[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