[Federal Register Volume 59, Number 242 (Monday, December 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31128]
[[Page Unknown]]
[Federal Register: December 19, 1994]
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FEDERAL TRADE COMMISSION
[File No. 922 3021]
Gateway Educational Products, Ltd., et al.; Proposed Consent
Agreement With Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed Consent Agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
prohibit, among other things, a California-based corporation and two
officers from making reading and comprehension claims for their
``Hooked on Phonics'' reading program or any other educational program
or product without possessing and relying upon competent and reliable
substantiating evidence. In addition, it would prohibit them from
representing that any endorsement represents the typical or ordinary
experience of consumers with any educational program or product without
possessing and relying upon competent and reliable substantiating
evidence.
DATES: Comments must be received on or before February 17, 1995.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT:
Joel Winston or Toby Levin, FTC/S-4002, Washington, DC 20580. (202)
326-3153 or 326-3156.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 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
Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR
4.9(b)(6)(ii)).
In the matter of: Gateway Educational Products, Ltd., a
corporation, and John Shanahan and John Herlihy, individually and as
officers of said corporation. File No. 9223021.
Agreement Containing Consent Order To Cease and Desist
The Federal Trade Commission having initiated an investigation of
certain acts and practices of Gateway Educational Products, Ltd., a
corporation, and John Shanahan and John Herlihy, individually and as
officers of said corporation (``proposed respondents''), and it now
appearing that proposed respondents are willing to enter into an
agreement containing an order to cease and desist from the use of the
acts and practices being investigated.
It is hereby agreed by and between Gateway Educational Products,
Ltd., by its duly authorized officer, and John Shanahan and John
Herlihy, individually and as officers of said corporation, and their
attorneys, and counsel for the Federal Trade Commission that:
1. Proposed respondent Gateway Educational Products, Ltd., is a
corporation organized, existing, and doing business under and by virtue
of the laws of the State of Delaware with its office and principal
place of business located at 1050 Katella Ave., Suite D, Orange,
California 92667.
Proposed respondents John Shanahan and John Herlihy are officers of
said corporation. They formulate, direct and control the policies, acts
and practices of said corporation and their address is the same as that
of said corporation.
2. Proposed respondents admit all the jurisdictional facts set
forth in the draft of complaint.
3. Proposed respondents waive:
(a) Any further procedural steps;
(b) The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law; and
(c) All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement.
4. This agreement shall not become part of the public record of the
proceeding unless and until it is accepted by the Commission. If this
agreement is accepted by the Commission, it, together with the draft of
complaint contemplated thereby, will be placed on the public record for
a period of sixty (60) days and information in respect thereto publicly
released. The Commission thereafter may either withdraw its acceptance
of this agreement and so notify the proposed respondents, in which
event it will take such action as it may consider appropriate, or issue
and serve its complaint (in such form as the circumstances may require)
and decision, in disposition of the proceeding.
5. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondents that the law has been
violated as alleged in the draft of complaint, or that the facts as
alleged in the draft of complaint, other than the jurisdictional facts,
are true.
6. This agreement contemplates that, if it is accepted by the
Commission, and if such acceptance is not subsequently withdrawn by the
Commission pursuant to the provisions of Sec. 2.34 of the Commission's
rules, the Commission may, without further notice to proposed
respondents, (1) issue its complaint corresponding in form and
substance with the draft of complaint and its decision containing the
following order to cease and desist in disposition of the proceeding
and (2) make information public in respect thereto. When so entered,
the order to cease and desist shall have the same force and effect and
may be altered, modified, or set aside in the same manner and within
the same time provided by statute for other orders. The order shall
become final upon service. Delivery by the U.S. Postal Service of the
complaint and decision containing the agreed-to-order to proposed
respondents' address as stated in this agreement shall constitute
service. Proposed respondents waive any right they may have to any
other manner of service. The complaint may be used in construing the
terms of the order, and no agreement, understanding, representation, or
interpretation not contained in the order or the agreement may be used
to vary or contradict the terms of the order.
7. Proposed respondents have read the proposed complaint and order
contemplated hereby. They understand that once the order has been
issued, they will be required to file one or more compliance reports
showing that they have fully complied with the order. Proposed
respondents further understand that they may be liable for civil
penalties in the amount provided by law for each violation of the order
after it becomes final.
Order
Definitions
For purposes of this order, the following definitions shall apply:
A. ``HOP'' means the reading program known as ``Hooked on Phonics/
SRA Reading Power'' marketed by Gateway Educational Products, Ltd.
B. ``Educational program or product'' means any program of product
that provides instruction in any field of study, including but not
limited to any aspect of reading.
C. ``Competent and reliable scientific evidence'' means tests,
analyses, research, studies, or other evidence based on the expertise
of professionals in the relevant area, 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.
I.
It is ordered that respondents Gateway Educational Products, Ltd.,
a corporation, its successors and assigns, and its officers, and John
Shanahan and John Herlihy, individually and as officers of said
corporation, and respondents' agents, representatives, and employees,
directly or through any corporation, subsidiary, division or other
device, in connection with the manufacturing, labelling, advertising,
promotion, offering for sale, sale, or distribution of HOP or any other
educational program or product in or affecting commerce, as
``commerce'' is defined in the Federal Trade Commission Act, do
forthwith cease and desist from representing, in any manner, directly
or by implication, that such program or product:
A. Can or will quickly and easily teach persons with reading
problems or disabilities to read, regardless of the nature of the
problem or disability;
B. Is effective for teaching persons with learning disabilities,
including dyslexia and attention deficit disorders, to read;
C. Can or will cause users with reading problems or disabilities to
achieve significant improvement in reading levels or classroom grades;
D. Is effective for teaching persons in a home setting to read,
without the need for additional assistance such as a teacher or tutor;
E. Is effective for teaching reading comprehension skills;
F. Has helped nearly one million or any other number of students to
learn to read; or
G. Provides any other educational benefits,
unless at the time of making such representation, respondents possess
and rely upon competent and reliable evidence, which when appropriate
must be competent and reliable scientific evidence, that substantiates
such representation.
II
It is further ordered that respondents Gateway Educational
Products, Ltd., a corporation, its successors and assigns, and its
officers, and John Shanahan and John Herlihy, individually and as
officers of said corporation, and respondents' agents, representatives,
and employees, directly or through any corporation, subsidiary,
division or other device, in connection with the manufacturing,
labelling, advertising, promotion, offering for sale, sale, or
distribution of any educational program or product in or affecting
commerce, as ``commerce'' is defined in the Federal Trade Commission
Act, do forthwith cease and desist from representing, directly or by
implication, that any endorsement (as ``endorsement'' is defined in 16
CFR 255.0(b)) of the program or product represents the typical or
ordinary experience of members of the public who use the program or
product, unless at the time of making such representation, respondents
possess and rely upon competent and reliable evidence, which when
appropriate must be competent and reliable scientific evidence, the
substantiates such representation.
III
It is further ordered that respondents Gateway Educational
Products, Ltd., a corporation, its successors and assigns, and its
officers, and John Shanahan and John Herlihy, individually and as
officers of said corporation, shall for five (5) years after the date
of the last dissemination to which they pertain, maintains and upon
request make available to the Federal Trade Commission or its staff for
inspection and copying:
A. Any advertisement making any representation covered by this
order;
B. All materials that were relied upon by respondents in
disseminating any representation covered by this order; and
C. All reports, tests, studies, surveys, demonstrations or other
evidence in any respondent's possession or control that contradict,
qualify, or call into question such representation, or the basis upon
which respondents relied for such representation, including complaints
from consumers.
IV
It is further ordered that respondent Gateway Educational Products,
Ltd., its successors and assigns, shall:
A. Within thirty (30) days after service of this order, provide a
copy of this order to each of its current principals, officers,
directors, and managers, and to all personnel, agents, and
representatives having sales, advertising, or policy responsibility
with respect to the subject matter of this order; and
B. For a period of five (5) years from the date of entry of this
order, provide a copy of this order to each of its principals,
officers, directors, and managers, and to all personnel, agents, and
representatives having sales, advertising, or policy responsibility
with respect to the subject matter of this order within three (3) days
after the person commences his or her responsibilities.
V
It is further ordered that respondent Gateway Educational Products,
Ltd., its successors and assigns, shall notify the Federal Trade
Commission at least thirty (30) days prior to any proposed change in
its corporate structure, including but not limited to dissolution,
assignment, or sale resulting in the emergence of a successor
corporation, the creation or dissolution of subsidiaries or affiliates,
the planned filing of a bankruptcy petition, or any other change in the
corporation that may affect compliance obligations arising out of this
order.
VI
It is further ordered that respondents John Shanahan and John
Herlihy shall, for a period of ten (10) years from the date of entry of
this order, notify the Commission within thirty (30) days of the
discontinuance of their present business or employment with respondent
Gateway Educational Products, Ltd., or its successors and assigns, and
of their affiliation with any new business or employment in connection
with the manufacturing, labelling, advertising, promotion, offering for
sale, sale, or distribution of any educational program or product. Each
notice of affiliation with any new business or employment shall include
the respondent's new business address and telephone number, current
home address, and a statement describing the nature of the business or
employment and his duties and responsibilities.
VII
It is further ordered that respondents shall, within sixty (60)
days after service of this order, and at such other times as the
Federal Trade Commission may require, file with the Commission a
report, in writing, setting forth in detail the manner and form in
which they have complied with this order.
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission has accepted an agreement to a
proposed consent order from Gateway Educational Products, Ltd.
(``Gateway''), and John Shanahan and John Herlihy, officers of Gateway.
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 comments received and will decide whether it should
withdraw from the agreement or make final the agreement's proposed
order.
This matter concerns the ``Hooked on Phonics'' reading program
(``HOP''). The Commission's proposed complaint alleges that the
respondents represented in their advertisements and promotional
materials that HOP will quickly and easily teach persons with reading
problems or disabilities to read, regardless of the nature of the
problem or disability; is effective for teaching persons with learning
disabilities, including dyslexia and attention deficit disorders, to
read; will cause users with reading problems or disabilities to achieve
significant improvement in reading levels and classroom grades; is
effective for teaching persons in a home setting to read, without the
need for additional assistance such as a teacher or tutor; is effective
for teaching reading comprehension skills; has helped nearly one
million students to learn to read at home; and that testimonials or
endorsements appearing in the HOP advertising reflect consumers'
typical or ordinary experiences using HOP. The complaint alleges that
the respondents falsely represented that they relied upon a reasonable
basis for these representations.
The proposed consent order contains provisions designed to prevent
the respondents from engaging in similar acts and practices in the
future. Part I requires respondents to possess adequate substantiation
for the HOP efficacy claims alleged in the complaint, as well as for
any claims that any educational program or product will be effective
for teaching reading or provides any other educational benefit. The
substantiation level required is competent and reliable evidence, which
when appropriate must be competent and reliable scientific evidence.
Part II of the proposed order prohibits the respondents, in
advertising any educational program or product, from representing that
any endorsement represents the typical experience of consumers who use
the program or product, unless the claim is substantiated.
Parts III through VII relate to the respondents' obligations to
retain substantiation materials; to notify the Commission of changes in
corporate identity, or in the case of the individuals, employment; to
distribute copies of the order to certain employees; and to file
compliance reports with the Commission.
The purpose of this analysis is to facilitate public comment on the
proposed order, and it is not intended to constitute an official
interpretation of the agreement and proposed order or to modify in any
way their terms.
Donald S. Clark,
Secretary.
[FR Doc. 94-31128 Filed 12-16-94; 8:45 am]
BILLING CODE 6750-01-M
