[Federal Register Volume 61, Number 167 (Tuesday, August 27, 1996)]
[Notices]
[Pages 44061-44065]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21772]
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FEDERAL TRADE COMMISSION
[File No. 942-3311]
Computer Business Services, 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 or deceptive acts or practices and unfair methods of
competition, this consent agreement, accepted subject to final
Commission approval, would prohibit, among other things, the Sheridan,
Indiana home-based computer business opportunity firm from
misrepresenting the success rates or profitability of its clients and
from using deceptive testimonials or other deceptive statements to
entice consumers to buy its products. The firm would also be required
to disclose that federal laws restrict the use of certain automatic
telephone dialing systems it sells and to pay $5 million in consumer
redress.
DATES: Comments must be received on or before October 28, 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:
C. Steven Baker, Federal Trade Commission, Chicago Regional Office, 55
East Monroe Street, Suite 1860, Chicago, IL 60603. (312) 353-8156;
Catherine R. Fuller, Federal Trade Commission, Chicago Regional Office,
55 East Monroe Street, Suite 1860, Chicago, IL 60603. (312) 353-5576.
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
In the Matter of Computer Business Services, Inc., a
corporation, Andrew L. Douglass, individually and as an officer of
the corporation, Matthew R. Douglass, individually, and Peter B.
Douglass, individually.
The Federal Trade Commission has conducted an investigation of
certain acts and practices of Computer Business Services, Inc., Andrew
L. Douglass, individually and as an officer of Computer Business
Services, Inc., Matthew R. Douglass, and Peter B. Douglass, (``proposed
respondents''). Proposed respondents, having been represented by
counsel, are willing to enter into an agreement containing a consent
order resolving the allegations contained in the draft compliant.
Therefore,
It is hereby agreed by and between Computer Business Services,
Inc., Andrew L. Douglass, individually and as an officer of Computer
Business Services, Inc., Matthew R. Douglass, and Peter B. Douglass,
and counsel for the Federal Trade Commission that:
1. Proposed respondent Computer Business Services, Inc. is an
Indiana Corporation with its principal office or place of business at
CBSI Plaza, Sheridan, Indiana 46069.
2. Proposed respondent Andrew L. Douglass is an officer of Computer
Business Services, Inc. and resides at 9 E. 191st Street, Westfield,
Indiana 46074. His principal office or place of business is the same as
that of Computer Business Services, Inc.
3. Proposed respondent Matthew R. Douglass is a supervisory
employee of Computer Business Services, Inc. and resides at 9 Forest
Bay Lane, Cicero, Indiana 46034. His principal office or place of
business is the same as that of Computer Business Services, Inc.
4. Proposed respondent Peter B. Douglass is a supervisory employee
of Computer Business Services, Inc. and resides at 18846 Casey Rd.,
Sheridan, Indiana 46069. His principal office or place of business is
the same as that of Computer Business Services, Inc.
5. Proposed respondent admit all the jurisdictional facts set forth
in the draft complaint.
6. 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
[[Page 44062]]
validity of the order entered pursuant to this agreement.
7. 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
complaint, will be placed on the public record for a period of sixty
(60) days, and information about it publicly released. The Commission
thereafter may either withdraw its acceptance of this agreement and so
notify 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.
8. 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 complaint, or that the facts as
alleged in the draft complaint, other than the jurisdictional facts,
are true.
9. 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 complaint and its decision containing the
following order in disposition of the proceeding, and (2) make
information about it public. 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 of the complaint and the decision and order to
proposed respondents by any means specified in Section 4.4 of the
Commission's Rules 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. No agreement,
understanding, representation, or interpretation not contained in the
order or in the agreement may be used to vary or contradict the terms
of the order.
10. Proposed respondents have read the draft complaint and consent
order. They understand that they may be liable for civil penalties in
the amount provided by law and other appropriate relief for each
violation of the order after it becomes final.
Order
Definitions
For purposes of this order, the following definitions shall apply:
1. ``Business venture'' means any written or oral business
arrangement, however denominated, whether or not covered by the Federal
Trade Commission's trade regulation rule entitled ``Disclosure
Requirements and Prohibitions Concerning Franchising and Business
Opportunity Ventures,'' 16 CFR part 436, and which consists of payment
of any consideration for:
A. the right to offer, sell, or distribute goods, or services
(whether or not identified by a trademark, service mark, trade name,
advertising, or other commercial symbol); and
B. more than nominal assistance to any person or entity in
connection with or incident to the establishment, maintenance, or
operation of a new business or the entry by an existing business into a
new line or type of business.
2. ``Clearly and prominently'' shall mean as follows:
A. In a television or video advertisement, the disclosure shall be
presented simultaneously in both the audio and video portions of the
advertisement. The audio disclosure shall be delivered in a volume and
cadence sufficient for an ordinary consumer to hear and comprehend it.
The video disclosure shall be of a size and shade, and shall appear on
the screen for a duration, sufficient for an ordinary consumer to read
and comprehend it.
B. In a radio advertisement, the disclosure shall be delivered in a
volume and cadence for an ordinary consumer to hear and comprehend it.
C. In a print or electronic advertisement, the disclosure shall be
in a type size, and in a location, that is sufficiently noticeable for
an ordinary consumer to see and read, in print that contrasts with the
background against which it appears.
Nothing contrary to, inconsistent with, or in mitigation of the
disclosure shall be used in any advertisement.
3. Unless otherwise specified, ``respondents'' shall mean Computer
Business Services, Inc., a corporation, it successors and assigns and
its officers; Andrew L. Douglass, individually and as an officer of the
corporation; Matthew R. Douglass, individually; and Peter B. Douglass,
individually; and each of the above's agents, representatives and
employees.
4. ``In or affecting commerce'' shall mean as defined in Section 4
of the Federal Trade Commission Act, 15 U.S.C. 44.
5. ``Automatic telephone dialing system'' shall mean as defined in
the Telephone Consumer Protection Act, 47 U.S.C. 227(a)(1).
I
It is ordered that respondents, directly or through any
corporation, subsidiary, division, or other device, in connection with
the advertising, promotion, offering for sale, sale or distribution of
any business venture, shall not misrepresent, expressly or by
implication:
A. That consumers who purchase or use such business ventures
ordinarily succeed in operating profitable businesses out of their own
homes;
B. That consumers who purchase or use such business ventures
ordinarily earn substantial income;
C. The existence of a market for the products and services promoted
by respondents;
D. The amount of earnings, income, or sales that a prospective
purchaser could reasonably expect to attain by purchasing a business
venture;
E. The amount of time within which the prospective purchaser could
reasonably expect to recoup his or her investment; or
F. By use of hypothetical examples or otherwise, that consumers who
purchase or use such business ventures earn or achieve from such
participation any stated amount of profits, earnings, income, or sales.
Nothing in this paragraph or any other paragraph of this order shall be
construed so as to prohibit respondents from using hypothetical
examples which so not contain any express or implied misrepresentations
or from representing a suggested retail price for products or services.
II
It is further ordered that respondents, directly or through any
corporation, subsidiary, division, or other device, in connection with
the advertising, promotion, offering for sale, sale or distribution of
any business venture, shall not represent, expressly or by implication,
the performance, benefits, efficacy or success rate of any product or
service that is a part of such business venture, unless such
representation is true and, at the time of making the representation,
respondents possess and rely upon competent and reliable evidence that
substantiates such representation. For purposes of this order, if such
evidence consists of any test, analysis, research, study, or other
evidence based on the expertise of
[[Page 44063]]
professionals in the relevant area, such evidence shall be ``competent
and reliable'' only if it 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.
III
It is further ordered that respondents, directly or through any
corporation, subsidiary, division, or other device, in connection with
the advertising, promotion, offering for sale, sale, or distribution of
any business venture or any product or service that is part of any
business venture in or affecting commerce, shall not:
A. Use, publish, or refer to any user testimonial or endorsement
unless respondents have good reason to believe that at the time of such
use, publication, or reference, the person or organization named
subscribes to the facts and opinions therein contained; or
B. Represent, in any manner, expressly or by implication, that the
experience represented by any user testimonial or endorsement of the
product represents the typical or ordinary experience of members of the
public who use the product, unless.
1. The representation is true and, at the time it is made,
respondents possess and rely upon competent and reliable evidence that
substantiates the representation; or
2. Respondents disclose, clearly and prominently, and in close
proximity to the endorsement or testimonial, either:
a. What the generally expected results would be for users of the
products, or
b. The limited applicability of the endorser's experience to what
consumers may generally expect to achieve, that is, that consumers
should not expect to experience similar results.
Provided, however, that when endorsements and user testimonials are
used, published, or referred to in an audio cassette tape recording,
such disclosure shall be deemed to be in close proximity to the
endorsements or user testimonials when the disclosure appears at the
beginning and end of each side of the audio cassette tape recording
containing such endorsements or user testimonials. Provided further,
however, that when both sides of an audio cassette tape recording
contain such endorsements or user testimonials, the disclosure need
only appear at the beginning and end of the first side and the end of
the second side of the audio cassette tape recording.
For purposes of this Part, ``endorsement'' shall mean as defined in
16 CFR 255.0(b).
IV
It is further ordered that respondents, directly or through any
corporation, subsidiary, division, or other device, in connection with
the advertising, promotion, offering for sale, sale or distribution of
any business venture utilizing, employing or involving in any manner,
an automatic telephone dialing system, shall disclose, clearly and
prominently, and in close proximity to any representation regarding the
use or potential use of an automatic telephone dialing system to
transmit an unsolicited advertisement for commercial purposes without
the prior express consent of the called party, that federal law
prohibits the use of an automatic telephone dialing system to initiate
a telephone call to any residential telephone line using an artificial
or prerecorded voice to transmit an unsolicited advertisement for
commercial purposes without the prior express consent of the called
party unless a live operator introduces the message. Nothing in this
paragraph or any other paragraph of this order shall be construed so as
to prohibit respondents from making truthful statements or explanations
regarding the laws and regulations regarding the use of automatic
telephone dialing systems.
V
It is further ordered that respondent Computer Business Services,
Inc., directly or through any corporation, subsidiary, division, or
other device, in connection with the advertising, promotion, offering
for sale, sale or distribution of any product or service, shall not
make any false or misleading statement or representation of fact,
expressly or by implication, material to a consumer's decision to
purchase respondents' products or services.
VI
It is further ordered that:
A. Respondents Computer Business Services, Inc., its successors and
assigns, Andrew L. Douglass, Matthew R. Douglass, and Peter B.
Douglass, shall pay to the Federal Trade Commission by electronic funds
transfer the sum of five million dollars ($5,000,000) no later than
fifteen (15) days after the date of service of this order. In the event
of any default on any obligation to make payment under this Part,
interest, computed pursuant to 28 U.S.C. Sec. 1961(a) shall accrue from
the date of default to the date of payment. In the event of default,
respondents Computer Business Services, Inc., its successors and
assigns, Andrew L. Douglass, Matthew R. Douglass, and Peter B.
Douglass, shall be jointly and severally liable.
B. Payment of the sum of five million dollars ($5,000,000) in
accordance with subpart A above shall extinguish any monetary claims
the FTC has against Jeanette L. Douglass and George L. Douglass based
on the allegations set forth in the Complaint as of the date of entry
of this Order. Nothing is this paragraph or any other paragraph of this
order shall be construed to prohibit the FTC from seeking
administrative or injunctive relief against Jeanette L. Douglass or
George L. Douglass.
C. The funds paid by respondents Computer Business Services, Inc.,
its successors and assigns, Andrew L. Douglass, Matthew R. Douglass,
and Peter B. Douglass, pursuant to subpart A above shall be paid into a
redress fund administered by the FTC and shall be used to provide
direct redress to purchasers of Computer Business Services, Inc.
Payment to such persons represents redress and is intended to be
compensatory in nature, and no portion of such payment shall be deemed
a payment of any fine, penalty, or punitive assessment. If the FTC
determines, in its sole discretion, that redress to purchasers is
wholly or partially impracticable, any funds not so used shall be paid
to the United States Treasury. Respondents Computer Business Services,
Inc., its successors and assigns, Andrew L. Douglass, Matthew R.
Douglass, and Peter B. Douglass, shall be notified as to how the funds
are disbursed, but shall have no right to contest the manner of
distribution chosen by the Commission. Customers of respondents, as a
condition of their receiving payments from the Redress Fund, shall be
required to execute releases waiving all claims against respondents,
their officers, directors, employees, and agents, arising from the sale
of Computer Business Services, Inc. business ventures by respondents
prior to the date of issuance of this order. The Commission shall
provide respondents Computer Business Services, Inc., its successors
and assigns, Andrew L. Douglass, Matthew R. Douglass, and Peter B.
Douglass, with the originals of all such executed releases received
from respondents' customers.
VII
It is further ordered that respondents Computer Business Services,
Inc., its successors and assigns, Andrew L. Douglass, Matthew R.
Douglass, and Peter B. Douglass, shall for a period of five (5) years
after the last date of dissemination of any representation covered by
this order, maintain and
[[Page 44064]]
upon request make available to the Federal Trade Commission for
inspection and copying:
A. All advertisements and promotional materials containing the
representation;
B. All materials that were relied upon in disseminating the
representation; and
C. All tests, reports, studies, surveys, demonstrations, or other
evidence in their possession or control that contradict, qualify, or
call into question the representation, or the basis relied upon for the
representation, including complaints and other communications with
consumers or with governmental or consumer protection organizations.
VIII
It is further ordered that respondent Computer Business Services,
Inc., and its successors and assigns, and respondent Andrew L.
Douglass, for a period of five (5) years after the date of issuance of
this order, shall deliver a copy of this order to all current and
future principals, officers, directors, and managers, and to all
current and future employees, agents, and representatives having
responsibilities with respect to the subject matter of this order, and
shall secure from each such person a signed and dated statement
acknowledging receipt of the order. Respondents shall deliver this
order to current personnel within thirty (30) days after the date of
service of this order, and to future personnel within thirty (30) days
after the person assumes such position or responsibilities.
IX
It is further ordered that respondent Computer Business Services,
Inc. and its successors and assigns shall notify the Commission at
least thirty (30) days prior to any change in the corporation that may
affect compliance obligations arising under this order, including but
not limited to a dissolution, assignment, sale, merger, or other action
that would result in the emergence of a successor corporation; the
creation or dissolution of a subsidiary, parent, or affiliate that
engages in any acts or practices subject to this order; the proposed
filing of a bankruptcy petition; or a change in the corporate name or
address. Provided, however, that, with respect to any proposed change
in the corporation about which respondents learn fewer than thirty (30)
days prior to the date such action is to take place, respondents shall
notify the Commission as soon as is practicable after obtaining such
knowledge. All notices required by this Part shall be sent by certified
mail to the Associate Director, Division of Enforcement, Bureau of
Consumer Protection, Federal Trade Commission, Washington, D.C. 20580.
X
It is further ordered that respondents Andrew L. Douglass, Matthew
R. Douglass and Peter B. Douglass, for a period of five (5) years after
the date of issuance of this order, shall notify the Commission of the
discontinuance of his or her current business or employment, or of his
or her affiliation with any new business or employment. The notice
shall include respondents' new business addresses and telephone numbers
and a description of the nature of the business or employment and his
or her duties and responsibilities. All notices required by this Part
shall be sent by certified mail to the Associate Director, Division of
Enforcement, Bureau of Consumer Protection, Federal Trade Commission,
Washington, DC 20580.
XI
It is further ordered that Computer Business Services, Inc. and its
successors and assigns, and respondents Andrew L. Douglass, Matthew R.
Douglass and Peter B. Douglass shall, within sixty (60) days after the
date of 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.
XII
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 compliant (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 Part in this order that terminates in fewer than twenty (20)
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 Part.
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 Part as though
the complaint had never been 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.
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 respondents Computer
Business Services, Inc., Andrew L. Douglass, an officer of the
corporate respondent and Matthew R. Douglass and Peter B. Douglass,
individually.
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 and take other appropriate action or make
final the agreement's proposed order.
This matter concerns earnings and success claims made regarding
business ventures promoted by respondents. The Commission's complaint
charges that respondents made false and unsubstantiated claims that
consumers who purchase or use respondents' business ventures ordinarily
succeed and earn substantial income. In fact, the complaint alleges,
the vast majority of consumers never even recoup their initial
investment. The complaint also alleges that respondents falsely
represented that endorsements appearing in respondents' advertisements
reflect the actual experiences of its customers and that those
endorsements reflect the typical or ordinary experience of purchasers
of respondents' business ventures. Further, the complaint alleges that
respondents represented that consumers can successfully utilize
automatic telephone dialing systems to market their businesses but
failed to disclose that federal law prohibits the use of such systems
in the untended mode to initiate a call to any residential telephone
line in certain circumstances.
The proposed consent order contains provisions designed to remedy
the violations charged and to prevent the respondents from engaging in
similar acts and practices in the future. The proposed order extends to
all business ventures and to all products or services that are part of
any business venture.
Part I of the proposed consent order prohibits the respondents from
misrepresenting the earnings or success
[[Page 44065]]
of its purchasers, the existence of a market for the products or
services promoted by respondents, or the amount of time within which a
prospective purchaser can reasonably expect to recoup his or her
investment. Part II of the proposed order prohibits the respondents
from misrepresenting the performance, benefits, efficacy or success
rate of any product or service that is a part of such business venture,
unless at the time such representation is made the respondents
possesses and relies upon competent and reliable evidence that
substantiates the representation. Part III of the proposed order
prohibits the respondents from misrepresenting that a user testimonial
or endorsement is typical or ordinary and from using, publishing or
referring to any user testimonial or endorsement unless respondents
have good reason to believe that at the time of such use, publication
or reference, the person or organization named subscribes to the facts
and opinions stated herein. Part IV of the proposed order requires
respondents to disclose, in close proximity to any representation
regarding the use or potential use of an automatic telephone dialing
system, that federal law prohibits the use of an automatic telephone
dialing system to initiate a telephone call to any residential
telephone line using an artificial or prerecorded voice to transmit an
unsolicited advertisement for commercial purposes without the prior
express consent of the called party unless a live operator introduces
the message.
The remaining parts of the proposed consent order require the
respondents to maintain materials relied upon to substantiate claims
covered by the order, to distribute copies of the order to each of its
operating divisions and to certain company officials, to notify the
Commission of any changes in corporate structure that might affect
compliance with the Order, and to file one or more compliance reports.
The purpose of this analysis is to facilitate public comment on the
proposed consent order. 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. 96-21772 Filed 8-26-96; 8:45 am]
BILLING CODE 6750-01-M