George H. Lee Co. v. Federal Trade Commission, 419.

• Decision Date: 28 August 1940
• Docket Number: No. 419.,419.
• Citation: 113 F.2d 583
• Parties: GEORGE H. LEE CO. v. FEDERAL TRADE COMMISSION.
• Court: U.S. Court of Appeals — Eighth Circuit

113 F.2d 583 (1940)

GEORGE H. LEE CO. v. FEDERAL TRADE COMMISSION.

No. 419.

Circuit Court of Appeals, Eighth Circuit.

July 23, 1940.

Rehearing Denied August 28, 1940.

Donald J. Burke, of Omaha, Neb., for petitioner.

William T. Chantland, Sp. Atty., of Washington, D. C. (W. T. Kelley, Chief Counsel, Martin A. Morrison, Asst. Chief Counsel, and James W. Nichol, Sp. Atty., all of Washington, D. C., on the brief), for respondent.

Before GARDNER and SANBORN, Circuit Judges, and COLLET, District Judge.

SANBORN, Circuit Judge.

The petitioner, a Nebraska corporation engaged in advertising, distributing and selling in interstate commerce a product called "Gizzard Capsules" as a remedy or vermifuge for worms in poultry, has petitioned for the review of an order of the Federal Trade Commission requiring that petitioner "cease and desist from representing: (1) that said product is a remedy or vermifuge for all three kinds of worms in poultry; (2) that said product will remove pinworms from poultry; (3) that said product will remove tapeworms from poultry unless it be represented with equal conspicuousness that this product merely shears off the strobilae or chain of segments of the tapeworm, leaving the head of the worm, capable of growing new segments, attached to the intestines of the fowl."

The petitioner challenges this order upon one ground, which is that the representations which the Commission found to be false and misleading, and which are prohibited by its order, had previously been adjudicated by a court of competent jurisdiction not to be false representations, in a libel proceeding brought by the government to condemn forty-seven packages of "Gizzard Capsules", which adjudication it is claimed was binding upon the Commission.

The libel proceeding was instituted on August 8, 1934, in the United States District Court for the Western District of Missouri. The United States in that proceeding charged that this same product was "misbranded in violation of the Food and Drugs Act, Section 8 as amended, Paragraph Third, 21 U.S.C.A. § 10, in the case of drugs, in that the following statements, appearing upon and within the package of the product, are statements regarding the curative or therapeutic effect of the article and are false and fraudulent, in this, that the article contains no ingredient or combination of ingredients capable of producing the effect claimed, and that the same were applied to the said article knowingly and in reckless and wanton disregard of their truth or falsity: (Package label — same for all sizes) `For * * * Large Tape Worms and Pin (Ceca) Worms in Chickens and Turkeys * * * For the Removal of * * * Large Tape and Pin (Ceca) Worms in Poultry * * * delivers the medicine, undiluted, fresh and full strength directly upon the worms in the intestines. * * *' (Circular) `For * * * Large Tape and Pin Worms in Chickens and Turkeys * * * To lay well, hens must be reasonably free from worms * * * Worm your flock with Gizzard Capsules; * * * to expel the worms * * the exact full strength dose of worm medicine is emptied into the intestines and reaches the worms. * * *'"

The petitioner, as claimant and manufacturer of the product, defended the libel proceeding. It denied that the labels or circulars contained false statements as alleged by the government, and denied that its statements were either false or fraudulent or that the capsules were incapable of producing the effects that it was represented they would produce. There were, then, two issues of fact presented for determination in the libel proceeding: (1) Were the challenged statements contained in the labels and circulars false? (2) Was the petitioner guilty of fraud in making such statements? After a trial, the court resolved both of these issues in favor of the petitioner and entered a decree dismissing the proceeding. The government took no appeal, and the decree became final.

Thereafter, on June 11, 1936, the Federal Trade Commission issued its complaint charging petitioner with the use of unfair methods of competition in interstate commerce within the meaning of the "Federal Trade Commission Act", Sections 41-58, U.S.C.Title 15, 15 U.S.C.A. §§ 41-58, to the injury of competitors, by soliciting the sale of and selling "Gizzard Capsules" upon "extravagant, deceptive, misleading and false statements regarding the therapeutic value, efficacy and effect" of its product in advertisements on labels and in pamphlets, newspapers and magazines. The Commission further charged that "as a result thereof, substantial injury has been, and is now being, done by respondent petitioner here to substantial competition in commerce among and between the various States of the United States and in the District of Columbia."

The petitioner moved to strike so much of the complaint as was based upon representations as to the efficacy of its product for the treatment of large roundworms, large tapeworms and pinworms in poultry, on the ground that in the libel proceeding the falsity of such representations was in issue, and that the court in its decree had determined that they were not false, and, in so doing, had necessarily determined the product to be efficacious for the purposes for which it was intended and sold. The motion to strike was denied, and the petitioner filed its answer denying the allegations of the complaint and asserting the defense of res judicata. The Commission overruled that defense, apparently upon the theory that the decree in the libel proceeding was not binding upon it; and, after extended hearings, it found that petitioner, in advertising its product, represented that it was a single remedy for the several kinds of worms in poultry and that this single remedy for all kinds of worms was better than separate remedies for each kind of worm; and also found "that respondent's petitioner's product is not an effective vermifuge for all three kinds of worms, nor is it better than separate remedies for each kind of pin worms or for tape worms in poultry. When administered to fowl...