Company Name: Procter & Gamble Co.
Public Availability Date: July 15, 2004
Document Sections:
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
June 4, 2004
Via Federal Express
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: The Procter & Gamble Company Commission File No. 1-434 Proxy Proposal by
People for the Ethical Treatment of Animals
Ladies and Gentlemen:
This letter and the enclosed materials are submitted on behalf of The Procter &
Gamble Company (the "Company") in accordance with Rule 14a-8(j) promulgated
under the Securities Exchange Act of 1934, as amended.
The Company has received a proposal (the "Proposal") from a shareholder, People
for the Ethical Treatment of Animals ("PETA"), for inclusion in the Company's
Proxy Statement for its 2004 annual meeting of shareholders (the "Proxy
Statement"). The Proposal is nothing more than an attempt to defame the Company
using its own Proxy Statement. A copy of the Proposal is attached to this letter
as Exhibit A.
The Company believes that it may properly exclude the Proposal for the following
reasons:
1. The Proposal requests that the Board of Directors of the Company (the
"Board") take four separate actions, two of which have been substantially
implemented by the Company. Those requests are therefore excludable under Rule
14a-8(i)(10).
2. The Proposal's remaining two actions requested of the Company's Board of
Directors, if implemented, would cause the Company to violate federal law and
are therefore excludable under Rule 14a-8(i)(2).
3. The Proposal contains materially false and misleading statements that are
excludable under Rule 14a-8(i)(3) because they violate Rule 14a-9 of the proxy
rules. Furthermore, collectively these statements create a materially false and
misleading characterization of the Company's animal research practices,
rendering the entire Proposal excludable under Rule 14a-8(i)(3).
Upon exclusion of the: (1) requests that have been substantially implemented;
(2) requests that would cause the Company to violate federal law if implemented;
and (3) false and misleading statements, there is nothing left of the Proposal
to include in the Proxy Statement. Furthermore, the Company believes that it may
properly exclude the entire Proposal because the false and misleading statements
noted in 3 above create such a false and misleading impression of the Company's
animal research policies as to render the Proposal excludable in its entirety.
Accordingly, the Company requests the agreement of the Staff that it will not
recommend any enforcement action against the Company if the Company omits the
Proposal from its Proxy Statement.
Consistent with Rule 14a-8(j), this letter is being submitted no later than 80
calendar days before the Company expects to file its definitive 2004 Proxy
Materials. In order to allow the Company to print and mail its 2004 Proxy
Materials in a timely fashion, we would appreciate receiving your response as
soon as practicable.
Please find enclosed six copies of the Proposal and this letter. A copy of this
entire submission has been mailed to PETA. To the extent required by Rule
14a-8(j), this letter constitutes a supporting opinion of counsel.
Background
The Company manufactures and markets approximately 300 consumer products in more
than 160 countries around the world, with total net sales of nearly $45 billion
annually. Among the products that the Company manufactures and markets are pet
health and nutrition products under the brand names Iams and Eukanuba. The
Company acquired these brands with its acquisition of The Iams Company ("Iams")
in 1999.
Iams' mission "is to enhance the well-being of dogs and cats by providing
world-class quality foods and pet care products." To fulfill this mission, Iams
formulates diets that help dogs and cats live long, healthy lives. Prior to
sale, these diets must be proven safe and effective. Therefore, Iams conducts
controlled feeding studies, some of which are required by law. This research is
conducted in accordance with The Iams Company Research Policy and all applicable
federal and state laws and regulations, including laws and regulations
promulgated by the Food and Drug Administration("FDA"), United States Department
of Agriculture ("USDA"), and the Federal Trade Commission ("FTC"), among others.
As a result of the Company's involvement in the pet health and nutrition
business, and its legal and ethical obligation to perform research using dogs
and cats, it has become a target for PETA. Over the years, PETA has engaged in a
systematic carnpaign against the Company often using misinformation, hyperbole,
and exaggeration of the relevant facts to create a negative overall impression
of the Company and its research practices. The Proposal, which contains a
variety of false and misleading statements, is just the latest example of PETA's
negative campaign.
Grounds for Exclusion
The Company believes that the Proposal can be excluded from the Company's Proxy
Statement for its 2004 Annual Meeting for the following reasons:
1. The Proposal requests that the Board take four separate actions, two of which
have been substantially implemented by the Company and are therefore excludable
under Rule 14a-8(i)(10).
The Proposal requests "[t]hat the Board implement rules and regulations ...
including:
(c) Placement in caring homes of all animals formerly used in Iams food tests;
and
(d) Inclusion in the annual report to shareholders of an assessment of the
Company's and Iams' success in achieving the foregoing goals and objectives."
Both of these requests have already been substantially implemented by the
Company and are therefore excludable under Rule 14-8(i)(10).
With respect to (c) above, in July 2003, Iams implemented a program that takes
full responsibility for the destiny of all dogs and cats that participate in
Iams' feeding studies at both internal and external sites. This program requires
placing all dogs and cats who have completed their participation in such studies
into "caring homes," including the Iams retirement facility. Since this program
has been fully implemented for almost a year, this request has been
substantially implemented by the Company within the meaning of the proxy rules
and is therefore excludable under Rule 14-8(i)(10). See, e.g., PPG Industries,
Inc. (January 19, 2004) (allowing exclusion of proposal requesting that PPG
issue a policy statement publicly committing to using in vitro tests for certain
animal testing because PPG had previously provided such a statement on its
company website); The Columbia/HCA Healthcare Organization (February 18, 1998)
(allowing exclusion of proposal requesting the company form acommittee composed
solely of outside directors to oversee the company's corporate anti-fraud
compliance program because the company already had a committee of independent
directors that reviewed the company's policies and procedures related to ethics,
compliance and corporate responsibility); Woolworth Corporation (April 11, 1991)
(allowing exclusion of proposal requesting that Woolworth form a committee to
investigate the issue of animal neglect and mistreatment at Woolworth stores and
report back to the company's shareholders because the company had already
established an independent pet advisory board to address those issues with
directions to provide its findings to company shareholders).
With respect to (d) above, The Iams Company Research Policy can be found on the
Iams website at www.iamsco.com for all shareholders (as well as the general
public) to access. Reports and progress on Iams policies and procedures are
posted periodically on that website in order to keep shareholders and the public
up-to-date on the implementation of these policies. This fully implements PETA's
desire for the public to be able to assess the Company's success in following
its own research policies and practices. As such, this request has been
substantially implemented within the meaning of the proxy rules and imposing a
separate duty on the Company to include this information in the Company's annual
report would be duplicative. It is therefore excludable under Rule 14-8(i)(10).
See, e.g. PPG Industries, Inc.; The Columbia/HCA Healthcare Organization;
Woolworth Corporation.
2. The Proposal requests "[t]hat the Board implement rules and regulations ... [e]nding
contracts with, utilizing, or relying upon, any outside or independent contract
laboratories; [and] ending all testing on animals in Company laboratories for
pet food studies, relying instead on in-home tests and veterinary clinic studies
using animals volunteered by their caretakers." These two requests, if
implemented, would cause the Company, in pursuing its mission, to violate
federal law and are therefore excludable under Rule 14a-8(i)(2).
Both the FDA and the FTC regulate the pet food industry. Although there is some
overlap, these federal agencies generally monitor pet food safety (FDA) and pet
food claims (FTC). As an innovation leader in the pet food industry, Iams
regularly performs research designed to enhance the nutritional benefits for
pets, including research on potential food additives and on how certain pet
foods may enhance the health and well being of pets. This research often
requires approval from the FDA and/or the FTC. Eliminating all use of laboratory
testing (both Company and third-party) in favor of "in-home tests and veterinary
clinic studies" in performing this research would, in some cases, cause the
Company to violate federal rules, regulations, and guidelines promulgated by
bothagencies when including certain food additives in Iams products or making
certain claims about Iams products.
Under the Food, Drug and Cosmetic Act, the ingredients in pet food products must
be either FDA approved food additives or generally recognized as safe (GRAS)
substances. A food additive may not be used in pet food products unless the FDA
has issued a food additive regulation that approves the specific use. See 21
U.S.C. 321(f) (definition of "food" includes food for "animals"); 321(s)
(definition of "food additive"); 342(a)(2)(C)(i) (food is "adulterated" "if it
is or if it bears or contains" a food additive that is "unsafe" within the
meaning of 348); and 348 (a food additive is "deemed to be unsafe" for any use
for which FDA has not issued an approving regulation).
Before the FDA will approve a food additive, there must be "a reasonable
certainty in the minds of competent scientists that the substance is not harmful
under the intended conditions of use." 21 C.F.R. 570.3(i). Studies are required
in order to establish such "reasonable certainty," and the FDA has provided
guidance as to how these studies should be performed, including the following:
"[Animals used for testing] should ... not [be] exposed to environmental
conditions which could interfere with the purpose or conduct of the study."
"Studies should be adequately designed, well controlled, and conducted by
qualified investigators to provide meaningful results with respect to the total
class or animal population."
"Clinical observations should be recorded twice daily, seven days a week,
during the entire study period, or as provided in a study protocol that is
acceptable to [FDA's Center for Veterinary Medicine]."
These "General Principles" for conducting safety studies for food additives
establish that in-house testing in an uncontrolled environment (where the animal
subjects would be treated like any normal pet and subjected to many uncontrolled
variables, including unregulated feeding, water consumption, exercise and other
factors) would not be sufficient to meet FDA's data requirements. Absent
controlled laboratory testing, including such additives in Iams pet food
products would, in some cases, cause the Company to violate federal law - even
when the additives were beneficial to the health of the pets. Since eliminating
controlled laboratory testing would, in some cases, cause the Company to violate
federal law when including such additives in Iams' products, PETA's request to
completely eliminate such testing is excludable under Rule 14a-8(i)(2). See
Churchill Downs Incorporated (March 2, 2004) (allowing exclusion of proposal
because it would cause the company to violate federal and equivalent state civil
rights laws). See also AT&T Wireless (January 24, 2003), International Business
Machines (January 27, 1999), The Boeing Company (March 4, 1999) (all allowing
exclusion of proposals because they would cause the company to violate state
law).
In addition to these FDA regulations, FTC regulations state that a pet food
product is misbranded if its labeling is "false or misleading in any
particular." 21 U.S.C. 343(a)(1). In order to establish that a
"structure/function" advertising claim involving important health benefits from
a pet food product is not "false and misleading," the FTC will expect the
Company to have adequate substantiation to support such claims. See 15 U.S.C.
45, 52. To substantiate such claims, Iams will have to conduct research which,
FDA guidance has confirmed, requires clinical studies conducted in the
laboratory under controlled conditions for certain label claims. See, e.g. FDA's
Guideline titled "Supportive Data for Cat Food Labels Bearing `Reduced Urinary
pH' Claims" ("[p]roduct utility should be demonstrated by means of well
controlled, scientifically sound studies" and "data should include veterinary
observations on cat health, as well as measurements of body weight, food
consumption, urinalysis ... serum chemistries, blood gases, and mineral
balances.") Absent a controlled laboratory study of this kind, Iams would be in
violation of federal law when making such a claim on labels for Iams products.
Since eliminating controlled laboratory testing would cause the Company to
violate federal laws and guidelines when making such claims on Iams' products,
PETA's request to completely eliminate such tests is excludable under Rule
14a-8(i)(2). See, e.g. Churchill Downs Incorporated; AT&T Wireless;
International Business Machines.
In sum, complete elimination of reliance upon "outside or independent contract
laboratories [and] ending all testing on animals in Company laboratories for pet
food studies" would cause the Company to violate federal law in including
certain additives in Iams products and making certain claims on Iams products.
As a result, these requests are excludable under Rule 14a-8(i)(2). Id.
3. The Proposal contains false and misleading statements that are prohibited
from inclusion in proxy materials by Rule 14a-9 and therefore excludable under
Rule 14a-8(i)(3).
Rule 14a-8(i)(3) permits exclusion of statements in shareholder proposals that
are "contrary to any of the Commission's proxy rules, including Rule 14a-9,
which prohibits materially false and misleading statements...." The Preamble and
Supporting Statement of the Proposal are littered with assertions that are
false, misleading, and/or made without factual support. These statements are
properly excludable under Rule 14a-8(i)(3). See, e.g, Wyeth (January 13, 2004)
and McDonald's Corporation (March 30, 2002) (each allowing exclusion of false
and misleading statements in proposals submitted by PETA for inclusion in proxy
statements); Johnson & Johnson (January 30, 2004) and American Home Products
Corporation (February 25, 1993) (each allowing exclusion of false and misleading
statements in proposals regarding animal testing).
At the heart of the Proposal is the claim in the Preamble that "a laboratory
conducting studies for Iams kept dogs and cats in cruel and deprived conditions
including: (i) subjecting dogs to surgicalremoval of thigh muscles; (ii)
severing dogs' vocal cords to prevent barking; (iii) killing dogs for
experimental purposes; (iv) failing to provide necessary veterinary care; and
(v) failing to provide proper housing, exercise, socialization and ventilation."
To varying degrees, each of the statements above is materially false and
misleading with respect to Iams.1
Before addressing each of these allegations specifically, it is important to
understand the context surrounding them. To the Company's knowledge, these
allegations involve a single research facility in Missouri (the "Facility") that
was infiltrated by a PETA investigator (the "PETA Undercover Investigator"). The
PETA Undercover Investigator, who was responsible for the development and
implementation of Iams' socialization and enrichment policy (an important part
of Iams' research policy) at the Facility, used her position to gather and
create evidence to be used against Iams and the Facility. When Iams became aware
of the situation in the spring of 2003, it immediately severed its relationship
with the Facility. Despite this resolution, PETA has continued its campaign
against the Company based upon information obtained byand actions taken bythe
PETA Undercover Investigator.
Regarding the specific allegations contained in the Preamble, the Company
responds as follows:
First, there was no "surgical removal of thigh muscles" from Iams' dogs at the
Facility. The surgical technique for the biopsy involved the extraction of a
one-gram sample of muscle tissue (about the size of a small pea) after a
three-centimeter incision. This is not "surgical removal of thigh muscles" but,
rather, equivalent to muscle biopsy procedures performed on humans. This is a
good example of a sensationalized and misleading statement by PETA.
Second, Iams never authorized the severing of any dogs' vocal cords at the
Facility. This violation of Iams' research policy was authorized by the PETA
Undercover Investigator without approval from Iams.2 In essence, PETA, not Iams,
authorized the activity for which PETA now blames Iams in the Proposal.
Third, no Iams dogs were ever "kill[ed] ... for experimental purposes" at the
Facility. The Facility conducted terminal research for other clients, but was
not conducting terminal research for Iams. In fact, terminal research violates
Iams' current research policies, as well as those in existence at the time.
Fourth, veterinary care was provided by two veterinarians employed by the
Facility and health observation logs from the Facility show that veterinary care
was routinely administered. Therefore, there is no reason to believe that the
Facility "fail[ed] to provide necessary veterinary care."
Fifth, the Facility met all USDA requirements for housing, exercise and
ventilation, passing USDA inspection in November 2002. In addition, the Facility
also met the conditions established by the American Association for Laboratory
Animal Science ("AALAS").3 Therefore, there is no reason to believe that the
Facility "fail[ed] to provide proper housing, exercise, socialization and
ventilation."
In addition to the false and misleading statements above, which provide the
backdrop for the resolutions contained therein, the Proposal also contains other
false and misleading statements, including the following:
Proposal Statement: "Whereas, the Food & Drug Administration ('FDA') which
sits on the Board of the Association of American Feed Control Officials
('AAFCO') has endorsed in-home tests for food trials, thus rendering unnecessary
any laboratory tests using caged animals."
Company Response: The Company is unaware of an FDA "endorse[ment of] in-home
tests for food trials, thus rendering unnecessary any laboratory tests using
caged animals," and a recent search of the FDA's website did not reveal that the
FDA has changed any of its existing policies or endorsed in-home tests for food
trials. Further, in recent face-to-face discussions between the Company and
representatives from FDA's Center for Veterinary Medicine, the FDA
representatives indicated that they were unaware of any FDA endorsement of
in-home tests for food trials, as PETA claims. Although Iams uses in-home
studies whenever possible, there are some situations where the legal and
regulatory environments or technical nature of the study itself demand
controlled, laboratory trials (e.g. certain health claims and New Animal Drug
Applications (NADA)), as the FDA has recently confirmed to the Company. Thus,
even if FDA did "endorse[] in-home tests for food trials," (which, the Company
believes, it has not) that would not "render[] unnecessary any laboratory tests
using caged animals," as PETA claims. This statement, repeated at various times
in the Proposal, is materially false and misleading.
Proposal Statement: "Whereas, additional measures must be taken by the Company
and Iams to reduce the credibility gap that has arisen from tests such as the
2002 study in which 32Great Dane puppies were killed, and in light of the FDA's
endorsement of in-home food trials."
Company Response: The Great Dane study referenced in the Proposal was
completed in 1996, not in 2002. Further, Iams placed a moratorium on terminal
research in 1999. This moratorium, combined with the fact that the data from the
study has been publicly available for over five years, demonstrates no
"credibility gap" with respect to Iams' policy toward terminal research.4
Finally, the reference to FDA's endorsement of in-home food trials is false and
misleading for the reasons noted above.
Each of these false and misleading statements is excludable under Rule
14a-8(i)(3).5 See, e.g, Wyeth; McDonald's Corporation; Johnson & Johnson and
American Home Products Corporation. Further, these statements so permeate the
Proposal that including the Proposal in the Proxy would mislead the Company's
shareholders as to the Company's research methods for its pet health and
nutrition business. Taken as a whole, the Proposal leaves the false and
misleading impression that the Company condones the research methods noted above
and fails to follow its own research policies. This is not true. The Company
does not condone the research methods noted above and strictly follows its own
research policies. Allowing inclusion of the Proposal, premised on these false
and misleading statements, would allow PETA to use the Company's own Proxy to
defame the Company.
The Staff has stated that when "obvious deficiencies in terms of accuracy,
clarity or relevance ... will require detailed and extensive editing in order to
bring them into compliance with the proxy rules," the Staff "may find it
appropriate for companies to exclude the entire proposal, supporting statement,
or both, as materially false or misleading." Division of Corporation Finance:
Staff Legal Bulletin No. 14 (July 13, 2001). The Company believes that the false
and misleading statements in the Proposal are so obviously deficient in terms of
accuracy and leave the reader with such a misimpression of the Company's
research methods and practices with respect to its pet health and nutrition
business as to render the entire Proposal properly excludable under Rule
14a-8(i)(3).
Conclusion
In sum, the Proposal:
contains two requests that have been substantially implemented and, therefore,
are excludable under Rule 14a-8(i)(10);
contains two requests that, if implemented, would cause the Company to violate
federal law and are therefore excludable under Rule 14a-8(i)(2); and
contains false and misleading statements that are excludable under Rule
14a-8(i)(3).
Upon exclusion of the: (1) requests that have been substantially implemented;
(2) requests that would cause the Company to violate federal law if implemented;
and (3) false and misleading statements, there is nothing left of the Proposal
to include in the Proxy Statement. Further, the false and misleading statements
so permeate the Proposal as to render it excludable in its entirety. Therefore
for the reasons discussed here, the Company respectfully requests that the Staff
agree that the Company may omit the Proposal from its Proxy Statement.
Sincerely,
/s/
E. J. Wunsch
Enclosures
cc: Ms. Susan L Hall (Legal Counsel, PETA)
APPENDIX
PROCTER & GAMBLE COMPANY'S SHAREHOLDERS' RESOLUTION
This Resolution is submitted by People for the Ethical Treatment of Animals
("PETA"), and relates to Procter & Gamble Company's ("P&G" or the "Company")
responsibility with respect to The Iams Company ("Iams").
WHEREAS, the Company acquired Iams in September 1999 and is responsible for
ensuring its stewardship of animals used in experiments; and
WHEREAS, evidence reveals that a laboratory conducting studies for Iams kept
dogs and cats in cruel and deprived conditions including: i) subjecting dogs to
surgical removal of thigh muscles; ii) severing dogs' vocal cords to prevent
barking; iii) killing dogs for experimental purposes; iv) failing to provide
necessary veterinary care; and v) failing to provide proper housing, exercise,
socialization and ventilation; and
WHEREAS, Iams has taken certain steps toward adhering to The Iams Company
Research Policy (the "Research Policy") and addressing the problems detailed
above by establishing an International Animal Care Advisory Board, setting
minimum standards for socialization of animals, terminating the
contract-laboratory referred to above, and representing that it would inspect
other contract facilities; and
WHEREAS, the Food and Drug Administration ("FDA") which sits on the Board of the
Association of American Feed Control Officials ("AAFCO") has endorsed in-home
tests for food trials thus rendering unnecessary any laboratory tests using
caged animals; and
WHEREAS, additional measures must be taken by the Company and Iams to reduce the
credibility gap that has arisen from tests such as the 2002 study in which 32
Great Dane puppies were killed, and in light of the FDA's endorsement of in-home
food trials;
NOW THEREFORE BE IT RESOLVED, that the shareholders request:
1. That the Board implement rules and regulations consistent with the FDA's
endorsement of in-home food studies, and in harmony with Iams' Research Policy
including:
-----FOOTNOTES-----
1 The following responses are based upon data and evidence obtained by the
Company in connection with an investigation of the Facility. Background support
for the assertions contained therein can be provided to the Staff upon request.
2 The senior veterinary technician at the Facility signed an affidavit
testifying under oath that the PETA Undercover Investigaton represented that
Iams had authorized the debarking before it took place. Such approval was never
given.
3 Although the Facility met all legal requirements, it did not meet Iams higher
standards for some of these items. As a result, Iamsno longer uses the Facility.
4 Iams brought these correct facts to PETA's attention on May 6, 2004, and, a
week later, PETA removed all reference to the Great Dane study from their
website.
5 Some of these statements (e.g. the FDA has endorsed in-home food trials)
appear multiple times in the Proposal and should be excludable each time they
appear.
[INQUIRY LETTER]
June 14, 2004
BY ELECTRONIC AND REGULAR MAIL
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Procter & Gamble Company Shareholder Proposal by People for the Ethical
Treatment of Animals
Ladies and Gentlemen:
This letter is submitted on behalf of People for the Ethical Treatment of
Animals (PETA) and its 800,000 members and supporters, in response to a letter
from Procter & Gamble Company ("P&G" or the "Company") dated June 4, 2004. The
Company seeks to omit from its proxy statement for its 2004 Annual Meeting of
Shareholders, a Resolution submitted by PETA.
The Company's request that the Proposal be excluded from its proxy materials is
based on the following three contentions:
1. That two of four separate actions requested of the Board have been
substantially implemented;
2. That the remaining two actions requested, if implemented, would cause P&G to
violate federal law; and
3. That the Proposal contains statements that are materially false or
misleading.
For the reasons detailed below, we submit that none of these assertions is
correct or valid and respectfully request that the Division of Corporation
Finance refrain from issuing a no enforcement action letter.
1. Substantially ImplementedRule 14a-8(i)(10)
Our resolution calls on the Board to place all animals used in Iams food tests
in caring homes. It also asks that the annual report to shareholders include an
assessment of P&G's success in meeting the goals outlined in the Proposal.
The Company argues that each of these requests has been substantially
implemented. With respect to the placement of animals used in food tests in
caring homes, if such placement policies are incorporated into the Iams Company
Research Policy and being honored, then we withdraw the portion of the
Resolution relating to that issue.
Concerning the Company's claim that the Iams Company Research Policy is on its
website and provides both shareholders and the public with information on those
policies, we respectfully disagree that this constitutes substantial
implementation of the Resolution. The proposal requests that the annual report
to shareholders include an "assessment of Iams success in achieving the
foregoing goals and objectives." The goals and objectives set forth in the
Resolution are broader than Iams' Research Policy. They include the
discontinuation of all laboratory testing on animals for food trials, and the
implementation of in-home tests and veterinary clinic studies instead. They
include ending all contracts with outside or independent laboratories.
These are specific measures that supercede policy statements and call for
discrete, tangible actions. Accordingly, we dispute that the Company has
satisfied the Rule 14a-8(i)(10) standard of substantial implementation.
2. Violation of the LawRule 14a-8(i)(2)
The Company takes exception to the language in the Resolution that seeks to end
all food testing trials in laboratory settings, and commit to using in-home
tests and veterinary clinic studies with animals volunteered by their
caretakers. P&G's assertion that this aspect of the Proposal would cause it to
violate the law is based on either a lack of accurate information or an
intentional distortion of the relevant regulations.
On page 6 of its letter, P&G states that:
In order to establish that a "structure/function" advertising claim involving
important health benefits from a pet food product is not "false and misleading,"
the FTC will expect the Company to have adequate substantiation to support such
claims ... To substantiate such claims, Iams will have to conduct research
which, FDA guidance has confirmed, requires clinical studies conducted in the
laboratory under controlled conditions for certain label claims." (Emphasis
supplied.)
That statement is false and misleading for the following reasons: "adequate
substantiation" does not necessitate that P&G "will have to" conduct laboratory
studies as P&G claims. According to the FTC's May 1994 Enforcement Policy
Statement on Food Advertising (the Policy):
Like FDA, the Commission imposes a rigorous substantiation standard for claims
relating to the health or safety of a product, including health claims for food
products.\74/ The Commission's standard that such claims be supported by
"competent and reliable scientific evidence" has been more specifically defined
in Commission orders addressing health claims for food products to mean: tests,
analyses, research, studies or other evidence based on the expertise of
professionals in the relevant area, that have been conducted and evaluated in an
objective manner by persons qualified to do so, using procedures
generallyaccepted in the profession to yield accurate and reliable results.\75/"
[Footnotes in original have not been included, but will be provided upon
request.] (http://www.ftc.gov/bcp/policystmt/ad-food.htm#Introduction)
Nowhere does the Policy require that "controlled laboratory studies" be
performed or in their absence, the Company risks violating the law.
The Policy also informs that "both the Commission and FDA look to well-designed
studies, including clinical research and other forms of reliable and probative
scientific evidence, in evaluating health claims for foods." (Emphasis
supplied.) Accordingly, in-home testing protocols, which are currently being
carried out at Oklahoma State University, and other non-laboratory testing
trials are clearly not prohibited, much less illegal.
Additionally, the Policy affirms that the "Commission does not require food
advertisers to establish that there is scientific consensus in support of their
claims. Similarly, FDA has clearly indicated that its significant scientific
agreement standard does not require that such agreement represent a `full
consensus among scientists.'1 Therefore, even if the entire scientific community
did not endorse in-home testing, it would not constitute a basis for arguing
that laboratory testing is required.
P&G's claims that it "will have to conduct research which ... requires clinical
studies conducted in the laboratory under controlled conditions for certain
label claims." That statement is false and misleading. The FDA does not specify
the types of studies needed to justify health claims. Rather, it is the science
that matters.
According to the FDA's December 22, 1999 publication entitled, Guidance for
Industry: Significant Scientific Agreement in the Review of Health Claims for
Conventional Foods and Dietary Supplements:
FDA's evaluation of the evidence supporting a health claim is based on the
totality of publicly available data. Because of the limitations of the various
research methods that can be used to study substance/disease relationships, it
is not possible to specify the type or number of studies needed to support a
health claim. In addition, each relationship involves a unique set of
confounders and measurement issues. Sound, relevant science in research design
and measurementto ensure that research, in fact, provides the answers to the
questions that need to be addressed concerning the relationshipdrives the
decision to authorize health claims, not the specific type or number of studies.
(http://vm.cfsan.fda.gov/~dms/ssaguide.html)
The test setting is not the issue; the scientific accuracy is. Accordingly,
scientifically accurate in-home studies are satisfactory; end of inquiry.
P&G asserts that "... FDA guidance has confirmed that clinical studies are
required to be conducted in the laboratory under controlled conditions for
certain label claims." In support of this claim, P&G refers to an FDA Guideline
entitled, Supportive Data for Cat Food Labels Bearing `Reduced Urinary pH'
Claims. This Guideline states merely that, "[p]roduct utility should be
demonstrated by means of well controlled, scientifically sound studies."
However, P&G omitted to include the following prominent statement in the
Guideline:
Guidelines state procedures or practices that may be useful to the persons whom
they are directed, but they are not legal requirements. Guidelines represent the
agency's position on a procedure or a practice at the time of their issuance. A
person may follow the guideline or may choose to follow alternate procedures or
practices.
It is clear that P&G is not being forthright when it asserts that without a
controlled laboratory study Iams would be in violation of federal law in making
certain label claims on its products.
The FDA stresses accurate science, which is wholly consistent with in-home
testing for food trials. In the FDA's "Recommendations for submission of
chemical and technological data for direct food additive and GRAS food
ingredient petitions," section F provides the following:
If assurance of safe use depends on a limitation imposed on the amount of a
substance (additive, associated impurities, or degradation products) that a food
can contain, a method is needed that can quantify the substance in food for the
purpose of enforcing the limit. Quantifying the levels of a substance in food
requires a practical analytical method that can be readily performed in a
properly equipped laboratory by appropriately trained personnel. The method must
be specific, precise, accurate and reliable; it must also be able to withstand
the scrutiny of courtroom cross-examination, if necessary. However, the method
must not be so sophisticated or complicated that it can be carried out only in
laboratories with highly specialized equipment or by specially trained
personnel. (http://www.cfsan.fda.gov/~dms/opa-cg4.html)
In sum, P&G's argument that PETA's resolution would cause it to violate federal
law, is not only incorrect, it is overtly false and misleading.
3. Materially False or MisleadingRule 14a-8(i)(3)
P&G assets that the Whereas clauses of the Resolution are materially false and
misleading. The Company specifically challenges the second clause which reads as
follows:
WHEREAS, evidence reveals that a laboratory conducting studies for Iams kept
dogs and cats in cruel and deprived conditions including: i) subjecting dogs to
surgical removal of thigh muscles; ii) severing dogs' vocal cords to
preventbarking; iii) killing dogs for experimental purposes; iv) failing to
provide necessary veterinary care; and v) failing to provide proper housing,
exercise, socialization and ventilation;
P&G argues at length that none of the animals at the "laboratory," namely the
Sinclair Research Center, for which Iams was responsible, was subjected to any
of the described conditions. Whether that contention is untrue, which it is, is
without much significance. The Resolution by its plain language states that
those conditions prevailed and took place at the Sinclair Research Center, which
was under contract with, and conducting feed tests for Iams. It does not state
that Iams' dogs were subjected to those conditions.2 The U.S. Department of
Agriculture is investigating the Sinclair Research Center for noncompliance with
the federal Animal Welfare Act which regulates the use of animals in
laboratories, based on a complaint filed by PETA relating to the conditions and
treatment of animals there.
Moreover, each of the facts asserted is documented in videotaped footage, still
photographs, and audio transcriptions. Among the more outrageous of P&G's
statements is that PETA's investigator "authorized" the debarking of dogs
"without approval from Iams." That statement is a complete fabrication. First,
PETA's investigator was employed by the Sinclair Research Center, the laboratory
under contract with Iams, not by Iams or P&G. Second, there are transcripts of
the conversations which took place at the laboratory concerning debarking which
show decisively that PETA's investigator did not authorize any debarking. And
third, there is written documentation establishing that Iams was given advance
notice that the laboratory had scheduled its dogs to be debarked, and it did
nothing to prevent it.3
The final statements challenged in the Resolution are in the last two Whereas
clauses. P&G states that it is "unaware" of the Food & Drug Administration's
endorsement of in-home tests for food trials. Attached to this letter as Exhibit
A is a true copy of a letter dated April 27, 2004 from the FDA confirming that
properly conducted in-home studies are acceptable. Specifically on page 3, the
FDA opines that in-home feed trials are capable of complying with its and the
Association of American Feed Control Officials' protocols.
Lastly, the Company contends that the final Whereas clause is false and
misleading because of a reference to a study in which 32 Great Dane puppies were
destroyed. The Company and Iams do not dispute that 32 Great Dane puppies were
killed in connection with a dog food study. TheCompany does not dispute that
data from that study was published in the July 2002 issue of the American
Journal of Veterinary Research.4 So essentially the challenge is conditioned on
whether these facts create a credibility gap. We submit that with some minor
additional language (i.e. to indicate that the study took place in 1996), this
clause does not come within the purview of a Rule 14a-8(i)(3) exception.
We regret that P&G has chosen to seek a no enforcement action letter for a
narrowly focused and carefully worded Proposal submitted in good faith. However,
we respectfully request that the SEC advise the Company that it will take
enforcement action if P&G fails to include the Resolution in its 2004 Proxy
Materials.
Please feel free to contact me should you have any questions or require further
information.
Very truly yours,
/s/
Susan L. Hall
Legal Counsel
Enclosures
cc: E.J. Wunsch, Senior Counsel P&G
-----FOOTNOTES-----
1 The Policy provides that the Commission regards the "significant scientific
agreement" standard to be the principal guide to what experts in the field of
diet-disease relationships would consider reasonable substantiation for an
unqualified health claim.
2 One of the most telling facts is that Iams terminated its contract with the
Sinclair Research Center. To quote the Company, "[w]hen Iams became aware of the
situation [at Sinclair] in the spring of 2003, it immediately severed its
relationship with the Facility." (P&G letter to SEC p. 7.) The "situation" was
precisely what was revealed on the video tapes Iams' representatives viewed.
Common sense compels the conclusion that some grave concern provoked the abrupt
termination of the contractual relationship between the lab and Iams.
3 We do not wish to burden the SEC with extra materials, but if the Division is
inclined to sustain P&G's claim that it is entitled to exclude PETA's resolution
under Rule 14a-8(i)(3) as false and misleading, it ought to review the
supporting evidence contained in the videotapes and the audio transcriptions,
which we will provide upon request.
4 The Whereas clause mistakenly refers to a "2002 study." If P&G had responded
to PETA's several inquiries on this very question, there would have been no
error. Attached as Exhibit B is a copy of a letter from PETA to P&G dated May
11, 2004, illustrating the attempts made to obtain the facts directly from the
Company. Accordingly, PETA is willing to refine the language of the Whereas
clause to clarify that it was "a 1996 study from which data was published in a
2002 veterinary journal."
[INQUIRY LETTER]
July 6, 2004
Via Certified Mail
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: The Procter & Gamble Company Commission File No. 1-434 Proxy Proposal by
People for the Ethical Treatment of Animals
Ladies and Gentlemen:
This letter responds to the letter from People for the Ethical Treatment of
Animals ("PETA") dated June 14, 2004, (the "PETA Letter") concerning The Procter
& Gamble Company's ("Company") no action request to the Staff, dated June 6,
2004, (the "P&G Letter") for PETA's shareholder proposal (the "Proposal"). For
the reasons set forth in the P&G Letter, as well as those set forth below, the
Company believes that it may properly exclude the entire Proposal from its Proxy
Statement. At a minimum, the Proposal should be significantly revised to remove
those portions that have been substantially implemented, would result in a
violation of law, and/or are materially false and misleading.
1. PETA has agreed to withdraw the portion of the Proposal concerning placement
of animals formerly used in food tests in caring homes provided that the Company
incorporates this into the Iams Company Research Policy, which the Company will
do. Thus, this portion of the Proposal will be withdrawn.
2. As noted in the P&G Letter, PETA's request for an annual report on Iams'
success in achieving its research goals and objectives has been substantially
implemented because the Company already provides its research goals and
objectives on www.iamsco.com, and reports and progress on Iams' goals and
objectives are posted periodically on that website. If these policies and
objectives were modified to include the items PETA has requested (e.g., ending
laboratory testing in favor of in-home trials), then the websitewould be
modified accordingly to include this information. Thus, this request has been
substantially implemented and should be omitted.1
3. PETA's reliance on the lack of a specific FDA rule mandating laboratory
testing for all pet health/food claims and the fact that Oklahoma State
University is conducting in-home palatability studies to assert that the Company
would not be in violation of the law if it completely abandoned laboratory
testing is misplaced. Although there is no single, explicit FDA rule requiring
laboratory testing for all pet health/food claims, for the reasons set forth in
the P&G Letter it is clear that reliance upon in-home testing would be
insufficient for certain claims (such as food additive claims, claims for
important, new health benefits, etc.). The mere fact that one university is
conducting in-home palatability studies does not constitute "significant
scientific agreement" that in-home studies are sufficient to support all pet
health/food claims.2 The potential claims are too numerous and varied to abandon
laboratory testing entirely. Indeed, as PETA points out, the FDA has stated that
"[b]ecause of the limitations of the various research methods that can be used
to study substance/disease relationships, it is not possible to specify the type
or number of studies needed to support a health claim." (emphasis added)
This is an area where one size does not fit all. While relying solely on
laboratory testing for all claims may not be required, relying solely on in-home
testing would, likewise, be impermissible.3 As an innovator in pet health and
nutrition, Iams often leads the industry in new and beneficial pet health
products. The "limitations" cited by the FDA would make it impossible for the
Company to completely abandon all laboratory testing and rely solely on in-home
testing for all of its claims. A complete ban on all laboratory testing in favor
of in-home testing would cause the Company to violate federal law when making
certain pet health/food claims because scientifically accurate in-home tests
would not be possible in all cases. Thus, this portion of the Proposal should be
removed.
4. For the reasons set forth in the P&G letter, the references to the Facility
should be stricken. However, at a minimum, in order not to mislead the Company's
shareholdersregarding the Company's involvement with respect to actions taken at
the Facility, PETA should state explicitly in the Proposal that Iams' dogs were
not subject to the conditions mentioned. Although PETA notes that the Proposal
"does not state that Iams' dogs were subjected to those conditions," PETA fails
to acknowledge that the Proposal strongly implies that Iams endorsed and/or
condoned such behavior. To avoid that implication and be completely forthright,
PETA should not be silent on this issue. The Proposal should be amended to
explicitly state that Iams' dogs were not subject to those conditions.
5. PETA's reliance on a single letter dated April 27, 2004, from William J.
Burkholder, Center for Veterinary Medicine, as its sole support for its
statement that the FDA has "endorsed" in-home studies is unreasonable. PETA does
not cite any FDA rule endorsing in-home studies. PETA does not cite any FDA
regulation endorsing in-home studies. PETA does not cite any FDA guideline
endorsing in-home testing. Indeed, PETA does not cite any broadly disseminated
FDA document endorsing in-home studies. Yet, despite any public statement by the
FDA endorsing in-home studies, PETA claims that the FDA has done just that.
PETA's sole basis for this assertion is: (a) a single letter; (b) from one
member of the FDA; (c) in direct response to a submission from PETA; (d)
regarding one specific type of pet food/health claim (an adult maintenance
claim); (e) where the author provides "several comments about details" of the
protocol contained in the submission. PETA's characterization of this one letter
as an "endorsement" by an entire federal agency of in-home studies is, quite
simply, ridiculous. With all due respect to Dr. Burkholder and his impeccable
professional qualifications, he does not speak on behalf of the entire FDA in
this letter.4 And, even if he did, a careful review of his letter demonstrates
that Dr. Burkholder was pointing out potential pitfalls in the in-home study
protocol submitted by PETA, not endorsing in-home testing for all pet
health/food claims.
One of the major premises for PETA's position that the Company should completely
eliminate all laboratory testing in favor of in-home testing is PETA's assertion
that the FDA has "endorsed" in-home testing. This is not true, and all such
references to such FDA "endorsement" should be omitted from the Proposal as
false and misleading.
For the reasons set forth in the P&G Letter, as well as those set forth above,
the Company respectfully requests that the Staff agree that the Company may omit
the Proposal from its Proxy Statement or, in the alternative, that the Staff
order PETA to significantly alter the Proposal toremove those portions that have
been substantially implemented, would result in a violation of law, and/or are
materially false and misleading.
Sincerely,
/s/
E. J. Wunsch
cc: Ms. Susan L Hall (Legal Counsel, PETA)
-----FOOTNOTES-----
1 Obviously, it is impossible for the Company to make an annual report to
shareholders on "goals and objectives" which do not exist. And, for the reasons
set forth in the P&G Letter and below, the Company believes that modifying the
goals and objectives as PETA suggests would cause the Company to violate the
law.
2 Palatability studies are merely one type of pet health/food claim, and
typically are designed to support basic nutritional adequacy statements. There
are many other types of claims that require more extensive research methods
(such as laboratory testing). PETA's citation to one university using in-home
testing for one type of claim as the basis for its assertion that laboratory
testing is no longer required in any situation is misleading.
3 PETA is not asking the Company to utilize in-home testing where, in the
opinion of the Company's researchers, such testing would be permissible to
support pet health/food claims. Rather, PETA is asking the Company to completely
eliminate all laboratory testing, without regard to the type of claim being
made.
4 Taking a letter from one member of the FDA and calling it an "FDA endorsement"
is akin to taking a statement made by an SEC staff member at a conference and
calling it an "SEC pronouncement."
[INQUIRY LETTER]
July 15, 2004
BY ELECTRONIC MAIL: cfletters@sec.gov
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: The Procter & Gamble Company Shareholder Proposal by People for the Ethical
Treatment of Animals Commission File No. 1-434
Ladies and Gentlemen:
This brief letter is submitted on behalf of People for the Ethical Treatment of
Animals (PETA) in response to a letter from P&G to your Office dated July 6,
2004. We wish to specifically address those items numbered 3 through 5 in P&G's
letter.
Item number 3 is directed at that part of the shareholder proposal requesting an
end to laboratory testing of pet food products in favor of in-home testing and
veterinary clinic studies using animals volunteered by their caretakers. It is
noteworthy that P&G concedes that "there is no single, explicit FDA rule
requiring laboratory testing for all pet health/food claims ..." That is
absolutely correct and the cornerstone of PETA's position. P&G goes on to state
that in-home testing would be insufficient for certain claims such as "food
additive claims."
What the Company fails to articulate is that FDA-mandated testing and regulation
of food additives is separate and distinct from the testing of final pet food
formulations. In other words, once a chemical additive has undergone safety
testing, there is no requirement that it be re-tested when added to a formulated
food product. PETA's resolution is not directed to testing of food additives. It
is narrowly focused on pet food studies. It calls for "[e]nding all testing on
animals in Company laboratories for pet food studies, relying instead on in-home
tests and veterinary clinic studies using animals volunteered by their
caretakers."
Item 4 is directed at the laboratory with which Iams formerly contracted for
food studies. The Company avers that the resolution implies that Iams' dogs were
subjected to cruel and deprived conditions. It does not say that and in fact in
the following whereas clause, credits P&G with taking positive steps including
"terminating the contract laboratory ..."
Lastly, item 5 addresses the FDA's endorsement of in-home pet food studies.
While P&G argues at length that the FDA does not endorse in-home food studies,
it points to nothing to the contrary. The bottom line is that there is no FDA
rule or regulation requiring laboratory testing for pet food products. End of
inquiry.
We thank the Chief Counsel's Office for considering our position.
Very ruly yours,
Susan L. Hall
Legal Counsel
cc: E.J. Wunsch, Senior Counsel P&G (by e-mail)
[STAFF REPLY LETTER]
July 15, 2004
Response of the Office of Chief Counsel Division of Corporation Finance
Re: The Procter & Gamble Company Incoming letter dated June 4, 2004
The proposal requests that Procter & Gamble implement rules and regulations
relating to in-home studies, including (i) ending contracts with, utilizing, or
relying upon outside or independent contract laboratories; (ii) ending all
testing on animals in company laboratories for pet food studies, relying instead
on in-home tests and veterinary clinic studies using animals volunteered by
their caretakers; and (iii) including in the annual report to shareholders an
assessment of Procter & Gamble's and Iams's success in achieving these goals and
objectives.
We are unable to concur in your view that Procter & Gamble may exclude the
proposal under rule 14a-8(i)(2). Accordingly, we do not believe that Procter &
Gamble may omit the proposal from its proxy materials in reliance on rule
14a-8(i)(2).
We are unable to concur in your view that Procter & Gamble may exclude the
entire proposal under rule 14a-8(i)(3). There appears to be some basis for your
view, however, that portions of the proposal may be materially false or
misleading under rule 14a-9. In our view, the proponent must:
delete the clause that begins "WHEREAS, the Food and Drug Administration ..."
and ends "... using caged animals; and";
replace the year "2002" with the year "1996" and delete the phrase "and in
light of the FDA's endorsement of in-home food trials" in the clause that begins
"WHEREAS, additional measures must ..." and ends "... of in-home food trials";
delete the phrase "the FDA's endorsement of" in the clause that begins "That
the Board implement rules and regulations ..." and ends "... Iams' Research
Policy including"; and
delete the sentence that begins "The FDA has endorsed ..." and ends "...
in-home food trials."
Accordingly, unless the proponent provides Procter & Gamble with a proposal and
supporting statement revised in this manner, within seven calendar days after
receiving this letter, we will not recommend enforcement action to the
Commission if Procter &Gamble omits only these portions of the proposal from its
proxy materials in reliance on rule 14a-8(i)(3).
We are unable to concur in your view that Procter & Gamble may exclude the
proposal under rule 14a-8(i)(10). Accordingly, we do not believe that Procter &
Gamble may omit the proposal from its proxy materials in reliance on rule
14a-8(i)(10).
Sincerely,
/s/
Grace K. Lee
Special Counsel
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