F.T.C. v. Qt, Inc.

• Decision Date: 03 January 2008
• Docket Number: No. 07-1662.,07-1662.
• Citation: 512 F.3d 858
• Parties: FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. QT, INC., Q-Ray Company, Bio-Metal, Inc., and Que Te Park, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

512 F.3d 858

FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. QT, INC., Q-Ray Company, Bio-Metal, Inc., and Que Te Park, Defendants-Appellants.

No. 07-1662.

United States Court of Appeals, Seventh Circuit.

Argued October 31, 2007.

Decided January 3, 2008.

Lawrence DeMille-Wagman (argued), Imad D. Abyad, William E. Kovacic, Federal Trade Commission, Office of the General Counsel, Washington, DC, for Plaintiff-Appellee.

Helen E. Witt (argued), Wendy Netter Epstein, Kirkland & Ellis, Chicago, IL, for Defendants-Appellants.

Before EASTERBROOK, Chief Judge, and BAUER and WILLIAMS, Circuit Judges.

EASTERBROOK, Chief Judge.

WIRED Magazine recently put the Ray Ionized Bracelet on its list of the top ten Snake-Oil Gadgets. See http://blog. wired.com/gadgets/2007/11/10-awesomegadg.html.

NOTE: OPINION CONTAINING TABLE OR OTHER DATA THAT IS NOT VIEWABLE

The "Gold Deluxe" Q-Ray Ionized Bracelet

The Federal Trade Commission has an even less honorable title for the bracelet's promotional campaign: fraud. In this action under 15 U.S.C. §§ 45(a), 52, 53, a magistrate judge, presiding by the parties' consent, concluded after a bench trial that the bracelet's promotion has been thoroughly dishonest. The court enjoined the promotional claims and required defendants to disgorge some $16 million (plus interest) for the FTC to distribute to consumers who have been taken in. 448 F.Supp.2d 908 (N.D.Ill.2006), modified in part by 472 F.Supp.2d 990 (N.D.Ill.2007).

According to the district court's findings, almost everything that defendants have said about the bracelet is false. Here are some highlights:

• Defendants promoted the bracelet as a miraculous cure for chronic pain, but it has no therapeutic effect.

• Defendants told consumers that claims of "immediate, significant or complete pain relief' had been "test-proven"; they hadn't.

• The bracelet does not emit "Q-Rays" (there are no such things) and is not ionized (the bracelet is an electric conductor, and any net charge dissipates swiftly). The bracelet's chief promoter chose these labels because they are simple and easily remembered—and because Polaroid Corp. blocked him from calling the bangle "polarized".

• The bracelet is touted as "enhancing the flow of bio-energy" or "balancing the flow of positive and negative energies"; these empty phrases have no connection to any medical or scientific effect. Every other claim made about the mechanism of the bracelet's therapeutic effect likewise is techno-babble.

• Defendants represented that the therapeutic effect wears off in a year or two, despite knowing that the bracelet's properties do not change. This assertion is designed to lead customers to buy new bracelets. Likewise the false statement that the bracelet has a "memory cycle specific to each individual wearer" so that only the bracelet's original wearer can experience pain relief is designed to increase sales by eliminating the second-hand market and "explaining" the otherwise-embarrassing fact that the buyer's friends and neighbors can't perceive any effect.

• Even statements about the bracelet's physical composition are false. It is sold in "gold" and "silver" varieties but is made of brass.

The magistrate judge did not commit a clear error, or abuse his discretion, in concluding that the defendants set out to bilk unsophisticated persons who found them selves in pain from arthritis and other chronic conditions.

Defendants maintain that the magistrate judge subjected their statements to an excessively rigorous standard of proof. Some passages in the opinion could be read to imply that any statement about a product's therapeutic effects must be deemed false unless the claim has been verified in a placebo-controlled, double-blind study: that is, a study in which some persons are given the product whose effects are being investigated while others are given a placebo (with the allocation made at random), and neither the person who distributes the product nor the person who measures the effects knows which received the real product. Such studies are expensive, not only because of the need for placebos and keeping the experimenters in the dark, but also because they require large numbers of participants to achieve statistically significant results. Defendants observe that requiring vendors to bear such heavy costs may keep useful products off the market (this has been a problem for drugs that are subject to the FDA's testing protocols) and prevent vendors from making truthful statements that will help consumers locate products that will do them good.

Nothing in the Federal Trade Commission Act, the foundation of this litigation, requires placebo-controlled, double-blind studies. The Act forbids false and misleading statements, and a statement that is plausible but has not been tested in the most reliable way cannot be condemned out of hand. The burden is on the Commission to prove that the statements are false. (This is one way in which the Federal Trade Commission Act differs from the Food and Drug Act.) Think about the seller of an adhesive bandage treated with a disinfectant such as iodine. The seller does not need to conduct tests before asserting that this product reduces the risk of infection from cuts. The bandage keeps foreign materials out of the cuts and kills some bacteria. It may be debatable how much the risk of infection falls, but the direction of the effect would be known, and the claim could not be condemned as false. Placebo-controlled, double-blind testing is not a legal requirement for consumer products.

But how could this conclusion assist defendants? In our example the therapeutic claim is based on scientific principles. For the Q-Ray Ionized Bracelet, by contrast all statements about how the product works—Q-Rays, ionization, enhancing the flow of bio-energy, and the like—are blather. Defendants might as well have said: "Beneficent creatures from the 17th Dimension use this bracelet as a beacon to locate people who need pain relief, and whisk them off to their homeworld every night to provide help in ways unknown to our science."

Although it is true, as Arthur C. Clarke said, that "[a]ny sufficiently advanced technology is indistinguishable from magic" by those who don't understand its principles ("Profiles of the Future" (1961)), a person who promotes a product that contemporary technology does not understand must establish that this "magic" actually works. Proof is what separates an effect new to science from a swindle. Defendants themselves told customers that the bracelet's efficacy had been "test-proven"; that statement was misleading unless a reliable test had been used and statistically significant results achieved. A placebo-controlled, double-blind study is the best test; something less may do (for there is no point in spending $1 million to verify a claim worth only $10,000 if true); but defendants have no proof of the Q-Ray Ionized Bracelet's efficacy. The "tests" on which they relied were bunk. (We need not repeat the magistrate judge's exhaustive evaluation of this subject.) What remain are testimonials, which are not a form of proof because most testimonials represent a logical fallacy: post hoc ergo propter hoc. (A person who experiences a reduction in pain after donning the bracelet may have enjoyed the same reduction without it. That's why the "testimonial" of someone who keeps elephants off the streets of a large city by snapping his fingers is the basis of a joke rather than proof of cause and effect.)

To this defendants respond that one study shows that the Q-Ray Ionized Bracelet does reduce pain. This study, which the district court's opinion describes in detail, compared the effects of "active" and "inactive" bracelets (defendants told the experimenter which was which), with the "inactive" bracelet serving as a control. The study found that both "active" and "inactive" bracelets had a modest—and identical—effect on patients' reported levels of pain. In other words, the Q-Ray Ionized Bracelet exhibits the placebo effect. Like a sugar pill, it alleviates symptoms even though there is no apparent medical reason. The placebo effect is well established. See, e.g., Anne Harrington, The Placebo Effect: An Interdisciplinary Exploration (1999); Asbjorn Hrobjartsson & Peter C. Gotzsche, Is the Placebo Powerless? An Analysis of Clinical Trials Comparing Placebo with No Treatment, 344 New...