2011-6491. Legacy Learning Systems, Inc.; Analysis of Proposed Consent Order To Aid Public Comment

AGENCY:

Federal Trade Commission.

ACTION:

Proposed Consent Agreement.

SUMMARY:

The consent agreement in this matter settles alleged violations of federal law prohibiting unfair or deceptive acts or practices or unfair methods of competition. The attached Analysis to Aid Public Comment describes both the allegations in the draft complaint and the terms of the consent order—embodied in the consent agreement—that would settle these allegations.

DATES:

Comments must be received on or before April 15, 2011.

ADDRESSES:

Interested parties are invited to submit written comments electronically or in paper form. Comments should refer to “Legacy Learning Systems, File No. 102 3055” to facilitate the organization of comments. Please note that your comment—including your name and your state—will be placed on the public record of this proceeding, including on the publicly accessible FTC Web site, at http://www.ftc.gov/​os/​publiccomments.shtm.

Because comments will be made public, they should not include any sensitive personal information, such as an individual's Social Security Number; date of birth; driver's license number or other state identification number, or foreign country equivalent; passport number; financial account number; or credit or debit card number. Comments also should not include any sensitive health information, such as medical records or other individually identifiable health information. In addition, comments should not include any “[t]rade secret or any commercial or financial information which is obtained from any person and which is privileged or confidential. * * *,” as provided in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and Commission Rule 4.10(a)(2), 16 CFR 4.10(a)(2). Comments containing material for which confidential treatment is requested must be filed in paper form, must be clearly labeled “Confidential,” and must comply with FTC Rule 4.9(c), 16 CFR 4.9(c).^[1]

Because paper mail addressed to the FTC is subject to delay due to heightened security screening, please consider submitting your comments in electronic form. Comments filed in electronic form should be submitted by using the following weblink: https://ftcpublic.commentworks.com/​ftc/​legacylearningsystems and following the instructions on the web-based form. To ensure that the Commission considers an electronic comment, you must file it on the web-based form at https://ftcpublic.commentworks.com/​ftc/​legacylearningsystems. If this Notice appears at http://www.regulations.gov/​search/​index.jsp,, you may also file an electronic comment through that Web site. The Commission will consider all comments that regulations.gov forwards to it. You may also visit the FTC Web site at http://www.ftc.gov/​ to read the Notice and the news release describing it.

A comment filed in paper form should include the “Legacy Learning Systems, File No. 102 3055” reference both in the text and on the envelope, and should be mailed or delivered to the following address: Federal Trade Commission, Office of the Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, NW., Washington, DC 20580. The FTC is requesting that any comment filed in paper form be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

The Federal Trade Commission Act (“FTC Act”) and other laws the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments that it receives, whether filed in paper or electronic form. Comments received will be available to the public on the FTC Web site, to the extent practicable, at http://www.ftc.gov/​os/​publiccomments.shtm. As a matter of discretion, the Commission makes every effort to remove home contact information for individuals from the public comments it receives before placing those comments on the FTC Web site. More information, including routine uses permitted by the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/​ftc/​privacy.shtm.

FOR FURTHER INFORMATION CONTACT:

Stacey Ferguson (202-326-2361) or Victor DeFrancis (202-326-3495), FTC Bureau of Consumer Protection, 600 Pennsylvania Avenue, NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Pursuant to section 6(f) of the Federal Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and § 2.34 the Commission Rules of Practice, 16 CFR 2.34, notice is hereby given that the above-captioned 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 thirty (30) days. The following Analysis to Aid Public Comment describes the terms of the consent agreement, and the allegations in the complaint. An electronic copy of the full text of the consent agreement package can be obtained from the FTC Home Page (for March 15, 2010), on the World Wide Web, at http://www.ftc.gov/​os/​actions.shtm. A paper copy can be obtained from the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, DC 20580, either in person or by calling [phone].

Public comments are invited, and may be filed with the Commission in either paper or electronic form. All comments should be filed as prescribed in the ADDRESSES section above, and must be received on or before the date specified in the DATES section.

Analysis of Agreement Containing Consent Order To Aid Public Comment

The Federal Trade Commission (“FTC” or “Commission”) has accepted, subject to final approval, an agreement containing a consent order from Legacy Learning Systems, Inc. and Lester Gabriel Smith, an officer and director of the corporation (“respondents”).

The proposed consent order (“proposed order”) has been placed on the public record for thirty (30) days for receipt of comments by interested persons. Comments received during this period will become part of the public record. After thirty (30) days, the Commission will again review the agreement and the comments received, and will decide whether it should withdraw from the agreement and take appropriate action or make final the agreement's proposed order.

The practices challenged in this case relate to the advertising of respondents' instructional courses via an online affiliate marketing program. According to the Commission's complaint, many of respondents' affiliates promoted respondents' instructional courses through positive endorsements in articles, blog posts, or other online editorial copy that contained hyperlinks to respondents' Web site in close proximity to the endorsements. For each sale of an instructional course to a consumer directed to respondents' Web site by an affiliate, respondents paid the affiliate a commission of 20 to 45 percent of the purchase price. The affiliates often posted endorsements about respondents' instructional courses using statements that gave readers the impression the endorsements had been submitted by ordinary consumers or independent reviewers. Respondents failed to implement a reasonable monitoring program to ensure that these postings clearly and prominently disclosed the compensated nature of the affiliates' relationship to respondents.

The Commission's complaint alleges that respondents violated Section 5 of the FTC Act by disseminating or causing to be disseminated reviews of their instructional courses that misrepresented that they were those of independent, ordinary consumers. The complaint further alleges that respondents violated Section 5 by failing to disclose, or disclose adequately, that the affiliates receive financial compensation from the sale of respondents' products.

Part I of the proposed order prohibits respondents, in connection with the advertising of any product or service, from misrepresenting the status of any user or endorser of a product or service, including, but not limited to, misrepresenting that the user or endorser is an independent user or ordinary consumer of the product or service.

Part II prohibits respondents from making any representation about any user or endorser of a product or service unless they disclose, clearly and prominently, a material connection, when one exists, between the user or endorser of the product or service and any other party involved in promoting that product or service. The proposed order defines “material connection” as any relationship that materially affects the weight or credibility of any endorsement and would not be reasonably expected by consumers.

Part III requires respondents to take immediate steps to ensure compliance with Parts I and II of the order, including maintaining a system to review and monitor their affiliate representations and disclosures. The proposed order requires respondents to determine, on a semi-annual basis, their top fifty (50) revenue-generating affiliates, and then monitor, on a monthly basis, the Web sites of those affiliates and the Web sites of a random sample of fifty (50) of their remaining affiliates. Part III also requires respondents to terminate any affiliate who engages in conduct inconsistent with Parts I and II of the order and to maintain reports regarding compliance with Part III of the order.

Part IV requires respondents to serve copies of the order to prospective affiliates prior to their entry into respondents' affiliate program, and to current affiliates within ten days of the date of service of the order.

Part V requires respondents to pay to the Commission a sum of $250,000. This payment may be used in the Commission's sole discretion to provide appropriate relief, which may include, but is not limited to, the recision of contracts, payment of damages, and/or public notification respecting the unfair or deceptive acts or practices alleged in the complaint. If the Commission determines that such relief is wholly or partially impracticable, any or all such funds shall be paid to the United States Treasury.

Parts VI through X of the proposed order require respondents to: Keep copies of relevant consumer complaints and inquiries, documents demonstrating order compliance, and any documents relating to any representation covered by this order; provide copies of the order to certain of their personnel; notify the Commission of changes in corporate structure that might affect compliance obligations under the order; notify the Commission of changes in corporate business or employment as to respondent Lester Gabriel Smith individually; and file compliance reports with the Commission. Part XI provides that the order will terminate after twenty (20) years, with certain exceptions.

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.

By direction of the Commission.

Donald S. Clark,

Secretary.

Footnotes

1.  The comment must be accompanied by an explicit request for confidential treatment, including the factual and legal basis for the request, and must identify the specific portions of the comment to be withheld from the public record. The request will be granted or denied by the Commission's General Counsel, consistent with applicable law and the public interest. See FTC Rule 4.9(c), 16 CFR 4.9(c).