[Federal Register Volume 59, Number 242 (Monday, December 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31128]


[[Page Unknown]]

[Federal Register: December 19, 1994]


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FEDERAL TRADE COMMISSION
[File No. 922 3021]

 

Gateway Educational Products, Ltd., et al.; 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, a California-based corporation and two 
officers from making reading and comprehension claims for their 
``Hooked on Phonics'' reading program or any other educational program 
or product without possessing and relying upon competent and reliable 
substantiating evidence. In addition, it would prohibit them from 
representing that any endorsement represents the typical or ordinary 
experience of consumers with any educational program or product without 
possessing and relying upon competent and reliable substantiating 
evidence.

DATES: Comments must be received on or before February 17, 1995.

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:
Joel Winston or Toby Levin, FTC/S-4002, Washington, DC 20580. (202) 
326-3153 or 326-3156.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the 
Commission's rules of practice (16 CFR 2.34), 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)).

    In the matter of: Gateway Educational Products, Ltd., a 
corporation, and John Shanahan and John Herlihy, individually and as 
officers of said corporation. File No. 9223021.

Agreement Containing Consent Order To Cease and Desist

    The Federal Trade Commission having initiated an investigation of 
certain acts and practices of Gateway Educational Products, Ltd., a 
corporation, and John Shanahan and John Herlihy, individually and as 
officers of said corporation (``proposed respondents''), and it now 
appearing that proposed respondents are willing to enter into an 
agreement containing an order to cease and desist from the use of the 
acts and practices being investigated.
    It is hereby agreed by and between Gateway Educational Products, 
Ltd., by its duly authorized officer, and John Shanahan and John 
Herlihy, individually and as officers of said corporation, and their 
attorneys, and counsel for the Federal Trade Commission that:
    1. Proposed respondent Gateway Educational Products, Ltd., is a 
corporation organized, existing, and doing business under and by virtue 
of the laws of the State of Delaware with its office and principal 
place of business located at 1050 Katella Ave., Suite D, Orange, 
California 92667.
    Proposed respondents John Shanahan and John Herlihy are officers of 
said corporation. They formulate, direct and control the policies, acts 
and practices of said corporation and their address is the same as that 
of said corporation.
    2. Proposed respondents admit all the jurisdictional facts set 
forth in the draft of complaint.
    3. Proposed respondents waive:
    (a) Any further procedural steps;
    (b) The requirement that the Commission's decision contain a 
statement of findings of fact and conclusions of law; and
    (c) All rights to seek judicial review or otherwise to challenge or 
contest the validity of the order entered pursuant to this agreement.
    4. This agreement shall not become 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, together with the draft of 
complaint contemplated thereby, 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 proposed respondents, in which 
event it will take such action as it may consider appropriate, or issue 
and serve its complaint (in such form as the circumstances may require) 
and decision, in disposition of the proceeding.
    5. This agreement is for settlement purposes only and does not 
constitute an admission by proposed respondents that the law has been 
violated as alleged in the draft of complaint, or that the facts as 
alleged in the draft of complaint, other than the jurisdictional facts, 
are true.
    6. 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 Sec. 2.34 of the Commission's 
rules, the Commission may, without further notice to proposed 
respondents, (1) issue its complaint corresponding in form and 
substance with the draft of complaint and 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 
complaint and decision containing the agreed-to-order to proposed 
respondents' address as stated in this agreement shall constitute 
service. Proposed respondents waive any right they may 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 the agreement may be used 
to vary or contradict the terms of the order.
    7. Proposed respondents have read the proposed complaint and order 
contemplated hereby. They understand that once the order has been 
issued, they will be required to file one or more compliance reports 
showing that they have fully complied with the order. Proposed 
respondents further understand that they may be liable for civil 
penalties in the amount provided by law for each violation of the order 
after it becomes final.

Order

Definitions
    For purposes of this order, the following definitions shall apply:
    A. ``HOP'' means the reading program known as ``Hooked on Phonics/
SRA Reading Power'' marketed by Gateway Educational Products, Ltd.
    B. ``Educational program or product'' means any program of product 
that provides instruction in any field of study, including but not 
limited to any aspect of reading.
    C. ``Competent and reliable scientific evidence'' means tests, 
analyses, research, studies, or other evidence based on the expertise 
of professionals in the relevant area, 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.
I.
    It is ordered that respondents Gateway Educational Products, Ltd., 
a corporation, its successors and assigns, and its officers, and John 
Shanahan and John Herlihy, individually and as officers of said 
corporation, and respondents' agents, representatives, and employees, 
directly or through any corporation, subsidiary, division or other 
device, in connection with the manufacturing, labelling, advertising, 
promotion, offering for sale, sale, or distribution of HOP or any other 
educational program or product in or affecting commerce, as 
``commerce'' is defined in the Federal Trade Commission Act, do 
forthwith cease and desist from representing, in any manner, directly 
or by implication, that such program or product:
    A. Can or will quickly and easily teach persons with reading 
problems or disabilities to read, regardless of the nature of the 
problem or disability;
    B. Is effective for teaching persons with learning disabilities, 
including dyslexia and attention deficit disorders, to read;
    C. Can or will cause users with reading problems or disabilities to 
achieve significant improvement in reading levels or classroom grades;
    D. Is effective for teaching persons in a home setting to read, 
without the need for additional assistance such as a teacher or tutor;
    E. Is effective for teaching reading comprehension skills;
    F. Has helped nearly one million or any other number of students to 
learn to read; or
    G. Provides any other educational benefits,

unless at the time of making such representation, respondents possess 
and rely upon competent and reliable evidence, which when appropriate 
must be competent and reliable scientific evidence, that substantiates 
such representation.
II
    It is further ordered that respondents Gateway Educational 
Products, Ltd., a corporation, its successors and assigns, and its 
officers, and John Shanahan and John Herlihy, individually and as 
officers of said corporation, and respondents' agents, representatives, 
and employees, directly or through any corporation, subsidiary, 
division or other device, in connection with the manufacturing, 
labelling, advertising, promotion, offering for sale, sale, or 
distribution of any educational program or product 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, that any endorsement (as ``endorsement'' is defined in 16 
CFR 255.0(b)) of the program or product represents the typical or 
ordinary experience of members of the public who use the program or 
product, unless at the time of making such representation, respondents 
possess and rely upon competent and reliable evidence, which when 
appropriate must be competent and reliable scientific evidence, the 
substantiates such representation.
III
    It is further ordered that respondents Gateway Educational 
Products, Ltd., a corporation, its successors and assigns, and its 
officers, and John Shanahan and John Herlihy, individually and as 
officers of said corporation, shall for five (5) years after the date 
of the last dissemination to which they pertain, maintains and upon 
request make available to the Federal Trade Commission or its staff for 
inspection and copying:
    A. Any advertisement making any representation covered by this 
order;
    B. All materials that were relied upon by respondents in 
disseminating any representation covered by this order; and
    C. All reports, tests, studies, surveys, demonstrations or other 
evidence in any respondent's possession or control that contradict, 
qualify, or call into question such representation, or the basis upon 
which respondents relied for such representation, including complaints 
from consumers.
IV
    It is further ordered that respondent Gateway Educational Products, 
Ltd., its successors and assigns, shall:
    A. Within thirty (30) days after service of this order, provide a 
copy of this order to each of its current principals, officers, 
directors, and managers, and to all personnel, agents, and 
representatives having sales, advertising, or policy responsibility 
with respect to the subject matter of this order; and
    B. For a period of five (5) years from the date of entry of this 
order, provide a copy of this order to each of its principals, 
officers, directors, and managers, and to all personnel, agents, and 
representatives having sales, advertising, or policy responsibility 
with respect to the subject matter of this order within three (3) days 
after the person commences his or her responsibilities.
V
    It is further ordered that respondent Gateway Educational Products, 
Ltd., its successors and assigns, shall notify the Federal Trade 
Commission at least thirty (30) days prior to any proposed change in 
its corporate structure, including but not limited to dissolution, 
assignment, or sale resulting in the emergence of a successor 
corporation, the creation or dissolution of subsidiaries or affiliates, 
the planned filing of a bankruptcy petition, or any other change in the 
corporation that may affect compliance obligations arising out of this 
order.
VI
    It is further ordered that respondents John Shanahan and John 
Herlihy shall, for a period of ten (10) years from the date of entry of 
this order, notify the Commission within thirty (30) days of the 
discontinuance of their present business or employment with respondent 
Gateway Educational Products, Ltd., or its successors and assigns, and 
of their affiliation with any new business or employment in connection 
with the manufacturing, labelling, advertising, promotion, offering for 
sale, sale, or distribution of any educational program or product. Each 
notice of affiliation with any new business or employment shall include 
the respondent's new business address and telephone number, current 
home address, and a statement describing the nature of the business or 
employment and his duties and responsibilities.
VII
    It is further ordered that respondents shall, within sixty (60) 
days after service of this order, and at such other times as the 
Federal Trade Commission may require, file with the Commission a 
report, in writing, setting forth in detail the manner and form in 
which they have complied with this order.

Analysis of Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission has accepted an agreement to a 
proposed consent order from Gateway Educational Products, Ltd. 
(``Gateway''), and John Shanahan and John Herlihy, officers of Gateway.
    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 again review the 
agreement and comments received and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    This matter concerns the ``Hooked on Phonics'' reading program 
(``HOP''). The Commission's proposed complaint alleges that the 
respondents represented in their advertisements and promotional 
materials that HOP will quickly and easily teach persons with reading 
problems or disabilities to read, regardless of the nature of the 
problem or disability; is effective for teaching persons with learning 
disabilities, including dyslexia and attention deficit disorders, to 
read; will cause users with reading problems or disabilities to achieve 
significant improvement in reading levels and classroom grades; is 
effective for teaching persons in a home setting to read, without the 
need for additional assistance such as a teacher or tutor; is effective 
for teaching reading comprehension skills; has helped nearly one 
million students to learn to read at home; and that testimonials or 
endorsements appearing in the HOP advertising reflect consumers' 
typical or ordinary experiences using HOP. The complaint alleges that 
the respondents falsely represented that they relied upon a reasonable 
basis for these representations.
    The proposed consent order contains provisions designed to prevent 
the respondents from engaging in similar acts and practices in the 
future. Part I requires respondents to possess adequate substantiation 
for the HOP efficacy claims alleged in the complaint, as well as for 
any claims that any educational program or product will be effective 
for teaching reading or provides any other educational benefit. The 
substantiation level required is competent and reliable evidence, which 
when appropriate must be competent and reliable scientific evidence.
    Part II of the proposed order prohibits the respondents, in 
advertising any educational program or product, from representing that 
any endorsement represents the typical experience of consumers who use 
the program or product, unless the claim is substantiated.
    Parts III through VII relate to the respondents' obligations to 
retain substantiation materials; to notify the Commission of changes in 
corporate identity, or in the case of the individuals, employment; to 
distribute copies of the order to certain employees; and to file 
compliance reports with the Commission.
    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 in any 
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 94-31128 Filed 12-16-94; 8:45 am]
BILLING CODE 6750-01-M