In the Matter of the Complaint Against

DERMACURE COMPANY
144 Mason Street
at Greenwich, CT 06830-6629

and
BEAUTY INNOVATIONS
1 Wolff Lane
at Pelham, NY 10803-1801

and
D & L INDUSTRIES
1850 Union Street
at San Francisco, CA 94123-4309

and
SUNSET INDUSTRIES
130 Buena Vista Avenue
at Yonkers, NY 10701-3547

P.S. Docket No. 17/31;

Cohen, James A.

APPEARANCES FOR COMPLAINANT:
H. Richard Hefner, Esq.
James A. Harbin, Esq.
Consumer Protection Division
Law Department
U. S. Postal Service
Washington, DC 20260-1112

APPEARANCE FOR RESPONDENT:
Lee H. Harter
2256 Van Ness Avenue
San Francisco, CA 94109-2513

POSTAL SERVICE DECISION

Respondents have appealed from an Initial Decision of an Administrative Law Judge which holds that Respondents are engaged in conducting a scheme or device to obtain money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

BACKGROUND

The Consumer Protection Division, Law Department, United States Postal Service (Complainant) initiated this proceeding by filing a Complaint alleging that Respondents are selling a skin bleaching product through the mail, marketed under the trade name "Dermacure," by means of false representations in violation of 39 U.S.C. § 3005. Specifically, in paragraph 3 of the Complaint, it is alleged that Respondents make the following materially false representations:

"a. Dermacure will permamently eliminate freckles, surface scars, age spots, unwanted dark marks, blotches, and discoloration.

b. Dermacure will fade stretch marks, dark circles under the eyes and surface scars.

c. Dermacure is equally effective for all women and men irrespective of age who have the skin and complexion problems described in subparagraphs (a) and (b).

d. Dermacure is effective in eliminating or fading the skin and complexion problems described in subparagraphs (a) and (b) with once-a-day use for two to five weeks and occasional use thereafter.

e. Dermacure differs radically from all other cosmetic or skin care products and is singularly effective for the purposes specified in Respondents advertisements."

Respondents filed an Answer in which they denied all of the allegations in the Complaint. ^1/ A hearing was held before an Administrative Law Judge at which Patricia G. Engasser, M.D., a dermatologist, testified on behalf of Complainant and Postal

Inspector Stephen Kline testified as an adverse witness for Respondents. On the basis of the evidence presented, the Administrative Law Judge found that Respondents make the representations alleged in paragraph 3 of the Complaint and that those representations are materially false (I.D. at pp. 2 and 6). He therefore recommended the issuance of a False Representation Order under 39 U.S.C. § 3005.

Respondent have timely appealed the Initial Decision to the Judicial Officer. Both parties have filed briefs. Respondents' exceptions to the Initial Decision are discussed below.

Exception I

"THE ALJ ERRED IN CONCLUDING THAT THE REPRESENTATIONS AS
ALLEGED WERE MADE IN THE ADVERTISEMENTS (INITIAL DECISION,
SECTION II)."

Respondents contend that they do not make the representations alleged in subparagraphs 3a, c, d, and e of the Complaint. Regarding subparagraph 3a, they admit they offer to rid the consumer of unsightly dark marks, freckles, age spots and surface scars, but maintain that this "offer" is made within the context of a guarantee to refund double the purchase price in the event that the product does not work. Thus, Respondents argue they guarantee a refund and not results.

In the context in which the guarantee appears, it would be understood by an ordinary reader to apply to the results represented, rather than to the refund of money. Moreover, the offer of a guarantee does not offset the substantive representation that a product will have a certain effect. See New Generation, P.S. Docket No. 11/152 (P.S.D. May 13, 1983) at p. 28.

Respondents further argue that they do not represent Dermacure will permanently remove unwanted dark marks and/or blotches, although conceding that they state the product "actually vanishes the appearance" of these skin conditions. The common meaning of "vanish" is "to disappear entirely" or "cease to be." Webster's Third New Inter. Dictionary, 2532 (Unabridged Ed. 1968). An ordinary reader of Respondents' advertisements would therefore interpret the word "vanish" as synonymous with "permanently eliminate." In any event, Respondent's advertisements specifically represent, in underscored language, that "Unlike Other Products That Hide Embarrassing Marks - Dermacure Gets Rid of Them."; "Now you can literally say good-bye to unwanted dark marks forever"; and "No longer is it necessary to conceal unsightly skin imperfections. Dermacure gets rid of so many of them - permanently . . ." (see CX-7, 13, 15, 16). Indeed, the reader's attention is initially attracted to the advertisements by the headline "Remove Skin Discolorations Forever" (id.).

Finally, Respondents argue there is an inconsistency between the allegation of permanent removal in subparagraph 3a and the necessity of continued use alleged in subparagraph 3d. We do not find these allegations of the Complaint to be inconsistent.

Whatever inconsistency is perceived by Respondents is created by the language used in their advertisements. Regardless of Respondents' perception of the Complaint allegations, the language they use in their advertisements would lead the ordinary reader to believe that the prescribed use of the product Dermacure would lead to the permanent removal of "freckles, surface scars, age spots, unwanted dark marks, blotches and discoloration" (Complaint, subparagraph 3a).

Regarding subparagraph 3c of the Complaint, Respondents intimate that no reader would believe Dermacure will be equally effective for everyone. However, this argument, which is addressed infra, is irrelevant to whether the representation is made. Respondents make this representation by promising that the reader will "Discover Why Women (and Men) (of All Ages Are Using Dermacure To Eliminate Their Skin and Complexion Problems -"; by stating "Dermacure Will Work For You Too . . . Regardless of Your Skin Shade"; and by stating "Dermacure gets rid of so many of them - skin discolorations permanently . . .regardless of what kind of skin you have or how old you may be." (CX-7, 13, 15, 16). Respondents' assertion that their offer of a refund to dissatisfied customers negates any inference that the product will be successful for all persons is rejected, as explained supra.

With regard to subparagraph 3d of the Complaint, Respondents argue that by specifying "daily applications to problem areas," the advertisements advise the reader that more than one application is required each day and not the once-a-day use alleged in the Complaint. However, it is concluded that an ordinary reader would just as likely, if not more likely, construe the quoted language as representing a requirement of many once-a-day applications. Where advertising is subject to two meanings, one of which is false, it is misleading. Rhodes Pharmacal Co. v. F.T.C., 208 F.2d 382, 387 (7th Cir. 1953); The New Body Boutique, Inc., P.S. Docket No. 11/95 (P.S.D. June 20, 1983) at p. 10.

Respondents argue in connection with subparagraph 3e of the Complaint, that " e very single advertisement for every single product will differentiate that product from any other in the same category" (Respondents' Brief at p. 7), and that any language touting Dermacure above their competitors' products is simply puffing. This argument does not negate a finding that the representation is made, if the language in Respondents' advertisements so warrants. The language cited by the Administrative Law Judge supports the finding that this representation is made in Respondents' advertising (I.D. at p. 5). Of particular significance in this regard is the caution "Do Not Confuse Dermacure With Inferior Imitations. . . ." and the reference to "a unique combination of scientifically blended ingredients" (CX-7, 13, 15, 16).

Accordingly, the Administrative Law Judge's findings that Respondents' advertisements contain the representations alleged in paragraph 3 of the Complaint are affirmed.

Exception II

"THE MEDICAL OPINION BY SORELL SCHWARTZ, PH.D., SHOULD HAVE
BEEN ADMITTED INTO THE RECORD."

At the hearing in this matter, the Administrative Law Judge refused to admit into evidence a one-page document marked as RX-1 entitled "medical Opinion for U.S. Postal Service" signed by Sorell L. Schwartz, Ph.D. The Administrative Law Judge ruled that this document was hearsay not subject to cross-examination and was not an "admission" by an opposing party (Tr. 143). In rejecting the proposed exhibit, the Administrative Law Judge noted that Respondents had not attempted to serve interrogatories on, or depose Dr. Schwartz (id.). Subsequent to the hearing, Respondents filed a motion to admit the medical opinion into the record. This motion was denied by the Administrative Law Judge for the reason stated at the hearing (ALJ Order dated Nov. 29, 1983). In the Initial Decision, the Administrative Law Judge affirmed his ruling denying admission of the medical opinion as an exhibit because it is hearsay (I.D. at p. 12).

Respondents argue that the opinion by Dr. Schwartz should have been admitted into evidence because when Complainant first advised them of the document's existence it was already too late, under applicable regulations, to request a deposition. Respondents also cite Dr. Schwartz's prior relationship with the Postal Service as justifying the document's inclusion in this record. Complainant, in its Reply Brief, argues that the report does not constitute an admission by a party opponent or admissible hearsay and that Dr. Schwartz's opinion is not relevant to the representations alleged in the Complaint.

Under the Rules of Practice, the Federal Rules of Evidence govern the admissibility of evidence except to the extent the presiding officer determines to relax such rules to ensure a fair hearing. See 39 C.F.R. § 952.18(a). The Administrative Law Judge's ruling excluding the opinion of Dr. Schwartz was proper under the Federal Rules. The opinion is not an admission by a party opponent and therefore is hearsay. Respondents have not shown that any hearsay exception would require the admission of Dr. Schwartz' opinion. In addition, it has not been shown that the Administrative Law Judge abused his discretion by his refusal to relax the Federal Rules to admit Dr. Schwartz' written opinion into evidence. Respondents have not shown that they attempted to have Dr. Schwartz available at the hearing, or that they advised Complainant prior to the hearing that they intended to introduce the document into evidence.

Nevertheless, Dr. Schwartz' medical opinion has been considered in reviewing the present record on appeal. His opinion does not alter the conclusions reached in this decision which, for the most part, sustain the findings and conclusions of the Administrative Law Judge.

Dr. Schwartz' opinion does not suggest that Dermacure will permanently remove the various types of discolorations which Respondents represent will be eliminated by the use of their product. Regarding stretch marks, Dr. Schwartz' qualified statement that Dermacure may diminish their appearance by evening out any discolorations - assuming discolorations are present - does not support the broad representations contained in Respondents' advertisements. His comments regarding frequency of use support the conclusion that Dermacure should be applied twice daily. Finally, his statement that Respondents' advertisements do not appear to misrepresent the product or be misleading is not persuasive when viewed in light of the language used in Respondents' advertisements. Moreover, this opinion relates to the ultimate conclusion which the Administrative Law Judge and the Judicial Officer are required to make. See New Generation, P.S. Docket No. 11/152, (P.S.D. May 13, 1983) at p. 6.

Accordingly, it is concluded that the Administrative Law Judge's ruling on the admissibility of Dr. Schwartz' opinion does not affect the outcome of this proceeding. In view of this conclusion, consideration need not be given to affording Complainant an opportunity to address the statements made therein.

Exception III

"THE REPRESENTATIONS ARE NOT MATERIAL."

Respondents argue that the materiality of the representations has not been shown because no consumer testimony has been presented. According to Respondents, the only evidence in the record establishes a lack of materiality. Extrapolating from the number of patients that Complainant's expert has treated for certain conditions, Respondents argue that " a representation that might effect 1-2 percent of the population is hardly 'substantial' or 'material'" (Respondents Brief at p. 11).

The materiality of representations is judged by their effect to induce the reader to purchase the advertised product. See The New Body Boutique, P.S. Docket No. 11/95 (P.S.D. July 30, 1982); Standard Research Labs, P.S. Docket Nos. 9/63 and 9/64 (P.S.D. Aug. 31, 1981); Athena Products, Ltd., P.S. Docket No. 7/99 (P.S.D. June 26, 1981). A review of Respondents' advertisements (see CX-7, 13, 15, 16) shows that the representations at issue, except for that regarding "daily applications," are likely to entice those readers who have the skin conditions specified to order Dermacure. It is concluded, however, that the decision to order this product would not be influenced by whether one or two daily applications are required over the promised two to five week period. It is the promise of effectiveness over a short period of time, and not the number of daily applications, which constitutes the material lure for customers.

Contrary to Respondents' argument, consumer testimony is not necessary to establish materiality. The Administrative Law Judge, and the Judicial Officer on appeal, can determine the materiality of representations from an advertisement without the aid of extrinsic evidence. Kimberly Jewels, Inc., P.S. Docket No. 9/65 (P.S.D. July 23, 1981); Cosvetic Labs, P.S. Docket Nos. 9/118-9/143 & 10/38-10/43 (P.S.D. Sept. 30, 1981).

Further, while the percentage of the population which might be affected by an advertisement is not a factor in determining materiality, 1 - 2 percent of the population is certainly a significant segment of the consuming public.

Accordingly, the Administrative Law Judge's finding that the representations set forth in the Complaint are material is affirmed, except with respect to the portion of subparagraph 3d regarding once-a-day use.

Exception IV

"THE REPRESENTATIONS ARE NOT FALSE."

Respondents argue that it is the user of the product and not a physician who should determine whether or not skin discolorations are eliminated by using Dermacure, since the results achieved with this product are necessarily subjective. In their advertisements Respondents represent certain results which are subject to objective evaluation. While there is some subjectivity in determining whether certain other represented results can be achieved by the use of Respondents' product, the determination of efficacy with respect to either type of representation, may be based on the opinion of an expert witness. The evidence presented in this case establishes that Respondents' product will not cause the results represented (see I.D. pp. 6-11). Similarly, and contrary to Respondents' assertion, the absence of any consumer complaints regarding Dermacure does not establish the product's effectiveness or relieve the advertiser from liability under 39 U.S.C. § 3005.; Gilles J. Bitbol, P.S. Docket No. 12/158 (P.S.D. Aug. 28, 1982).

Respondents cite Dr. Engasser's testimony that she had not observed the favorable results with hydroquinone - the key ingredient in Dermacure - report in two scientific articles, and argue that this testimony shows the absence of any consensus in the medical community regarding the effectiveness of hydroquinone. The two articles relied on by Respondents (RX-2 and RX-3) ^2/ both reported some depigmentation with this agent but not the complete disappearance of the skin conditions studied. Whether or not Dr. Engasser, Complainant's expert witness, agrees with the authors' conclusions regarding the effectiveness of hydroquinone in fading excess pigment is irrelevant with regard to Complaint allegation 3a. The articles are consistent with her testimony that hydroquinone does not eliminate the conditions Respondents represent will be permanently removed. Respondents have not produced any scientific study or other evidence to counter this consensus of informed medical opinion.

Respondents do not contest the finding that Dermacure is ineffective in fading dark circles under the eyes. However, as to surface scars, they contend that Dr. Engasser's definition of this condition is irrelevant since the advertisements do not concern the medical condition of scarring. In this regard, Respondents cite extremely small print at the bottom of the advertisements which states their representations apply to "healthy skin."

The quoted notice is so small that the ordinary reader is not likely to even see it, let alone associate it with the representation that Dermacure will fade surface scars. "Surface scar" is not defined in the advertisements. The common definition of the term "scar" is "a mark left in the skin or an internal organ by new corrective tissue that replaces tissue injured . . ." Webster's Third New Inter. Dictionary, 2025 (Unabridged Ed. 1968). Based on this definition, it is concluded that the ordinary reader of Respondents' advertisements would construe the words "surface scar" as meaning a mark left in the skin by new corrective tissue. Such a construction is consistent with the definition given by Dr. Engasser, "the skin's response to injury" (Tr. 38).

Dr. Engasser's testimony that most scarring is hyperpigmented (Tr. 39) was unrebutted. It is concluded that since Dermacure's effectiveness, if any, is to lighten hyperpigmented areas, it would not substantially affect hyperpigmented scars. Similarly, it is concluded that Dermacure would not substantially affect hyperpigmented stretch marks. Respondents' argument that Dermacure would make the stretch marks less noticeable by lightening surrounding skin is unpersuasive since, if the normally pigmented surrounding skin were lightened, this skin would become hyperpigmented and undesirably noticeable. In any event, Respondents' argument does not support the representation that the stretch marks themselves would fade by using Dermacure.

Regarding the representation that Dermacure would have the same effect on all users, Respondents contend that no consumer would believe a topically applied over the counter product - especially a cosmetic cream - would equally affect everyone. This argument is discounted, however, by the mere fact that Respondents include the representation in their advertisements.

Moreover, the purpose of § 3005 is to protect the gullible as well as the wary reader. New Generation, P.S. Docket No. 11/152 (P.S.D. May 13, 1983) at p. 17.

Dr. Engasser testified that "there's a good deal of variability in predicting any success with the use of hydroquinone" (Tr. 44). While, as Respondents note, this witness testified that " t he age effect is not known" (Tr. 81), this does not affect the validity of her ultimate opinion that Dermacure is "not equally effective on all men and women" (Tr. 82).

Respondents contend that Dr. Engasser did not testify with any specificity regarding whether Dermacure would be an effective skin bleacher with use for two to five weeks and occasional use thereafter. However, this witness stated that she generally directs patients to use hydroquinone twice a day for about three months in order to determine its effectiveness (Tr. 44-45).

Finally, with regard to the representations set forth in subparagraph 3e of the Complaint, Respondents contend that Dermacure differs radically from other products in that it is sold through the mail. However, it is concluded that the representation made in the advertisements at issue would be understood by the ordinary reader to convey more than simply differences in the method of marketing the product. Dr. Engasser testified that several products, like Dermacure, contain hydroquinone and a sunscreen (Tr. 45-46).

Accordingly, the Administrative Law Judge's findings that the representations set forth in paragraph 3 of the Complaint ^3/ are false are affirmed.

Exception V

"ALL ORDERS TO SUNSET INDUSTRIES SHOULD BE ALLOWED, AS THESE
ARE REORDERS ONLY, AND THERE CAN BE NO FALSE REPRESENTATIONS TO
THESE CUSTOMERS."

This exception concerns the applicability of a False Representation Order to Sunset Industries, 130 Buena Vista Avenue, Yonkers, New York, 10701-3547. This address is used for receiving reorders of Dermacure (Complainant's Reply Brief at pp. 18-19). The Administrative Law Judge concluded that

"Reorders of Dermacure should be included within the scope of a False Representation Order. False representations in the advertisements that induced the original order are likely to influence purchasers to reorder . . ." (I.D. at pp. 12-13).

Respondents argue that since reordering customers know what they are going to receive, the concept of false representations does not apply. The Sunset Industries address appears on CX-12, which is an order form that includes the statement, in bold type, "Remove Skin Discolorations with the wonder formula DERMACURE." Thus, the key representation at issue is still presented. This representation may encourage a customer to reorder in the hope that continued use of the product will achieve the promised result. In any event,

" w here false claims influence the decision to purchase a product, a False Representation Order against an address at which remittances for the product are sought may be appropriate even though the claims are not made in the advertisements seeking orders to that address." Cosvetic Laboratories, et al., P.S. Docket No. 8/160 and cases consolidated therewith, (P.S.D. on Mot. for Recon. Dec. 22, 1982) at p. 3.

Accordingly, it is concluded that the Administrative Law Judge properly recommended issuance of a False Representation Order against Sunset Industries at the Yonkers, New York address.

Conclusion

After consideration of the entire record, it is concluded that Respondents are engaged in a scheme to obtain money through the mail by means of materially false representations. A remedial order under 39 U.S.C. § 3005 is being issued with this decision.

1/ In their posthearing brief Respondents admitted making the representation alleged in subparagraph 3b of the Complaint, but denied that it is materially false. See Respondents' Posthearing Brief at p. 3.

2/ Spencer, Topical Use of Hydroquinone for Depigmentation and Arndt, Topical Use of Hydroquinone as a Depigmenting Agent, 194 J.A.M.A. 114 and 117, respectively (Nov. 29, 1965).

3/ This conclusion does not apply to the representation regarding once-a-day use. The falsity of that representation has not been considered since, as discussed, it is not material.