[Federal Register Volume 60, Number 148 (Wednesday, August 2, 1995)]
[Notices]
[Pages 39396-39399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18954]



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FEDERAL TRADE COMMISSION
[File No. 942 3294]


J. Walter Thompson USA, 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, a New York-based advertising agency, 
which prepared advertisements for Jenny Craig, Inc., from claiming that 
any weight-loss program is recommended, approved, or endorsed by any 
person, group, or other entity, unless it possesses and relies upon 
competent and reliable scientific evidence to substantiate the 
representation. In addition, the consent agreement prohibits the 
respondent from misrepresenting the existence, results, or 
interpretations of any test, study, or survey.

DATES: Comments must be received on or before October 2, 1995.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th Street and Pennsylvania Avenue NW., Washington, D.C. 
20580.

FOR FURTHER INFORMATION CONTACT: Jeffrey Klurfeld or Matthew Gold, 
Federal Trade Commission, San Francisco Regional Office, 901 Market 
Street, Suite 570, San Francisco, CA 94103. (415) 744-7920.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 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 Section 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

    The Federal Trade Commission having initiated an investigation of 
certain acts and practices of J. Walter Thompson USA, Inc., a 
corporation, and it now appearing that the proposed respondent is 
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 J. Walter Thompson USA, Inc., a 
corporation, by its duly authorized officer, and its attorney, and 
counsel for the Federal Trade Commission that:
    1. Proposed respondent J. Walter Thompson USA, Inc. 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 466 Lexington Avenue, New York, New York 
10017.
    2. Proposed respondent admits all the jurisdictional facts set 
forth in the draft of complaint.
    3. Proposed 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 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.
    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 respondent, 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 


[[Page 39397]]
decision, in disposition of the proceeding.
    5. This agreement is for settlement purposes only and does not 
constitute an admission by proposed respondent of facts, other than 
jurisdictional facts, or of violations of law as alleged in the draft 
of complaint.
    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 Section 2.34 of the 
Commission's Rules, the Commission may, without further notice to 
proposed respondent, (a) 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 (b) 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 
respondent's address as stated in this agreement shall constitute 
service. The proposed respondent waives any right it 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. The proposed respondent has read the proposed complaint and 
order contemplated hereby. The proposed respondent understands that 
once the order has been issued, it will be required to file one or more 
compliance reports showing that it has fully complied with the order. 
The proposed 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

    For purposes of this order, the term ``diet-related food'' shall 
mean any food (as that term is defined in 15 U.S.C. Sec. 55(b)) whose 
labeling or advertising makes any claim regarding its weight loss or 
weight maintenance benefits.

I

    It is ordered that respondent, J. Walter Thompson USA, Inc., a 
corporation, its successors and assigns, and its officers, and 
respondent's agents, representatives and employees, directly or through 
any corporation, subsidiary, division or other device, in connection 
with the advertising, promotion, offering for sale, or sale of any 
weight loss program, 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 such program 
is recommended, approved or endorsed by any person, group or other 
entity, unless, at the time of making any such representation, 
respondent possesses and relies upon competent and reliable evidence, 
which when appropriate must be competent and reliable scientific 
evidence, that substantiates such representation. For the purposes of 
this order, ``competent and reliable scientific evidence'' shall mean 
those 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 generally accepted in the profession to yield 
accurate and reliable results.
    Provided, however, that it shall be a defense hereunder that the 
respondent neither knew nor had reason to know of an inadequacy of 
substantiation for the representation.

II

    It is further ordered that respondent, J. Walter Thompson USA, 
Inc., a corporation, its successors and assigns, and its officers, and 
respondent's agents, representatives and employees, directly or through 
any corporation, subsidiary, division or other device, in connection 
with the advertising, promotion, offering for sale, or sale of any 
weight loss or weight control program, weight loss product, health or 
fitness program, exercise equipment, or diet-related food, 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, the existence, contents, 
validity, results, conclusions, or interpretations of any test, study, 
or survey.
    Provided, however, that it shall be a defense hereunder that the 
respondent neither knew nor had reason to know that the test, study or 
survey did not prove, demonstrate or confirm the representation.

III

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

IV

    It is further ordered that respondent shall notify the Commission 
at least thirty (30) days prior to the effective date of any proposed 
change in the corporation that may affect compliance obligations under 
this Order, including but not limited to any change in corporate name 
or address, dissolution, assignment or sale resulting in the emergence 
of a successor corporation, or the creation or dissolution of 
subsidiaries.

V

    It is further ordered that respondent shall, within ten (10) days 
from the date of service of this Order upon it, distribute a copy of 
this Order to each of its operating divisions, to each of its 
managerial employees, and to each of its officers, agents, 
representative or employees engaged in 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.
    It is further ordered that respondent shall, within sixty (60) days 
from the date of 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 an agreement, subject to 
final approval, to a proposed consent order from respondent J. Walter 
Thompson USA, Inc., a Delaware corporation.
    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 that 
agreement and the comments received and will decide whether it should 
withdraw from the agreement and take 

[[Page 39398]]
other appropriate action or make final the agreement's proposed order.
    The Commission's complaint in this matter charges J. Walter 
Thompson with engaging in deceptive practices in connection with the 
advertising of the Jenny Craig Weight Loss Program. The advertisements 
at issue contain variations of the claim that nine out of ten Jenny 
Craig clients would recommend the Jenny Craig Weight Loss Program to a 
friend.
    According to the complaint, print and television advertisement for 
the Jenny Craig Weight Loss Program represented that ninety percent or 
more of Jenny Craig customers would recommend the Jenny Craig Weight 
Loss Program. The complaint also alleges that those advertisements 
represented that competent and reliable studies or surveys establish 
that claim.
    The complaint further alleges that J. Walter Thompson lacked 
substantiation for its ``nine out of ten'' claims, and falsely claimed 
that competent and reliable studies or surveys support those claims. 
Finally, the complaint alleges that J. Walter Thompson knew or should 
have known that these claims were false and misleading.
    The consent order contains provisions designed to remedy the 
violations charged and to prevent J. Walter Thompson from engaging in 
similar deceptive and unfair acts and practices in the future.
    Part I of the order prohibits J. Walter Thompson from 
misrepresenting that any weight loss program is recommended, approved 
or endorsed by any person, group or other entity unless it possesses 
and relies upon competent and reliable evidence, which, when 
appropriate, must be competent and reliable scientific evidence, that 
substantiates the representation. Part I provides J. Walter Thompson 
with a defense to liability if it neither knew nor had reason to know 
of an inadequacy of substantiation for the representation.
    Part II prevents J. Walter Thompson from misrepresenting, with 
regard to any diet-related food, or any weight loss or weight control 
program, weight loss product, health or fitness program or exercise 
equipment, the existence, contents, validity, results, conclusions, or 
interpretations of any test, study, or survey. ``Diet-related food'' is 
defined as ``any food (as that term is defined in 15 U.S.C. Sec. 55(b)) 
whose labeling or advertising makes any claim regarding its weight loss 
or weight maintenance benefits.'' Part II provides J. Walter Thompson 
with a defense to liability if it neither know nor had reason to know 
that the test, study or survey did not prove, demonstrate or confirm 
the representation.
    Part III requires J. Walter Thompson to maintain certain materials 
relating to advertisements covered by this order and to make such 
documents available for FTC inspection.
    Part IV requires J. Walter Thompson to notify the Commission of any 
changes in the corporate structure that might affect compliance with 
the order.
    Part V requires J. Walter Thompson to distribute copies of the 
order to certain company officials and employees and certain other 
representatives and agents of the company, and to secure from each such 
person a signed statement acknowledging receipt of the order.
    Part VI requires J. Walter Thompson to file with the Commission one 
or more reports detailing compliance with the order.
    The purpose of this analysis is to facilitate public comment on the 
proposed order. It is not intended to constitute an official 
interpretation of the agreement and proposed order or to modify in any 
way their terms.
Benjamin I. Berman,
Acting Secretary.
Concurring Statement of Commissioners Roscoe B. Starek, III and 
Christine A. Varney

In the Matter of J. Walter Thompson USA, Inc., File No. 942-3294

    Although we have voted to accept the consent order negotiated 
with J. Walter Thompson USA, Inc. (``JWT'') in this matter, we write 
to comment on the scope of the product coverage in Part II of the 
order. Part II addresses the false ``establishment'' claim 
challenged in paragraphs five and six of the complaint, i.e., the 
claim that a valid study or survey showed that ninety percent or 
more of Jenny Craig Weight Loss Program customers would recommend 
the program to their friends. Part II of the order prohibits 
misrepresentations regarding the existence, contents, validity, 
results, conclusions, or interpretations of any test, study, or 
survey, in connection with the promotion of any weight loss or 
weight control program, weight loss product, health or fitness 
program, exercise equipment, or diet-related food.
    On three previous occasions JWT has signed consent orders 
settling allegations that it misrepresented the results of surveys 
or tests.\1\ Because of the narrow scope of the product coverage 
applicable to the relevant order provisions, the Commission, on each 
occasion, had to pursue a new Section 5 case against the company, 
rather than being able to seek civil penalties for an order 
violation. Thus, the Commission's history with JWT raises the 
question of whether broader product coverage is warranted in this 
case.\2\

    \1\ J. Walter Thompson Co., 97 F.T.C. 333 (1981) (complaint 
alleged that JWT misrepresented that ``4 out of 5 dentists 
recommend'' the Water Pik; consent order prohibits claims regarding 
surveys of professional groups unless the surveys were designed, 
executed, and analyzed in a competent and reliable manner); J. 
Walter Thompson Co., 94 F.T.C. 331 (1979) (complaint alleged that 
JWT misrepresented the results of tests of the cleaning 
effectiveness of Sears dishwashers; consent order prohibits, in 
advertising for major home appliances, misrepresenting the results 
of tests, studies, surveys, etc.); J. Walter Thompson Co., 84 F.T.C. 
736 (1974) (complaint alleged that JWT misrepresented the results of 
studies on the safety of Ford automobiles; consent order prohibits, 
in advertising for automobiles, presenting the results of tests, 
experiments, or demonstrations unless competent and reliable to 
prove the claimed feature).
    \2\ It is true that this consent order has broader product 
coverage than the prior JWT orders and appears to cover the range of 
diet- and fitness-related products.
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    Extension of an order's product coverage beyond the product or 
service at issue in a complaint may be justified so long as the 
order bears a reasonable relationship to the unlawful practices 
alleged. See Stouffer Foods Corp., D. 9250, slip op. at 17 (Sept. 
26, 1994) (citing Jacob Siegel Co. v. FTC, 327 U.S. 608, 612-13 
(1946)). The Commission generally considers three criteria to 
determine whether an order bears a reasonable relationship to a 
particular Section 5 violation: (1) the seriousness and 
deliberateness of the violation; (2) the ease with which the 
violative claim may be transferred to other products; and (3) 
whether the respondent has a history of prior violations. Stouffer, 
slip op. at 17 (citing cases). All three elements need not be 
present to warrant fencing-in. Sears, Roebuck & Co. v. FTC, 676 F.2d 
385, 392 (9th Cir. 1982) (``In the final analysis, we look to the 
circumstances as a whole and not to the presence or absence of any 
single factor.'').
    Although we do not have the benefit of a litigated record, from 
the evidence presented so far, it appears that in this case, the 
first two, and arguably the third, elements weigh in favor of broad 
fencing-in. First, the alleged violations are both deliberate and 
serious. The survey from which the ``nine out of ten'' claim was 
derived was obviously and severely flawed. JWT, the largest ad 
agency in the country, surely must be deemed to have expertise in 
conducting consumer surveys. Any ignorance in this regard must have 
been cured by the Commission's earlier decision to hold it liable 
for the dissemination of misrepresentations about the results of 
surveys.
    The evidence also suggests the violations were serious, as 
measured by the extent of dissemination. The ad campaign in question 
was a national one that ran for over a year, and the ads were given 
to franchisees to run in their areas. Furthermore, the great length 
of the campaign's dissemination schedule indicates the campaign must 
have been quite costly.
    The second element, the ease with which the violative claims may 
be transferred to other products, also supports fencing-in. The 
results of surveys or studies are easily misrepresented, regardless 
of the type of product or service. The fairly obvious 
transferability of this type of claim is borne out by the prior 
consent orders, as those cases involved a diverse range of product 

[[Page 39399]]
categories (surveys of professionals, major home appliances, and 
automobiles).
    The final element is the respondent's history of past 
violations. The question of whether consent orders may be used as 
evidence of past violations is at best unsettled. Compare ITT 
Continental Baking Co. v. FTC, 521 F.2d 207, 222 n.23 (2d Cir. 1976) 
(because consent orders do not constitute an admission that the 
respondent has violated the law, the Commission may not rely on 
consent orders as evidence of additional illegal conduct when 
formulating cease and desist orders in other proceedings) with 
Thompson Medical Co., 104 F.T.C. 648, 833 n.78 (1984), aff'd, 791 
F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987) (while 
stating that a single consent order would not be used as a basis for 
concluding that the respondent has a history of past violations, the 
Commission expressly took no position on whether a pattern of 
consent orders would be a sufficient history of past violations to 
warrant fencing-in). Regardless of whether the prior consent orders 
may be considered evidence of past violations, they show that JWT 
was aware of the Commission's concern about this type of claim and 
of the requirements of the law with respect to claims involving 
surveys and tests.
    Despite these concerns, for several reasons we believe that 
accepting the order as negotiated appears to be appropriate. For 
example, we understand that JWT has made clear it would litigate if 
the Commission attempted to obtain broader coverage; litigation 
inevitably presents resource allocation questions.\3\ In addition, 
broad product coverage obviously weighs more heavily on an ad agency 
such as JWT that handles accounts for a divers assortment of 
products and services, than on a manufacturer or advertiser offering 
a limited range of products.\4\ We write only to point out that in 
light of all the circumstances of this case, broad product coverage 
in Part II could have been justified as reasonably related to the 
violations alleged.

    \3\ Even so, a litigated order could be beneficial for several 
reasons. First, in case of future similar violations by JWT, a 
litigated order clearly could be used as evidence of prior law 
violations. Second, while there is no guarantee that the Commission 
would obtain broader product coverage in litigation than is 
contained in this consent order, it seems unlikely that the 
Commission would do any worse, and the potential gain is great, both 
in terms of having JWT under a broader order and in terms of 
precedential value for other cases. Third, a litigated opinion might 
resolve some of the uncertainties concerning the precedential value 
of prior consent orders.
    \4\ On the other hand, the potential burden of a broad order is 
partially mitigated by the fact that, as an ad agency, JWT's order 
contains a safe harbor insulating it from liability unless it knows 
or should know that the survey or test did not prove, demonstrate, 
or confirm the representation. In addition, it is not unusual for 
orders covering establishment claims to have broad product coverage 
because the type of claim covered--the results or validity of tests 
or surveys--is fairly discrete.
Statement of Commissioner Mary L. Azcuenaga Concurring in Part and 
Dissenting in Part

J. Walter Thompson USA, Inc., File No. 942-3294

    I dissent from Part II of the proposed consent order because the 
product coverage is too narrow. Part II would prohibit J. Walter 
Thompson from making deceptive establishment claims for any weight 
loss or weight control program, weight loss product, health or 
fitness program, exercise equipment, or diet-related food. Although 
the product coverage in this provision does go beyond the product 
with respect to which a violation has been alleged, given the 
particular facts of this case, I would impose even broader product 
coverage. In my view, J. Walter Thompson relied on a clearly flawed 
study in making its deceptive claims, and it continued to make 
claims based on this flawed study even after it had received 
contradictory results from a more reliable study that it had 
commissioned. J. Walter Thompson also could readily transfer 
deceptive test result claims to other products, as demonstrated by 
the fact that J. Walter Thompson has entered into three other 
consent agreements to settle allegations that it made deceptive 
claims concerning survey or test results for three disparate 
products.\1\ Given that J. Walter Thompson's deception appears to 
have been deliberate and that its deception readily could be 
transferred to other products, see Stouffer Foods Corp., D. 9250, 
slip op. at 17 (Sept. 26, 1994), broader product coverage is 
appropriate.

    \1\ J. Walter Thompson Co., 97 F.T.C. 323 (1981); (dental 
cleaning device); J. Walter Thompson Co., 94 F.T.C. 331 (1979) 
(dishwashers); J. Walter Thompson Co., 84 F.T.C. 736 (1974) 
(automobiles). Assuming the allegations in this and the previous 
cases to be true, we would have to conclude that J. Walter Thompson 
has had difficulty comprehending that the conduct alleged is conduct 
about which the Commission is concerned.
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[FR Doc. 95-18954 Filed 8-1-95; 8:45 am]
BILLING CODE 6750-01-M