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Mr. CASSEDY. I filed yesterday, Mr. Reece, a copy of the judgment, to which you refer. That was a judgment without prejudice to the United States or to the Emerson Drug Co. with respect to the rights of either in regard to the violations of the law.
As I understand it, there was no testimony taken in that case, but it resulted in this judgment which I have already filed.
Now, after the judgment was filed, or rather at the time of that judgment
Mr. SADOWSKI. Are you referring to this judgment here from the circuit court of appeals?
Mr. Cassady. No, sir; I am referring to the judgment in the case of the United States of America v. a Number of Quantities of Emerson's Bromo Seltzer. That is a copy of the judgment, which I have a photostat of, which was filed yesterday.
That is the case which was instituted by the Food and Drug Administration against Bromo Seltzer in the District Court for the Southern District of New York.
That judgment is dated the second day of January 1940, and it is a judgment without prejudice to the rights of either party. It does not decide anything.
Mr. REECE. But had not the Food and Drug Administration issued suggested labels for bromides and these other headache remedies?
Mr. CASSEDY. Yes, sir. I believe the first time they suggested them was in 1939. They then sent out a mimeographed form of those suggested warnings.
Now, at the time of the settlement and disposition of this case, this Bromo Seltzer case, in the district court, the Bromo Seltzer Co. or the Emerson Drug Co. that make Bromo Seltzer, represented that they had reduced their formula.
In other words, they reduced the contents of bromides and acetanilid in that product. After the settlement and entry of this judgment in 1940, so I am very reliably informed, they submitted to the Food and Drug Administration a copy of their new proposed label.
I filed that with the committee yesterday. That label was submitted to the Food and Drug Administration, and it is my information, which can be checked by a telephone call by any member of the committee, that the representative of the Food and Drug Administration who had authority wrote the Emerson Drug Co. that the suggested label that they proposed to use was not in conformity with their suggested warnings, and they enclosed a copy of their suggested warnings, with respect to bromides and acetanilid in the same letter.
Now, they have not approved it, either directly or indirectly, but on the contrary they have disapproved it by that communication.
That was the very point I wanted to make vesterday. I am certain that Dr. Hunbar or any representative who knows the facts at the Food and Drug Administration will confirm my statements.
I am so sure of it that I would be very happy to have you call any of them. Now with those corrections, I think the other statements which Mr. Reece made are correct, except that I do not agree that our proceeding is in any wise in conflict with the Food and Drug Administration.
I think that it is in coordination and cooperation with the Food and Drug Administration.
Mr. REECE. Do you feel that the representatives of the Food and Drug Administration agreed to the order in this case on December the 20th, 1939, which the court issued, without having some understanding of what the label and the warnings would contain and without consenting to their use?
Mr. CASSEDY. Mr. Reece, I was not present. I did not talk to any of them. I have no idea of what their understanding was. I have only the record.
Mr. REECE. That would hardly be a reasonable assumption though, as I see it.
Mr. CASSEDY. I think it would be most unreasonable to assume that they had approved something that was in violation of the law.
Mr. REECE. I would concur in that suggestion that it would be un'reasonable to think that they had approved something that was in violation of the law. But when they had a proceeding in court, and an agreement was reached, and the court issued an order, I would infer that the Food and Drug Administration had an understanding with the Emerson Co. as to what the label and the cautions would contain.
In any event, after the suit was settled by agreement they continued to operate until 1942 without interference from the Food and Drug Administration, whereas they had seizures made in 1939 which would certainly indicate they were doing so without objection by the Food and Drug Administration and in accordance with the court settlement.
Mr. CASSEDY. Mr. Reece, the answers to those questions could best be determined by representatives of the Food and Drug Administration,
Mr. REECE. I am stating it as my information and not stating it as a fact, because I am not in a position to do so, but I raised that point yesterday as an example of the existence of dual authority.
I was bringing it up again this morning in order to clarify what I had in mind when I brought it up yesterday.
Mr. CASSEDY. I have one more reference and I shall have finished:
With reference to the entire Reece bill, Hon. Paul V. MeNutt, in his letter of May 3, 1945, to Chairman Lea, to which I have heretofore referred, states:
In our judgment, the bill is calculated to impair the benefits to the public authorized by existing legislation for the control of food, drugs, devices, and cosmetics.
Mr. REECE. But may I interject there: After the committee received that letter, I contacted Dr. Dunbar, who I assume drafted that letter, although I do not know, and suggested that in view of certain statements in that letter I would like to have an amplification of those statements. In my
letter I stated that I was interested in the last sentence of the next to last paragraph of that letter, to which I wish to call your attention now, which reads as follows:
The bill would at best effect little if any, improvement in the confused situation and attendant impairment of public protection that stem from the basic faults of differing procedures and divided responsibility for determining the truth or falsity of identical representations in labeling and advertising.
That impressed me as being a very strong statement that something was wrong somewhere. And being so impressed, then I addressed Dr. Dunbar, who I assumed had written the letter in the first instance, a letter asking for an amplification of that statement with the result that he wrote the letter under date of July 13 which is in the record, explaining what he meant when he threw out those disturbing warnings about the impairment to the public health that obtained as result of the dual authority that existed at that time.
Now, since you are citing Mr. McNutt's letter, which evidently was drafted by the Food and Drug Administration, as support of your position, I would be interested to have you comment particularly on that paragraph in the letter, or that sentence in the letter.
Mr. CASSEDY. I would be glad to, sir. That reference you make to Mr. McNutt's letter and also to Dr. Dunbar's letter relates to their views with respect to the division of jurisdiction; that is, that which was made at the 1938 sessions of Congress when the advertising was placed in the Federal Trade Commission and the labeling was placed in the Food and Drug Administration.
Those two letters are in some respects, or most respects as far as Dr. Dunbar's letter is concerned, a continuation of the views expressed at that time by Dr. Campbell and others that the jurisdiction should all be placed in one agency.
If you will let me finish, sir, I will answer anything: The whole letter that Dr. Dunbar wrote is a rehash of that old argument, and if anything, it is a criticism of Congress for having given part of the jurisdiction to one agency and part to the other.
The only criticism he makes of the Federal Trade Commission is in respect to those three cases that raise the doctrine of res adjudicata. The other matters would arise anyhow so far as the jurisdiction over advertising in the Federal Trade, and jurisdiction over labeling in the Food and Drug, are concerned.
Mr. REECE. But leaving Dr. Dunbar's letter out of consideration, the letter by Mr. McNutt, the Federal Security Administrator, makes a very strong statement about the situation at the present time impairing the public interest, when it says:
The bill would at best effect little, if any, improvement in the confused situation and attendant impairment of public protection that stem from the basic faults of differing procedures and divided responsibility for determining the truth or falsity of identical representations in labeling and advertising.
That is not Dr. Dunbar speaking but Commissioner McNutt speaking, whom you are quoting as favorable to your view.
Mr. CASSEDY. And to answer you further, I cannot express what Mr. McNutt had 'in his mind. I notice that you did not direct your request to Mr. McNutt. You directed your request to Dr. Dunbar to explain what Mr. McNutt meant.
I base my views on what Dr. Dunbar said as to what Mr. McNutt mean by that statement. Dr. Dunbar certainly does not show any conflict on the part of the Federal Trade Commission, that is, which you criticize, with respect to the policy which we have talked about.
Mr. REECE. But would you not assume that the Food and Drug Administration drafted both letters?
Mr. CASSEDY. I certainly would assume so, but when you divide it in asking me that question, I would have to make my answer in that way.
Mr. REECE. I did that, having in mind that you would lay great emphasis on the fact that Mr. McNutt signed one letter and Dr. Dunbar, his subordinate, signed the other.
Mr. CASSEDY. Yes, sir; but I cannot tell you what Mr. McNutt meant. You will have to ask him.
Mr. SADOWSKI. Mr. Cassedy, is it your desire to include in the record these decisions in the Lee case and the Willard case?
Mr. CASSEDY. Yes, sir; I think it would be helpful. Mr. SADOWSKI. We will include those in the record. (The decisions are as follows:)
UNITED STATES CIRCUIT COURT OF APPEALS
No. 419, Original.—May Term, A. D. 1940
GEORGE H. LEE COMPANY, PETITIONER, VS. FEDERAL TRADE COMMISSION, RESPONDENT
PETITION TO REVIEW ORDER OF FEDERAL TRADE COMMISSION
[July 23, 1940]
Mr. Donald J. Burke for Petitioner.
Mr. William T. Chantland, Special Attorney, Federal Trade Commission (Mr. W. T. Kelley, Chief Counsel, Federal Trade Commission, Mr. Martin A. Morrison, Assistant Chief Counsel, Federal Trade Commission, and Mr. James W. Nichol, Special Attorney, Federal Trade Commission, were with him on the brief) for Respondent.
Before GARDNER and SANBORN, Circuit Judges, and COLLET, District 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, 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 articles 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.
Large Tape and Pin Worms in Chickens and Tur
* * *
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, to the injury of competitors, by soliciting the sale of and selling “Gizzard Capsules” upon “extravagant, deceptive, misleading and false statements regarding the ther peu value, effica 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 compe tition 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 infested with tape worms this product tends to shear off the tape worm strobilae or chain of segmenis, leaving the tape worm heads attached to the intestines of the fowl. These heads are capable of growing, and do quickly grow, new segments.” The Commission further found that: “Respondent's representations, herein described, have had and now have a tendency and capacity to, and do, mislead and deceive the purchasing public into an erroneous and mistaken belief concerning the therapeutic value, efficacy, and effect of 'Gizzard Capsules. A substantial portion of the purchasing public, as a direct result of said mistaken and erroneous belief, have purchased respondent's product with the result that trade has been diverted unfairly to the respondent from competitors likewise engaged in the business of selling and distributing products designed for similar usage, who truthfully advertise and represent the properties of their respective products and the results that may be obtained from their use.
As a result thereof, substantial injury has been done and is now being done by respondent to competition in commerce among and between various states of the United States and in the District of Columbia.” The Commission concluded that the acts and practices of petitioner complained of were all to the prejudice of the public and of petitioner's competitors and constituted unfair methods of competition in commerce within the intent and meaning of the Federal Trade Commission Act. It thereupon entered the order complained of.
The petitioner has not included in its record in this Court the testimony taken before the Commission and concedes that, unless the Commission was precluded from entering its order because of the decree in the libel proceeding, the order must stand. It denies the right of the Commission to relitigate any