[Federal Register Volume 63, Number 161 (Thursday, August 20, 1998)]
[Rules and Regulations]
[Pages 44555-44562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-22446]


-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

16 CFR Part 425


Trade Regulation Rule Regarding Use of Negative Option Plans by 
Sellers in Commerce

AGENCY: Federal Trade Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') has 
completed its regulatory review of the Trade Regulation Rule regarding 
the Use of Negative Option Plans by Sellers in Commerce (``the Negative 
Option Rule'' or ``the Rule''). Pursuant to this review, the Commission 
concludes that the Negative Option Rule continues to be of value to 
consumers and firms, and is functioning well in the marketplace at 
minimal cost. This document summarizes and discusses the comments 
received in response to a request for public comment regarding the 
overall costs and benefits of the Rule, and announces the Commission's 
decision to retain the Rule in its present form. This document also 
announces several technical, non-substantive amendments to clarify the 
Rule and conform its language to amendments in the Federal Trade 
Commission Act (``FTC Act'').

EFFECTIVE DATE: August 20, 1998.

FOR FURTHER INFORMATION CONTACT:
Edwin Rodriguez, Attorney, Federal Trade Commission, Washington, DC 
20580, (202) 326-3147.

SUPPLEMENTARY INFORMATION: 

Introduction

    As part of a systematic review of its Rules and Guides, on March 
31, 1997, the Commission solicited comments on whether there is a 
continuing need for the Negative Option Rule, 61 FR 15135. It also 
requested comments on the benefits and costs of the Rule to consumers 
and firms, and whether the Rule should be changed to increase its 
benefits or to reduce its costs or other burdens. The Commission sought 
comments about any abuses occurring in the promotion or operation of 
negative option plans that are not addressed by the Rule, and 
alternatives--such as consumers education, industry self-regulation, or 
rule amendment--for dealing with such abuses, including the benefits 
and burdens any change would have on industry and consumers. The 
Commission also sought comments on the effect on the Rule of changes in 
technology or economic conditions, such as the use of e-mail and the 
Internet. The Commission was also interested in learning about any 
overlap or conflict with other federal, state, or local laws or 
regulations.
    The Commission received 19 comments in response to this request.\1\

[[Page 44556]]

These included comments from consumers, industry members, state and 
local government representatives, and academicians. Below, the 
Commission explains how the Rule regulates negative option plans, 
summarizes and discusses the comments received, discusses the Rule's 
application to negative option plans advertised on the Internet and by 
other electronic means, and adopts technical, non-substantive 
amendments to the Rule.
---------------------------------------------------------------------------

    \1\ The comments have been filed on the Commission's public 
record as Document Nos. B21944500001, B21944500002, etc. The 
comments are cited in this notice by the name of the commenter, a 
shortened version of the comment number, and the relevant page(s) of 
the comment, e.g., DMA, #018, at 5. All written comments submitted 
are available for public inspection on normal business days between 
the hours of 8:30 a.m. to 5 p.m. at the Public Reference Room, Room 
130, Federal Trade Commission, 6th St. and Pennsylvania Ave., NW, 
Washington, DC 20580. The commenters are: Jerome S. Lamet, Jerome S. 
Lamet & Associates (``Lamet''), #001; Stephen L. Bair, Book-of-the-
Month Club, Inc. (``BOMC''), #002; A. Thomas Niebergall 
(``Niebergall''), #003; Joseph A. Greenberg, Professor of Education, 
George Washington University (``Greenberg''), #004; Owen R. 
Phillips, Professor of Economics, University of Wyoming 
(``Phillips''), #005; Charles Jacobina, Professor of Marketing, 
George Washington University (``Jacobina''), #006; Lydia Proctor, 
Ontario Ministry of Consumer and Commercial Relations (``Ontario''), 
#007; Robert L. Sherman, Direct Marketing Association (``DMA''), 
#008; William L. Oemichen, Administrator, Division of Trade and 
Consumer Protection, Wisconsin Department of Agriculture 
(``Wisconsin/Agriculture''), #009; A Courtney Yell, Director/Chief 
Sealer, County of Bucks, Pennsylvania, Department of Consumer 
Protection/Weights & Measures (``Bucks County''), #010; Robert J. 
Posch, Jr., Vice President, Legal Affairs, Doubleday Direct 
(``Doubleday''), #011; James E. Doyle, Attorney General, State of 
Wisconsin Department of Justice (``Wisconsin AG''), #012; Barry Jay 
Reiss, Senior Vice President, Business & Consumer Affairs, Columbia 
House (``Columbia House''), #013; Clifton B. Knight, Jr., Senior 
Vice President, Business Affairs, BMG Direct, Inc. (``BMG''), #014; 
Mark T. Spriggs, Assistant Professor of Marketing, University of 
Oregon, and John R. Nevin, Grainger Wisconsin Distinguished 
Professor, School of Business, University of Wisconsin-Madison 
(``Spriggs & Nevin''), #015; Anne Darr, DeHart and Darr Associates, 
Inc. (``DeHart and Darr''), #016; Bruce A. Craig (``Craig''), #017; 
Mark Bressler (``Bressler''), #018; D.B. Mansion, (``Mansion''), 
#019. Three commenters submitted journal articles as comments. They 
are: Phillips, #005, Negative Option Contracts and Consumer 
Switching Costs, Southern Economic Journal, Vol. 60, No. 2 (October 
1993); Spriggs & Nevin, #015, Negative Option Selling Plans: Current 
Forms Versus Existing Regulations, Journal of Public Policy & 
Marketing, Vol. 15, No. 2 (Fall 1996); and Craig, #017, Negative-
Option Billing: Understanding the Stealth Scams of the '90s, Loyola 
Consumer Law Reporter, Vol. 7, No. 1 (Autumn 1994).
---------------------------------------------------------------------------

II. Requirements of the Negative Option Rule

A. Negative Option Plans Covered by the Rule

    The Commission issued the Negative Option Rule in 1973 to protect 
consumers from potentially unfair or deceptive acts or practices in the 
promotion and operation of prenotification negative option plans for 
the sale of goods, such as the failure to disclose in promotional 
materials the terms and conditions of membership.\2\ The Commission 
promulgated the Rule under section 5 of the FTC Act, 15 U.S.C. 45, 
which declares unfair or deceptive acts or practices in or affecting 
commerce to be unlawful. The Rule became effective on June 7, 1974.\3\
---------------------------------------------------------------------------

    \2\ Regulations Pertaining to the Use of Negative Option Plans 
(``Statement of Basis and Purpose'' or ``SBP''), 38 FR 4896.
    \3\ In 1986, the Commission conducted a review of the Negative 
Option Rule pursuant to section 610 of the Regulatory Flexibility 
Act, 5 U.S.C. 610, to determine the impact of the Rule on small 
entities. In a notice published on November 21, 1986, 51 FR 42087, 
the Commission announced the results of that review, concluding that 
``there is a continued need for the Rule; there is no reason to 
believe that the Rule has had a significant economic impact on as 
substantial number of small entities; and the rule should not be 
changed.''
---------------------------------------------------------------------------

    The Rule regulates only a subset of all negative option sales--
those made under ``prenotification negative option plans'' for the sale 
of goods. Because the Rule's coverage is often misunderstood, and 
because the comments recommend extending the Rule to other negative 
option selling techniques, or to the negative option sale of services, 
the Commission believes some prefatory discussion of negative option 
sales and the Negative Option Rule would be helpful.\4\
---------------------------------------------------------------------------

    \4\ Lamet, #001, stated at 1, that lawbook publishers have sent 
him publication updates without first sending him prenotification 
forms. He described this as a negative option abuse. Bucks County, 
#010, stated at 1, that sellers of yearly calendars who do not 
provide prenotification before shipping the calendars are violating 
the Negative Option Rule. If the legal publications and the 
calendars are sold by continuity plans, however, the Negative Option 
Rule would not regulate the sales and would consequently not require 
prenotification. As discussed below, the FTC Act and other laws 
protect consumers from potentially deceptive practices regarding 
continuity sales.
---------------------------------------------------------------------------

    Broadly speaking, a ``negative option'' is any type of sales term 
or condition that imposes on consumers the obligation of rejecting 
goods or services that sellers offer for sale. A negative option allows 
a seller to interpret the failure of a consumer to reject goods or 
services as the acceptance of a sales offer, when, under traditional 
contract law, an affirmative response accepting the offer would be 
necessary. A consumer must agree to allow the seller to interpret his 
failure to reject goods or services as the acceptance of a sales offer. 
If the consumer has not agreed to this condition, the shipment of goods 
or the performance of services following the consumer's failure to 
reject the goods or services may be unlawful under unordered 
merchandise statutes and other laws, including Section 5 of the FTC 
Act.\5\
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 45, See Part IV.B., infra, for a discussion of the 
prohibition against shipping unordered merchandise.
---------------------------------------------------------------------------

    Pursuant to their agreement with consumers, sellers may make 
discrete, isolated negative option sales offers or periodic negative 
option offers as a part of a program or plan. Sellers also may make 
negative option offers incidentally, as a secondary part of a primary 
contract for some other good or service. In this context, sellers may 
make negative option offers at irregular intervals. Alternatively, 
sellers may make negative option offers as the primary object of the 
agreement with the consumer, for example, when a consumer subscribes to 
a negative option plan. By subscribing to a negative option plan, a 
consumer assumes the responsibility of affirmatively ``negating'' or 
rejecting all subsequent sales offers for goods or services made under 
the plan. Negative option plans usually involve the delivery of goods 
or services at regular intervals.
    There are different types of negative option plans; for example, 
``prenotification'' negative option plans and ``continuity'' negative 
option plans (which are more commonly referred to simply as continuity 
plans). Under prenotification plans, sellers and consumers agree that, 
for each sales offer, sellers will send consumers an announcement 
describing the goods or services offered, along with a prenotification 
form that subscribers can return to the sellers to reject the goods or 
services. Under continuity plans (also known by terms such as 
subscription shipments, library standing order arrangements, or annual 
series arrangements), subscribers agree, when they join or subscribe, 
to receive periodic shipments of goods or the performance of services 
without receiving prior announcements from sellers describing the goods 
or services, and without receiving prenotification forms.\6\ Depending 
on the terms of the specific continuity or service sales plan, 
subscribers may have the right to return goods or reject services they 
decide they do not want.\7\
---------------------------------------------------------------------------

    \6\ A typical characteristic of continuity plans is that the 
goods sold often relate to a single topic (e.g., a book series about 
the Civil War) or are for items that are consumed or used up and 
need to be replaced periodically (e.g., hosiery). Because of these 
characteristics, costly returns are less likely. In contrast, 
prenotification plans often span a wide array of topics (one month a 
biography may be featured, another month a mystery). Because of the 
high cost of mailing goods to subscribers and allowing them to 
reject the goods they did not want, some sellers moved to sending 
``announcements'' describing the goods they would be sending, along 
with forms that subscribers could return to reject the items--hence, 
the term ``prenotification.'' The Commission considered and rejected 
assertions that it should ban prenotification negative option plans 
as being inherently unfair. SBP, 38 FR at 4902-04.
    \7\ The Commission notes that the provision of services differs 
substantially in character from the selling of goods. In the sale of 
goods, consumers are likely to consider purchases, even if made as 
part of a continuity plan, as discrete occurrences. In some 
instances, services may be performed periodically or seasonally, for 
example, landscaping or pest control. But in many cases, consumers 
may likely expect that a given service--household security or cable 
television, for example--will continue uninterrupted until it is 
canceled. Whether services continue uninterrupted or are performed 
periodically, they are commonly regulated by service contracts or 
plans, which in the context of this Notice could be characterized as 
continuity plans for services.
    Negative option techniques have been used in selling services. 
For example, a cable television provider may separate a channel from 
a group of channels previously offered as a ``bundle'' and offer the 
channel separately to cable subscribers using a negative option. Or 
a service provider--such as an Internet service provider--may make a 
free trial offer for a service that becomes an extended service 
contract unless the consumer exercises a negative option and 
expressly rejects the service contract when the free trial period 
expires. Service plans may also employ negative option contract 
renewal provisions.
---------------------------------------------------------------------------

    In the case of both prenotification negative option plans and 
continuity plans, sellers often market their plans by offering 
introductory goods or services on a trial basis. A consumer who fails 
to return the trail merchandise or who otherwise fails to cancel the 
subscription by the time the trial period expires often is 
automatically enrolled in the seller's plan.

[[Page 44557]]

    As previously stated, the Negative Option Rule applies only to 
prenotification plans for the sale of goods. In promulgating the Rule, 
the Commission determined in its Statement of Basis and Purpose that it 
was in the public interest to prescribe regulations for the operation 
of prenotification negative option plans because various acts and 
practices associated with these plans were found to affect consumers 
adversely.\8\ The Commission also stated that the Rule does not apply 
to negative option marketing arrangements under which marketers 
optionally tender merchandise to subscribers without previously sending 
a prenotification announcement. The Commission determined that negative 
option selling plans, such as continuity plans, subscription shipments, 
library standing order arrangements, or annual and series arrangements, 
in which subscribers agree to receive goods without prenotification of 
each shipment, warranted separate treatment by the Commission if and 
when consumer complaints justified Commission attention.\9\
---------------------------------------------------------------------------

    \8\ The Commission found that: (1) Marketers of prenotification 
negative option plans had failed to disclose adequately the 
provisions of such plans to the detriment of their subscribers; (2) 
subscribers had encountered difficulties in substantiating that they 
were not given adequate time to respond to the negative option 
notice supplied by the merchandiser; (3) marketers of 
prenotification negative option plans had delivered unordered or 
substituted merchandise in the place of merchandise specifically 
ordered by subscribers, without their subscribers' prior consent; 
(4) marketers of prenotification negative option plans had failed to 
honor proper cancellation notices from contract-complete subscribers 
and continued to send them merchandise; (5) subscribers had been 
dunned or billed for unordered merchandise, and sellers had failed 
to provide meaningful service to a large number of their subscribers 
in connection with complaints involving operations, particularly in 
regard to billing problems; and (6) marketers of prenotification 
negative option plans had operated their entire systems in such a 
manner as to place the burden for correcting ``errors'' on their 
subscribers. SBP, 38 FR at 4899-4902.
    \9\ Id. at 4908.
---------------------------------------------------------------------------

B. Disclosures in Certain Kinds of Advertising

    To ensure that consumers are not misled about the terms of these 
plans before they subscribe, the Rule requires sellers to disclose the 
material terms of the plans in ads that contain a means consumers can 
use to subscribe. The Rule requires that sellers disclose clearly and 
conspicuously the material terms of membership in any advertisement or 
other promotional material that provides a method the consumer may use 
to enroll in the plan, including the following disclosures: (i) The 
aspect of the plan (the negative option) that requires subscribers to 
notify the seller, in the manner provided for by the seller, if they do 
not wish to purchase a selection, and that failure to notify the seller 
signifies assent; (ii) any obligation assumed by subscribers to 
purchase a minimum quantity of merchandise; (iii) the right of 
contract-complete subscribers \10\ to cancel their membership at any 
time; (iv) whether billing charges will include an amount for postage 
and handling; (v) a disclosure indicating that subscribers will be 
provided with at least ten days in which to mail any form to the seller 
to reject merchandise; (vi) that the seller will credit the return of 
any selections sent to a subscriber, and guarantee to the Postal 
Service or the subscriber postage to return such selections to the 
seller, when the subscriber does not have at least ten days in which to 
return the prenotification form to the seller; and (vii) the frequency 
with which the seller will send announcements and forms to the 
subscriber and the maximum number of announcements and forms the seller 
will send during a 12-month period.
---------------------------------------------------------------------------

    \10\ ``Contract-complete subscriber'' refers to a subscriber who 
has purchased the minimum quantity of merchandise required by the 
terms of membership in a negative option plan.
---------------------------------------------------------------------------

C. Operation of Prenotification Negative Option Plans

    The Rule also requires sellers to follow certain procedures in 
operating prenotification negative option plans for the sale of goods. 
Many prenotification negative option plans provide introductory offers 
to encourage consumers to become members. The Rule requires that a 
seller must ship any introductory and bonus merchandise due a 
subscriber within four weeks after receiving an order, unless it is 
unable to do so because of unanticipated circumstances beyond its 
control. In such an event, the seller may make an equivalent 
alternative offer, which the subscriber has the right to decline. 
Subscribers may then cancel their membership provided they return to 
the seller any introductory merchandise received.
    Once a consumer becomes a subscriber, the Rule requires the seller 
to mail an announcement to the subscriber in advance identifying any 
merchandise the seller plans to send. The Rule also requires the seller 
to mail the subscriber a form, with the announcement, instructing the 
subscriber how to use the form to reject the merchandise. The form must 
tell the subscriber that the merchandise will be sent unless the 
subscriber tells the seller not to send it and must identify the date 
by which the subscriber must return or mail the form back to the 
seller. The Rule sets out timing provisions for the mailing of the 
announcements and forms. At a minimum, the seller must give a 
subscriber at least 10 days in which to return or mail a form to the 
seller. When the subscriber orders merchandise, either by failing to 
return the prenotification form or by affirmatively ordering a 
selection, the seller may not substitute merchandise for the specific 
merchandise ordered, unless the subscriber has expressly consented to 
the substitution.
    Under certain circumstances (e.g., when the subscriber does not 
have at least 10 days to mail the prenotification form), a seller must 
credit the return of any selection sent to a subscriber for the full 
invoiced amount and pay for return postage. When the seller is aware 
that these circumstances exist, it must notify subscribers that they 
may return the merchandise with return postage guaranteed and receive a 
credit to their accounts. Finally, the seller must terminate promptly 
the membership of subscribers who request cancellation of membership in 
writing after fulfilling any minimum purchase obligation under the 
negative option agreement.

III. Summary of the Comments

A. Costs and Benefits of the Rule

    Several comments state that the Rule establishes a balance between 
the needs of consumers and industry, benefiting both.\11\ Ten of the 19 
comments submitted support the Rule as is, without change.\12\ Several 
comments state that the Rule has worked effectively in regulating 
prenotification negative option plans.\13\ Eleven of the comments state 
that there is a continuing need for the Rule.\14\ None of

[[Page 44558]]

the comments suggest rescinding the Rule.
---------------------------------------------------------------------------

    \11\ BMOC, #002, at 1; Jacobina, #006, at 1; DMA, #008, at 3; 
Columbia House, #013, at 2; BMG, #014, at 1, 2; DeHart and Darr, 
#016, at 1.
    \12\ Lamet, #001, at 1; BOMC, #002, at 1, 2; Niebergall, #003, 
at 1; Greenberg, #004, at 1; DMA, #008, at 3, 6; Doubleday, #011, at 
1; Columbia House, #013, at 2; BMG, #014, at 1, 2; DeHart & Darr, 
#016, at 1, 3; Mansion, #019, at 1. Niebergall, #003, at 1, stated 
that full, first-class postage should not be required for the return 
of prenotification forms by consumers when the post-card rate would 
be sufficient. The Rule does not contain a first-class postage 
requirement. Consumers may return prenotification forms using any 
postage required by the U.S. Postal Service.
    \13\ BOMC, #002, at 1, 2; Greenberg, #004, at 1-2; Doubleday, 
#011, at 1; Wisconsin AG, #012, at 2; BMG, #014, at 2; DeHart & 
Darr, #016, at 1.
    \14\ Lamet, #001, at 1; BMOC, #002, at 1; Niebergall, #003, at 
1; Greenberg, #004, at 1; DMA, #008, at 2; Doubleday, #011, at 1, 2; 
Wisconsin AG, #012, at 2, 3, 4; Columbia House, #013, at 1-2; BMG, 
#014, at 1, 2; Spriggs, #015, at cover letter p.1; DeHart and Darr, 
#016, at 1.
---------------------------------------------------------------------------

    Several comments address the benefits to consumers from 
prenotification negative option plans as a selling technique, as 
opposed to benefits arising from the Rule itself. Five comments state 
that negative option plans provide many benefits to consumers, 
including the opportunity to build a long-term relationship with 
sellers who provide a large array of product choices, greater 
accessibility to products and shopping convenience, and expert advice 
and recommendations about products.\15\ One comment states that 
negative option contracts impose some costs on consumers, but 
nevertheless possess economic efficiency advantages over standard 
contractual relationships.\16\
---------------------------------------------------------------------------

    \15\ Jacobina, #006, at 1; DMA, #008 at 2; Doubleday, #011, at 
1; BMG, #014, at 2; DeHart and Darr, #016, at 2.
    \16\ Phillips, #005, at 305, 309 (negative option plans impose 
two types of transactional costs on consumers--the cost of rejecting 
goods offered by a seller, and the cost of canceling membership in a 
negative option plan to end the product flow; despite these costs, 
``negative option contracts, compared to positive option, are a more 
efficient means by which to accept or reject pieces of a product 
flow'' and are consequently weakly economically superior to positive 
option agreements).
---------------------------------------------------------------------------

    Three comments state that the Rule does not impose any costs on 
purchasers.\17\ Others state that the Rule protects consumers 
adequately by requiring their consent,\18\ requiring disclosure of the 
terms and conditions of membership,\19\ or providing guidelines for the 
operation of negative option plans.\20\ One comment, however, 
recommends that the Commission establish a design standard, setting 
forth specific type-size requirements, to make the required negative 
option disclosures clearer and more conspicuous to consumers.\21\
---------------------------------------------------------------------------

    \17\ BOMC, #002, at 1; DMA, #008 at 2; BMG, #014, at 2.
    \18\ DMA, #008, at 2, 6; Wisconsin AG, #012, at 2.
    \19\ Greenberg, #004, at 1; DMA, #008, at 2; BMG, #014, at 1, 2; 
DeHart and Darr, #016, at 1.
    \20\ Greenberg, #004, at 1; DMA, #008, at 2, 6; Wisconsin AG, 
#012, at 2; Columbia House, #013, at 1; BMG, #014, at 1, 2; DeHart 
and Darr, #016, at 1.
    \21\ Bucks County, #010, at 1.
---------------------------------------------------------------------------

    Industry comments overwhelmingly support the Rule. They state that 
the Rule functions in the best interests of sellers by providing well-
established, concrete guidance to industry that helps establish good 
business practices.\22\ The Rule thereby contributes to consumer 
confidence in negative option marketing and allows sellers to establish 
continuing, repeat customers.\23\ A few industry members state that the 
Rule enables them to establish national uniformity in marketing \24\ 
and helps them avoid customer service problems because the disclosure 
requirements of the Rule educate consumers about the way 
prenotification negative option plans work.\25\ Three comments state 
that the Rule imposes considerable costs on industry, for example, 
because of vagaries of delivery dates and deadlines.\26\ These 
comments, however, do not recommend any changes to reduce costs; but 
instead, conclude that the Rule benefits industry and recommend that 
the Commission retain the Rule without any substantive change.\27\ 
According to one comment, significantly weakening the Rule could lead 
consumers to lose confidence in negative option buying, which should 
not be desired by the FTC, consumers, or the businesses which service 
them.\28\
---------------------------------------------------------------------------

    \22\ BMOC, #002, at 2; DMA, #008, at 2, 5; Doubleday, #011, at 
1; Columbia House, #013, at 1; BMG, #014, at 1; DeHart and Darr, 
#016, at 2.
    \23\ Jacobina, #006, at 1; DMA, #008, at 3; Doubleday, #011, at 
1-2; Columbia House, #013, at 1; BMG, #014, at 1.
    \24\ Doubleday, #011, at 1.
    \25\ BMG, #014, at 1.
    \26\ DMA, #008, at 3; Columbia House, #013, at 1; BMG, #014, at 
2.
    \27\ DMA, #008, at 3 (because the lifetime value of a repeat 
customer is so important to sellers, these costs will make this 
method of doing business worthwhile); Columbia House, #013, at 2 
(Rule has achieved an acceptable and commendable balance between the 
needs and concerns of industry and the need to protect the public 
from unscrupulous and fraudulent practices); BMG, #014, at 2 (while 
the costs of compliance with the Rule are substantial in staff time, 
energy and dollars, the investment is worthwhile).
    \28\ Doubleday, #011, at 2.
---------------------------------------------------------------------------

B. Recommendations To Expand the Rule To Cover Marketing Techniques 
Other Than Prenotification Negative Option Plans and To Cover Services

    One comment recommends extending the Rule to cover continuity plans 
for goods, and requiring prenotification for each shipment made under a 
continuity plan.\29\ Another comment states that continuity plans for 
goods should not be regulated in the same way that the Rule regulates 
prenotification plans, but that sellers using continuity plans should 
be required to disclose the material terms of membership before 
consumers subscribe.\30\ One comment recommends amending the Rule to 
declare that billing for unordered merchandise is an unfair 
practice.\31\
---------------------------------------------------------------------------

    \29\ Wisconsin AG, #012, at 5-6.
    \30\ Wisconsin/Agriculture, #009, at 2.
    \31\ Wisconsin AG, #012, at 5.
---------------------------------------------------------------------------

    Several comments state that the negative option sales techniques 
has been used in the sale of various services by some firms.\32\ A few 
comments recommend expanding the Negative Option Rule to require that 
service providers notify consumers each time they intend to provide 
services, and notify consumers before they enroll consumers in service 
plans after a free trail period expires, and before they renew service 
contracts.\33\
---------------------------------------------------------------------------

    \32\ Phillips, #005, at 305; Ontario, #007, at 1; Wisconsin/
Agriculture, #009, at 2; Bucks County, #010, at 1; Spriggs & Nevin, 
#015, at 227, Bressler, #018, at 1-2; Wisconsin AG, #012, at 1; 
Craig, #017, at 6. These comments state that negative option 
marketing has been used to sell cable television, Internet services, 
inside telephone wire maintenance, telephone call waiting, lawn 
care, pest control, home security, travel discount clubs, credit 
card protection programs, and other services.
    \33\ Wisconsin/Agriculture, #009, at 2; Bucks County, #010, at 
1; Bressler, #018, at 1-2.
---------------------------------------------------------------------------

    None of the comments that support expanding the Rule addresses the 
costs that such changes to the Rule might impose on firms. Further, 
none submitted specific evidence (beyond a few examples) of the extent 
of any current abuses in the use of negative option plans not covered 
by the Rule or in the sale of services.
    Some of the comments expressly oppose expanding the Rule, stating 
that negative option marketing techniques that are different from 
prenotification negative option plans should be addressed separately, 
such as through a cooperative education project with industry that 
could help educate the public about such techniques.\34\ One comment 
notes that the Postal Reorganization Act (also referred to as the 
``unordered merchandise statue''), 39 U.S.C. 3009, has already 
addressed some problems with negative option selling of products.\35\
---------------------------------------------------------------------------

    \34\ DMA, #008, at 5; BMG, #014, at 2; DeHart and Darr, #016, at 
2.
    \35\ DeHart and Darr, #016, at 2.
---------------------------------------------------------------------------

C. Commission's Determinations

    Based on the comments received and on other information, the 
Commission concludes that the Rule adequately balances the interests of 
both consumers and firms that are subject to it. It appears that the 
Rule is working effectively to protect consumers, without imposing 
significant costs on industry members, small or large. Based on the 
comments submitted, and other research and investigation performed by 
the Commission's staff regarding negative option marketing, the 
Commission has determined to retain the Rule in its present form.
    First, the Commission has determined not to propose amending the 
Rule to specify a design standard for the required disclosures, as 
suggested by one commenter. The Commission believes that the 
performance standard in the Rule, which mandates ``clear and 
conspicuous'' disclosures, has worked

[[Page 44559]]

well. Although the Commission has used design standards in various 
contexts, there is no evidence that such a standard is necessary for 
promotional materials for prenotification negative option plans. The 
clear and conspicuous standard allows sellers greater flexibility when 
making the required disclosures, which is important in light of the 
varied promotional materials used by sellers who operate 
prenotification negative option plans.
    Second, the Commission has determined not to propose expanding the 
Rule to apply to additional types of negative option marketing 
techniques, such as continuity plans, or to the sale of services. There 
is insufficient evidence that unfair to deceptive acts or practices are 
prevalent in the use of additional types of negative option marketing 
techniques or in the sale of services, and application of the Rule to 
these areas may not be justified. Requiring sellers to provide 
consumers with prenotification before each shipment of merchandise 
under continuity plans, or each performance of a service, or the 
continuation of a service, may be unwarranted or unnecessary. For 
example, in some cases continuity or service plans may distribute goods 
or perform services for which consumers do not reasonably expect 
prenotification before each instance of delivery or performance--e.g., 
the monthly shipment of volumes of an encyclopedia or a book series, or 
providing home security services.\36\ In the case of services, 
consumers may normally expect that many services will continue 
uninterrupted until canceled. Requiring prenotification for each 
billing cycle of such service plans is unreasonable. Even when services 
are performed periodically or seasonally, prenotification before each 
performance of a service may not be necessary if consumers have been 
informed in advance about the material terms and conditions of the 
service contract.
---------------------------------------------------------------------------

    \36\ E.g., Wisconsin/Agriculture, #009, at 2 (no compelling need 
for regulation of contracts pursuant to which consumers make an up-
front decision to purchase, such as newspaper and magazine 
subscriptions).
---------------------------------------------------------------------------

    If sellers adequately disclose the terms and conditions of 
continuity and service plans to consumers, and if consumers agree to 
these terms and conditions--including the receipt of merchandise or the 
performance of services without prenotification--it is unlikely that 
any consumer injury will result. The Commission has determined that, if 
there is inadequate disclosure and injury occurs, existing laws and 
regulations--such as the FTC Act, the unordered merchandise statute, 
and state consumer protection laws and regulations--provide adequate 
protections against unfair or deceptive negative option marketing 
practices that fall outside of the purview of the Negative Option Rule. 
As discussed in Part IV below, both the Commission and state Attorneys 
General have brought enforcement actions against marketers that have 
allegedly employed unfair or deceptive negative option marketing 
techniques, such as the failure to disclose clearly and conspicuously 
material facts about membership in continuity plans and other types of 
sales plans or clubs. The Commission will continue to take action on a 
case-by-case basis in any problem areas.

IV. Existing Alternatives to Expanding the Rule

A. The Federal Trade Commission Act

    Section 5 of the FTC Act empowers the Commission to prohibit unfair 
or deceptive acts or practices in or affecting commerce. The Commission 
has promulgated trade regulation rules, such as the Negative Option 
rule, when it has found that unfair or deceptive acts or practices in 
specific industries were prevalent. For example, the systematic failure 
on the part of sellers to make clear and conspicuous necessary pre-
purchase disclosures to consumers justified promulgation of the 
Negative Option Rule. But the Commission does not need to adopt a trade 
regulation rule to prosecute unfair or deceptive acts or practices. 
Rather, the Commission can prosecute such practices, for example, the 
failure clearly and conspicuously to disclose material facts about 
continuity plans, as unfair or deceptive acts or practices that violate 
section 5 of the FTC Act.\37\
---------------------------------------------------------------------------

    \37\ In determining whether a practice is deceptive, the 
Commission must determine whether there is a misrepresentation, 
omission, or other practice, that misleads consumers acting 
reasonably in the circumstances and causes consumer injury. See 
Federal Trade Commission Policy Statement on Deception, appended to 
Cliffdale Assocs., Inc., 103 F.T.C. 110, 174-184 (1984); and Federal 
Trade Commission Policy Statement on Unfairness, appended to 
International Harvester Co., 104 F.T.C. 949, 1070-76 (1984).
---------------------------------------------------------------------------

    Under the FTC Act, the Commission may seek administrative or 
federal district court orders against companies or individuals who 
engage in unfair or deceptive practices, prohibiting future violations, 
and providing other relief such as consumer redress, disgorgement of 
ill-gotten gains, consumer notification, and civil penalties, in some 
cases.\38\ The Commission has pursued cases challenging alleged unfair 
or deceptive practices in the operation of continuity plans for both 
goods and services. For example, the Commission has challenged 
continuity plans under which merchandise was shipped without consumers' 
prior consent to receive the merchandise.\39\ It has also required that 
promotional materials for continuity plans disclose clearly and 
conspicuously material facts about the plans--including the risks and 
obligations that subscribers assume by subscribing to them.\40\ For 
example, the Commission has required sellers who use continuity plans 
to disclose the fact that consumers who become subscribers will receive 
shipments of goods or will be billed for services without further 
action by the consumer.\41\ These cases illustrate the Commission's 
ability to prevent consumer injury associated with unfair or deceptive 
negative option practices without expanding the Negative Option Rule.
---------------------------------------------------------------------------

    \38\ The Commission can seek civil penalties from companies that 
violate administrative orders issued against them by the Commission, 
and from companies not subject to previous administrative orders if 
they have actual knowledge that the Commission has determined in 
prior cases that certain acts or practices are unfair or deceptive 
and they engage in those acts or practices. 15 U.S.C. 45(l) and 
45(m)(1)(B).
    \39\ See Synchronal Corp. 116 F.T.C. 1189, 1222 (1993) (consent 
order prohibited respondents from selling any product through a 
continuity program without first obtaining consumers' expressed 
consent).
    \40\ See FTC v. Hosiery Corp. of America, 3 Trade Reg. Rep. 
(CCH) para. 22,187 (E.D. Pa. 1984) (in connection with continuity 
plan for hosiery, federal district court consent decree required 
company to pay a $200,000 civil penalty and to make clear and 
conspicuous disclosure of conditions and obligations attendant upon 
acceptance of free introductory offer); Grolier, Inc., 91 F.T.C. 
315, 454-55, 483 n.37, 497 (1978) (Commission found that promotional 
materials that did not tell consumers that they would receive a bulk 
shipment of books, rather than single volumes, failed to disclose a 
material fact about respondents' continuity plans; Commission 
ordered respondents to disclose conditions and terms of continuity 
plans, the method of sales or distribution and the subscriber risks 
and obligations); Crowell Collier & Macmillan, Inc., 82 F.T.C. 1292, 
1305 (1973) (order required respondents to disclose clearly and 
conspicuously the conditions and terms of any program providing for 
the delivery of books or other products or services serially, at 
intervals, on an approval basis.)
    \41\ See Synchronal, 116 F.T.C. at 1222 (Commission ordered 
required the disclosure of all material terms and conditions of the 
continuity program, including the fact that periodic shipments of 
the product would be made without further action by the consumer, a 
description of the product included in each shipment, the 
approximate interval between each shipment, the billing procedure to 
be employed, the minimum number of purchases required under the 
program, if any, and a description of the terms and conditions under 
which and the procedures by which a subscriber may cancel further 
shipments).
---------------------------------------------------------------------------

B. Unordered Merchandise

    The Commission has also determined that there is no need to amend 
the Rule to prohibit billing for unordered merchandise, as recommended 
by one

[[Page 44560]]

commenter.\42\ Section 3009(a) of the Postal Reorganization Act of 
1970, 39 U.S.C. 3009, declares that mailing, and billing for, unordered 
merchandise constitutes a violation of section 5 of the FTC Act.\43\ 
Under this standard, sellers, other than charitable organizations 
soliciting contributions, may not ship unordered merchandise to 
consumers unless the recipient has expressly agreed to receive it or 
unless it is clearly identified as a gift, free sample, or the like. In 
addition, sellers may not try to obtain payment for or the return of 
the unordered merchandise. Consumers who receive unordered merchandise 
are legally entitled to treat the merchandise as a gift.
---------------------------------------------------------------------------

    \42\ Wisconsin AG, #012, at 5.
    \43\ See 35 FR 14328 (1970). In a notice published on January 
31, 1978, 43 FR 4113, the Commission stated that the standard under 
section 5 of the FTC Act was not limited to unordered merchandise 
sent by U.S. mail. The Commission explained that it might, for 
example, prosecute as a violation of section 5 a nonmail shipment of 
merchandise that fails to meet the standard of 39 U.S.C. 3009.
---------------------------------------------------------------------------

    Under the Negative Option Rule, shipments sent to subscribers of 
prenotification negative option plans are not considered unordered 
merchandise because subscribers have agreed to receive shipments of 
merchandise unless they reject them by returning prenotification 
forms.\44\ Shipping goods to consumers who have not expressly agreed to 
take on the obligation of rejecting goods by means of a prenotification 
form, however, violates the prohibition against sending unordered 
merchandise.\45\ Similarly, shipments sent to subscribers of continuity 
plans are not considered unordered merchandise because subscribers to 
these plans agree to receive the shipments. Sending goods other than 
those a continuity plan subscriber has agreed to receive, however, is 
prohibited.\46\ Cases brought by the Commission indicate that sellers 
who use prenotification negative option plans or continuity plans to 
sell goods may not unilaterally impose a negative option, requiring 
consumers to reject goods offered for sale; consumers must agree to 
such a term, so that the shipping of goods without this consent 
constitutes the shipping of unordered merchandise. The cases show that 
the unordered merchandise statute and section 5 of the FTC Act provide 
adequate authority for the Commission to protect consumers from 
unordered merchandise.
---------------------------------------------------------------------------

    \44\ The Negative Option Rule provides, however, that all 
shipments the seller sends to a subscriber--except for the first--
after the seller receives written notice that a subscriber who has 
met his minimum purchase obligation wishes to cancel his membership, 
is considered unordered merchandise.
    \45\ E.g., Hachette Book Group USA, Inc, No. 39CV00116 (D. Conn. 
1994) (settlement in which FTC charged that defendants failed to 
notify consumers that they would receive yearbooks or supplements 
unless they returned a mail cancellation card, failed to obtain 
consumers' agreement to return cancellation cards if they did not 
want the merchandise, and mailed merchandise and bills to consumers 
who had not placed orders); Standard Reference Library, Inc., 77 
F.T.C. 969, 976 (1970) (consent order prohibited respondents from 
representing that consumers' failure to return rejection cards or 
take any affirmative action to prevent the shipment of merchandise 
constituted a request to receive merchandise where consumers had not 
agreed to take on that obligation).
    Spriggs & Nevin, #015, at 228, expressed concern that sellers 
that enter into contracts with consumers may include provisions in 
their contracts allowing them to make negative option offers to 
consumers as a part of the contract even though the primary subject 
matter of the contract is not related to the negative option offers. 
In some cases, consumers may agree to receive the secondary negative 
option offers because they have no choice but to do so if they wish 
to receive the goods or services that are part of the primary 
agreement. The Commission believes that such practices must be 
evaluated on a case-by-case basis to determine whether they are 
unfair or deceptive.
    \46\ E.g., Field Publications Ltd. Partnership, No. H-90-932 PCD 
(D. Conn. 1990) (settlement in which FTC charged that Field shipped 
unordered books to subscribers who had agreed to receive another 
series of books as part of a continuity plan; settlement required 
Field to pay a $175,000 civil penalty).
---------------------------------------------------------------------------

C. Negative Option Marketing of Services and Unordered Services

    A few of the comments stated that the Negative Option Rule should 
be amended to apply to services.\47\ As with product sales techniques 
not covered by the Rule, the Commission can bring enforcement actions 
against those who use unfair or deceptive acts or practices to promote, 
sell or bill for services. For example, the Commission has brought 
enforcement actions against companies that bill consumers for unordered 
services \48\ and companies that use negative options to enroll 
consumers automatically in service plans upon the expiration of free 
trial offers, without disclosing this material condition clearly and 
conspicuously to consumers.\49\ The Commission will continue to monitor 
the marketplace to identify problem areas and bring enforcement actions 
when appropriate.
---------------------------------------------------------------------------

    \47\ Wisconsin/Agriculture, #009, at 2; County of Buck, #010, at 
1; Wisconsin AD, #012, at 5. Ontario, #007, stated at 1-2, that 
Ontario has considered amending its Consumer Protection Act to 
provide safeguards against the deceptive negative option marketing 
of services. See also Dennis D. Lamont, Negative Option Offers in 
Consumer Service Contracts: A Principled Reconciliation of Commerce 
& Consumer Protection, UCLA Law Review, Vol. 42, No. 5 (June 1995).
    \48\ Southwest Marketing Concepts, Inc., No. H-97-1070 (S.D. 
Tex. May 29, 1998) (consent decree, settling claim that company 
billed for unordered advertising, prohibited defendants from making 
false or misleading representations in connection with the sale, 
distribution, marketing or sponsorship of any advertisement); Image 
Sales & Consultants, Inc., No. 1:97CV0131 (N.D. Ind. filed Jun. 9, 
1998) (same); The Century Corp., No. 1:97CV0130 (N.D. Ind. Apr. 8, 
1998) (same); Dean Thomas Corp., No. 1:97CV0129 (N.D. Ind. Jan. 19, 
1998) (same); AKOA, Inc., No. CV 97-7084 (LGB) (C.D. Cal. Mar. 17, 
1998) (consent decree prohibited company from billing for unordered 
computer repair service contracts); Travel World International, 
Inc., No. 88-113-CIV-FTM-15C (M.D. Fla. Nov. 2, 1989) (consent 
decree prohibited defendants from using negative option billing for 
renewals or initial purchases of any travel club membership, 
vacation certificate, travel service, contract for vacation 
services, or any other product or service); Trade Union Courier, 51 
F.T.C. 1275, 1299-1300 (1955) (litigated order; newspaper billed for 
ads without prior authorization); A&R Agency, 86 F.T.C. 103 (1975) 
(consent order; same).
    \49\ America Online, Inc., C-3787; Prodigy Servs. Corp., C-3788; 
CompuServe, Inc., C-3789 (March 16, 1998) (consent orders required 
online service providers, when offering a ``free trial'' with 
automatic membership enrollment or renewal upon the expiration of 
the free trial period, to disclose clearly and prominently any 
obligation to cancel after the free trial period to avoid charges, 
and to provide at least one reasonable means of canceling, to 
prevent enrollment or renewal).
---------------------------------------------------------------------------

    Regarding cable television channel subscriptions, which some of the 
comments mentioned as an area in which negative option selling has been 
used,\50\ some states have brought legal action to challenge 
potentially deceptive negative option practices. In this area, the 
Cable Television Consumer Protection and Competition Act of 1992 
(``Cable Act of 1992'') \51\ provides protections by prohibiting 
negative option billing for ``any service or equipment that the 
subscriber has not affirmatively requested by name,'' and by directing 
the Federal Communications Commission (``FCC'') to issue implementing 
regulations. No evidence has been submitted to the FTC to indicate that 
the Cable Act of 1992 and the FCC's regulations are not sufficient to 
protect consumers from unfair or deceptive acts or practices in the use 
of negative option marketing techniques in connection with the sale of 
cable television services.\52\
---------------------------------------------------------------------------

    \50\ Phillips, #005, at 304; Ontario, #007, at 1; Wisconsin/
Agriculture, #009, at 2; Wisconsin AG, #010, at 1-2; Spriggs & 
Nevin, #015, at 227; Craig, #017, at 6-8.
    \51\ Pub. L. No. 102-385, 106 Stat. 1460 (codified in scattered 
sections of 47 U.S.C.). See 47 U.S.C. 543(f) for prohibition against 
negative option billing for cable television.
    \52\ Time Warner Cable v. Doyle, 66 F.3d 867 (7th Cir. 1995) 
(FCC regulations pursuant to the Cable Act of 1992 permit a limited 
range of negative option billing and preempt state consumer 
protection statutes prohibiting negative option billing to extent 
they interfere with the execution of the FCC's rate rules); Time 
Warner Entertainment Co. v. Federal Communications Comm'n, 56 F.3d 
151, 192-96 (D.C. Cir. 1995) (Cable Act of 1992 does not explicitly 
prohibit states from enforcing negative option billing regulations; 
issue whether Act preempts state negative option consumer protection 
laws insofar as they affect rate regulation is a factual question 
peculiar to the state law at issue).

---------------------------------------------------------------------------

[[Page 44561]]

D. State Laws

    The states also enforce consumer protection laws that protect 
consumers against unfair or deceptive negative option marketing 
techniques or other marketing techniques that may not be covered by the 
Commission's Negative Option Rule.\53\ Like the FTC Act, many of these 
state statutes include general, and far-ranging, prohibitions against 
unfair or deceptive acts or practices.\54\ As evidenced by cable 
television and other cases, states are actively enforcing these state 
statutes.\55\ The dual system of state and federal consumer protection 
laws should help limit the proliferation of deceptive negative option 
marketing techniques.
---------------------------------------------------------------------------

    \53\ DMA, #008, at 4, commented that state negative option laws 
are sometimes inconsistent with the Commission's Negative Option 
Rule. DMA therefore proposed making the Rule preempt inconsistent 
state laws.
    The Rule does not preempt state laws that regulate negative 
option marketing except to the extent that such laws directly 
conflict with the provisions of the Rule. Laws that provide 
consumers greater protection than that provided by the Rule do not 
necessarily conflict with the Rule even if they are inconsistent. 
Doubleday, #011, noted at 1, that the effectiveness of the 
Commission's Negative Option Rule has helped avoid a proliferation 
of conflicting state laws.
    \54\ Pennsylvania Consumer Protection Law, 73 P.S. 201-1, et 
seq.; Indiana Deceptive Consumer Sales Act, Ind. Code 24-5-0.5-1, et 
seq.; Texas Deceptive Trade Practices-Consumer Protection Act, Texas 
Bus. & Comm. Code Ann. 17.41, et seq.
    \55\ E.g., Hosiery Corp of America (multiple cites), e.g., No. 
CVOC9704299D (4th Judicial District of the State of Idaho, Ada 
County, Aug. 2, 1997) and No. 97-08373 (261st Judicial District of 
Travis County, Texas, July 23, 1997) (company signed Assurance of 
Discontinuance/Assurance of Voluntary Compliance settling 
allegations by eleven states that it failed to disclose clearly and 
conspicuously material conditions of free offer and continuity plan 
for hosiery).
---------------------------------------------------------------------------

E. Industry Self-Regulation

    Finally, industry self-regulation may provide an additional 
mechanism to police deceptive negative option marketing techniques that 
are not covered by the Commission's Rule. It is in the interest of the 
direct marketing industry to have products and services meet the 
consumer's expectations so that a company can establish a long-standing 
relationship with the consumer. The Direct Marketing Association, 
recognizing that consumers misled by direct marketing promotions may be 
reluctant to respond to such promotions in the future, has established 
a process for handling complaints about ethical business practices. 
Examples of matters handled by DMA's Committee on Ethical Business 
Practices include an offer made for a continuity program in which 
material details of the offer were not as conspicuous as other parts of 
the offer.\56\
---------------------------------------------------------------------------

    \56\ Case Report From The Direct Marketing Association's 
Committee on Ethical Business Practice, Vol. 1, No. 4 (December 
1997).
---------------------------------------------------------------------------

V. The Negative Option Rule and New Technologies

    Because many companies that operate negative option plans are now 
posting promotional materials on the Internet to solicit membership, 
the Commission solicited comment on the effect of changes in technology 
on the Rule, including the use of e-mail and the Internet. The 
Commission received five comments on this issue.\57\ The comments 
stated that subscribers to prenotification negative option plans can 
now order or reject merchandise by telephone, e-mail, and the Internet, 
rather than by returning prenotification forms by mail.\58\ The 
comments also stated that the Rule is ``media neutral'' or easily 
adaptable to these technologies.\59\
---------------------------------------------------------------------------

    \57\ DMA, #008, at 5; Columbia House, #013, at 1; BOMC, #002, at 
1-2; Doubleday, #011, at 1; BMG, #014, at 2.
    \58\ Columbia House, #013, at 1.
    \59\ BOMC, #002, at 1-2; DMA, #008, at 5; Doubleday, #011, at 1; 
Columbia House, #013, at 1; BMG, #014, at 2.
---------------------------------------------------------------------------

    The Negative Option Rule covers all promotional materials that 
contain a means for consumers to subscribe to prenotification negative 
option plans, including those that are disseminated through newer 
technologies, such as the Internet, e-mail, or CD-ROM.
    Promotional materials posted on the Internet, distributed via e-
mail, or on CD-ROM must therefore, make all the disclosures required by 
the Rule in a clear and conspicuous manner. Sellers that operate 
prenotification negative option plans using these technologies must 
also comply with all other Rule requirements. The Commission is 
currently considering issues related to the Internet and other new 
technologies with respect to the Negative Option Rule, as well as other 
Commission rules and guides, including the factors it would consider in 
evaluating the effectiveness of advertising disclosures. The Commission 
will provide more information about the Rule's application to these new 
technologies at a later date.

VI. Technical, Non-Substantive Amendments to the Rule

    The Commission has determined to adopt technical, non-substantive 
amendments to the Negative Option Rule. First, the Commission deletes 
the Note after section 425(b)(5). The Note simply referenced a separate 
proposed trade regulation rule involving billing practices arising out 
of the administration of customer accounts by credit card issuers and 
other retail establishments. That proposed rule was indefinitely 
postponed, and then withdrawn when it was superseded by the Fair Debt 
Collection Practices Act, 91 Stat. 874, 15 U.S.C. 1692-1692o, as 
amended. The reference is therefore obsolete. Second, the Commission 
amends two paragraphs of Section 425.1 of the Rule by changing 
references to ``in commerce'' to read ``in or affecting commerce'' to 
conform the language of the Rule with the current language of section 5 
of the FTC Act, 15 U.S.C. 45, and by changing references to ``an unfair 
method of competition and an unfair to deceptive act or practice'' to 
``an unfair or deceptive act or practice'' to conform the language of 
the Rule to the language of section 18 of the FTC Act, 15 U.S.C. 57a. 
Finally, the Commission amends the title of the Rule to read ``Use of 
Prenotification Negative Option Plans'' to make the title more 
accurately describe the Rule's coverage.
    Because these amendments are purely technical and non-substantive, 
they are exempt from the rulemaking procedures specified in section 18 
of the FTC Act.\60\ Further, because the amendments simply delete an 
obsolete and unnecessary Note, conform the language of the Rule to the 
FTC Act, and clarify the Rule's coverage in the title of the Rule, the 
Commission has determined that notice and comment are unnecessary under 
the Administrative Procedure Act (``APA''). The Commission, therefore, 
has omitted notice and comment for good cause as provided by section 
553(b)(B) of the APA, 5 U.S.C. 553(b)(B). The amendments are effective 
today. Because the amendments are technical, and non-substantive, 
section 553(d) of the APA, 5 U.S.C. 553(d), which requires publication 
or service of a substantive rule not less than 30 days before its 
effective date, does not apply.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 57a(d)(2)(B), 16 CFR 1.15(b).
---------------------------------------------------------------------------

VII. Regulatory Flexibility Act

    Because these amendments are exempt from the notice and comment 
provisions of section 553(b) of the APA, the Regulatory Flexibility Act 
(``RFA''), 5 U.S.C. 601 et seq., does not apply. Nevertheless, the 
Commission has considered whether the amendments could have any effect 
on small entities. These technical, non-substantive amendments do not 
change the substantive requirements of the Rule in any manner, and do 
not impose any new requirements on sellers, large or small. 
Accordingly, this notice does not

[[Page 44562]]

contain a regulatory analysis under section 604 of the RFA, 5 U.S.C. 
604.

VIII. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA''), 44 U.S.C. 3501 et seq., 
requires government agencies, before promulgating rules or other 
regulations that require ``collections of information'' (i.e., 
recordkeeping, reporting, or third-party disclosure requirements), to 
obtain approval from the Office of Management and Budget (``OMB''), 44 
U.S.C. 3502. The Commission currently has OMB clearance for the Rule's 
information collection requirements (OMB No. 3084-0104). The amendment 
will not impose any additional information collection requirements, so 
OMB approval is unnecessary.

List of Subjects in 16 CFR Part 425

    Trade practices.

Text of Amendments

PART 425--USE OF PRENOTIFICATION NEGATIVE OPTION PLANS

    1. The authority citation for part 425 continues to read as 
follows:

    Authority: 15 U.S.C. 41-58.

    2. The heading of Part 425 is revised to read as set forth above.


Sec. 425.1  [Amended]

    3. In Sec. 425.1, the Note following paragraph (b)(5) is removed.
    4. Section 425.1 is amended by revising the introductory text of 
paragraphs (a) and (b) to read as follows:


Sec. 425.1  The rule.

    (a) In connection with the sale, offering for sale, or distribution 
of goods and merchandise in or affecting commerce, as ``commerce'' is 
defined in the Federal Trade Commission Act, it is an unfair or 
deceptive act or practice, for a seller in connection with the use of 
any negative option plan to fail to comply with the following 
requirements:
* * * * *
    (b) In connection with the sale or distribution of goods and 
merchandise in or affecting commerce, as ``commerce'' is defined in the 
Federal Trade Commission Act, it shall constitute an unfair or 
deceptive act or practice for a seller in connection with the use of 
any negative option plan to:
* * * * *
    By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 98-22446 Filed 8-19-98; 8:45 am]
BILLING CODE 6750-01-M