498 F.2d 414 (2nd Cir. 1974), 236, United States v. J. B. Williams Co., Inc.

Docket Nº:236, 73-1624.
Citation:498 F.2d 414
Party Name:UNITED STATES of America, Plaintiff-Appellee, v. The J. B. WILLIAMS COMPANY, INC., and Parkson Advertising Agency, Inc., Defendants-Appellants.
Case Date:May 02, 1974
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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498 F.2d 414 (2nd Cir. 1974)

UNITED STATES of America, Plaintiff-Appellee,


The J. B. WILLIAMS COMPANY, INC., and Parkson Advertising Agency, Inc., Defendants-Appellants.

No. 236, 73-1624.

United States Court of Appeals, Second Circuit.

May 2, 1974

Argued Dec. 18, 1973.

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Charles A. Horsky, Washington, D.C. (John E. Vanderstar, Michael Boudin, Covington & Burling, Washington, D.C., Powell Pierpoint, Hughes Hubbard & Reed, and Henry Edward Schultz, New

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York City, of counsel), for defendants-appellants.

Patricia M. Hynes, Asst. U.S. Atty. (Paul J. Curran, U.S. Atty., for the Southern District of New York, of counsel), for plaintiff-appellee.

Before FRIENDLY, FEINBERG and OAKES, Circuit Judges.

FRIENDLY, Circuit Judge:

On November 28, 1969, the Federal Trade Commission made a certificate to the Attorney General pursuant to § 16 of the Federal Trade Commission Act, 15 U.S.C. § 56. The Commission's letter stated it had reason to believe The J. B. Williams Company (Williams) and Parkson Advertising Agency, Inc. (Parkson) were liable for penalties under § 5(l) of the Act, 15 U.S.C. § 45(l) 1 for violation of a cease and desist order for which the Sixth Circuit had granted enforcement, J. B. Williams Co. v. FTC, 6 Cir., 381 F.2d 884 (1967), and recommended that the Attorney General institute 'appropriate proceedings . . . for recovery of civil penalties as prescribed in said section.' The appropriate proceedings were described in a draft complaint, which alleged 100 violations and sought 'judgment against defendants in the total sum of $500,000.'

Five months later the Government began this action; the complaint alleged the same 100 violations, but unlike the Commission's draft complaint, demanded judgment for $500,000 against each defendant. The defendants answered and demanded a jury trial. Subsequently, the Government moved for summary judgment. Judge Motley granted this in the sum of $456,000 against Williams and $356,000 against Parkson with leave to Parkson to apply to pay its penalties in installments with interest, 354 F.Supp. 521 (S.D.N.Y.1973). The defendants have appealed.

I. The Facts.

The instant controversy began with the issuance of a complaint by the FTC in December 1962 relating to defendants' newspaper and television advertising for Geritol, an iron and vitamin product. The gist of the complaint was that the advertising have the impression that Geritol was an effective general remedy for tiredness, loss of strength or a rundown feeling, whereas in fact it was effective only in the small minority of cases where these conditions were caused by a deficiency in iron or in the vitamins contained in Geritol. After proceedings which it is unnecessary here to detail, the FTC issued a cease and desist order on September 28, 1965. Paragraph 1(d), which both sides agree to be the broadest paragraph of the order, is set forth in the margin. 2 Williams and

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Parkson petitioned for review of the order under § 5(c) of the FTC Act, 15 U.S.C. § 45(c). In the review proceeding, the Sixth Circuit directed that the order be enforced except for a provision directing the petitioners to cease and desist from representing that iron deficiency or iron deficiency anemia can be self-diagnosed without a medical test. J. B. Williams Co. v. FTC, supra, 381 F.2d at 891. The FTC entered a modified order on November 24, 1967. Williams and Parkson did not seek certiorari.

In October 1968, after receiving appellants' first compliance report, the FTC directed a public hearing on compliance. At the hearing it viewed representative Geritol television commercials and heard argument. Subsequently it issued an opinion in which it concluded that the advertising continued 'to treat that portion of the population suffering from tiredness as equal to that portion of the population which experience tiredness due to iron deficiency anemia.' The principal basis for that conclusion was that although the television commercials had dutifully announced that 'the great majority of tired people don't feel that way because of iron-poor blood and Geritol won't help them,' the effect of this disclaimer was largely obliterated by the visual presentation and by such phrases as 'but it is a medical fact that many of the millions of people who have ironpoor blood are tired and need Geritol' (emphasis in original) or 'but millions do have iron-poor blood and you could be one of the many who are tired for that reason and need Geritol.' The FTC advised that 'in order to avoid future enforcement proceedings' Williams and Parkson should immediately discontinue the broadcast of the television commercials provided the Commission or any similar ones. The Commission also directed Williams and Parkson to file a further compliance report by January 31, 1969.

The second compliance report stated that the company was currently using only three different television commercials (subsequently termed the 'AA' advertisements), scripts of which were submitted with the report. These commercials warned viewers that they might be suffering from 'iron-poor blood' and focused on Geritol's ability to cure iron deficiency. They spoke of Geritol's 'blood-building power' and of its capacity to build 'iron power in your blood fast.' The report also described and included scripts for five other commercials (subsequently termed the 'BB' advertisements), which were no longer being disseminated but which the company believed to be in compliance. Williams and Parkson included in the report a request to meet promptly with Commission representatives in order to facilitate the preparation of new advertising themes. On May 8, 1969, the Chief of the FTC's Compliance Division wrote Williams' counsel that 'the Commission would be favorably disposed to accepting as compliance with its order to cease and desist the absolute discontinuance by J. B. Williams Company, Inc., of the BB advertisements submitted with your last report and the continued use of the AA advertisements only with deletion from them of all references to 'power'.' 3 The letter also advised that Williams would have to eliminate all references in its labeling to prevention of tiredness. A week later, on May 15, counsel wrote that Williams and Parkson were willing to accept these conditions, although they did not concede either that the BB advertisements or the use of the word 'power' in the AA advertisements violated the order. Counsel also agreed to the omission of all labeling references to

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Geritol's ability to prevent tiredness, although not conceding 'that the Commission's Order relates in any way to preventative claims.' On June 6, the Commission wrote counsel, 4 acknowledging receipt of the May 15 letter, stating it was 'of the view that the 'AA' commercials will comply with the order if all references to 'power' are deleted,' and requesting another report within 30 days. 5

The third compliance report, submitted on July 2, 1969, stated that Williams and Parkson had decided to stop using the AA commercials rather than revise them to eliminate the word 'power'; that 'the process of removing these commercials from the air and substituting others for them was commenced promptly and was completed during June'; and that the word 'power' would be deleted if the AA commercials were to be used again. In accordance with the Commission's request, Williams submitted scripts of television commercials and other promotional materials currently in use.

Shortly thereafter a new ground for controversy arose. Counsel advised the Commission that Williams was test-marketing a new product called FemIron. The Compliance Division asked for the formula and for copies of all current and proposed advertising materials. The Company promptly responded, noting that FemIron was a food supplement, not a drug or tonic; that it did not contain vitamins, as Geritol does; that it was intended not to treat iron deficiency but merely to provide a supplemental source of iron for women in the child-bearing years. The letter suggested that for these reasons FemIron was not within the provisions of the cease and desist order making the order applicable not only to Geritol but to 'any other preparation of substantially similar composition or possessing substantially similar properties, under whatever name or names sold.' On July 16, a member of the Division of Compliance responded, indicating that the Commission's Division of Scientific Opinions believed that FemIron and Geritol possessed substantially similar properties. The letter indicated that the Commission would consider FemIron's status, whether the FemIron advertising violated the order, and, if so, 'what action should be taken.' On September 3 the FTC formally rejected the third compliance report. The Commission concluded that several of the Geritol commercials violated the cease and desist order and that FemIron was subject to the order. The letter stated an investigation would be made to obtain evidence of violations 'for use in possible enforcement proceedings.'

The draft complaint which the FTC submitted to the Attorney General and the complaint which he subsequently filed alleged violations of three different types. Counts 1 through 4 related to the use of several of the AA commercials, without deletion of the word 'power', between June 10 and June 20, 1969. Treating each day's exhibition of a different commercial as the unit of violation, the draft complaint sought penalties under these counts totaling $80,000; the final complaint sought that sum from each defendant. Counts 5-9 related to commercials of a new type submitted in the third compliance report, referred to as the 'sad-glad' commercials, which were...

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