Novartis Corp & Novartis Cons. Health v. Fed. Trade Comm'n.

• Decision Date: 18 August 2000
• Docket Number: No. 99-1315,99-1315
• Citation: 223 F.3d 783
• Parties: (D.C. Cir. 2000) Novartis Corporation and Novartis Consumer Health, Inc.,Petitioners v. Federal Trade Commission, Respondent
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 783

223 F.3d 783 (D.C. Cir. 2000)

Novartis Corporation and Novartis Consumer Health, Inc.,Petitioners v. Federal Trade Commission, Respondent

No. 99-1315

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 8, 2000

Decided August 18, 2000

[Copyrighted Material Omitted]

On Petition for Review of an Order of the Federal Trade Commission

Michael L. Denger argued the cause for the petitioners.Miguel A. Estrada was on brief for the petitioners.

Daniel J. Popeo and Gene C. Schaerr were on brief for amicus curiae Washington Legal Foundation.

Thomas A. Thompson was on the brief for amicus curiae Grocery Manufacturers of America, Inc.

John F. Daly, Assistant General Counsel, Federal Trade Commission, argued the cause for the respondent. Debra A. Valentine, General Counsel, Federal Trade Commission, was on brief for the respondent.

Before: Williams, Henderson and Randolph, Circuit Judges.

Opinion for the court filed by Circuit Judge Henderson.

Karen LeCraft Henderson, Circuit Judge:

Novartis Corporation and Novartis Consumer Health, Inc (collectively Novartis), subsidiaries of Novartis Holding AG, petition for review of a Federal Trade Commission (FTC, Commission) cease-and-desist order. The Commission found that Novartis's advertisements of its Doan's back pain remedies were "deceptive" in violation of the Federal Trade Commission Act (Act), 15 U.S.C. §§ 41 et seq., because they contained an unsubstantiated implied claim of superior efficacy. Accordingly, it ordered Novartis to cease the deceptive advertising and to include in future Doan's advertisements a corrective disclaimer of superiority. For the reasons set out below, we reject Novartis's challenge both to the FTC's finding of deceptiveness and to the corrective advertising remedy it provided.

I.

Doan's over-the-counter back pain products have been marketed for over ninety years. After Novartis's predecessor-ininterest Ciba-Geigy Corporation (Ciba), and Ciba's subsidiary, Ciba Self-Medication, Inc.,¹ purchased Doan's in 1987, Ciba conducted a marketing study which concluded: "Doan's has a weak image in comparison to the leading brands of analgesics and would benefit from positioning itself as a more effective product that is strong enough for the types of backaches sufferers usually get." Joint Appendix (JA) 19495. To strengthen the Doan's image, Ciba undertook two measures. First, Ciba instituted an aggressive television and newspaper advertising campaign, which lasted from May 1988 through June 1996. The new advertisements characterized Doan's as a remedy effective specifically for back pain and as containing a special ingredient (magnesium salicylate) not found in other over-the-counter analgesics. At least some of the advertisements displayed images of competing over-thecounter pain remedies. Second, Ciba expanded the Doan's product line, introducing "Extra Strength Doan's" in late 1987 (renaming its existing product "Regular Strength Doan's") and "Doan's P.M." in September 1991.

On June 21, 1998 the FTC issued an administrative complaint alleging Ciba's advertisements violated section 5 of the Act by making an unsubstantiated claim that Doan's products, because of their special ingredients, were more effective at relieving back pain than other over-the-counter products.Following a trial the administrative law judge (ALJ) issued a decision dated March 9, 1998 in which he found that the advertisements were deceptive in violation of sections 5 and 12 of the Act, which prohibit, respectively, unfair methods of competition and unfair or deceptive acts or practices generally, 15 U.S.C. § 45, and in particular dissemination of false advertisements, id § 52. Based on these findings the ALJ issued an order prohibiting Novartis from asserting unsubstantiated claims of superior efficacy for Doan's products.The ALJ rejected the FTC's request for corrective advertising, finding so "drastic" a remedy unjustified. Novartis appealed the deceptiveness finding to the Commission and the FTC's counsel cross-appealed the denial of corrective advertising.

In an opinion issued May 13, 1999 the Commission affirmed the ALJ's determination that the advertising claims were deceptive in violation of sections 5 and 12 of the Act.Like the ALJ, the Commission concluded the advertisements' dual claims--that Doan's products are particularly effective for relieving back pain and that they contain an active ingredient not found in other over-the-counter analgesics--while each literally true, in combination implied that Doan's was superior to other analgesics in relieving back pain because of its special ingredient, for which claim there was no substantiation. The Commission reversed the ALJ's corrective advertising determination, concluding such a remedy was warranted because the Doan's advertisements had created or reinforced consumer misbelief in Doan's superior efficacy and the misbelief was likely to continue. Accordingly, the Commission ordered Novartis to include in future advertisements the following disclaimer: "Although Doan's is an effective pain reliever, there is no evidence that Doan's is more effective than other pain relievers for back pain."Commission Order at 3. The Commission ordered that the remedy "continue for one year and until respondent has expended on Doan's advertising a sum equal to the average spent annually during the eight years of the challenged campaign," subject to an exemption "for any television or radio advertisement of 15 seconds or less in duration." Id.²Novartis has petitioned for review of both the deception finding and the corrective advertising directive.

II.

Novartis first challenges the Commission's finding that the advertisements were "deceptive" in violation of sections 5 and 12 of the Act. The FTC applies a three-pronged test to determine deceptive advertising, asking whether "(1) a claim was made; (2) the claim was likely to mislead a reasonable consumer and (3) the claim was material." Commission Decision (Comm'n Dec.) at 5 (citing, e.g., In re Cliffdale Assocs., Inc., 103 F.T.C. 110, 165 (1984)); see generally 1983 FTC Policy Statement on Deception (Deception Statement), appended to Cliffdale Assocs., 103 F.T.C. at 176-184. Novartis does not dispute that the Doan's advertisements made the implied claim charged or that it is likely to deceive but does contest the Commission's finding that the claim was material. We conclude the materiality finding is adequately supported.

Under the Commission's test, a material claim is one that "involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product." Cliffdale Assocs., 103 F.T.C. at 165. The Commission has historically presumed materiality for certain categories of claims: (1) all express claims, (2) intentional implied claims and (3) claims that "significantly involve health, safety, or other areas with which the reasonable consumer would be concerned," including a claim that "concerns the purpose, safety, efficacy, or cost of the product or service," its "durability, performance, warranties or quality" or "a finding by another agency regarding the product." Deception Statement, 103 F.T.C. at 182 (footnotes omitted). The Commission applied the presumption here because it found the implied claim was intentional and involved both a health matter and the products' purpose and efficacy. Nevertheless, given "the evidence adduced by Novartis," the Commission deemed it "necessary to look beyond a simple presumption of materiality" to the particular facts. Comm'n Dec. 20. After reviewing the evidence, the Commission concluded: "The extensive record amassed in this proceeding strongly confirms the common-sense proposition that efficacy is a pivotal consideration for consumers in selecting an analgesic, and that claims of superior efficacy are highly material to those consumer choices." Commission Dec. at 20. The Commission's finding of materiality is substantially supported by the evidence it cited, including the opinions of both sides' experts, see JA 831, 759, 956, and numerous consumer and marketplace studies, see JA 640, 329, 270, 282. See Comm'n Dec. 14-15. Accordingly, we reject Novartis's challenge³ and uphold the Commission's finding of an implied deceptive claim in violation of the Act. See Thompson Med. Co. v. FTC, 791 F.2d 189, 196 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987) (court's "task" is "to determine if the Commission's finding is supported by substantial evidence on the record as a whole").⁴

III.

Next, Novartis asserts the corrective advertising remedy is without sufficient record support. In Warner-Lambert Co. v. FTC, 562 F.2d 749, 762 (D.C. Cir. 1977), cert. denied, 435 U.S. 950 (1978), we affirmed the Commission's statutory authority to impose corrective advertising and approved the standard it adopted for doing so:

(I)f a deceptive advertisement has played a substantialrole in creating or reinforcing in the public's mind a falseand material belief which lives on after the false advertis-ing ceases, there is clear and continuing injury to compe-tition and to the consuming public as consumers continueto make purchasing decisions based on the false belief. Since this injury cannot be averted by merely requiring respondent to cease disseminating the advertisement, wemay appropriately order respondent to take affirmative action designed to terminate the otherwise continuing ill effects of the advertisement.

Warner-Lambert, 562 F.2d at 762 (quoting In re Warner Lambert Co., 86 F.T.C. 1398, 1499-1500 (1975)) (alteration in original). This language "dictates two factual inquiries: (1) did [respondent's] advertisements play a substantial role in creating or reinforcing in the public's mind a false belief about the product? and (2) would this belief linger on after the false advertising ceases?" Warner-Lambert, 562 F.2d at 762. While the evidence is thin...