F.T.C. v. Pantron I Corp.

Citation33 F.3d 1088
Decision Date25 August 1994
Docket NumberNos. 92-56228,92-56292,s. 92-56228
Parties, 1994-2 Trade Cases P 70,694 FEDERAL TRADE COMMISSION, Plaintiff-Appellant-Cross-Appellee, v. PANTRON I CORPORATION, et al., Defendants-Appellees-Cross-Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

Melvin H. Orlans, F.T.C., Washington, DC, for plaintiff-appellant-cross-appellee.

Allen B. Grodsky, Browne & Woods, Beverly Hills, CA, for defendants-appellees-cross-appellants.

Appeal from the United States District Court for the Central District of California.

Before: D.W. NELSON, REINHARDT, and BRUNETTI, Circuit Judges.

REINHARDT, Circuit Judge:

These consolidated appeals require us to decide a previously unresolved question of federal consumer protection law: Whether it is lawful for a seller to represent a product as "effective" when its efficacy results solely from a "placebo effect." 1 We conclude that the answer is no and that the representation constitutes a "false advertisement" under the Federal Trade Commission Act.

The Federal Trade Commission, Pantron I Corporation, and Hal Z. Lederman appeal separate parts of the district court's order which enjoined Pantron and Lederman (Pantron's president and sole owner) from making certain advertising representations regarding the effectiveness of a purported baldness cure which Pantron markets as "The Helsinki Formula." In its appeal, the F.T.C. claims that the district court erred by not also enjoining Pantron and Lederman from representing that: (1) the Formula "was the subject of medical investigative work by responsible European physicians," and (2) the Formula "is effective to some extent for some people in dealing with male pattern baldness." The F.T.C. also argues that the district court erred in refusing to grant monetary equitable relief. In their cross-appeal, Pantron and Lederman argue that the district court erred in concluding that the Formula is a "drug" under 15 U.S.C. Sec. 55(c). They also ask for sanctions. We reverse the district court's judgment to the extent that the F.T.C.'s appeal challenges it. However, we affirm the district court on the issues raised in the cross-appeal.

I.

Pantron I Corporation and Hal Z. Lederman market a product known as the Helsinki Formula. 2 This product supposedly arrests hair loss and stimulates hair regrowth in baldness sufferers. The Formula consists of a conditioner and a shampoo, and it sells at a list price of $49.95 for a three-month supply. The ingredients which allegedly cause the advertised effects are polysorbate 60 and polysorbate 80. 3 Pantron offers a full money-back guarantee for those who are not satisfied with the product.

This case involves the F.T.C.'s challenge to Pantron's advertisements promoting the Helsinki Formula. These advertisements (including late-night infomercials hosted by the "Man from U.N.C.L.E.," Robert Vaughn) feature both the hair loss claim and the claim that the Formula promotes growth of new hair in baldness sufferers. They also represent that recognized scientific studies support these claims. As occasionally occurs in our administrative state, Pantron's advertising claims came under rather intense scrutiny from a variety of regulatory entities. After the United States Postal Service, 4 the Food and Drug Administration, 5 the Los Angeles County District Attorney, 6 and even the Council of Better Business Bureaus 7 took varying degrees of action against Pantron's advertising and marketing of the Formula, the Federal Trade Commission filed the instant suit on November 18, 1988. The F.T.C.'s complaint directed itself to the advertisements which represented that the Helsinki Formula was effective and that there was scientific support for this conclusion. The complaint alleged that the representations were false and constituted an unfair or deceptive trade practice in violation of sections 5 and 12 of the Federal Trade Commission Act. See 15 U.S.C. Secs. 45, 52. The Commission sought a permanent injunction and monetary equitable relief.

The district court conducted a 5-day bench trial in November of 1989. The F.T.C. presented a variety of evidence which tended to show that the Helsinki Formula had no effectiveness (other than its placebo effect) in arresting hair loss or promoting hair regrowth. The Commission introduced the expert testimony of Dr. Karl Kramer, a dermatologist who stated that, based on his knowledge and review of the medical literature, there was "no reason to believe" that the Helsinki Formula would be in any way useful in treating hair loss. He also stated that his opinion was in accord with the consensus view of the medical community.

Dr. Kramer's testimony was corroborated by two other experts, Drs. Elaine Orenberg and Theodore Ganiats. Dr. Orenberg stated that the studies on which Pantron relied--by Dr. Schreck-Purola and Dr. Pons--failed to satisfy the generally-accepted scientific standards of being randomized, double-blinded, and placebo controlled. Dr. Ganiats, who had conducted a study of another polysorbate-60-based baldness treatment, expressed his opinion that neither polysorbate-60 nor polysorbate-80--the two allegedly result-producing ingredients in the Helsinki Formula--was effective in reducing hair loss or promoting hair regrowth. 8 The court also took judicial notice that the Food and Drug Administration had issued a rule that prohibited marketers of over-the-counter baldness treatments from labelling their products as effective. See 21 C.F.R. Sec. 310.527. The F.D.A.'s final rule, which applies to all over-the-counter hair growth products, specifically identifies polysorbate 60 and several other ingredients which are found in the Helsinki Formula. See id. Sec. 310.527(a). The F.D.A. rule concludes that "[b]ased on evidence currently available, all labeling claims for OTC hair grower and hair loss prevention drug products for external use are either false, misleading, or unsupported by scientific data." Id. 9

Finally, the F.T.C. introduced evidence of two studies which had determined that polysorbate-based products were ineffective in stopping hair loss and promoting hair regrowth. The more important study, known as the Groveman study, was a placebo-controlled, double-blinded, randomized study which was published in the Archives of Internal Medicine, a peer-reviewed journal. See Howard D. Groveman, et al., Lack of Efficacy of Polysorbate 60 in the Treatment of Male Pattern Baldness, 145 Archives of Internal Medicine 1454 (1985). This study found "[n]o statistically significant difference" between the control and treatment groups, and that nearly a quarter of the participants in each group reported new hair growth. The authors concluded that "polysorbate 60 is not an effective remedy for MPB [male pattern baldness]," and that hair regrowth products possess a very strong placebo effect. 10 In addition, the F.T.C. introduced the so-called Shuster study, an unpublished study which compared a polysorbate-based product to Pantene, a hair product that was presumed to have no inherent curative or restorative qualities. This study also concluded that polysorbate-based products were ineffective, although the F.T.C. acknowledges that "the failure to include a clearcut placebo somewhat reduces [its] value." 11

In response, Pantron introduced evidence that users of the Helsinki Formula were satisfied that it was effective. It offered the live and deposition testimony of 18 users who had experienced hair regrowth or a reduction in hair loss after using the Formula. It also introduced evidence of a "consumer satisfaction survey" it conducted in late 1988. In this "survey," which occurred during routine sales follow-up calls, a representative of Pantron interviewed a cross-section of 579 Helsinki Formula customers. Although the Pantron official who conducted the survey could not remember the questions he asked, and the company did not keep a record of these questions, Pantron introduced the results of its "survey" into evidence. The survey data showed positive results in a significant percentage of users, ranging from 29.4% of those who had used the product less than 2 months, to 70% of those who had used it for 6 months or more. Pantron also introduced evidence that over half of its orders come from repeat purchasers, that it had received very few written complaints, and that very few of Pantron's customers (less than 3%) had exercised their rights under the money-back guarantee.

Pantron also introduced several clinical studies of its own. First, it offered the results of Finnish studies, for which the Helsinki Formula was named, performed by Dr. Ilona Schreck-Purola. Her uncontrolled, unblinded, unrandomized, un-peer-reviewed study concluded that a polysorbate-based product was effective in arresting excessive hair loss within two to four weeks, and that it led to new hair growth in 60% of the subjects within four months. Although Dr. Schreck-Purola acknowledged that "the medical community remains of the opinion that polysorbates are not effective in treating male pattern baldness," 12 she nonetheless stated that, in her opinion, polysorbates help alleviate baldness by destroying the cholesterol in the testosterone that destroys hair follicles.

Pantron also introduced the testimony of Dr. Annik Pons, a French dermatologist who conducted an uncontrolled, unblinded study of a polysorbate product's effectiveness. This study relied on two measures of hair loss. First, participants were to count the number of hairs which fell in their sink or on their pillow each day. Second, the participants received three examinations by physicians who, applying the same amount of pressure each time, pulled a tuft of hair from the participant's scalp and counted the number of hairs pulled out. 13 Employing this method, the doctors found an 82-87% decrease in the rate of hair loss in eleven months. The physicians sought to...

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