Novartis Corp. v. Federal Trade Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 8, 2000 Decided August 18, 2000

No. 99-1315

Novartis Corporation and
Novartis Consumer Health, Inc.,
Petitioners

v.

Federal Trade Commission,
Respondent

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 Cor-
poration 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 Novar-
tis's advertisements of its Doan's back pain remedies were
"deceptive" in violation of the Federal Trade Commission Act
(Act), 15 U.S.C. ss 41 et seq., because they contained an
unsubstantiated implied claim of superior efficacy. Accord-
ingly, 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 mar-
keted for over ninety years. After Novartis's predecessor-in-
interest Ciba-Geigy Corporation (Ciba), and Ciba's subsid-
iary, 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) 194-
95. To strengthen the Doan's image, Ciba undertook two
measures. First, Ciba instituted an aggressive television and

__________
1 Novartis was formed in 1996 through the merger of Ciba-Geigy
AG and Sandoz AG.

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-the-
counter 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 com-
plaint alleging Ciba's advertisements violated section 5 of the
Act by making an unsubstantiated claim that Doan's prod-
ucts, 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 general-
ly, 15 U.S.C. s 45, and in particular dissemination of false
advertisements, id s 52. Based on these findings the ALJ
issued an order prohibiting Novartis from asserting unsub-
stantiated claims of superior efficacy for Doan's products.
The ALJ rejected the FTC's request for corrective advertis-
ing, 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 adver-
tising.

In an opinion issued May 13, 1999 the Commission af-
firmed 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 advertise-
ments' 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 analge-
sics--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 rem-
edy 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. According-
ly, 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.2
Novartis 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. Novar-
tis 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,

__________
2 The Commission determined "that the corrective message would
be difficult to communicate in such a short ad without unduly
restricting Respondent's ability to also convey its advertising mes-
sage." Comm'n Dec. 35.

hence, likely to affect their choice of, or conduct regarding, a
product." Cliffdale Assocs., 103 F.T.C. at 165. The Commis-
sion has historically presumed materiality for certain catego-
ries 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 "durabil-
ity, performance, warranties or quality" or "a finding by
another agency regarding the product." Deception State-
ment, 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 materiali-
ty" 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 consider-
ation 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. Accord-
ingly, we reject Novartis's challenge3 and uphold the Commis-
sion'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.

__________
3 In contesting the finding, Novartis argues most vigorously that
materiality of the implied claim is belied by the fact that Doan's
market share grew little or none during the relevant period. The
FTC's definition of materiality, however, embraces any claim that is
"likely to mislead a reasonable consumer." There is no require-
ment of actual deceit. If a claim is material because likely to
deceive, it is not rendered otherwise simply because it is unsuccess-
fully advertised.

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 substantial
role in creating or reinforcing in the public's mind a false
and 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 continue
to make purchasing decisions based on the false belief.
Since this injury cannot be averted by merely requiring
respondent to cease disseminating the advertisement, we
may 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

__________
4 Novartis contends we should review the Commission's findings
de novo, relying on Bose Corp. v. Consumers Union of United
States, Inc., 466 U.S. 485 (1984), in which the Supreme Court
rejected the "clearly erroneous" standard for appellate review of
the district court's "actual malice" finding in a defamation case in
favor of "independent appellate review" to "determine whether the
record establishes actual malice with convincing clarity." 466 U.S.
at 511. This court, however, has already concluded that Bose "does
not change the standard of review in deceptive advertising cases."
FTC v. Brown & Williamson Tobacco Corp., 778 F.2d 35, 41 n.3
(D.C. Cir. 1985); accord Kraft, Inc. v. FTC, 970 F.2d 311, 316-18
(7th Cir. 1992).

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 and somewhat fragmentary,
we have weighed the expert testimony and, taken as a whole,
we find that the record supports the Commission's conclusion.

On the standard's first prong, the Commission concluded
the evidence demonstrated that the challenged advertising
played a "substantial role" in creating or reinforcing a false
belief based almost exclusively on the opinion of the FTC
counsel's expert witness Michael B. Mazis that the Doan's
advertising campaign created a continuing belief in the prod-
ucts' superiority. Mazis, in turn, based his opinion primarily
on two studies: the "Attitude and Usage Telephone Study"
(A&U Study) commissioned by Ciba in 1987, before the
implied claim advertising campaign, and the study conducted
by NFO Research, Inc. (NFO Study) in 1996, after the
campaign ended. Relying on Mazis's comparison of the study
results, the Commission found that the A&U Study "showed
that Doan's had a weak image" and that the NFO Study
"show[ed] that in 1996, a disproportionately high percentage
of Doan's users and aware non-users believed that Doan's was
more effective than other OTC pain relievers for back pain
relief." Comm'n Dec. at 25-26.5 The Commission relied
particularly on Mazis's testimony that a comparison of the
two studies showed that " 'superior efficacy' beliefs for Doan's
relative to Advil, Bayer, and Tylenol increased (between 0.5
and 1.25 scale points on a seven-point scale) between 1987 and
1996 relative to other brands, as did beliefs that Doan's has a

__________
5 Based on Mazis's testimony, the Commission also found that the
Brand Equity Study, conducted by Ciba in 1993 (more than halfway
through the 8-year campaign), "provides strong evidence that the
advertising had already influenced consumer beliefs." Understand-
ably, however, neither Mazis nor the Commission placed much
emphasis on this study. To determine whether the advertising
campaign produced an increased perception of Doan's superiority
that will continue after its termination, the crucial points to compare
are the start and end of the campaign. See JA 782-83 (Mazis
explaining that, by comparing A&U and NFO studies, "we can see,
'Did beliefs change?' ").

'special ingredient' (between 0.75 and 1.875 points)," while
"[a]t the same time, consumer beliefs that Doan's 'is safe to
use'--a claim not made in its advertising campaign--declined
in rough proportion to the other products." Comm'n Dec.
26.6 We conclude that Mazis's opinion testimony constitutes
substantial evidence in support of the Commission's holding
that the Doan's advertisements created or reinforced false
beliefs in the products' efficacy.

We also believe that the record sufficiently supports the
Commission's finding that the advertisements' effects are
likely to linger. The Commission rested its finding primarily
on the conclusion of the NFO Study that six months after the
advertising ended in 1996, "77% of Doan's users and 45% of
those who were aware of but did not use Doan's believed that
the product was superior to other brands for the treatment of
back pain." Comm'n Dec. 29. Characterizing these percent-
ages as "disproportionately high for both groups relative to
other brands," the Commission concluded that "at least six
months after the challenged ads stopped being aired, their
effect continued to linger." Comm'n Dec. 29. We cannot say
this was an irrational inference from the study data on which
the Commission relied.7

IV.

Finally, Novartis challenges the corrective remedy on the
ground that it impermissibly restricts Novartis's free speech

__________
6 While Mazis found that the A&U and NFO studies showed only
"a slight increase in beliefs about Doan's from 1987 to 1996," JA
788, he opined that even a slight increase was significant because
consumer belief in the efficacy of the other three pain-reliever
brands studied went down during the same period.

7 The Commission also relied on three circumstances to infer the
advertising's lingering effect: "[T]he challenged claims were (1)
very salient to consumers (because superior efficacy is among the
primary considerations for a consumer in selecting a back pain
remedy), (2) clearly and consistently conveyed by the challenged
ads, and (3) an integral part of an eight-year campaign," in which
Novartis "spent approximately $65,000,000 disseminating these
claims." Comm'n Dec. 30.

in violation of the First Amendment. We perceive no First
Amendment impediment to the remedy.

In Central Hudson Gas & Elec. Corp. v. Public Serv.
Comm'n, 447 U.S. 557, 563 (1980), the United States Supreme
Court set out the standards applicable to governmental re-
strictions on commercial speech:

The State must assert a substantial interest to be
achieved by restrictions on commercial speech. More-
over, the regulatory technique must be in proportion to
that interest. The limitation on expression must be
designed carefully to achieve the State's goal. Compli-
ance with this requirement may be measured by two
criteria. First, the restriction must directly advance the
state interest involved; the regulation may not be sus-
tained if it provides only ineffective or remote support
for the government's purpose. Second, if the govern-
mental interest could be served as well by a more limited
restriction on commercial speech, the excessive restric-
tions cannot survive.

447 U.S. at 563. The remedy here advances precisely the
"interest involved," namely the avoidance of misleading and
deceptive advertising. Further, as this court noted in
Warner-Lambert, whether a corrective remedy imposes a
restriction "greater than necessary to serve the interest
involved ... goes to the appropriateness of the order" under
the Commission's two-pronged standard addressed above.
Warner-Lambert, 562 F.2d at 758. Because the standard has
been satisfied here, as it was in Warner-Lambert, we con-
clude the Commission's remedy is not overly broad.

For the preceding reasons Novartis's petition for review is

Denied.