[Federal Register Volume 59, Number 99 (Tuesday, May 24, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12623]


[[Page Unknown]]

[Federal Register: May 24, 1994]


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FEDERAL TRADE COMMISSION

[Dkt. 9264]

 

Hawthorne Communications, Inc.; Proposed Consent Agreement With 
Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting 
unfair acts and practices and unfair methods of competition, this 
consent agreement, accepted subject to final Commission approval, would 
prohibit, among other things, an Iowa corporation from making any 
representations about the performance, benefits, efficacy, or success 
rate of any product or service concerning business opportunities unless 
the respondent possesses competent and reliable evidence that 
substantiates such representations. In addition, the consent agreement 
would prohibit the respondent from misusing testimonials and 
endorsements.

DATES: Comments must be received on or before July 25, 1994.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Jeffrey Dahnke, FTC/Denver Regional 
Office, 1405 Curtis St., suite 2900, Denver, CO. 80202-2393. (303) 844-
2254.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 3.25(f) of 
the Commission's Rules of Practice (16 CFR 3.25(f)), notice is hereby 
given that the following consent agreement containing a consent order 
to cease and desist, having been filed with and accepted, subject to 
final approval, by the Commission, has been placed on the public record 
for a period of sixty (60) days. Public comment is invited. Such 
comments or views will be considered by the Commission and will be 
available for inspection and copying at its principal office in 
accordance with Sec. 4.9(b)(6)(ii) of the Commission's Rules of 
Practice (16 CFR 4.9(b)(6)(ii)).

Agreement Containing Consent Order To Cease and Desist

    In the matter of Hawthorne Communications, Inc., a corporation. 
Docket No. 9264.

    The agreement herein, by and between Hawthorne Communications, 
Inc., a corporation, by its duly authorized officer, hereafter 
sometimes referred to as respondent, and its attorney, and counsel for 
the Federal Trade Commission, is entered into in accordance with the 
Commission's Rule governing consent order procedures. In accordance 
therewith the parties hereby agree that:
    1. Respondent Hawthorne Communications, Inc., is a corporation 
organized, existing and doing business under and by virtue of the laws 
of the State of Iowa, with its office and principal place of business 
located at 300 N. 16th Street, Fairfield, Iowa 52556.
    2. Respondent has been served with a copy of the complaint issued 
by the Federal Trade Commission charging it with violations of section 
5(a) of the Federal Trade Commission Act, 15 U.S.C. 45(a) and has filed 
an answer to said complaint denying said charges.
    3. Respondent admits all the jurisdictional facts set forth in the 
Commission's complaint in this proceeding.
    4. Respondent waives:
    (a) Any further procedural steps;
    (b) The requirement that the Commission's decision contain a 
statement of findings of fact and conclusions of the law;
    (c) All rights to seek judicial review or otherwise to challenge or 
contest the validity of the order entered pursuant to this agreement; 
and
    (d) any claim under the Equal Access to Justice Act.
    5. This agreement shall not become a part of the public record of 
the proceeding unless and until it is accepted by the Commission. If 
this agreement is accepted by the Commission it will be placed on the 
public record for a period of sixty (60) days and information in 
respect thereto publicly released. The Commission thereafter may either 
withdraw its acceptance of this agreement and so notify the respondent, 
in which event it will take such action as it may consider appropriate, 
or issue and serve its decision, in disposition of the proceeding.
    6. This agreement is for settlement purposes only and does not 
constitute an admission by respondent that the law has been violated as 
alleged in the complaint, or that the facts as alleged in the 
complaint, other than jurisdictional facts, are true.
    7. This agreement contemplates that, if it is accepted by the 
Commission, and if such acceptance is not subsequently withdrawn by the 
Commission pursuant to the provisions of Section 3.25(f) of the 
Commission's Rules, the Commission may without further notice to 
respondent, (1) issue its decision containing the following order to 
cease and desist in disposition of the proceeding, and (2) make 
information public in respect thereto. When so entered, the order to 
cease and desist shall have the same force and effect and may be 
altered, modified or set aside in the same manner and within the same 
time provided by statute for other orders. The order shall become final 
upon service. Delivery by the U.S. Postal Service of the decision 
containing the agreed-to order to respondent's address as stated in 
this agreement shall constitute service. Respondent waives any right it 
might have to any other manner of service. The complaint may be used in 
construing the terms of the order, and no agreement, understanding, 
representation, or interpretation not contained in the order or in the 
agreement may be used to vary or to contradict the terms of the order.
    8. Respondent has read the complaint and the order contemplated 
hereby. It understands that once the order has been issued, ti will be 
required to file one or more compliance reports showing that it has 
fully complied with the order. Respondent further understands that it 
may be liable for civil penalties in the amount provided by law for 
each violation of the order after it becomes final.

Order

    As used in this order, the term ``business opportunity'' means an 
activity engaged in for the purpose of making a profit.

I

    It Is Ordered that respondent, Hawthorne Communications, Inc., a 
corporation , its successors and assigns, and its officers, agents, 
representatives and employees, directly or through any corporation, 
subsidiary, division or other device, in connection with the 
advertising, offering for sale, sale or distribution of any Tronsoft 
product or service, in or affecting commerce, as ``commerce'' is 
defined in the Federal Trade Commission Act, do forthwith cease and 
desist from selling, broadcasting, disseminating, or assisting or 
encouraging others to sell, broadcast or disseminate the ``Freedom 
Now'' commercial described in the complaint.

II

    It Is Further Ordered that respondent, Hawthorne Communications, 
Inc., a corporation, its successors and assigns, and its officers, 
agents, representatives and employees, directly or through any 
corporation, subsidiary, division or other device, in connection with 
the advertising, offering for sale, sale or distribution of Tronsoft's 
Home Business Starter Kit (``Starter Kit'') or any substantially 
similar product, in or affecting commerce, as ``commerce'' is defined 
in the Federal Trade Commission Act, do forthwith cease and desist from 
misrepresenting, in any manner, directly or by implication, that:
    A. Consumers who use such product readily succeed in starting and 
operating successful businesses out of their own homes.
    B. Consumers who use such product earn substantial income.
    For purposes of this provision, ``substantially similar product'' 
means any product or material containing substantially similar 
information or techniques as the Starter Kit and that purports to 
instruct consumers how to start and operate a computer-based consulting 
business at home.

III

    It Is Further Ordered that respondent, Hawthorne Communications, 
Inc., a corporation, its successors and assigns, and its officers, 
agents, representatives and employees, directly or through any 
corporation, subsidiary, division or other device, in connection with 
the advertising, offering for sale, sale or distribution of the Starter 
Kit or any other product or service concerning business opportunities, 
in or affecting commerce, as ``commerce'' is defined in the Federal 
Trade Commission Act, do forthwith cease and desist from representing, 
directly or by implication, the performance, benefits, efficacy or 
success rate of any such product or service, unless, at the time of 
making the representation, respondent possess and relies upon competent 
and reliable evidence, which when appropriate must be competent and 
reliable scientific evidence, that substantiates such representation. 
For purposes of this order, competent and reliable scientific evidence 
shall mean tests, analyses, research, studies, or other evidence based 
on the expertise of professionals in the relevant area, that has been 
conducted and evaluated in an objective manner by persons qualified to 
do so, using procedures generally accepted in the profession to yield 
accurate and reliable results.

IV

    It Is Further Ordered that respondent, Hawthorne Communications, 
Inc., a corporation, its successors and assigns, and its officers, 
agents, representatives and employees, directly or through any 
corporation, subsidiary, division or other device, in connection with 
the advertising, offering for sale, sale or distribution of any product 
or service, in or affecting commerce, as ``commerce'' is defined in the 
Federal Trade Commission Act, do forthwith cease and desist from:
    A. Using, publishing, or referring to any endorsement (as 
``endorsement'' is defined in Sec. 225(b), part 255, title 16, Code of 
Federal Regulations) unless respondent has good reason to believe that 
at the time of such use, publication, or reference, the endorsement 
reflects the honest opinions, finding, beliefs, experience of the 
endorser and contains no express or implied representations which would 
be deceptive or unsubstantiated if made directly by respondent.
    B. Representing, directly or by implication, that any endorsement 
of the product or services represents the typical or ordinary 
experience of members of the public who use the product or service 
unless such is the case.

V

    It Is Further Ordered that respondent shall distribute a copy of 
this order to each of its operating divisions and to each officer, 
agent and personnel responsible for the preparation, review or 
placement of advertising, or other materials covered by this order, and 
shall secure from each such person a signed statement acknowledging 
receipt of this order.

VI

    It Is Further Ordered that respondent shall for a period of five 
(5) years from the entry of this order, notify the Federal Trade 
Commission at least thirty (30) days prior to any proposed change in 
the respondent, such as dissolution, assignment, or sale resulting in 
the emergence of a successor corporation, the creation or dissolution 
of new corporations or subsidiaries of the respondent, or any other 
change in the corporation that may affect compliance obligations 
arising out of this order.

VII

    It Is Further Ordered that respondent, and its successors and 
assigns, shall, for five (5) years after the date of the last 
dissemination to which they pertain, maintain and upon request make 
available to the Federal Trade Commission for inspection and copying:
    A. All materials that were relied upon by respondent in 
disseminating any representation covered by this order; and
    B. All reports, tests, studies, surveys, demonstrations or other 
evidence in respondent's possession or control that contradict, 
qualify, or call into question such representation, or the basis upon 
which respondent relied for such representation, including complaints 
from consumers.

VIII

    It Is Further Ordered that respondent shall, within sixty (60) days 
after service of this order upon it and at such other times as the 
Commission may require, file with the Commission a report, in writing, 
setting forth in detail the manner and form in which it has complied 
with this order.

Analysis of Proposed Consent Order to Aid Public Comment

    The Federal Trade Commission has accepted, subject to final 
approval, an agreement to a proposed consent order from Hawthorne 
Communications, Inc. (``respondent'' or ``Hawthorne'').
    The proposed consent order has been placed on the public record for 
sixty (60) days for reception of comments by interested persons. 
Comments received during this period will become part of the public 
record. After sixty (60) days, the Commission will decide whether it 
should withdraw from the agreement or make final the agreement's 
proposed order.

Description of Complaint

    This matter concerns advertising practices related to the sale of 
Tronsoft Inc.'s Freedom Now Home Business Starter Kit (``Starter 
Kit''). The Commission's complaint, issued on November 16, 1993, 
alleges that Hawthorne promoted the sale of the Starter Kit by 
scripting and producing a 30-minute television commercial entitled 
``Freedom Now,'' which was broadcast in various areas throughout the 
United States.
    The complaint alleges that through the use of statements and 
depictions contained in the ``Freedom Now'' commercial, respondent 
Hawthorne falsely represented that consumers who use the Starter Kit 
will typically and readily succeed in starting and operating a business 
out of their homes and will typically earn substantial income. In 
addition, the complaint alleges that Hawthorne falsely represented that 
testimonials appearing in the commercial reflected both the actual 
experiences of the people appearing as testimonialists and the typical 
experiences of members of the public who had used the Starter Kit. 
Finally, the complaint alleges that Hawthorne, at the time it made 
various representations in the commercial, lacked a reasonable basis 
that substantiated those representations.

Description of the Proposed Consent Order

    The proposed consent order contains provisions which are designed 
to remedy the alleged advertising violations and to prevent the 
respondent from engaging in similar acts and practices in the future. 
The proposed order prohibits respondent from disseminating the 
``Freedom Now'' commercial and from misrepresenting that consumers who 
use the Starter Kit (or any substantially similar product) can 
typically use such product to start a business and earn substantial 
income. The proposed order would further prohibit Hawthorne from making 
any representations about the performance, benefits, efficacy or 
success rate of any product or service concerning business 
opportunities unless Hawthorne possesses competent and reliable 
evidence that substantiates such representations. The proposed order 
also contains prohibitions about using or misusing testimonials and 
endorsements. In particular, the order prohibits Hawthorne from using 
testimonials that do not reflect the actual opinions, beliefs, or 
experiences of the endorser and from falsely representing that any 
testimonial reflects the typical experiences of members of the public 
who use the product being advertised.
    The proposed order would require Hawthorne to distribute the 
proposed order to its divisions and to officers, agents, and any 
employees with advertising responsibilities. The order also requires 
respondent to notify the Commission of any changes in its corporate 
structure and to retain for five years all materials that it relies 
upon in making representations covered by the order, as well as all 
materials that call the representations into question. Finally, the 
order requires Hawthorne to file compliance reports within sixty days 
and at other times as the Commission may order.
    The purpose of this analysis is to facilitate public comment on the 
proposed order, and it is not intended to constitute an official 
interpretation of the agreement and proposed order or to modify its 
terms in any way. The proposed consent order has been entered into for 
settlement purposes only and does not constitute an admission by the 
respondent that the law has been violated as alleged in the complaint.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 94-12623 Filed 5-23-94; 8:45 am]
BILLING CODE 6750-01-M