[Federal Register Volume 61, Number 75 (Wednesday, April 17, 1996)]
[Notices]
[Pages 16798-16803]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9280]
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FEDERAL TRADE COMMISSION
[File No. 942-3171]
Zygon International, Inc.; Dane Spotts; 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, a Redmond,
Washington-based company and its owner from making any claims about the
performance, benefits, efficacy, or safety of any product or service
they market without having competent and reliable substantiation to
back up the claims. Zygon would also be required to pay up to $195,000
in consumer refunds. The Consent Agreement settles allegations stemming
from Zygon's marketing of five products: the ``Learning Machine,''
``SuperMind,'' ``SuperBrain Nutrient Program,'' ``Fat Burner Pills,''
and ``Day and Night Eyes.''
DATES: Comments must be received on or before June 17, 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:
Joel Winston, Federal Trade Commission, S-4002, 6th Street and
Pennsylvania Avenue, NW, Washington, DC. 20580. (202) 326-3153.
Lesley Anne Fair, Federal Trade Commission, S-4002, 6th Street and
Pennsylvania Avenue, NW, Washington, DC. 20580. 326-3081.
Dean C. Forbes, Federal Trade Commission, S-4002, 6th Street and
Pennsylvania Avenue, NW, Washington, DC. 20580. (202) 326-2831.
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 to Cease and Desist
In the Matter of Zygon International, Inc., a corporation, and
Dane Spotts, individually and as an officer of said corporation.
The Federal Trade Commission having initiated an investigation of
certain acts and practices of Zygon International, Inc., a corporation,
and Dane Spotts, individually and as an officer 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 Zygon International, Inc., by
its duly authorized officer, and Dane Spotts, individually and as an
officer of said corporation, and their attorney, and counsel for the
Federal Trade Commission that:
1. Proposed respondent Zygon International, Inc., is a corporation
organized, existing, and doing business under and by virtue of the laws
of the State of Washington, with its principal office of place of
business at 18368 Redmond Way, Redmond WA 98052.
Proposed respondent Dane Spotts is an officer of said corporation.
He formulates, directs and controls the policies, acts and practices of
said corporation and his 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 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 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.
[[Page 16799]]
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
I.
It is ordered That respondents Zygon International, Inc., a
corporation, its successors and assigns, and its officers, and Dane
Spotts, individually and as an officer of said corporation, and
respondents' agents, representatives, and employees, directly or
through any corporation, subsidiary, division or other device, in
connection with the manufacturing, labeling, advertising, promotion,
offering for sale, sale, or distribution of any product or program 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 the use of such product or
program can or will have any effect on the user's:
A. Health or bodily structure or function, including but not
limited to sleep; weight, bodyfat content, or body shape or tone;
immune system; eyesight or night vision; stress; or jet lag; or
B. Smoking behavior, unless at the time of making such
representation, respondents possess and rely upon competent and
reliable scientific evidence that substantiates such representation.
For purposes of this Order, ``competent and reliable scientific
evidence'' shall mean tests, analyses, research, studies, or other
evidence based on the expertise of professionals in the relevant area,
that 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.
II.
It is further ordered That respondents Zygon International, Inc., a
corporation, its successors and assigns, and its officers, and Dane
Spotts, individually and as an officer of said corporation, and
respondents' agents, representatives, and employees, directly or
through any corporation, subsidiary, division or other device, in
connection with the manufacturing, labeling, advertising, promotion,
offering for sale, sale, or distribution of any product or program 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 the use of such product or
program can or will have any effect on the user's cognitive or mental
functions or skills, including but not limited to reading, vocabulary,
learning, foreign language, verbal or math skills; intelligence or I.Q.
or that of the user's children; attention or concentration levels; or
memory, 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.
III.
It is further ordered That respondents Zygon International, Inc., a
corporation, its successors and assigns, and its officers, and Dane
Spotts, individually and as an officer of said corporation, and
respondents' agents, representatives, and employees, directly or
through any corporation, subsidiary, division or other device, in
connection with the manufacturing, labeling, advertising, promotion,
offering for sale, sale, or distribution of any product or program in
or affecting commerce, as ``commerce'' is defined in the Federal Trade
Commission Act, do forthwith cease and desist from making any
representation, in any manner, directly or by implication:
A. Regarding the performance, benefits, efficacy, or safety of any
food, drug, or device, as those terms are defined in Section 15 of the
Federal Trade Commission Act, 15 U.S.C. 55, or dietary supplement,
unless, at the time of making such representation, respondents possess
and rely upon competent and reliable scientific evidence that
substantiates such representation.
B. Regarding the performance, benefits, efficacy or safety of any
product or service (other than a product or service covered under Part
III.A herein), 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.
IV.
It is further ordered That respondents Zygon International, Inc., a
corporation, its successors and assigns, and its officers, and Dane
Spotts, individually and as an officer of said corporation, and
respondents' agents, representatives, and employees, directly or
through any corporation, subsidiary, division or other device, in
connection with the manufacturing, labeling, advertising, promotion,
offering for sale, sale, or distribution of any product or program in
or affecting commerce, as ``commerce'' is defined in the Federal Trade
Commission Act, do forthwith cease and desist from misrepresenting,
directly or by implication, the existence, contents, validity, results,
conclusions, or interpretations of any test or study.
V.
It is further ordered That respondents Zygon International, Inc., a
corporation, its successors and assigns, and its officers, and Dane
Spotts, individually and as an officer of said corporation, and
respondents' agents, representatives, and employees, directly or
through any corporation, subsidiary, division or other device, in
connection with the manufacturing, labeling, advertising, promotion,
offering for sale, sale, or distribution of any product or program in
or affecting commerce, as ``commerce'' is defined in the Federal Trade
Commission Act, shall forthwith cease and desist from:
A. Representing, directly or by implication, that consumers can
receive a refund, through such terms as ``money-back guarantee'' or
similar terms, unless respondents refund the full purchase price at the
consumer's request in accordance with the provisions of Part V.B
herein;
B. Failing to refund the full purchase price in accordance with the
terms of a guarantee, warranty or refund policy within a reasonable
period of time after the consumer complies with the conditions for
receiving a refund that are stated clearly and prominently in the
advertisement or solicitation. For purposes of this Part, a
``reasonable period of time'' shall be:
1. That period of time specified in respondents' advertisement or
solicitation if such period is clearly and prominently disclosed in the
advertisement or solicitation; or
2. If no period of time is clearly and prominently disclosed in the
advertisement or solicitation, a period of thirty (30) days following
the date that the consumer complies with the conditions for receiving a
refund that are stated clearly and prominently in the advertisement or
solicitation.
VI.
It is further ordered That respondents Zygon International, Inc., a
corporation, its successors and assigns, and its officers, and Dane
Spotts, individually and as an officer of said corporation, are jointly
and severally liable for consumer redress as provided herein:
A. Not later than the date this Order becomes final, respondents
shall deposit into an escrow account to be established
[[Page 16800]]
by the Commission for the purpose of receiving payments due under the
provisions of this Order (``first escrow account''), the sum of
$150,000. These funds, together with accrued interest, less any amount
necessary to pay the costs of administering the first escrow account
and redress program herein, shall be used by the Commission or its
representative to provide refunds to any consumers:
1. Who, between the dates of October 15, 1995, and the date this
Order becomes final, have returned or return any product(s) purchased
from respondents to respondents for a refund within thirty days of
their receipt of the product(s); and
2. Who have not previously received either a full refund or a full
credit from a credit card issuer for the purchase of the product(s).
B. Any funds remaining in the first escrow account after refunds
have been paid to consumers under Part VI.A herein, in the discretion
of the Commission:
1. Shall be used to provide redress to purchasers of the Learning
Machine who request a refund not later than sixty (60) days after the
date this Order becomes final and have not previously received either a
refund pursuant to Part VI.A herein, a full refund from respondents, or
a full credit from a credit card issuer for the purchase of the
product(s);
2. Shall be used to provide redress to purchasers who, prior to
October 15, 1995, returned, or contacted respondents for authorization
to return, any product(s) purchased from respondents to respondents for
a refund within thirty (30) days of their receipt of the product(s);
have not previously received either a full refund or a full credit from
a credit card issuer for the purchase of the product(s); and whose
identities become known to respondents or the Commission within sixty
(60) days after the date this Order becomes final;
3. Shall be used to pay any attendant costs of administration; and/
or
4. Shall be paid to the United States Treasury.
C. At any time after this Order becomes final, the Commission may
direct the escrow agent to transfer funds from the first escrow
account, including accrued interest, to the Commission to be
distributed as herein provided. Respondents shall be notified as to how
the funds are distributed, but shall have no right to contest the
manner of distribution chosen by the Commission, provided that the
manner of distribution chosen by the Commission comports with the terms
of this Agreement. The Commission, or its representative, shall in its
sole discretion select the escrow agent. Costs associated with the
administration of the first escrow account and refund program provided
herein, if any, shall be paid from funds in the first escrow account.
D. Respondents relinquish all dominion, control and title to the
funds paid into the first escrow account, and all legal and equitable
title to the funds shall vest in the Treasurer of the United States and
in the designated purchasers. Respondents shall make no claim to or
demand for the return of the funds, directly or indirectly, through
counsel or otherwise; and in the event of bankruptcy of respondents,
respondents acknowledge that the funds are not part of the debtor's
estate, nor does the estate have any claim or interest therein.
E. Not later than the date this Order becomes final, respondents
shall deposit into a second escrow account to be established by the
Commission for the purpose of receiving payments due under the
provisions of this Order (``second escrow account''), the sum of
$45,000. These funds, together with accrued interest, less any amount
necessary to pay the costs of administering the escrow account and
redress program herein, shall be used by the Commission or its
representative to provide refunds to consumers if refunds owed to
consumers pursuant to Parts VI.A. and VI.B herein exceed the amount of
money in the first escrow account.
F. At any time after this Order becomes final, the Commission may
direct the escrow agent to transfer funds from the second escrow
account, including accrued interest, to the Commission to be
distributed as herein provided. Respondents shall be notified as to how
the funds are distributed, but shall have no right to contest the
manner of distribution chosen by the Commission, provided that the
manner of distribution chosen by the Commission comports with the terms
of this Agreement. The Commission, or its representative, shall in its
sole discretion select the escrow agent. Costs associated with the
administration of the second escrow account and refund program provided
herein, if any, shall be paid from funds in the second escrow account.
Any funds remaining in the second escrow account after all consumers
have received refunds pursuant to Part VI.A, VI.B.1, VI.B.2, and VI.E
herein shall be returned to respondents. If no funds from the second
escrow account are needed to provide redress to consumers provided
herein, the funds in the second escrow account, together with accrued
interest, shall be returned to respondents within seventy-five (75)
days after the date this Order becomes final. If funds from the second
escrow account are needed to provide refunds to consumers as provided
herein, the funds remaining in the second escrow account, together with
accrued interest, less any amount necessary to pay the costs of
administering the escrow account and redress program herein, shall be
returned to respondents within one hundred twenty (120) days after the
date this Order becomes final.
VII.
It is further ordered That within three (3) days after the date
this Order becomes final, respondents shall, to the extent available,
provide to the Commission, in computer readable form (standard MS-DOS
diskettes or IBM-mainframe compatible tape) and in computer print-out
form, a list of:
A. The name and address of all consumers in the United States who
purchased the Learning Machine;
B. The name, address, and date of refund of all consumers in the
United States who purchased the Learning Machine and received a full
refund from respondents;
C. The name, address, and date of credit of all consumers in the
United States who purchased the Learning Machine and received a full
credit from a credit card issuer for the purchase of the product(s);
and
D. The name, address, and date of refund of all consumers in the
United States who purchased any product(s) from respondents and
received a full refund between October 15, 1993 and October 15, 1995.
VIII.
It is further ordered That for three (3) years after this Order
becomes final, respondents, and their successors and assigns, shall
maintain and upon request make available to the Commission within three
(3) business days:
A. Documents and records demonstrating the manner and form of
respondents' compliance with Part VI of this Order; and
B. Copies of all correspondence and memorialization of other
communications to or from any consumer regarding refunds or requests
for refunds for any product(s) purchased from respondents.
IX.
It is further ordered That for five (5) years after the last date
of dissemination of any representation covered by this Order,
respondents, or their successors
[[Page 16801]]
and assigns, shall maintain and upon request make available to the
Federal Trade Commission or its staff for inspection and copying:
A. All materials that were relied upon in disseminating such
representation; and
B. All tests, reports, studies, surveys, demonstrations, or other
evidence in their possession or control that contradict, qualify, or
call into question such representation, or the basis upon which
respondents relied for such representation, including but not limited
to, including complaints from consumers, and complaints or inquiries
from government organizations.
X.
It is further ordered That respondent Zygon International, Inc.,
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 future 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 responsiblities.
XI.
It is further ordered That respondent Zygon International, Inc.,
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.
It is further ordered That respondent Dane Spotts shall, for a
period of seven (7) years from the date of entry of this Order, notify
the Commission within thirty (30) days of the discontinuance of his
present business or employment and of his affiliation with any new
business or employment involving the advertising, offering for sale,
sale, or distribution of any consumer product or service. 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.
XIII.
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 complaint (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 paragraph in this Order that terminates in less than twenty
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 paragraph.
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 paragraph as
though the complaint was never 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.
XIV.
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.
Escrow Agreement
Whereas Zygon International, Inc. and Dane Spotts (``Zygon and Mr.
Spotts'') have agreed with the staff of the Federal Trade Commission
(``the staff'') to settle a certain proposed action against them, and
as part of the settlement of the proposed action for alleged violations
of Sections 5(a) and 12 of the Federal Trade Commission Act, it was
agreed that consumer redress will be paid;
Whereas the proposed Agreement Containing Consent Order to Cease
and Desist executed by the parties provides for the payment by Zygon
and Mr. Spotts of: (a) a minimum of $150,000 to be used for consumer
redress or as otherwise specified in the Agreement Containing Consent
Order to Cease and Desist; and (b) should the amount necessary for
consumer redress exceed $150,000, up to an additional $45,000 to be
used for consumer redress or as otherwise specified in the Agreement
Containing Consent Order to Cease and Desist;
Whereas the staff requires as a condition of its recommendation of
the proposed settlement to the Commission that $150,000 be held in
escrow (``first escrow'') and $45,000 be held in a separate escrow
(``second escrow''), pending approval of the settlement by the
Commission, before being disbursed as directed by the terms of the
Agreement Containing Consent Order to Cease and Desist;
Now, therefore, in consideration of the promises and mutual
covenants, agreements, and conditions herein contained, Zygon and Mr.
Spotts and the staff do hereby agree to and with each other as follows:
1. The Federal Trade Commission shall select the Escrow Agent for
the first escrow account. The Escrow Agent shall receive from Zygon and
Mr. Spotts the amount of $150,000, and will hold the same in trust for
designated purchasers of products sold by Zygon and Mr. Spotts
(``designated purchasers''), in accordance with the Agreement
Containing Consent Order to Cease and Desist, for paying any attendant
costs of administration, and for the Treasurer of the United States, by
depositing the same into the Escrow Agent's interest-bearing trustee
account. Zygon and Mr. Spotts will pay such $150,000 by a certified or
cashier's check or cash.
2. It is understood and agreed by the parties to this Escrow
Agreement that, by executing this Escrow Agreement, Zygon and Mr.
Spotts acknowledge that they relinquish all dominion, control and title
to the $150,000, and that all legal and equitable title to the $150,000
vests in designated purchasers, in accordance with the Agreement
Containing Consent Order to Cease and Desist, with remaining funds,
after the payment of any attendant costs of administration, vesting in
the Treasurer of the United States, subject to being divested as
specified in Paragraph 7 of this Escrow Agreement. Unless and until the
first escrow is terminated as provided herein, Zygon and Mr. Spotts
agree to make no claim to or demand the return of the $150,000,
directly or indirectly, through counsel, or otherwise. In the event of
Zygon's and/or Mr. Spotts' bankruptcy, Zygon and
[[Page 16802]]
Mr. Spotts agree to acknowledge by an appropriate written statement to
the bankruptcy court that the $150,000 is not part of their estate(s),
nor do their estate(s) have any claim or interest therein, unless and
until the first escrow is terminated and the $150,000 is returned to
Zygon and Mr. Spotts as specified in Paragraph 7 of this Escrow
Agreement.
3. The Federal Trade Commission shall select the Escrow Agent for
the second escrow account. The Escrow Agent shall receive from Zygon
and Mr. Spotts the amount of $45,000, and will hold the same in trust
for designated purchasers, in accordance with the Agreement Containing
Consent Order to Cease and Desist, and for paying any attendant costs
of administration, by depositing the same into the Escrow Agent's
interest-bearing trustee account. Zygon and Mr. Spotts will pay such
$45,000 by a certified or cashier's check or cash.
4. It is understood and agreed by the parties to this Escrow
Agreement that, by executing this Escrow Agreement, Zygon and Mr.
Spotts acknowledge that they relinquish all dominion, control and title
to that portion of the $45,000 in the second escrow necessary to pay
refunds to designated purchasers and any attendant costs of
administration, and that all legal and equitable title to the portion
of the $45,000 reserved for those designated purchasers vests in those
designated purchasers with remaining funds, after the payment of any
attendant costs of administration, vesting in Zygon and Mr. Spotts,
subject to being divested as specified in Paragraph 7 of this Escrow
Agreement. If no funds in the second escrow account are required to
provide redress to designated purchasers, the second escrow
principal,together with any interest earned on the second escrow
principal during the pendency of the second escrow, less any attendant
costs of administration, shall be returned to Zygon and Mr. Spotts in
accordance with the Agreement Containing Consent Order to Cease and
Desist. If funds in the second escrow account are required to provide
redress to designated purchasers, the remaining second escrow
principal, together with any interest earned on the second escrow
principal during the pendency of the second escrow, shall thereafter be
returned to Zygon and Mr. Spotts, less any attendant costs of
administration, in accordance with the Agreement Containing Consent
Order to Cease and Desist. Unless and until the second escrow is
terminated as provided herein, Zygon and Mr. Spotts agree to make no
claim to or demand the return of that portion of the $45,000 required
to pay designated purchasers, or that portion required for paying any
attendant costs of administration, directly or indirectly, through
counsel, or otherwise. In the event of Zygon's and/or Mr. Spotts'
bankruptcy, Zygon and Mr. Spotts agree to acknowledge by an appropriate
written statement to the bankruptcy court that the portion of the
$45,000 required to pay designated purchasers, or that portion required
for paying any attendant costs of administration, is not part of their
estate(s), nor do their estate(s) have any claim or interest therein,
unless and until the second escrow is terminated and the $45,000 is
returned to Zygon and Mr. Spotts as specified in Paragraph 7 of this
Escrow Agreement.
5. The $150,000 so held in the first escrow and the $45,000 so held
in the second escrow shall be disbursed in accordance with the
Agreement Containing Consent Order to Cease and Desist executed by the
parties, as well as with such other ancillary Federal Trade Commission
regulations or procedures respecting such disbursements as may be
applicable at the time.
6. The first escrow and the second escrow shall be irrevocable, and
the escrow funds, less any amount necessary to pay the cost of
administering the escrow accounts and redress program, shall be used
for no purpose other than payment of the consumer redress as specified
in the Agreement Containing Consent Order to Cease and Desist, except
that the unused portion of the second escrow principal, together with
any interest earned on the second escrow principal during the pendency
of the second escrow, shall be the property of Zygon and Mr. Spotts.
The parties agree, however, that this fact is not and will not be
interpreted as an admission or acknowledgment by either side that any
dominion, title or interest, either legal or equitable, in the portion
of the second escrow principal required to pay redress to designated
purchasers, or to pay any attendant costs of administration, remains in
Zygon and Mr. Spotts. The Escrow Agent shall return such unused portion
of the second escrow principal, together with any interest earned on
the second escrow principal during the pendency of the second escrow,
to Zygon and Mr. Spotts after consumer redress is paid to the
designated purchasers, and the attendant costs of administration are
paid, as specified in the Agreement Containing Consent Order to Cease
and Desist.
7. Except as otherwise provided in Paragraphs 4 and 6 of this
Escrow Agreement regarding the return of the unused portion of the
second escrow principal and any interest earned on the second escrow
principal during the pendency of the second escrow to Zygon and Mr.
Spotts, the Escrow Agent may terminate the first and second escrows and
return the principal and accrued interest from both escrow accounts to
Zygon and Mr. Spotts only if the Agreement Containing Consent Order to
Cease and Desist is not issued within two (2) years from the date the
first and second escrows are created.
8. The parties of this Escrow Agreement expressly agree that in the
event of a dispute, the escrow law of the State of New York shall
apply.
Analysis of Proposed Consent Order to Aid Public Comment
The Federal Trade Commission has accepted an agreement to a
proposed consent order from Zygon International, Inc. (``Zygon''), and
its owner and officer, Dane Spotts.
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 or make final the agreement's proposed
order.
The Commission's complaint in this matter charges respondents with
deceptively advertising five products: the ``Learning Machine'' and the
``SuperMind,'' purported accelerated learning devices; the ``SuperBrain
Nutrient Program,'' a supplement claimed to improve intelligence and
memory; ``Fat Burner'' pills, a purported diet aid; and ``Day and Night
Eyes'' pills, a supplement claimed to improve vision. The complaint
also alleges that in many cases, respondents failed to honor their
advertised money-back guarantee. Ads for the products appeared in
national periodicals such as USA Today, Omni, Longevity, and USAir's
in-flight magazine, as well as in Zygon's ``SuperLife'' catalog and on
the Internet's World Wide Web.
According to the complaint, respondents made unsubstantiated
representations that the Learning Machine enables users to learn
foreign languages overnight, quadruple their reading speed, lose
weight, stop smoking, and improve their vocabulary, memory, math
skills, and learning ability. In addition, respondents claimed that the
device would enable children to learn at a rate of 300% to 500% faster
than their peers.
[[Page 16803]]
The complaint also alleges that respondents made unsubstantiated
representations that the SuperMind enables users to learn foreign
languages overnight, lose weight, and stop smoking; treats stress and
jet lag; improves the functioning of the immune system; increases I.Q.;
gives users the equivalent of eight hours of sleep after twenty minutes
of use; and improves users' ability to learn and retain information.
The complaint further alleges that respondents falsely represented that
the SuperMind has been proven in a university study to teach foreign
languages in one-third the time of traditional methods.
In addition, the complaint alleges that respondents represented
without substantiation that the SuperBrain Nutrient Program improves
users' memory, intelligence, concentration, and cognitive and mental
functions, and that when taken by pregnant women, will enhance the
intelligence of their children. According to the complaint,
respondent's claims that Fat Burner pills could enhance the body's
ability to burn fat and enable users to lose weight were also
unsubstantiated. Regarding Day and Night Eyes pills, the complaint
alleges that respondents made unsubstantiated claims that the product
could improve night blindness and give users clearer vision during the
day.
The complaint also alleges that respondents misrepresented that
consumers who returned products within thirty (30) days would receive a
full refund within a reasonable period of time. According to the
complaint, in numerous instances, refunds were not provided within a
reasonable period of time or at all. These practices are alleged to be
deceptive.
The proposed consent order contains provisions designed to remedy
the violations charged and to prevent respondents from engaging in
similar acts and practices in the future.
Part I of the order requires respondents to possess competent and
reliable scientific evidence to support any claim that a product or
program affects the user's health, bodily structure or function, or
smoking behavior. Part II requires respondents to possess adequate
substantiation for any claims that a product or program affects the
user's cognitive or mental functions, including reading, vocabulary,
learning, foreign languages, math skills, intelligence, I.Q.,
concentration levels, or memory. The substantiation level required is
competent and reliable evidence, which when appropriate must be
competent and reliable scientific evidence.
Part III.A requires respondents to possess competent and reliable
scientific evidence to substantiate performance, benefits, efficacy or
safety claims for foods, drugs, devices, or dietary supplements. Part
III.B requires that similar claims for all other products or services
be supported by competent and reliable evidence, which when appropriate
must be competent and reliable scientific evidence.
Part IV prohibits respondents from misrepresenting the existence,
contents, results, conclusions, or interpretations of any test or
study. Part V requires respondents to honor the terms of any advertised
refund policy, including an obligation to make refunds within a
reasonable period of time.
Part VI outlines a program to give refunds totalling up to $195,000
to eligible consumers. Refunds will be sent to Zygon customers who
returned products for a refund between October 15, 1995 and the date
the order becomes final, but never received a refund. Any remaining
funds may be returned to purchasers of the Learning Machine who seek a
refund from the Commission or respondents within sixty (60) days after
the order is final, and to other purchasers who sought a refund prior
to October 15, 1995, but never received it.
Parts VII through XII and XIV relate to respondents' obligations to
make available to the Commission records concerning consumer refunds
and future substantiation materials; to provide copies of the order to
certain Zygon personnel; to notify the Commission of changes in
corporate structure, or, in the case of the Mr. Spotts, changes in
employment that would involve the advertising, sale, or distribution of
any consumer product or service; and to file compliance reports with
the Commission. Part XIII provides that the order will terminate after
twenty years under certain circumstances.
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. 96-9280 Filed 4-16-96; 8:45 am]
BILLING CODE 6750-01-M
