a dermatologist for the University Medical Center, which is included in CX-2(a). The deleted excerpt attributes the following statements to Dr. Huntley:

"The research findings, he pointed out, haven't been published in reputable medical journals despite the fact some of them date to 1974. Secondly, Murphy's study hasn't followed normal medical research procedures.

"'If anything's any good, it has to pass the test of a double blind study.' He said 'It has to be tested by both patients and doctors who don't know what they're using and what results are expected.'

"'There's no question,' Huntley added, 'that if you want to see results you're going to see it whether it's there or not. Particularly with something as emotional as hair loss.'"

Further, the reprint of CX-2(a) references a conclusion by Finnish skin doctors "that it was possible to rejuvenate hair in 60% of the 320 people tested." However, the reprint of what is purportedly the same article appearing at CX-3(d) states that these doctors "concluded that it was possible to rejuvenate hair in 80% of the 320 men and women tested that had male pattern baldness." ^2/ A comparison of the two articles discloses other differences. In contrast, Respondent states, with regard to this article: "The article is reproduced by Respondents as written. Nothing in the article is highlighted or downplayed from the original" (Resp. Response Brief 14).

Differences also appear between the two reprints of the article in the Sacramento Union which comprise CX-2(b) and CX-3(d), page 3. The article appearing at CX-2(b), in discussing Lt. Col. Charles Miller's experience with Respondent's products, states: "nine and a half months later, where there was bald, there is fuzz. . ." However, the reprint appearing as CX-3(d) states: "Nine and a half months later, where there was bald, there is hair. . ." (emphasis added).

These examples belie the argument that Respondent did not exercise control over the text of the articles. Whether these alterations constitute "cleverly laced text", however, need not be addressed. As discussed supra, whether or not a misrepresentation is intentional or, indeed, clever is irrelevant in determining whether a violation of 39 U.S.C. § 3005 exists. Accordingly, the reference to "cleverly laced text" has not been considered.

Finally, Respondent contends that this representation, if made, was not a material inducement for readers of the promotional material to purchase the products. Clearly, consumers would be induced to purchase by the representations that use of the products will result in regrowth of hair. The representation is material.

13. Exception to Conclusion of Law No. 3

This conclusion states, in part, that insofar as the expert and lay witnesses stated that Respondent's advertising and promotional materials do not represent the products will cause regrowth of hair on bald heads, their testimony is rejected as "flying in the face of the obvious express and implied thrust of such materials, the fact that Respondent has received at least 6,000 orders for the products, and also as contrary to plain common sense." In support of this conclusion, the Administrative Law Judge cites testimony by Dr. Scott. Respondent contends that the Administrative Law Judge cannot substitute his own "common sense" for the testimony of the lay witnesses who are part of the group interested in baldness, that no finding of fact exists which states what the "express and implied thrust" of these materials is, and that Dr. Scott's testimony has been misrepresented.

The Administrative Law Judge's right independently to determine the representations made by Respondent's promotional material, and the impact of the lay witness testimony, have been discussed supra. In reviewing and affirming this conclusion of law, the reference to "at least 6,000 orders for the products" has not been considered, as already discussed. Nor has Dr. Scott's testimony been found persuasive, although it is found that her testimony was not misrepresented by the Administrative Law Judge.

14. Exception to Conclusion of Law 4

This conclusion states, in part, that "based on the testimony and opinions of Complainant's medical expert witness, Dr. Kramer, conforming to the informed medical consensus, I find that the representation made by Respondent as to regrowth of hair on bald heads is false in fact." Respondent contends that Dr. Kramer only testified as to how the representation is viewed by the consensus of medical opinion and that a distinction must be made between that consensus and a determination that the representation, in fact, is false. In Cosvetic Labs., et al., supra, it was recognized that:

"A common sense difference exists between acceptance of a claim by a consensus of the relevant medical or scientific community and the inherent truth of that claim. However, these two aspects of a claim are nonetheless tied to each other. The acceptance of a claim as true under the standards of the medical or scientific community is prima facie evidence that the claim, in fact, is true. Conversely, proof by the Complainant in a false representation proceeding that a claim has not been accepted by the medical or scientific community constitutes prima facie evidence of its falsity. The burden of rebutting this evidence thereupon falls on the Respondent, which must show that the claim is true despite the lack of acceptance." (P.S.D. at 14; citations omitted).

The cases cited by Respondent, all involving consideration of products under the Federal Food, Drug and Cosmetic Act, indicate the importance accorded to a consensus of qualified opinion. In the latest decision cited, United States v. Articles of Food and Drug, etc., the 5th Circuit stated:

"The United States need only show the lack of the proper reputation for safety and efficacy of the drugs and for safety of the food additive among the appropriate experts, or that what reputation there is, is not based on adequate studies." (518 F.2d 743, 746 (5th Cir. 1975)).

With respect to this case, Dr. Kramer admitted that Respondent's theories "may or may not be true, but you have to prove it" (Kramer Dep. 16). However, the testimony and evidence presented fell short of the type of disinterested, scientific proof required. Cf. Porter and Dietsch, Inc., v. F.T.C., 605 F.2d 294, 302, 305-306 (7th Cir. 1979), which sustained a provision of a Federal Trade Commission Order prohibiting representations about the effectiveness of a product unless they are supported by "competent scientific or medical tests or studies.

Respondent also takes exception to the conclusion's reference to the Setala/Schreck-Purola study (CX-7) and its underlying theory that cholesterol is converted in the scalp to testosterone. Respondent asserts that both the study and the theory are irrelevant to this proceeding. This argument was discussed supra, in connection with Finding of Fact No. 17. Conclusion of Law No. 4 is affirmed.

15. Exception to Conclusion of Law No. 5

This conclusion states the basic legal principle that "expert opinion testimony need not be based on tests of the particular product in issue to constitute sufficient evidence of false advertising representations." Despite Respondent's contention to the contrary, the cases cited by the Administrative Law Judge clearly support this principle. In Reilly v. Pinkus, 338 U.S. 269, 274 (1949), the Supreme Court specifically rejected the contention "that even the testimony of the most experienced medical experts can never rise above a mere opinion' unless the expert has made actual tests of the drug to determine its effects in relation to particular representations alleged to be false." This position was favorably cited in Original Cosmetics Products, Inc. v. Strachan, 459 F.Supp. 496, 504 (S.D.N.Y. 1978), aff'd 603 F.2d 214 (2nd Cir. 1979), cert. denied 444 U.S. 915 (1979). See also Research Labs. v. United States, supra, 167 F.2d at 416, which recognized that "In this circuit and elsewhere, it has been held that expert testimony even in its broadest sense - i.e., where the witness has neither tested the product nor purports to report the consensus of medical opinion - is admissible on the question of therapeutic value." Accordingly, this conclusion of law is affirmed.

16. Exception to Conclusion of Law No. 6

This conclusion states the principle that "a finding of falsity can be based on the testimony of an expert witness whose testimony is in accord with the consensus of informed medical or scientific opinion when there is no contradictory evidence which is said to be in accord with such a consensus of opinion." Respondent's contention that this principle is not supported by case law is without merit. See U.S. Health Club, Inc. v. Major, 292 F.2d 665 (1961); Owen Labs., Inc. v. Schroeder, 284 F.2d 445 (1960); Research Labs. Inc., v. United States, 167 F.2d 410, 416 (9th Cir. 1948). Indeed, courts have recognized that a finding of a falsity may be made even where a conflict in the medical testimony has been presented. See, e.g., Kurzon v. United States Postal Service, 539 F.2d 788 (1st Cir. 1976); Baslee Products Corp. v. United States Postal Service, 356 F.Supp. 841, 850 (D.N.J. 1973); Reilly v. Pinkus, supra; United States v. Kaadt, 171 F.2d 600, 603-604 (7th Cir. 1948). Accordingly, this conclusion of law is affirmed.

17. Exception to Conclusion of Law No. 7

This conclusion rejects Respondent's argument that its representations concern an area that has not been "crystallized in the crucible of experience" and that they therefore cannot be found false under American School of Magnetic Healing v. McAnnulty, 187 U.S. 94 (1902). The Administrative Law Judge distinguished McAnnulty in that:

"There are not at the present time, and consequently, there are not reflected in this record, two widely held schools of opinions as to whether a scalp product, such as Respondent's, containing polysorbate 60 will cause regrowth of hair. Only one real school of opinion-the medical consensus established through Dr. Kramer-has been shown here. The linchpin of that consensus is that cholesterol is not converted in the scalp to testosterone. Therefore, removal of cholesterol from the scalp by polysorbate 60 has no influence on hair fall-out or regrowth." (I.D. pp. 17-18)

Respondent contends that the Administrative Law Judge has misconstrued the protection granted by McAnnulty and that he improperly based his conclusion on the cholesterol theory referenced earlier. The Judge's analysis of the McAnnulty case set forth in this conclusion is correct. That case, as characterized in the subsequent Supreme Court case of Reilly v. Pinkus, supra, concerned two distinct, widely held schools of opinion. This is not the situation here. While the Administrative Law Judge's sole emphasis on the cholesterol theory may not be justified by the record, it is nonetheless true, as discussed, that Respondent has not presented any theory that would approach the level of acceptance of the opinions advanced by Dr. Kramer. Respondent's own expert witness, Dr. Ballard, presented his own theory as a mere "hypothesis" (Tr. 262) and indicated agreement with the "prevailing view" that the Setala/Schreck-Purola theory is erroneous (Tr. 261-262). Under these facts, the principles set forth in McAnnulty do not apply.

In so holding, the Postal Service is not condemning new ideas without a trial, as Respondent implies. As stated in Cosvetic Labs., et al., supra (P.S.D. at 15):

"These findings and conclusions should not be construed as a condemnation of any new idea put forth by Respondent with respect to the treatment of the hair and scalp or as discouraging further scientific inquiry. Rather, they are solely directed at the particular representations made by Respondent in its advertisements, which go far beyond characterizing the products as ideas 'where knowledge has not yet been crystallized in the crucible of experience.'" Citing Reilly v. Pinkus, 338 U.S. at 274.

Accordingly, this conclusion of law is affirmed.

18. Exception to Conclusion of Law No. 8

This conclusion states, in part, that although the user-witnesses "appeared to be honest and attempting to tell the truth, their accounts were purely anecdotal, not rising to the level of valid, scientific proof for the important claim at issue." Respondent's contentions that the photographs of these witnesses are "unchallengeable"; that the witness's unimpeached testimony should be accepted as evidence that the products work; and its exception to the conclusion's reference to lack of scientific supervision or controls have been addressed earlier.

Respondent notes an inconsistency between this conclusion's statements that the witness's reports "were consistent with a possible placebo effect, particularly since they were told before use of the product that it might produce new growth" (emphasis added), and Finding of Fact No. 18, which states that these witnesses were told that use of the products would result in new hair growth. As discussed supra, the cited portion of Finding of Fact No. 18 has not been totally accepted. The finding that all of the user-witnesses were told the products "might" produce new growth is similarly modified. However, Respondent made no attempt to eliminate the placebo effect. Therefore, the possibility of a placebo effect cannot be disregarded. Accordingly, this conclusion of law is affirmed, except as modified.

19. Exception to Conclusion of Law No. 10

This conclusion states in part that Dr. Ballard's testimony did not establish that Respondent's product is effective "to achieve the results represented." Respondent's exception to the quoted phrase as signifying regrowth of hair has been addressed earlier with respect to Conclusion of Law No. 2(a).

20. Exception to Conclusion of Law No. 11

This conclusion states that while Respondent's product may produce the results represented, "in the present state of medical and scientific knowledge there is no reliable support for such claims such as to overcome the contrary consensus expressed by Dr. Kramer." Respondent contends that Complainant has failed to show, based on the present state of medical and scientific knowledge, that its products do not have the effect represented. This argument has been addressed earlier. However, Respondent correctly points out that the Initial Decision does not specifically state that Complainant has proven its case by a preponderance of the evidence. It is concluded, based on a review of the entire record, that Complainant has met this burden with respect to the allegation set forth in Paragraph 3b of the Complaint. This conclusion is based on Dr. Kramer's testimony that Polysorbate 60, the active ingredient in Respondent's products, would not cause new hair growth (Tr. 37-38, 45); that the use of the shampoo and hair and scalp cleanser together would not cause new hair growth (Tr. 46); and that his views are consistent with the consensus of informed medical opinion (Tr. 66). It is also based on Dr. Ballard's testimony that the theory that Polysorbate 60 removes di-hydrotestosterone is merely a hypothesis (Tr. 260-262). Accordingly, this conclusion of law is affirmed.

21. Exception to Conclusion of Law No. 12

This conclusion states the legal principle that "disclaimers are ineffective to rebut misrepresentations." Respondent contends that the relevance of this conclusion is unclear, since the Administrative Law Judge does not use the term "disclaimer" in his findings of fact.

It is presumed that the term "disclaimer" refers to the negative or skeptical statements contained in the newspaper articles which were made a part of Respondent's promotional materials. The Administrative Law Judge is correct in concluding that such statements do not absolve Respondent from responsibility for making representations as to the products' positive effects. While Respondent argues that the cases cited in support of this conclusion, Gottlieb v. Schaffer, 141 F.Supp. 7 (S.D.N.Y. 1956) and Cates v. Haderlein, 189 F.2d 369 (7th Cir. 1951), are inapposite because they concerned, respectively, inconspicuous and intentional disclaimers, the principle is not so limited. Both of these cases recognize that the entire advertisement must be examined in order to determine the effect of any disclaimer. As the 7th Circuit stated in Cates v. Haderlein:

"The buying public does not ordinarily carefully study or weigh each word in an advertisement. . . the important criterion is the net impression which the advertisement is likely to make upon the purchasers to whom the advertisement is directed. . ." (189 F.2d at 373).

In this case, the "skeptical" portions of Respondent's promotional materials (which, as discussed, were in at least one instance altered) are not sufficient to offset the much more boldly stated representations regarding the products. Accordingly, this conclusion of law is affirmed.

22. Exception to Conclusion of Law No. 13

This conclusion states that "Respondent's offer of a refund to dissatisfied purchasers doe not overcome the effects of making false representations." Respondent contends that the case cited by the Administrative Law Judge, Borg-Johnson Electronics v. Christenberry, 169 F.Supp. 746 (S.D.N.Y. 1959), is not applicable to this case, because Borg-Johnson Electronics only addressed instances where "it appears that an advertiser deliberately induces its patron to purchase its products in the belief that its value far exceeds its true worth" (Resp. Appeal Brief at 43, citing Borg-Johnson Electronics, 169 F.Supp. at 75). Respondent construes this principle too narrowly. The question of whether a false representation has been made is independent of whether the advertiser will make restitution to a disgruntled customer who is sufficiently motivated to seek it. Accordingly, a guarantee does not negate the falsity of a misrepresentation regardless of the advertiser's intent. See, e.g., Athena Products, Ltd., P.S. Docket No. 7/99 (P.S.D. June 26, 1981); International Sewing Machine Distributors, P.S. Docket No. 5/64 (P.S.D. Sept. 8, 1977). Cf. Porter and Dietsch, Inc., v. F.T.C., supra, 605 F.2d at 302. This conclusion of law is affirmed.

23. Exception to Conclusion of Law No. 14

This conclusion states that "Respondent is engaged in a scheme to obtain money through the mail by means of material false representations in violation of 39 U.S.C. § 3005." In view of the discussion in connection with Respondent's previous exceptions, Respondent's contention that this conclusion is unsupported by the record does ot warrant further discussion. This conclusion of law is affirmed.

II. Judicial Officer's Authority

Respondent contends that the role of the Judicial Officer in this proceeding is limited to determining if the Initial Decision is supported by substantial evidence. It is well established that the preponderance of the evidence test is applied by the Judicial Officer in these proceedings. Telex and twx Directory, P.S. Docket No. 13/6 (P.S.D. April 1, 1983 and cases cited therein at pp. 5-7). Accordingly, the record in this appeal has been reviewed to determine if the Initial Decision is supproted by the preponderance of the evidence.

III. Complainant's Exception to the Initial Decision

Complainant takes exception to Conclusion of Law No. 2(b), which found, in part, that Respondent's advertising and promotional materials did not make "in any serious or material manner" the representation alleged in Paragraph 3a of the Complaint that "New Generation Hair and Scalp Cleanser and New Generation Shampoo will stop hair loss in balding men." The Administrative Law Judge found that Respondent's materials make the representation "that the product will stop excessive loss of hair, not that it will stop hair loss as alleged in the Complaint. There was no motion by Complainant to conform pleadings to proof. I do not consider it fair and appropriate to amend the Complaint at this juncture."

Complainant contends that the Complaint's reference to stopping "hair loss" should be construed as meaning "excessive hair loss", since even individuals without a hair loss problem "lose" on the average between 50 and 100 strands of hair each day, citing Dr. Kramer's testimony (Tr. 18). In this regard, Complainant argues that a man would only complain of hair loss if the number of strands lost exceeded the number replaced or, in other terms, was "excessive." "Conversely, if the signs of the balding process were to cease, he might well be heard to say that his hair loss was returned to normal" (Comp. Appeal Brief, p. 2). In the alternative, Complainant argues that it should be allowed to amend the Complaint to conform to the evidence.

Paragraph 3a of the Complaint alleges that Respondent represents its product "will stop hair loss in balding men" (emphasis added). The underscored language makes clear that the term "stop hair loss" as used in this paragraph is intended to be defined within the limited context of male baldness. In this regard, while Dr. Kramer stated that a "normal" individual will lose between 50 and 100 hairs on an average day (Tr. 19), his testimony supports the common sense observation that baldness - and particularly male pattern baldness - is associated with hair loss in excess of this amount (Tr. 19-22).

Indeed, Respondent has conceded that the definition of "hair loss in balding men" is excessive hair loss, stating: "Complainant first states that the phrase in the Complaint 'will stop hair loss in balding men' is descriptive of the hair loss relevant to this type of proceeding, i.e., a loss of hair that exceeds normal replacement and ultimately results in baldness.

Obviously this must be the case, since if the rate of hair loss exceeds the rate of hair replacement, there will be a lessening of the number of visible hairs on the scalp and the perception of baldness, if not the reality, will set in" (Resp. Reply Brief 3).

It is therefore concluded that the parties understood, within the specific context of this proceeding, that "hair loss in balding men" meant excessive hair loss and tried this issue accordingly. In this regard, Mr. Murphy stated at the hearing that in his opinion use of Respondent's products will "stop excessive hair fall-out which is where you get your thinning hair and eventually balding" (Tr. 211-212). It is also noted that, aside from arguing that Complainant was lax in its pleading, Respondent has not demonstrated any prejudice resulting from trial of this issue.

It is found that Respondent represented that the products will stop excessive hair loss by the language in CX-2(c) that "almost 100% have realized an end to abnormal 'fall-out' within three to four weeks." See also CX-2(b), which states that "nearly 100% have reported a slow-down or stopping of hair fall out." Similarly, see CX-3(d), p. 3.

It is further found that this representation has been shown to be false by a preponderance of the evidence because of Dr. Kramer's testimony that these products would not have any effect on preventing excessive hair loss (Tr. 46, 64) and that his views are consistent with the consensus of informed medical opinion (Tr. 66). For the reasons discussed supra, this testimony was not offset by the evidence and testimony presented by Respondent. In view of the conclusion that the issue of excessive hair loss falls within the language of Paragraph 3(a) of the Complaint, the question of amending the Complaint to conform to the evidence is moot. Cf. Sales Unlimited, P.S. Docket No. 12/147 (P.S.D. Oct. 26, 1982). Conclusion of Law No. 2(b) is reversed.

IV. Respondent's Motion to Reopen the Hearing

Respondent has filed a Motion to Reopen the Hearing to determine the continuing effect, if any, of the advertising and promotional material on which the Complaint and the Initial Decision were based. In this regard, Respondent argues that over two years have transpired since the Sacramento Bee advertisement and that the advertisement could only have had a local impact. It further argues that before a stop order can be issued, a determination must be made as to how many products were ordered in response to the Sacramento Bee advertisement. Complainant argues that a stop order which covers reorders as well as initial orders for the products would not be overbroad, but that it does not oppose Respondent's Motion so long as another evidentiary hearing is not involved. Respondent has also requested that the hearing be reopened in order to adduce additional testimony with respect to Conclusion of Law No. 2(a).

No further testimony is required with respect to Conclusion of Law No. 2(a) and, therefore, the record will not be reopened in connection with that conclusion. With respect to the continuing impact of these advertising and promotional materials on current sales of Respondent's products, it would seem that through the good faith efforts of the parties the matter could be resolved by agreement. Accordingly, this matter is remanded to the parties for consideration of such an agreement. In the interim, a False Representation Order will be issued, but the return portion will be stayed pending a final determination of the impact issue. Such an Order with a Supplement A thereto is issued with this decision.

1/ See also Research Laboratories, Inc. v. United States, supra, 167 F.2d at 416.

2/ The article at CX-2(a) - but not the one at CX-3(d) - makes clear that the women in the test, who achieved a 100 percent return rate, had lost their hair during pregnancy. These women therefore could not be considered to have had a condition similar to male pattern baldness.