Appeal from a judgment of the District Court for the Southern District of New York, Constance Baker Motley, Judge, 354 F. Supp. 521 (S.D.N.Y. 1973), entered on a motion by the Government for summary judgment in an action under § 5(1) of the Federal Trade Commission Act, ordering defendant, The J. B. Williams Co., to forfeit and pay the United States $456,000 and defendant Parkson Advertising Agency, Inc. to forfeit and pay $356,000.
Friendly, Feinberg and Oakes, Circuit Judges.
On November 28, 1969, the Federal Trade Commission made a certificate to the Attorney General pursuant to § 16 of the Federal Trade Commission Act, 15 U.S.C. § 56. The Commission's letter stated it had reason to believe The J. B. Williams Company (Williams) and Parkson Advertising Agency, Inc. (Parkson) were liable for penalties under § 5 (l) of the Act, 15 U.S.C. § 45 (l)*fn1 for violation of a cease and desist order for which the Sixth Circuit had granted enforcement, J. B. Williams Co. v. FTC, 381 F.2d 884 (1967), and recommended that the Attorney General institute "appropriate proceedings . . . for recovery of civil penalties as prescribed in said section." The appropriate proceedings were described in a draft complaint, which alleged 100 violations and sought "judgement against defendants in the total sum of $500,000."
Five months later the Government began this action; the complaint alleged the same 100 violations, but unlike the Commission's draft complaint, demanded judgment for $500,000 against each defendant. The defendants answered and demanded a jury trial. Subsequently, the Government moved for summary judgment. Judge Motley granted this in the sum of $456,000 against Williams and $356,000 against Parkson with leave to Parkson to apply to pay its penalties in installments with interest, 354 F. Supp. 521 (S.D.N.Y. 1973). The defendants have appealed.
The instant controversy began with the issuance of a complaint by the FTC in December 1962 relating to defendants' newspaper and television advertising for Geritol, an iron and vitamin product. The gist of the complaint was that the advertising gave the impression that Geritol was an effective general remedy for tiredness, loss of strength or a run-down feeling, whereas in fact it was effective only in the small minority of cases where these conditions were caused by a deficiency in iron or in the vitamins contained in Geritol. After proceedings which it is unnecessary here to detail, the FTC issued a cease and desist order on September 28, 1965. Paragraph 1(d), which both sides agree to be the broadest paragraph of the order, is set forth in the margin.*fn2 Williams and Parkson petitioned for review of the order under § 5(c) of the FTC Act, 15 U.S.C. § 45(c). In the review proceeding, the Sixth Circuit directed that the order be enforced except for a provision directing the petitioners to cease and desist from representing that iron deficiency or iron deficiency anemia can be self-diagnosed without a medical test. J. B. Williams Co. v. FTC, supra, 381 F.2d at 891. The FTC entered a modified order on November 24, 1967. Williams and Parkson did not seek certiorari.
In October 1968, after receiving appellants' first compliance report, the FTC directed a public hearing on compliance. At the hearing it viewed representative Geritol television commercials and heard argument. Subsequently it issued an opinion in which it concluded that the advertising continued "to treat that portion of the population suffering from tiredness as equal to that portion of the population which experience tiredness due to iron deficiency anemia." The principal basis for that conclusion was that although the television commercials had dutifully announced that "the great majority of tired people don't feel that way because of iron-poor blood and Geritol won't help them," the effect of this disclaimer was largely obliterated by the visual presentation and by such phrases as "but it is a medical fact that many of the millions of people who have iron-poor blood are tired and need Geritol" (emphasis in original) or "but millions do have iron-poor blood and you could be one of the many who are tired for that reason and need Geritol." The FTC advised that "in order to avoid future enforcement proceedings" Williams and Parkson should immediately discontinue the broadcast of the television commercials provided the Commission or any similar ones. The Commission also directed Williams and Parkson to file a further compliance report by January 31, 1969.
The second compliance report stated that the company was currently using only three different television commercials (subsequently termed the "AA" advertisements), scripts of which were submitted with the report. These commercials warned viewers that they might be suffering from "iron-poor blood" and focused on Geritol's ability to cure iron deficiency. They spoke of Geritol's "blood-building power" and of its capacity to build "iron power in your blood fast." The report also described and included scripts for five other commercials (subsequently termed the "BB" advertisements), which were no longer being disseminated but which the company believed to be in compliance. Williams and Parkson included in the report a request to meet promptly with Commission representatives in order to facilitate the preparation of new advertising themes. On May 8, 1969, the Chief of the FTC's Compliance Division wrote Williams' counsel that "the Commission would be favorably disposed to accepting as compliance with its order to cease and desist the absolute discontinuance by J. B. Williams Company, Inc., of the BB advertisements submitted with your last report and the continued use of the AA advertisements only with deletion from them of all references to 'power'."*fn3 The letter also advised that Williams would have to eliminate all references in its labeling to prevention of tiredness. A week later, on May 15, counsel wrote that Williams and Parkson were willing to accept these conditions, although they did not concede either that the BB advertisements or the use of the word "power" in the AA advertisements violated the order. Counsel also agreed to the omission of all labeling references to Geritol's ability to prevent tiredness, although not conceding "that the Commission's Order relates in any way to preventative claims." On June 6, the Commission wrote counsel,*fn4 acknowledging receipt of the May 15 letter, stating it was "of the view that the 'AA' commercials will comply with the order if all references to 'power' are deleted," and requesting another report within 30 days.*fn5
The third compliance report, submitted on July 2, 1969, stated that Williams and Parkson had decided to stop using the AA commercials rather than revise them to eliminate the word "power"; that "the process of removing these commercials from the air and substituting others for them was commenced promptly and was completed during June"; and that the word "power" would be deleted if the AA commercials were to be used again. In accordance with the Commission's request, Williams submitted scripts of television commercials and other promotional materials currently in use.
Shortly thereafter a new ground for controversy arose. Counsel advised the Commission that Williams was test-marketing a new product called FemIron. The Compliance Division asked for the formula and for copies of all current and proposed advertising materials. The company promptly responded, noting that FemIron was a food supplement, not a drug or tonic; that it did not contain vitamins, as Geritol does; that it was intended not to treat iron deficiency but merely to provide a supplemental source of iron for women in the child-bearing years. The letter suggested that for these reasons FemIron was not within the provisions of the cease and desist order making the order applicable not only to Geritol but to "any other preparation of substantially similar composition or possessing substantially similar properties, under whatever name or names sold." On July 16, a member of the Division of Compliance responded, indicating that the Commission's Division of Scientific Opinions believed that FemIron and Geritol possessed substantially similar properties. The letter indicated that the Commission would consider FemIron's status, whether the FemIron advertising violated the order, and, if so, "what action should be taken." On September 3 the FTC formally rejected the third compliance report. The Commission concluded that several of the Geritol commercials violated the cease and desist order and that FemIron was subject to the order. The letter stated an investigation would be made to obtain evidence of violations "for use in possible enforcement proceedings."
The draft complaint which the FTC submitted to the Attorney General and the complaint which he subsequently filed alleged violations of three different types. Counts 1 through 4 related to the use of several of the AA commercials, without deletion of the word "power", between June 10 and June 20, 1969. Treating each day's exhibition of a different commercial as the unit of violation, the draft complaint sought penalties under these counts totaling $80,000; the final complaint sought that sum from each defendant. Counts 5-9 related to commercials of a new type submitted in the third compliance report, referred to as the "sad-glad" commercials, which were aired at various times between June 2 and September 8, 1969. In Counts 5 through 7 the unit for determining what constituted a violation was the same as in Counts 1 through 4; the penalties sought for these totaled $220,000 from each defendant. However, in Counts 8 and 9 the complaint used a more severe system of calculating penalties. It counted each broadcast, on June 2, 3, 4 and 6, as a separate violation; apparently the reason for the greater severity was that these commercials used the terms "blood-building power" and "iron power", as the AA commercials had done. The Government demanded penalties of $45,000 from each defendant on these counts. Counts 10 and 11 concerned two different FemIron commercials that were disseminated on various dates between September 2 and October 1. Here the unit of violation reverted to that used in the earlier counts; the penalties against each defendant aggregated $155,000. For all counts the penalties sought were thus $500,000 from each defendant. As stated earlier, the court granted summary judgment for $456,000 against Williams and $356,000 against Parkson. Rather than summarize the court's opinion here, we will discuss each of its rulings in connection with the various points of appeal raised by defendants.
II. Appellants' Sixth Amendment Claims.
The district court properly rejected appellants' claim that jury trial was required and summary judgment precluded because an action to recover penalties under § 5 (l) of the Federal Trade Commission Act is criminal in nature.
In many instances Congress has provided, as a sanction for the violation of a statute, a remedy consisting only of civil penalties or forfeitures; in others it has provided the usual criminal sanctions of a fine, imprisonment or both; in still others it has provided both criminal and civil sanctions. When Congress has characterized the remedy as civil and the only consequence of a judgment for the Government is a money penalty, the courts have taken Congress at its word. This seems to us the clear intendment of Hepner v. United States, 213 U.S. 103, 29 S. Ct. 474, 53 L. Ed. 720 (1909); United States v. Regan, 232 U.S. 37, 58 L. Ed. 494, 34 S. Ct. 213 (1914); and Helvering v. Mitchell, 303 U.S. 391, 398-405, 82 L. Ed. 917, 58 S. Ct. 630 (1938). Cf. United States v. St. Regis Paper Co., 355 F.2d 688, 693 (2 Cir. 1966).
Appellants urge us to overlook Congress' express characterization of § 5 (l) as a "civil" action and to hold the sanction imposed in this case criminal because of its allegedly punitive purpose. While Congress could not permissibly undermine constitutional protections simply by appending the "civil" label to traditionally criminal provisions, the statute here at issue is plainly not of that class. In the face of a long line of contrary authority, appellants have not directed our attention to any civil penalty provision that has been held sufficiently "criminal" in nature to invoke the protections of the Sixth Amendment.*fn6 Although appellants insist that the large size of the judgment entered below could have served no legitimate civil purpose, that argument is more fittingly addressed to the question whether the district court abused its discretion in assessing such a large penalty, see part VIII, infra.
III. Appellants' Right to a Civil Jury Trial of Disputed Issues of Fact.
Appellants argue in the alternative that they were entitled to a jury trial under F.R. Civ. P. 38(a) which preserves inviolate "the right of trial by jury as declared by the Seventh Amendment to the Constitution or as given by a statute of the United States." That claim would, of course, be academic if, as the district court held, there were no triable issues of fact. Hepner v. United States, supra, 213 U.S. at 112-15. Since, for reasons detailed in the following section of this opinion, we hold that there were triable fact questions and a remand will thus be required, it is convenient to deal with the civil jury trial issue here.*fn7
Apparently there is only one reported decision where a court has squarely faced this question under § 5 (l) of the FTC Act. In United States v. Hindman, 179 F. Supp. 926 (D.N.J. 1960), the court held that the defendant in a civil penalty suit under § 5 (l) has a right to have a jury determine whether he has violated the terms of an FTC order when there is a triable dispute on that question. Against this is dictum from a Third Circuit decision, United States v. Vulcanized Rubber & Plastics Co., 288 F.2d 257, 258-59 n. 2 (3 Cir. 1961), cert. denied, 368 U.S. 821, 7 L. Ed. 2d 26, 82 S. Ct. 38 (1961). The Vulcanized Rubber court affirmed a district court's grant of summary judgment to the Government in a § 5 (l) case where, as the court of appeals held, "there was no issue of fact presented." However, in a footnote dictum two judges branded Hindman as erroneous. The criticism was based on two grounds: (1) that "the sole issue before the court [in Hindman ] was whether or not the labeling practice was within the proscription of the order and not whether the labeling practice was deceptive," and (2) that "creating an issue of fact as the court did in Hindman, would usurp the function exclusively vested by Congress in the Federal Trade Commission to determine the issue of whether a labeling practice is misleading or deceptive to the public." While the first proposition is true enough in itself, it manifests some confusion. The district judge in Hindman fully agreed that the only issue before him was whether the order covered the practice in question; as to that issue he held that there was a triable factual dispute.*fn8 The second proposition seems unsound as applied to enforcement proceedings unless Congress has vested the FTC with power not only to make orders but to determine whether they have been violated -- a position which was not taken by the Government although it is approximated by the dissent. No decision has ever intimated such a view. In FTC v. Morton Salt Co., 334 U.S. 37, 54, 92 L. Ed. 1196, 68 S. Ct. 822 (1948), while insisting that the Commission has power to determine all issues essential to the issuance of an order subject only to judicial review on a substantial evidence standard, the Supreme Court recognized that "the enforcement responsibility of the courts, once a Commission order has become final either by lapse of time or by court approval, 15 U.S.C. §§ 21, 45, is to adjudicate questions concerning the order's violation . . ." Nothing was said in Morton Salt to indicate that the court's adjudication of violations of FTC orders, whether in contempt proceedings in a court of appeals or in penalty actions under § 21 (l) or 45 (l) in a district court, was to be more trammeled than in any other case where a court is given plenary powers of adjudication as distinguished from review of administrative action -- much less, as was seemingly indicated in the Vulcanized Rubber dictum, that the Commission's determination was conclusive. In any event a district court decision and a dictum of two judges of the court of appeals of another circuit adversely reflecting upon it are scarcely dispositive either way, and thorough examination of the problem is thus in order.
There can be no doubt that in general "there is a right of jury trial when the United States sues . . . to collect a penalty, even though the statute is silent on the right of jury trial," 5 Moore, Federal Practice para. 38.31, at 232-33 (1971 ed.). The leading case supporting this proposition is Hepner v. United States, supra, 213 U.S. at 115, where the Court had no difficulty in concluding that in an action to collect a $1,000 penalty assessed for a violation of the Alien Immigration Act, "the defendant was, of course, entitled to have a jury summoned." See also United States v. Regan, supra, 232 U.S. at 43-44, 47.
Many cases, arising under a broad range of other civil penalty and forfeiture provisions, have reached the same conclusion. In The Sarah, 21 U.S. (8 Wheat.) 391, 5 L. Ed. 644 (1823), the Court held that when goods were seized on land, a statutory libel of information entitled the defendant to a jury trial. The Court has consistently held since then that forfeitures occurring on land are civil actions at law, entitling the parties to a jury unless it was waived. United States v. Winchester, 99 U.S. 372, 374, 25 L. Ed. 479 (1878); 443 Cans of Frozen Egg Product v. United States, 226 U.S. 172, 183, 33 S. Ct. 50, 57 L. Ed. 174 (1912); C. J. Hendry Co. v. Moore, 318 U.S. 133, 153, 87 L. Ed. 663, 63 S. Ct. 499 (1943). Similarly, actions for statutory penalties have been held to entail a right to jury trial, even though the statute is silent,*fn9 both where the amount of the penalty was fixed and where it was subject to the discretion of the court, see, e.g., Atchison, Topeka & Santa Fe Ry. v. United States, 178 F. 12 (8 Cir. 1910) (28-hour law); Connolly v. United States, 149 F.2d 666 (9 Cir. 1945) (penalty under 25 U.S.C. § 179); United States v. Jepson, 90 F. Supp. 983, 984-86 (D.N.J. 1950) (Emergency Price Control Act of 1942); United States v. Friedland, 94 F. Supp. 721 (D. Conn. 1950) (Housing and Rent Act of 1947); United States ex rel. Rodriguez v. Weekly Publications, 9 F.R.D. 179 (S.D.N.Y. 1949) (qui tam action to recover statutory penalty for making a false claim against the Government).*fn10 Nothing to the contrary was determined in Wirtz v. Jones, 340 F.2d 901, 904-05 (5 Cir. 1965), on which the Government relies. There the court, speaking through our brother Anderson, held that, despite decisions that suits by employees or by the Secretary of Labor at their request under § 16(b) and (c) of the Fair Labor Standards Act for minimum wages and overtime pay entailed the right to jury trial, a different result ensued when the Secretary of Labor sued under § 17 "to restrain violations of section 15 of this title, including in the case of violations of section 15(a) (2) of this title the restraint of any withholding of payment of minimum wages or overtime compensation found by the court to be due to employees under this chapter." Congress having made its intentions to have a court trial entirely clear, the court stated that "the Seventh Amendment does not require Congress to blunt the most competent means of insuring general compliance with a key section of the Act by depriving the equity courts of a significant part of their inherent power."
In Curtis v. Loether, 415 U.S. 189, 94 S. Ct. 1005, 39 L. Ed. 2d 260, 42 U.S.L.W. 4259, 4261 (1974), the Supreme Court recently gave broad scope to the entitlement to a jury trial in actions for the enforcement of rights provided by twentieth-century statutes. The Court there held that the Seventh Amendment applies to actions for damages under § 812 of the 1968 Civil Rights Act, 42 U.S.C. § 3612, reasoning that the right to jury trial attaches generally to actions enforcing statutory rights, "if the statute creates legal rights and remedies, enforceable in an action for damages in the ordinary courts of law." The statute there in question provided that "the court may grant as relief, as it deems appropriate, any permanent or temporary injunction, temporary restraining order, or other order, and may award to the plaintiff actual damages and not more than $1000 punitive damages, together with court costs and reasonable attorney fees." Although the Court found the language and the legislative history of the statute ambiguous, it held the mandate of the Seventh Amendment squarely applicable. Administrative adjudications such as NLRB backpay awards are distinguishable, the Court wrote, because in administrative proceedings "jury trials would be incompatible with the whole concept of administrative adjudication and would substantially interfere with the [agency's] role in the statutory scheme." When the district court rather than the agency is assigned the adjudicative responsibility, however, and there is "obviously no functional justification for denying the jury trial right, a jury trial must be available if the action involves rights and remedies of the sort typically enforced in an action at law."*fn11
Not being able seriously to dispute that an action to recover a statutory penalty generally carries the right to a jury trial, the Government seeks to distinguish an action under § 5 (l) because the penalties are collected for violation not of a statute but of an order of an administrative agency.*fn12 It is common ground that jury trial would not have been required if the FTC had sought an order of civil contempt in the Sixth Circuit.*fn13 The Government argues that § 5 (l) was intended simply to provide an alternative means of enforcement and thus should not be read to invoke different procedures.*fn14 A short and probably sufficient answer would be that if in authorizing a civil suit by the chief law officer of the Government, a procedure which had always been thought to entail a right of jury trial, Congress had wished to withhold it (assuming arguendo that it could), Congress would have said so in unmistakable terms and not left this as a secret to be discovered many years later. At the very least, such a conclusion would require evidence in the legislative history that Congress intended the procedure under § 5 (l) to be the same as in a civil contempt proceeding. A study of the development of the civil penalty provision in the FTC Act suggests just the opposite.
Section 5 (l) was part of the Wheeler-Lea Act of 1938, 52 Stat. 111, which amended the original Federal Trade Commission Act of 1914. The Wheeler-Lea Act was directed mainly at extending the Commission's authority to reach all unfair and deceptive practices whether or not they had an anticompetitive effect, thereby overruling the restrictive interpretation given to the 1914 act in FTC v. Raladam Co., 283 U.S. 643, 75 L. Ed. 1324, 51 S. Ct. 587 (1931). In addition, the 1938 amendments added a number of provisions intended to make the FTC's orders more effective. They provided that an FTC order would become final either after review and approval by a court of appeals or after the time for seeking review had expired, § 5(g); the Commission would no longer be required to prove a second violation before obtaining judicial enforcement of its order. In addition, the Wheeler-Lea Act empowered the reviewing court to issue an injunction pendente lite to prevent harm to the public, § 5(c); it established criminal penalties for violation of the statute under certain limited circumstances, § 14(a); and it enabled the Commission to cause the institution of an action to recover a civil penalty for violation of the Commission's final orders, §§ 5 (l), 16. The civil penalty provision was devised to complement the circuit court's contempt power, which had previously been the sole means of remedying violations. If the party sought review of the Commission's order in the court of appeals and the order was enforced there, the Commission could seek to remedy any subsequent violation of the order either through contempt proceedings before the court that enforced the order or through an action for recovery of the civil penalty. If the party did not contest the order by seeking review in the court of appeals, the Commission's sole civil remedy for any subsequent violation would be through the penalty action.
The Wheeler-Lea bill underwent a number of false starts before it was finally enacted in 1938. The first version, S. 994, 74th Cong., 1st Sess., which was introduced in 1935, contained only the germ of the ultimate Act -- it did nothing more than extend the FTC's authority to include unfair or deceptive practices in or affecting commerce, whether or not they adversely affected competition. That bill died on the Senate calendar. By the next year, the bill had grown to approximately its final size, with the addition of many of the procedural revisions that survived to enactment. That bill, S. 3744, 74th Cong., 2d Sess. (1936), contained a civil penalty clause roughly similar to the one ultimately enacted, although the penalties were much smaller and were set as fixed sums. According to that provision, after the Commission's order had become final any violation of the order would subject the offender to "a penalty of $500 for each such offense and of $25 for each day it continues, which shall accrue to the United States and may be recovered in a civil action brought by the United States." After passing the Senate, 80 Cong. Rec. 6603 (May 4, 1936), the bill died in the House Interstate and Foreign Commerce Committee. Two companion and successor bills, H.R. 10385, 74th Cong., 2d Sess. (1936), and H.R. 3143, 75th Cong., 1st Sess. (1937), also died in committee. Finally, a parallel House bill was proposed, H.R. 5854, 75th Cong., 1st Sess. (1937), which contained language very similar to that finally adopted, but provided variable rather than fixed penalties. For violation of a final order, the penalty clause in that bill would have required a violator to "forfeit and pay to the United States a civil penalty of not more than $1000 and of not more than $50 for each day such failure continues, which shall accrue to the United States and may be recovered in a civil action brought by the United States." This bill also died in committee. Finally, in 1938 the sponsors introduced S. 1077, 75th Cong., 1st Sess., the bill that was ultimately enacted. The first version of S. 1077, however, contained the earlier civil penalty clause providing for a flat $500 penalty and an additional penalty of $25 per day for violation of Commission orders. See S. Rep. No. 221, 75th Cong., 1st Sess. (1937). The House Committee objected, apparently considering the penalty too small, and substituted its own version, H.R. Rep. No. 1613, 75th Cong., 1st Sess. (1937). Under the House proposal, the maximum penalty would be $5000, but the court could assess lower penalties if the circumstances warranted. The conference committee adopted the House's version without comment, H. Rep. No. 1774, 75th Cong., 3d Sess. (1938), and in that form S. 1077 became law.
The principal debate about § 5 (l) occurred in the House of Representatives between the bill's sponsor, Representative Lea, and Representative Kenney, who was urging that the bill be amended to include additional penalties, 83 Cong. Rec. 405-06 (Jan. 12, 1938). Representative Kenney's proposal would have provided for a flat $3000 civil penalty to be imposed on anyone violating § 12, the advertising section of the Act. Representative Lea objected to such a penalty on the basis that it would clog the courts and that it would risk punishing businessmen who inadvertently violated the law but were willing to conform if their violation was pointed out to them by the Commission. "The man with good intentions," Representative Lea remarked, "should not be penalized before he has had a chance to correct his mistake." 83 Cong. Rec. 392. Later in the debate, Representative Lea commented that the proposal to impose a civil penalty directly for violation of the statute "is not the practical way to deal with businessmen. This is going to destroy the principal virtue of the Federal Trade Commission procedure, which is to give the honest businessman a chance to adjust his difference without harassing him or bringing him into court, with the expense involved by such proceedings." 83 Cong. Rec. 406.Representative Halleck was of a similar view, 83 Cong. Rec. 401:
The very fact that broad language is used [in the statute] should indicate to all of us, it seems to me, that we should not in every case inflict a criminal penalty or a civil penalty of a $3,000 fine upon any person who happens unintentionally to violate the act. It is my idea that the committee had in mind when drafting this penalty clause the fact, which I think is clearly evident, that honest business people who are trying to operate honestly and within the law may inadvertently violate provisions of this bill. Certainly those people should not be prosecuted, hauled into Federal court and immediately subjected to the criminal prosecution urged here by some.
We see nothing in any of this to indicate that, in utilizing the historic remedy of a civil penalty for violations of FTC orders, including orders that had become final without having been affirmed by a court, Congress intended to strip the remedy of any of its traditional accoutrements, including the right to a jury trial of fairly disputed issues of fact -- not, of course, as to the validity of the order but as to the fact of violation. Congress gravitated between small fixed penalties and a large maximum penalty, apparently without any thought that the difference would have any effect on the procedure to be followed in enforcement actions.*fn15 If there is a word in the three years of legislative history suggesting that procedure under this penalty statute should differ from that which had been recognized in governmental forfeiture and penalty suits for over a century, we have not found it.
The conclusion that Congress did not intend a change in established practice is fortified by another bit of evidence. In both the reports and the debates, the sponsors of the Wheeler-Lea bill represented that the civil penalty provision was modeled on a similar provision in the Packers and Stockyards Act of 1921. See S. Rep. No. 1705, 74th Cong. 2d Sess. 7 (1936); H.R. Rep. No. 1613, 75th Cong. 1st Sess. 4 (1937); 80 Cong. Rec. 6594 (1936) (Sen. Wheeler); 83 Cong. Rec. 397 (1938) (Rep. Reece). The provision in the Packers and Stockyards Act is clearly criminal and would thus ensure the defendant of a jury trial on demand. Although the dissent argues that the reference to the Packers and Stockyards Act constitutes only a "general reference to the fact that criminal sanctions were included in the Wheeler-Lea Amendments," that section was repeatedly cited as a model for § 5 (l). In addition, the sponsors referred to a "similar provision" in the Securities Exchange Act of 1934, on which § 5 (l) was modeled, 83 Cong. Rec. 397 (1938) (Rep. Reece). Despite the dissent's argument that the reference to the Securities Exchange Act was to the general review provisions, 15 U.S.C. § 78y(b), these would be so clearly irrelevant as to compel a conclusion that the reference was rather to the civil penalty provision, 15 U.S.C. § 78ff(b), added in 1936, establishing a $100 per day statutory penalty for any issuer of stock who failed to file with the Commission the information required in § 15(d) of the Act. Since it is incontrovertible that, under the Hepner line of cases, an issuer who denied liability would be entitled to a jury trial, this affords further evidence that the framers of the Wheeler-Lea amendments were not proposing anything different under § 5 (l). A much older and more detailed model for § 5 (l) was the civil penalty provision of the Hepburn Act of 1906, 49 U.S.C. § 16(8), which added to the Interstate Commerce Act a provision with language strikingly similar to § 5 (l):
Any carrier, any officer, representative, or agent of a carrier . . . who knowingly fails or neglects to obey any order made under the provisions of sections 3, 13, or 15 of this title shall forfeit to the United States the sum of $5,000 for each offense. Every distinct violation shall be a separate offense, and in case of a continuing violation each day shall be deemed a separate offense.
The following section, 49 U.S.C. § 16(9), provides that the forfeiture shall be payable to the United States, and "shall be recoverable in a civil suit in the name of the United States." While the question of jury trial under § 16(8) seems not to have arisen, courts applying similar civil penalty provisions in other contemporaneous railroad regulation statutes have granted jury trials without even questioning their availability. See, e.g., United States v. Atchison, Topeka & Santa Fe Ry., 163 F. 517 (8 Cir. 1908) (Safety Appliance Act); Atchison, Topeka & Santa Fe Ry. v. United States, 178 F. 12 (8 Cir. 1910) (28-hour law); United States v. Great Northern Ry., 220 F. 630 (7 Cir. 1915) (Hours of Service Law); United States v. Kansas City Southern Ry., 202 F. 828, 835 (8 Cir. 1913) (Hours of Service Law); United States v. Northern Pacific Ry., 293 F. 657 (9 Cir. 1924) (Safety Appliance Act). It is hard to believe that at a time, before the Hepner decision, when the courts were having difficulty in concluding that penalty provisions were not actually criminal in nature, see Johnson v. Southern Pacific Co., 117 F. 462 (8 Cir. 1902), rev'd on other grounds, 196 U.S. 1, 49 L. Ed. 363, 25 S. Ct. 158 (1904); Atchison, Topeka & Santa Fe Ry. v. United States, 172 F. 194 (7 Cir. 1909); United States v. Illinois Central R.R., 156 F. 182 (W.D. Ky. 1907), rev'd, 170 F. 542 (6 Cir.), cert. denied, 214 U.S. 520, 53 L. Ed. 1066, 29 S. Ct. 700 (1909), the civil penalty provision in § 16(8) of the Interstate Commerce Act was intended to deprive the defendant not only of his Sixth Amendment right to jury trial but of his Seventh Amendment right as well. Indeed, in the provision of the Hepburn Act for the enforcement of reparation orders, § 16(2), Congress had not gone further than to render the order prima facie evidence in an action where the defendant clearly had a right to jury trial, and the opinion sustaining this made it extremely doubtful the Court would have approved anything more drastic. See Meeker v. Lehigh Valley R.R., 236 U.S. 412, 430-31, 35 S. Ct. 328, 59 L. Ed. 644 (1915).
Subsequent congressional enactments have shed no more light on the problem. In 1959 Congress extended the streamlined enforcement mechanism of the FTC Act to the Clayton Act. In revising § 11 of the Clayton Act, Congress followed the model of the Wheeler-Lea amendments almost to the letter, including the civil penalty provision, which became 15 U.S.C. § 21 (l). As in the case of § 5 (l), Congress apparently did not expressly confront the jury trial question, although in United States v. Beatrice Foods Co., 344 F. Supp. 104, 111 (D. Minn. 1972), aff'd, 493 F.2d 1259 (8 Cir. 1974), Judge Neville seemed to assume that factual disputes in penalty proceedings under both the Clayton Act and the FTC Act could be tried to a jury. Similarly, in amending § 5 (l) last year, see note 1, supra, Congress gave no indication that it had ever intended the civil penalty provision to deny a jury trial when the fact of violation was fairly disputed.
The dissent argues that according a jury trial would be inappropriate in a § 5 (l) proceeding, citing one of the three factors referred to in a footnote in Ross v. Bernhard, 396 U.S. 531, 538, n. 10, 24 L. Ed. 2d 729, 90 S. Ct. 733 (1970), "the practical abilities and limitations of juries." The argument is that allowing a jury trial of disputed issues of fact would interfere with according appropriate deference to the FTC's determination that a violation had occurred. Reference is made to the recognized principle that much weight is to be given the judgment of the FTC in framing remedial orders, e.g., FTC v. National Lead Co., 352 U.S. 419, 429, 1 L. Ed. 2d 438, 77 S. Ct. 502 (1957); FTC v. Colgate-Palmolive Co., 380 U.S. 374, 385, 13 L. Ed. 2d 904, 85 S. Ct. 1035 (1965), a principle which, of course, is in no way unique to that agency, see, e.g., Phelps Dodge Corp. v. NLRB, 313 U.S. 177, 198, 85 L. Ed. 1271, 61 S. Ct. 845 (1941); American Power & Light Co. v. SEC, 329 U.S. 90, 115, 118, 91 L. Ed. 103, 67 S. Ct. 133 (1946); NLRB v. Seven-up Bottling Co., 344 U.S. 344, 346-50, 97 L. Ed. 377, 73 S. Ct. 287 (1953); NLRB v. J. H. Rutter-Rex Manufacturing Co., 396 U.S. 258, 263, 24 L. Ed. 2d 405, 90 S. Ct. 417 (1969).
The first point in response is that the footnote in Ross v. Bernhard was part of an argument for applying the Seventh Amendment right to a jury trial where it had not been recognized before the merger of law and equity -- not a suggestion that a type of statute which had uniformly been held to carry the right of jury trial should now be construed to eliminate it. A second is that while "the practical abilities and limitations of juries" may present problems in a complex action of accounting, see Dairy Queen v. Wood, 369 U.S. 469, 478, 8 L. Ed. 2d 44, 82 S. Ct. 894 (1962), or in estimating damages awarded in lieu of the injunction in an intricate securities suit, see Crane Co. v. American Standard, Inc., 490 F.2d 332 at 343-345 (2 Cir. 1973), those problems do not arise when the jury is asked to determine only whether a television commercial has made various forbidden representations. In any event, the "limitations of juries" is only one of three factors mentioned in the footnote, and the two others, custom before the merger of law and equity, and "the remedy sought," here point strongly toward jury trial. A third answer to the dissent is that its argument proves too much; many actions under § 5 (l) could present the most elementary factual questions, such as whether the defendant did or did not commit the acts charged (e.g., if defendants here contended that a television station had broadcast commercials in the face of their disapproval.) These issues are the very sort which juries are traditionally called on to resolve.*fn16 But the fundamental failing in the argument is that Congress has not required deference to an agency's claim that its order has been violated, NLRB v. Dell, 309 F.2d 867 (5 Cir. 1962) (Tuttle, Chief Judge); indeed, in contempt proceedings the burden on an agency claiming a violation is not the burden usual in civil cases but that of demonstrating a violation by "clear and convincing evidence," NLRB v. Local 282, Teamsters, 428 F.2d 994, 1001-02 (2 Cir. 1970); NLRB v. Local 825, Operating Engineers, 430 F.2d 1225, 1229-30 (3 Cir. 1970), cert. denied, 401 U.S. 976, 28 L. Ed. 2d 326, 91 S. Ct. 1200 (1971). While Congress placed the usual substantial evidence rule in § 5(c) of the FTC Act, dealing with judicial review of orders, it made no similar provision in § 5 (l) with respect to determining the fact of violation.
This court's statement in United States v. St. Regis Paper Co., supra, 355 F.2d at 693, that "the duty and responsibility for determining what business practices fall within the purview of Section 5 and for determining whether cease and desist orders issued to eliminate the anti-competitive effects of those practices have been complied with or violated was delegated solely to the FTC," must be read in context. The court was there discussing the division of authority between the Commission and the Attorney General, not the division of authority between the Commission and the judiciary. The next sentence in the opinion makes this abundantly clear:
While one objective of the 1938 Wheeler-Lea amendment, including Section 5 (l), was to "streamline" the procedure for enforcing the Commission's cease and desist orders, it is nowhere indicated that Congress by providing a civil penalty enforcement procedure intended to transfer the responsibility for interpreting and investigating violations of such orders to the Attorney General.
The court was not saying that the FTC was to be judge as well as prosecutor or even that its ex parte determination of violation was entitled to weight in an adjudication proceeding before a court.*fn17 Initiation of proceedings under § 5 (l) does not give the Commission's request a force it would not have in a petition for contempt. That being so, we see no practical difficulty in having a jury decide what television commercials mean -- a task for which they have more experience than most judges. See, Jaffee, supra note 8. Perhaps it would be wiser for Congress to allow the FTC to impose penalties for violations of its orders, subject to limited judicial review, as it has done in some other cases, see, e.g., § 271 of the Immigration and Nationality Act, 8 U.S.C. § 1321,*fn18 predecessors of which were held valid in Oceanic Steam Navigation Co. v. Stranahan, 214 U.S. 320, 53 L. Ed. 1013, 29 S. Ct. 671 (1909), and Lloyd Sabaudo Societa v. Elting, 287 U.S. 329, 77 L. Ed. 341, 53 S. Ct. 167 (1932). What is decisive is that, with that avenue known to be open, and with the Supreme Court having just sustained the provision in the National Labor Relations Act of 1935 authorizing the NLRB to award back pay, NLRB v. Jones & Laughlin Steel Corp., 301 U.S. 1, 48, 81 L. Ed. 893, 57 S. Ct. 615 (1937), Congress in enacting § 5 (l) took a course that had been uniformly held to entail a right to jury trial although, of course, only when there was a fair dispute over the fact of violation.
IV. The Existence of Triable Issues of Fact.
As noted above, defendants' right to jury trial under F.R. Civ. P. 38(a) would be without consequence for this case if, as the district court held, the Government's suit presented no triable issues of fact.*fn19 Determination of this question requires consideration of the nature of the issues presented and the proofs submitted.
The issues are of two somewhat different types. One is whether the commercials in question violated the cease and desist order. The other is whether FemIron was within the reach of the order, which applied to "any other preparation of substantially similar composition or possessing substantially similar properties, under whatever name or names sold." The district court held both to be questions of law, 354 F. Supp. at 532, 535.
In actuality both inquiries involve a two-step process -- determining what the order means, concededly a task for the court, and deciding whether the accused commercials or product come within the order as so construed. As we said in Artvale, Inc. v. Rugby Fabrics Corp., 363 F.2d 1002, 1005 (2 Cir. 1966), "the common approach seeking to dichotomize all decisions as either 'law' or 'fact' is too simplistic." See also In re Hygrade Envelope Corp., 366 F.2d 584, 588 (2 Cir. 1966). The different stance of the two issues here stems in part from the fact that with respect to the commercials there is no dispute concerning the meaning of the order; the commercials would clearly be in violation, for lack of the required affirmative statement as to the small proportion of people who suffer from iron deficiency, if they conveyed the impression that Geritol (or FemIron if within the order) would be beneficial generally for relief of tiredness, etc. That issue thus involved less and the FemIron issue more of what a court can determine better than a jury, perhaps about the only satisfactory criterion for distinguishing "law" from "fact." See Traynor, J., dissenting in Loper v. Morrison, 23 Cal. 2d 600, 611-12, 145 P.2d 1, 6-7 (1944).
In determining whether the order applied to FemIron, the court was justified in giving a broad reading to the words "or any other preparation [of substantially similar composition or] possessing substantially similar properties," 354 F. Supp. at 531. The order must be interpreted in light of its principal purpose, namely, to prevent the company from representing that a product useful only in overcoming problems arising from insufficient iron in the blood will be efficacious when the same symptoms are due to entirely different causes. The order is to be construed as an instrument to that end, not as a pharmacopoeia. It is undisputed that FemIron does not contain the vitamins present in Geritol and that it contains substantially less iron. Through their experts' affidavits, the defendants urged that because of these differences, FemIron was of only "supplemental" value -- it could serve only to prevent iron deficiency -- while Geritol was "therapeutic" -- it could remedy a current deficiency. These differences, however, are not significant in determining whether FemIron is subject to the order. The very argument that FemIron is too mild to treat the syndrome for which Geritol is intended demonstrates that the major difference between the two products is merely one of dosage. It would be senseless to hold that the defendants can avoid the Commission's order simply by a process of dilution and relabeling. For the purpose of determining whether FemIron was within the reach of the order, the defendants' affidavits were thus inapposite. If anything, the lower concentration of iron in FemIron would render any commercials suggesting that it will relieve tiredness even more misleading than similar Geritol commercials. We agree with the district court that defendants' claim that FemIron was not within the order raised no genuine issue of fact and was appropriately decided in the Government's favor on its motion for summary judgment.
On the other hand, while we agree with the court's premise that the FTC did not have the burden of showing that the accused commercials, if within the order, were false and deceptive, we are unable to see how this leads to the conclusion, 354 F. Supp. at 535, that:
Once the Commission establishes that a cease and desist order is in effect and that a particular advertisement has been disseminated which allegedly violates that order, it is for the court to determine as a matter of law whether the oral and/or visual content of the challenged advertisement falls within the scope of the prohibitions in the order.
The general rule is that when the meaning or effect of words or acts is fairly disputed, the question is for the trier of the facts, to be decided after hearing all material evidence, Washington Post Co. v. Chaloner, 250 U.S. 290, 293, 63 L. Ed. 987, 39 S. Ct. 448 (1919) (libel); Albert Dickinson Co. v. Mellos Peanut Co., 179 F.2d 265, 269 (7 Cir. 1950) (likelihood of confusion). The district court sought to counter this by saying, 354 F. Supp. at 535 n.11, that the issue was analogous to the interpretation of a writing in a contract action, which is considered to be an issue of law for the court, citing 4 Williston, Contracts, § 616, particularly at 648-49 (3d ed. 1961). However, we pointed out in Meyers v. Selznick Co., 373 F.2d 218, 221-23 (2 Cir. 1966), after referring to this very passage in Williston, that "the traditional formulation goes considerably beyond the authorities, at least for the federal courts."*fn20 In addition, the Restatement of Contracts (Second) § 238(2) (Tent. Draft No. 5, March 1970), rejects the absolute position taken by Williston and states that even in the case of an integrated written agreement, interpretation is to be determined by the trier of fact if it depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn therefrom. In any event, the interpretation of television commercials is not a subject on which a judge can do so much better than jurors that the issue should inevitably be taken from them as one of law. Neither is it an issue which, if triable to a judge, lends itself to summary judgment, unless, of course, the evidence would warrant a directed verdict. See Sartor v. Arkansas Natural Gas Corp., 321 U.S. 620, 624, 88 L. Ed. 967, 64 S. Ct. 724 (1944); Empire Electronics Co. v. United States, 311 F.2d 175, 180 (2 Cir. 1962); American Manufacturers Mutual Insurance Co. v. American Broadcasting-Paramount Theatres, Inc., 388 F.2d 272, 279 (2 Cir. 1967); 6 Moore, Federal Practice paras. 56.02, 56.04, 56.15.
The commercials, which we viewed in the presence of counsel,*fn21 can be divided into three groups: Counts 1-4, the AA commercials; Counts 5-9, the "sad-glad" commercials, with Counts 8 and 9 as a sub-group because of their use of the word "power"; and Counts 10-11, the FemIron commercials. Our consideration of these must be conducted in light of the admonition in FTC v. Colgate-Palmolive Co., 380 U.S. 374, 393, 13 L. Ed. 2d 904, 85 S. Ct. 1035 (1965):
If respondents in their subsequent commercials attempt to come as close to the line of misrepresentation as the Commission's order permits, they may without specifically intending to do so cross into the area proscribed by this order. However, it does not seem "unfair to require that one who deliberately goes perilously close to an area of proscribed conduct shall take the risk that he may cross the line." Boyce Motor Lines, Inc. v. United States, 342 U.S. 337, 340, 72 S. Ct. 329, 96 L. Ed. 367.
In its letters of May 8 and June 6, the Commission indicated that it found nothing wrong with the AA commercials except that each of them twice used the word "power." The first use was in a statement midway through each commercial that "Geritol-iron enters your bloodstream fast carrying its blood-building power to every part of your body." The second, coming at the end of the commercials, was in the statement that Geritol builds "iron power in your blood." The latter claim seems rather innocent; apparently Geritol is effective in combating iron-poor blood, and the cease and desist order does not prevent Williams from advertising this. The remark that Geritol builds "iron power" in the blood is so far from a representation that it is a generally effective remedy for tiredness that the Commission's objections on this score seem rather baseless. Both the Government and the court below relied more heavily on the earlier remark, that Geritol-iron carried its "blood-building power" to every part of the body. The district court stated, 354 F. Supp. at 537, "to say that Geritol builds power in your blood is the effective equivalent of saying that Geritol builds power in you." While this inference may be conceivable, it certainly is not one that a jury would be compelled to draw. It is settled that on a motion for summary judgment a court must draw the inference most favorable to the party opposing the motion, United States v. Diebold, Inc., 369 U.S. 654, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962); Cali v. Eastern Airlines, Inc., 442 F.2d 65, 71-72 (2 Cir. 1971).
To our minds the only criticism that can fairly be made of the "blood-building power" phrase is that, taken alone, it did not convey with sufficient clarity that Geritol's "blood-building power" was limited to cases of iron deficiency. However, it is no more proper to take one line of a commercial out of context than it is with any other spoken or written utterance. The whole theme of the AA commercials was that Geritol could remedy "iron-poor blood," and the claim of potency would almost certainly be taken in that sense.*fn22 The serious question with respect to Counts 1-4 thus is not whether summary judgment in favor of the Government was proper, as we think it clearly was not, but whether the Government is entitled to have them submitted to a jury at all.*fn23 However, defendants did not move for summary judgment on these counts and, although we could nevertheless direct it, see Abrams v. Occidental Petroleum Corp., 450 F.2d 157, 165-66 (2 Cir. 1971), aff'd, sub nom., Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 36 L. Ed. 2d 503, 93 S. Ct. 1736 (1973), we think it preferable to leave to the trial judge whether or not to direct a verdict on these counts in light of the evidence that will be presented.
Counts 5 through 7 involve a commercial entitled "Vacation" and Counts 8 and 9 a commercial entitled "Two Women." The appellants have termed these two commercials their "sad-glad" series. The common theme is of a woman who is "sad" because of having discovered, apparently from a medical examination of some kind, that she has "iron-poor blood." She is told not to be sad on that account but to be glad for Geritol, which can remedy the deficiency. A later sequence shows her to be "glad."*fn24
The district court found that these commercials violated the cease and desist order, 354 F. Supp. at 539-41, on the following basis:
Her smile may convey to viewers her happiness that she no longer has iron-poor blood, but it definitely conveys something else as well. It shows her in good spirits and makes her look stronger and healthier. The implication is that she was sad not simply because she had iron-poor blood, but because she was feeling run-down as a result of that fact. Now she is smiling not simply because she has iron-rich blood, but because she feels better as a consequence. Thanks to Geritol.
While that is a possible inference, it is by no means the only one. We must confess we had thought that although the script did not demand the inference drawn by the district court, a viewing might well do so. To the contrary, the viewing led us to believe the defendants may well have succeeded in drawing the distinction the order demanded. Whether they did or not is for a jury to determine.
We reach a different conclusion with respect to Counts 10 and 11, relating to the FemIron commercials. Here the scripts did not sufficiently disclose that iron deficiency anemia was not present in most women; in fact they claimed "that many healthy young women have little or no iron reserves," a vice similar to the one the Commission had properly found with respect to the commercials submitted in the first compliance report. The FemIron commercials then noted that "some women even risk becoming anemic and tired," followed by a suggestion to take FemIron and "maintain the supply you need to prevent iron shortage." The plain implication of the audio portion of the commercial was thus that FemIron is an effective remedy for tiredness and anemia -- a clear violation of the order. In addition, the scripts for the FemIron commercials each directed that the woman prior to taking FemIron should be depicted as a "Tired Mother"; the woman pictured at the end of the commercial is directed to display a "Vital Look." Our viewing convinced us that the producers of the commercial had succeeded all too well in capturing the forbidden "tired-vigorous" dichotomy. We therefore sustain the grant of summary judgment on these counts.
V. The Requirement of Notice.
In the interest of continuity, we have postponed consideration of certain arguments by defendants on the score of lack of advance notice of non-compliance and delay in giving such notice.
Appellants' most extreme argument is that penalties under § 5 (l) do not begin to accrue until the defendant has been given notice that he is not in compliance and has had a reasonable time to bring himself into compliance. This contention is based on Continental Baking Co. v. Dixon, 283 F. Supp. 285 (D. Del. 1968), a 1959 statement by the FTC's Assistant General Counsel to a subcommittee of the House Committee on the Judiciary which we quoted in United States v. St. Regis Paper Co., supra, ...