[Federal Register Volume 61, Number 75 (Wednesday, April 17, 1996)]
[Notices]
[Pages 16798-16803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9280]



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FEDERAL TRADE COMMISSION
[File No. 942-3171]


Zygon International, Inc.; Dane Spotts; 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 or deceptive acts or practices and unfair methods of 
competition, this consent agreement, accepted subject to final 
Commission approval, would prohibit, among other things, a Redmond, 
Washington-based company and its owner from making any claims about the 
performance, benefits, efficacy, or safety of any product or service 
they market without having competent and reliable substantiation to 
back up the claims. Zygon would also be required to pay up to $195,000 
in consumer refunds. The Consent Agreement settles allegations stemming 
from Zygon's marketing of five products: the ``Learning Machine,'' 
``SuperMind,'' ``SuperBrain Nutrient Program,'' ``Fat Burner Pills,'' 
and ``Day and Night Eyes.''

DATES: Comments must be received on or before June 17, 1996.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary, 
Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

Joel Winston, Federal Trade Commission, S-4002, 6th Street and 
Pennsylvania Avenue, NW, Washington, DC. 20580. (202) 326-3153.
Lesley Anne Fair, Federal Trade Commission, S-4002, 6th Street and 
Pennsylvania Avenue, NW, Washington, DC. 20580. 326-3081.
Dean C. Forbes, Federal Trade Commission, S-4002, 6th Street and 
Pennsylvania Avenue, NW, Washington, DC. 20580. (202) 326-2831.

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

    In the Matter of Zygon International, Inc., a corporation, and 
Dane Spotts, individually and as an officer of said corporation.

    The Federal Trade Commission having initiated an investigation of 
certain acts and practices of Zygon International, Inc., a corporation, 
and Dane Spotts, individually and as an officer 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 Zygon International, Inc., by 
its duly authorized officer, and Dane Spotts, individually and as an 
officer of said corporation, and their attorney, and counsel for the 
Federal Trade Commission that:
    1. Proposed respondent Zygon International, Inc., is a corporation 
organized, existing, and doing business under and by virtue of the laws 
of the State of Washington, with its principal office of place of 
business at 18368 Redmond Way, Redmond WA 98052.
    Proposed respondent Dane Spotts is an officer of said corporation. 
He formulates, directs and controls the policies, acts and practices of 
said corporation and his 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 Section 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.

[[Page 16799]]

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

I.

    It is ordered That respondents Zygon International, Inc., a 
corporation, its successors and assigns, and its officers, and Dane 
Spotts, individually and as an officer of said corporation, and 
respondents' agents, representatives, and employees, directly or 
through any corporation, subsidiary, division or other device, in 
connection with the manufacturing, labeling, advertising, promotion, 
offering for sale, sale, or distribution of any product or program 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 the use of such product or 
program can or will have any effect on the user's:
    A. Health or bodily structure or function, including but not 
limited to sleep; weight, bodyfat content, or body shape or tone; 
immune system; eyesight or night vision; stress; or jet lag; or
    B. Smoking behavior, unless at the time of making such 
representation, respondents possess and rely upon 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.

II.

    It is further ordered That respondents Zygon International, Inc., a 
corporation, its successors and assigns, and its officers, and Dane 
Spotts, individually and as an officer of said corporation, and 
respondents' agents, representatives, and employees, directly or 
through any corporation, subsidiary, division or other device, in 
connection with the manufacturing, labeling, advertising, promotion, 
offering for sale, sale, or distribution of any product or program 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 the use of such product or 
program can or will have any effect on the user's cognitive or mental 
functions or skills, including but not limited to reading, vocabulary, 
learning, foreign language, verbal or math skills; intelligence or I.Q. 
or that of the user's children; attention or concentration levels; or 
memory, 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.

III.

    It is further ordered That respondents Zygon International, Inc., a 
corporation, its successors and assigns, and its officers, and Dane 
Spotts, individually and as an officer of said corporation, and 
respondents' agents, representatives, and employees, directly or 
through any corporation, subsidiary, division or other device, in 
connection with the manufacturing, labeling, advertising, promotion, 
offering for sale, sale, or distribution of any product or program in 
or affecting commerce, as ``commerce'' is defined in the Federal Trade 
Commission Act, do forthwith cease and desist from making any 
representation, in any manner, directly or by implication:
    A. Regarding the performance, benefits, efficacy, or safety of any 
food, drug, or device, as those terms are defined in Section 15 of the 
Federal Trade Commission Act, 15 U.S.C. 55, or dietary supplement, 
unless, at the time of making such representation, respondents possess 
and rely upon competent and reliable scientific evidence that 
substantiates such representation.
    B. Regarding the performance, benefits, efficacy or safety of any 
product or service (other than a product or service covered under Part 
III.A herein), 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.

IV.

    It is further ordered That respondents Zygon International, Inc., a 
corporation, its successors and assigns, and its officers, and Dane 
Spotts, individually and as an officer of said corporation, and 
respondents' agents, representatives, and employees, directly or 
through any corporation, subsidiary, division or other device, in 
connection with the manufacturing, labeling, advertising, promotion, 
offering for sale, sale, or distribution of any product or program in 
or affecting commerce, as ``commerce'' is defined in the Federal Trade 
Commission Act, do forthwith cease and desist from misrepresenting, 
directly or by implication, the existence, contents, validity, results, 
conclusions, or interpretations of any test or study.

V.

    It is further ordered That respondents Zygon International, Inc., a 
corporation, its successors and assigns, and its officers, and Dane 
Spotts, individually and as an officer of said corporation, and 
respondents' agents, representatives, and employees, directly or 
through any corporation, subsidiary, division or other device, in 
connection with the manufacturing, labeling, advertising, promotion, 
offering for sale, sale, or distribution of any product or program in 
or affecting commerce, as ``commerce'' is defined in the Federal Trade 
Commission Act, shall forthwith cease and desist from:
    A. Representing, directly or by implication, that consumers can 
receive a refund, through such terms as ``money-back guarantee'' or 
similar terms, unless respondents refund the full purchase price at the 
consumer's request in accordance with the provisions of Part V.B 
herein;
    B. Failing to refund the full purchase price in accordance with the 
terms of a guarantee, warranty or refund policy within a reasonable 
period of time after the consumer complies with the conditions for 
receiving a refund that are stated clearly and prominently in the 
advertisement or solicitation. For purposes of this Part, a 
``reasonable period of time'' shall be:
    1. That period of time specified in respondents' advertisement or 
solicitation if such period is clearly and prominently disclosed in the 
advertisement or solicitation; or
    2. If no period of time is clearly and prominently disclosed in the 
advertisement or solicitation, a period of thirty (30) days following 
the date that the consumer complies with the conditions for receiving a 
refund that are stated clearly and prominently in the advertisement or 
solicitation.

VI.

    It is further ordered That respondents Zygon International, Inc., a 
corporation, its successors and assigns, and its officers, and Dane 
Spotts, individually and as an officer of said corporation, are jointly 
and severally liable for consumer redress as provided herein:
    A. Not later than the date this Order becomes final, respondents 
shall deposit into an escrow account to be established

[[Page 16800]]

by the Commission for the purpose of receiving payments due under the 
provisions of this Order (``first escrow account''), the sum of 
$150,000. These funds, together with accrued interest, less any amount 
necessary to pay the costs of administering the first escrow account 
and redress program herein, shall be used by the Commission or its 
representative to provide refunds to any consumers:
    1. Who, between the dates of October 15, 1995, and the date this 
Order becomes final, have returned or return any product(s) purchased 
from respondents to respondents for a refund within thirty days of 
their receipt of the product(s); and
    2. Who have not previously received either a full refund or a full 
credit from a credit card issuer for the purchase of the product(s).
    B. Any funds remaining in the first escrow account after refunds 
have been paid to consumers under Part VI.A herein, in the discretion 
of the Commission:
    1. Shall be used to provide redress to purchasers of the Learning 
Machine who request a refund not later than sixty (60) days after the 
date this Order becomes final and have not previously received either a 
refund pursuant to Part VI.A herein, a full refund from respondents, or 
a full credit from a credit card issuer for the purchase of the 
product(s);
    2. Shall be used to provide redress to purchasers who, prior to 
October 15, 1995, returned, or contacted respondents for authorization 
to return, any product(s) purchased from respondents to respondents for 
a refund within thirty (30) days of their receipt of the product(s); 
have not previously received either a full refund or a full credit from 
a credit card issuer for the purchase of the product(s); and whose 
identities become known to respondents or the Commission within sixty 
(60) days after the date this Order becomes final;
    3. Shall be used to pay any attendant costs of administration; and/
or
    4. Shall be paid to the United States Treasury.
    C. At any time after this Order becomes final, the Commission may 
direct the escrow agent to transfer funds from the first escrow 
account, including accrued interest, to the Commission to be 
distributed as herein provided. Respondents shall be notified as to how 
the funds are distributed, but shall have no right to contest the 
manner of distribution chosen by the Commission, provided that the 
manner of distribution chosen by the Commission comports with the terms 
of this Agreement. The Commission, or its representative, shall in its 
sole discretion select the escrow agent. Costs associated with the 
administration of the first escrow account and refund program provided 
herein, if any, shall be paid from funds in the first escrow account.
    D. Respondents relinquish all dominion, control and title to the 
funds paid into the first escrow account, and all legal and equitable 
title to the funds shall vest in the Treasurer of the United States and 
in the designated purchasers. Respondents shall make no claim to or 
demand for the return of the funds, directly or indirectly, through 
counsel or otherwise; and in the event of bankruptcy of respondents, 
respondents acknowledge that the funds are not part of the debtor's 
estate, nor does the estate have any claim or interest therein.
    E. Not later than the date this Order becomes final, respondents 
shall deposit into a second escrow account to be established by the 
Commission for the purpose of receiving payments due under the 
provisions of this Order (``second escrow account''), the sum of 
$45,000. These funds, together with accrued interest, less any amount 
necessary to pay the costs of administering the escrow account and 
redress program herein, shall be used by the Commission or its 
representative to provide refunds to consumers if refunds owed to 
consumers pursuant to Parts VI.A. and VI.B herein exceed the amount of 
money in the first escrow account.
    F. At any time after this Order becomes final, the Commission may 
direct the escrow agent to transfer funds from the second escrow 
account, including accrued interest, to the Commission to be 
distributed as herein provided. Respondents shall be notified as to how 
the funds are distributed, but shall have no right to contest the 
manner of distribution chosen by the Commission, provided that the 
manner of distribution chosen by the Commission comports with the terms 
of this Agreement. The Commission, or its representative, shall in its 
sole discretion select the escrow agent. Costs associated with the 
administration of the second escrow account and refund program provided 
herein, if any, shall be paid from funds in the second escrow account. 
Any funds remaining in the second escrow account after all consumers 
have received refunds pursuant to Part VI.A, VI.B.1, VI.B.2, and VI.E 
herein shall be returned to respondents. If no funds from the second 
escrow account are needed to provide redress to consumers provided 
herein, the funds in the second escrow account, together with accrued 
interest, shall be returned to respondents within seventy-five (75) 
days after the date this Order becomes final. If funds from the second 
escrow account are needed to provide refunds to consumers as provided 
herein, the funds remaining in the second escrow account, together with 
accrued interest, less any amount necessary to pay the costs of 
administering the escrow account and redress program herein, shall be 
returned to respondents within one hundred twenty (120) days after the 
date this Order becomes final.

VII.

    It is further ordered That within three (3) days after the date 
this Order becomes final, respondents shall, to the extent available, 
provide to the Commission, in computer readable form (standard MS-DOS 
diskettes or IBM-mainframe compatible tape) and in computer print-out 
form, a list of:
    A. The name and address of all consumers in the United States who 
purchased the Learning Machine;
    B. The name, address, and date of refund of all consumers in the 
United States who purchased the Learning Machine and received a full 
refund from respondents;
    C. The name, address, and date of credit of all consumers in the 
United States who purchased the Learning Machine and received a full 
credit from a credit card issuer for the purchase of the product(s); 
and
    D. The name, address, and date of refund of all consumers in the 
United States who purchased any product(s) from respondents and 
received a full refund between October 15, 1993 and October 15, 1995.

VIII.

    It is further ordered That for three (3) years after this Order 
becomes final, respondents, and their successors and assigns, shall 
maintain and upon request make available to the Commission within three 
(3) business days:
    A. Documents and records demonstrating the manner and form of 
respondents' compliance with Part VI of this Order; and
    B. Copies of all correspondence and memorialization of other 
communications to or from any consumer regarding refunds or requests 
for refunds for any product(s) purchased from respondents.

IX.

    It is further ordered That for five (5) years after the last date 
of dissemination of any representation covered by this Order, 
respondents, or their successors

[[Page 16801]]

and assigns, shall maintain and upon request make available to the 
Federal Trade Commission or its staff for inspection and copying:
    A. All materials that were relied upon in disseminating such 
representation; and
    B. All tests, reports, studies, surveys, demonstrations, or other 
evidence in their possession or control that contradict, qualify, or 
call into question such representation, or the basis upon which 
respondents relied for such representation, including but not limited 
to, including complaints from consumers, and complaints or inquiries 
from government organizations.

X.

    It is further ordered That respondent Zygon International, Inc., 
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 future 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 responsiblities.

XI.

    It is further ordered That respondent Zygon International, Inc., 
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.
    It is further ordered That respondent Dane Spotts shall, for a 
period of seven (7) years from the date of entry of this Order, notify 
the Commission within thirty (30) days of the discontinuance of his 
present business or employment and of his affiliation with any new 
business or employment involving the advertising, offering for sale, 
sale, or distribution of any consumer product or service. 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.

XIII.

    This order will terminate twenty (20) years from the date of its 
issuance, or twenty (20) years from the most recent date that the 
United States or the Federal Trade Commission files a complaint (with 
or without an accompanying consent decree) in federal court alleging 
any violation of the Order, whichever comes later; provided, however, 
that the filing of such a complaint will not affect the duration of:
    A. Any paragraph in this Order that terminates in less than twenty 
years;
    B. This Order's application to any respondent that is not named as 
a defendant in such complaint; and
    C. This Order if such complaint is filed after the Order has 
terminated pursuant to this paragraph.
    Provided further, that if such complaint is dismissed or a federal 
court rules that the respondent did not violate any provision of the 
Order, and the dismissal or ruling is either not appealed or upheld on 
appeal, then the Order will terminate according to this paragraph as 
though the complaint was never filed, except that the Order will not 
terminate between the date such complaint is filed and the later of the 
deadline for appealing such dismissal or ruling and the date such 
dismissal or ruling is upheld on appeal.

XIV.

    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.

Escrow Agreement

    Whereas Zygon International, Inc. and Dane Spotts (``Zygon and Mr. 
Spotts'') have agreed with the staff of the Federal Trade Commission 
(``the staff'') to settle a certain proposed action against them, and 
as part of the settlement of the proposed action for alleged violations 
of Sections 5(a) and 12 of the Federal Trade Commission Act, it was 
agreed that consumer redress will be paid;
    Whereas the proposed Agreement Containing Consent Order to Cease 
and Desist executed by the parties provides for the payment by Zygon 
and Mr. Spotts of: (a) a minimum of $150,000 to be used for consumer 
redress or as otherwise specified in the Agreement Containing Consent 
Order to Cease and Desist; and (b) should the amount necessary for 
consumer redress exceed $150,000, up to an additional $45,000 to be 
used for consumer redress or as otherwise specified in the Agreement 
Containing Consent Order to Cease and Desist;
    Whereas the staff requires as a condition of its recommendation of 
the proposed settlement to the Commission that $150,000 be held in 
escrow (``first escrow'') and $45,000 be held in a separate escrow 
(``second escrow''), pending approval of the settlement by the 
Commission, before being disbursed as directed by the terms of the 
Agreement Containing Consent Order to Cease and Desist;
    Now, therefore, in consideration of the promises and mutual 
covenants, agreements, and conditions herein contained, Zygon and Mr. 
Spotts and the staff do hereby agree to and with each other as follows:
    1. The Federal Trade Commission shall select the Escrow Agent for 
the first escrow account. The Escrow Agent shall receive from Zygon and 
Mr. Spotts the amount of $150,000, and will hold the same in trust for 
designated purchasers of products sold by Zygon and Mr. Spotts 
(``designated purchasers''), in accordance with the Agreement 
Containing Consent Order to Cease and Desist, for paying any attendant 
costs of administration, and for the Treasurer of the United States, by 
depositing the same into the Escrow Agent's interest-bearing trustee 
account. Zygon and Mr. Spotts will pay such $150,000 by a certified or 
cashier's check or cash.
    2. It is understood and agreed by the parties to this Escrow 
Agreement that, by executing this Escrow Agreement, Zygon and Mr. 
Spotts acknowledge that they relinquish all dominion, control and title 
to the $150,000, and that all legal and equitable title to the $150,000 
vests in designated purchasers, in accordance with the Agreement 
Containing Consent Order to Cease and Desist, with remaining funds, 
after the payment of any attendant costs of administration, vesting in 
the Treasurer of the United States, subject to being divested as 
specified in Paragraph 7 of this Escrow Agreement. Unless and until the 
first escrow is terminated as provided herein, Zygon and Mr. Spotts 
agree to make no claim to or demand the return of the $150,000, 
directly or indirectly, through counsel, or otherwise. In the event of 
Zygon's and/or Mr. Spotts' bankruptcy, Zygon and

[[Page 16802]]

Mr. Spotts agree to acknowledge by an appropriate written statement to 
the bankruptcy court that the $150,000 is not part of their estate(s), 
nor do their estate(s) have any claim or interest therein, unless and 
until the first escrow is terminated and the $150,000 is returned to 
Zygon and Mr. Spotts as specified in Paragraph 7 of this Escrow 
Agreement.
    3. The Federal Trade Commission shall select the Escrow Agent for 
the second escrow account. The Escrow Agent shall receive from Zygon 
and Mr. Spotts the amount of $45,000, and will hold the same in trust 
for designated purchasers, in accordance with the Agreement Containing 
Consent Order to Cease and Desist, and for paying any attendant costs 
of administration, by depositing the same into the Escrow Agent's 
interest-bearing trustee account. Zygon and Mr. Spotts will pay such 
$45,000 by a certified or cashier's check or cash.
    4. It is understood and agreed by the parties to this Escrow 
Agreement that, by executing this Escrow Agreement, Zygon and Mr. 
Spotts acknowledge that they relinquish all dominion, control and title 
to that portion of the $45,000 in the second escrow necessary to pay 
refunds to designated purchasers and any attendant costs of 
administration, and that all legal and equitable title to the portion 
of the $45,000 reserved for those designated purchasers vests in those 
designated purchasers with remaining funds, after the payment of any 
attendant costs of administration, vesting in Zygon and Mr. Spotts, 
subject to being divested as specified in Paragraph 7 of this Escrow 
Agreement. If no funds in the second escrow account are required to 
provide redress to designated purchasers, the second escrow 
principal,together with any interest earned on the second escrow 
principal during the pendency of the second escrow, less any attendant 
costs of administration, shall be returned to Zygon and Mr. Spotts in 
accordance with the Agreement Containing Consent Order to Cease and 
Desist. If funds in the second escrow account are required to provide 
redress to designated purchasers, the remaining second escrow 
principal, together with any interest earned on the second escrow 
principal during the pendency of the second escrow, shall thereafter be 
returned to Zygon and Mr. Spotts, less any attendant costs of 
administration, in accordance with the Agreement Containing Consent 
Order to Cease and Desist. Unless and until the second escrow is 
terminated as provided herein, Zygon and Mr. Spotts agree to make no 
claim to or demand the return of that portion of the $45,000 required 
to pay designated purchasers, or that portion required for paying any 
attendant costs of administration, directly or indirectly, through 
counsel, or otherwise. In the event of Zygon's and/or Mr. Spotts' 
bankruptcy, Zygon and Mr. Spotts agree to acknowledge by an appropriate 
written statement to the bankruptcy court that the portion of the 
$45,000 required to pay designated purchasers, or that portion required 
for paying any attendant costs of administration, is not part of their 
estate(s), nor do their estate(s) have any claim or interest therein, 
unless and until the second escrow is terminated and the $45,000 is 
returned to Zygon and Mr. Spotts as specified in Paragraph 7 of this 
Escrow Agreement.
    5. The $150,000 so held in the first escrow and the $45,000 so held 
in the second escrow shall be disbursed in accordance with the 
Agreement Containing Consent Order to Cease and Desist executed by the 
parties, as well as with such other ancillary Federal Trade Commission 
regulations or procedures respecting such disbursements as may be 
applicable at the time.
    6. The first escrow and the second escrow shall be irrevocable, and 
the escrow funds, less any amount necessary to pay the cost of 
administering the escrow accounts and redress program, shall be used 
for no purpose other than payment of the consumer redress as specified 
in the Agreement Containing Consent Order to Cease and Desist, except 
that the unused portion of the second escrow principal, together with 
any interest earned on the second escrow principal during the pendency 
of the second escrow, shall be the property of Zygon and Mr. Spotts. 
The parties agree, however, that this fact is not and will not be 
interpreted as an admission or acknowledgment by either side that any 
dominion, title or interest, either legal or equitable, in the portion 
of the second escrow principal required to pay redress to designated 
purchasers, or to pay any attendant costs of administration, remains in 
Zygon and Mr. Spotts. The Escrow Agent shall return such unused portion 
of the second escrow principal, together with any interest earned on 
the second escrow principal during the pendency of the second escrow, 
to Zygon and Mr. Spotts after consumer redress is paid to the 
designated purchasers, and the attendant costs of administration are 
paid, as specified in the Agreement Containing Consent Order to Cease 
and Desist.
    7. Except as otherwise provided in Paragraphs 4 and 6 of this 
Escrow Agreement regarding the return of the unused portion of the 
second escrow principal and any interest earned on the second escrow 
principal during the pendency of the second escrow to Zygon and Mr. 
Spotts, the Escrow Agent may terminate the first and second escrows and 
return the principal and accrued interest from both escrow accounts to 
Zygon and Mr. Spotts only if the Agreement Containing Consent Order to 
Cease and Desist is not issued within two (2) years from the date the 
first and second escrows are created.
    8. The parties of this Escrow Agreement expressly agree that in the 
event of a dispute, the escrow law of the State of New York shall 
apply.

Analysis of Proposed Consent Order to Aid Public Comment

    The Federal Trade Commission has accepted an agreement to a 
proposed consent order from Zygon International, Inc. (``Zygon''), and 
its owner and officer, Dane Spotts.
    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 the comments received and will decide whether it should 
withdraw from the agreement or make final the agreement's proposed 
order.
    The Commission's complaint in this matter charges respondents with 
deceptively advertising five products: the ``Learning Machine'' and the 
``SuperMind,'' purported accelerated learning devices; the ``SuperBrain 
Nutrient Program,'' a supplement claimed to improve intelligence and 
memory; ``Fat Burner'' pills, a purported diet aid; and ``Day and Night 
Eyes'' pills, a supplement claimed to improve vision. The complaint 
also alleges that in many cases, respondents failed to honor their 
advertised money-back guarantee. Ads for the products appeared in 
national periodicals such as USA Today, Omni, Longevity, and USAir's 
in-flight magazine, as well as in Zygon's ``SuperLife'' catalog and on 
the Internet's World Wide Web.
    According to the complaint, respondents made unsubstantiated 
representations that the Learning Machine enables users to learn 
foreign languages overnight, quadruple their reading speed, lose 
weight, stop smoking, and improve their vocabulary, memory, math 
skills, and learning ability. In addition, respondents claimed that the 
device would enable children to learn at a rate of 300% to 500% faster 
than their peers.

[[Page 16803]]

    The complaint also alleges that respondents made unsubstantiated 
representations that the SuperMind enables users to learn foreign 
languages overnight, lose weight, and stop smoking; treats stress and 
jet lag; improves the functioning of the immune system; increases I.Q.; 
gives users the equivalent of eight hours of sleep after twenty minutes 
of use; and improves users' ability to learn and retain information. 
The complaint further alleges that respondents falsely represented that 
the SuperMind has been proven in a university study to teach foreign 
languages in one-third the time of traditional methods.
    In addition, the complaint alleges that respondents represented 
without substantiation that the SuperBrain Nutrient Program improves 
users' memory, intelligence, concentration, and cognitive and mental 
functions, and that when taken by pregnant women, will enhance the 
intelligence of their children. According to the complaint, 
respondent's claims that Fat Burner pills could enhance the body's 
ability to burn fat and enable users to lose weight were also 
unsubstantiated. Regarding Day and Night Eyes pills, the complaint 
alleges that respondents made unsubstantiated claims that the product 
could improve night blindness and give users clearer vision during the 
day.
    The complaint also alleges that respondents misrepresented that 
consumers who returned products within thirty (30) days would receive a 
full refund within a reasonable period of time. According to the 
complaint, in numerous instances, refunds were not provided within a 
reasonable period of time or at all. These practices are alleged to be 
deceptive.
    The proposed consent order contains provisions designed to remedy 
the violations charged and to prevent respondents from engaging in 
similar acts and practices in the future.
    Part I of the order requires respondents to possess competent and 
reliable scientific evidence to support any claim that a product or 
program affects the user's health, bodily structure or function, or 
smoking behavior. Part II requires respondents to possess adequate 
substantiation for any claims that a product or program affects the 
user's cognitive or mental functions, including reading, vocabulary, 
learning, foreign languages, math skills, intelligence, I.Q., 
concentration levels, or memory. The substantiation level required is 
competent and reliable evidence, which when appropriate must be 
competent and reliable scientific evidence.
    Part III.A requires respondents to possess competent and reliable 
scientific evidence to substantiate performance, benefits, efficacy or 
safety claims for foods, drugs, devices, or dietary supplements. Part 
III.B requires that similar claims for all other products or services 
be supported by competent and reliable evidence, which when appropriate 
must be competent and reliable scientific evidence.
    Part IV prohibits respondents from misrepresenting the existence, 
contents, results, conclusions, or interpretations of any test or 
study. Part V requires respondents to honor the terms of any advertised 
refund policy, including an obligation to make refunds within a 
reasonable period of time.
    Part VI outlines a program to give refunds totalling up to $195,000 
to eligible consumers. Refunds will be sent to Zygon customers who 
returned products for a refund between October 15, 1995 and the date 
the order becomes final, but never received a refund. Any remaining 
funds may be returned to purchasers of the Learning Machine who seek a 
refund from the Commission or respondents within sixty (60) days after 
the order is final, and to other purchasers who sought a refund prior 
to October 15, 1995, but never received it.
    Parts VII through XII and XIV relate to respondents' obligations to 
make available to the Commission records concerning consumer refunds 
and future substantiation materials; to provide copies of the order to 
certain Zygon personnel; to notify the Commission of changes in 
corporate structure, or, in the case of the Mr. Spotts, changes in 
employment that would involve the advertising, sale, or distribution of 
any consumer product or service; and to file compliance reports with 
the Commission. Part XIII provides that the order will terminate after 
twenty years under certain circumstances.
    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. 96-9280 Filed 4-16-96; 8:45 am]
BILLING CODE 6750-01-M