[Federal Register Volume 60, Number 148 (Wednesday, August 2, 1995)]
[Notices]
[Pages 39396-39399]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18954]
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FEDERAL TRADE COMMISSION
[File No. 942 3294]
J. Walter Thompson USA, Inc.; Proposed Consent Agreement With
Analysis To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: In settlement of alleged violations of federal law prohibiting
unfair acts and practices and unfair methods of competition, this
consent agreement, accepted subject to final Commission approval, would
prohibit, among other things, a New York-based advertising agency,
which prepared advertisements for Jenny Craig, Inc., from claiming that
any weight-loss program is recommended, approved, or endorsed by any
person, group, or other entity, unless it possesses and relies upon
competent and reliable scientific evidence to substantiate the
representation. In addition, the consent agreement prohibits the
respondent from misrepresenting the existence, results, or
interpretations of any test, study, or survey.
DATES: Comments must be received on or before October 2, 1995.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 6th Street and Pennsylvania Avenue NW., Washington, D.C.
20580.
FOR FURTHER INFORMATION CONTACT: Jeffrey Klurfeld or Matthew Gold,
Federal Trade Commission, San Francisco Regional Office, 901 Market
Street, Suite 570, San Francisco, CA 94103. (415) 744-7920.
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
The Federal Trade Commission having initiated an investigation of
certain acts and practices of J. Walter Thompson USA, Inc., a
corporation, and it now appearing that the proposed respondent is
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 J. Walter Thompson USA, Inc., a
corporation, by its duly authorized officer, and its attorney, and
counsel for the Federal Trade Commission that:
1. Proposed respondent J. Walter Thompson USA, Inc. 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 466 Lexington Avenue, New York, New York
10017.
2. Proposed respondent admits all the jurisdictional facts set
forth in the draft of complaint.
3. Proposed respondent waives:
a. Any further procedural steps;
b. The requirement that the Commission's decision contain a
statement of findings of fact and conclusions of law;
c. All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement;
and
d. Any claim under the Equal Access to Justice Act.
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 respondent, 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
[[Page 39397]]
decision, in disposition of the proceeding.
5. This agreement is for settlement purposes only and does not
constitute an admission by proposed respondent of facts, other than
jurisdictional facts, or of violations of law as alleged in the draft
of complaint.
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 respondent, (a) 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 (b) 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
respondent's address as stated in this agreement shall constitute
service. The proposed respondent waives any right it 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. The proposed respondent has read the proposed complaint and
order contemplated hereby. The proposed respondent understands that
once the order has been issued, it will be required to file one or more
compliance reports showing that it has fully complied with the order.
The proposed respondent further understands that it may be liable for
civil penalties in the amount provided by law for each violation of the
order after it becomes final.
Order
For purposes of this order, the term ``diet-related food'' shall
mean any food (as that term is defined in 15 U.S.C. Sec. 55(b)) whose
labeling or advertising makes any claim regarding its weight loss or
weight maintenance benefits.
I
It is ordered that respondent, J. Walter Thompson USA, Inc., a
corporation, its successors and assigns, and its officers, and
respondent's agents, representatives and employees, directly or through
any corporation, subsidiary, division or other device, in connection
with the advertising, promotion, offering for sale, or sale of any
weight loss program, 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 such program
is recommended, approved or endorsed by any person, group or other
entity, unless, at the time of making any such representation,
respondent possesses and relies upon competent and reliable evidence,
which when appropriate must be competent and reliable scientific
evidence, that substantiates such representation. For the purposes of
this order, ``competent and reliable scientific evidence'' shall mean
those tests, analyses, research, studies or other evidence based on the
expertise of professionals in the relevant area, that have 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.
Provided, however, that it shall be a defense hereunder that the
respondent neither knew nor had reason to know of an inadequacy of
substantiation for the representation.
II
It is further ordered that respondent, J. Walter Thompson USA,
Inc., a corporation, its successors and assigns, and its officers, and
respondent's agents, representatives and employees, directly or through
any corporation, subsidiary, division or other device, in connection
with the advertising, promotion, offering for sale, or sale of any
weight loss or weight control program, weight loss product, health or
fitness program, exercise equipment, or diet-related food, in or
affecting commerce, as ``commerce'' is defined in the Federal Trade
Commission Act, do forthwith cease and desist from misrepresenting, in
any manner, directly or by implication, the existence, contents,
validity, results, conclusions, or interpretations of any test, study,
or survey.
Provided, however, that it shall be a defense hereunder that the
respondent neither knew nor had reason to know that the test, study or
survey did not prove, demonstrate or confirm the representation.
III
It is further ordered that for five (5) years after the date of the
last dissemination of the representation to which they pertain,
respondent, or its successors and assigns, shall maintain and upon
request make available to the Federal Trade Commission or its staff for
inspection and copying:
A. All materials relied upon to substantiate any claim or
representation covered by this Order; and
B. All tests, reports, studies, surveys, demonstrations or other
evidence in its possession or control that contradict, qualify, or call
into question such representation, or the basis relied upon for such
representation, including complaints from consumers.
IV
It is further ordered that respondent shall notify the Commission
at least thirty (30) days prior to the effective date of any proposed
change in the corporation that may affect compliance obligations under
this Order, including but not limited to any change in corporate name
or address, dissolution, assignment or sale resulting in the emergence
of a successor corporation, or the creation or dissolution of
subsidiaries.
V
It is further ordered that respondent shall, within ten (10) days
from the date of service of this Order upon it, distribute a copy of
this Order to each of its operating divisions, to each of its
managerial employees, and to each of its officers, agents,
representative or employees engaged in the preparation, review or
placement of advertising or other materials covered by this Order, and
shall secure from each such person a signed statement acknowledging
receipt of this Order.
It is further ordered that respondent shall, within sixty (60) days
from the date of service of this Order upon it, and at such other times
as the Commission may require, file with the Commission a report, in
writing, setting forth in detail the manner and form in which it has
complied with this Order.
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission has accepted an agreement, subject to
final approval, to a proposed consent order from respondent J. Walter
Thompson USA, Inc., a Delaware corporation.
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 that
agreement and the comments received and will decide whether it should
withdraw from the agreement and take
[[Page 39398]]
other appropriate action or make final the agreement's proposed order.
The Commission's complaint in this matter charges J. Walter
Thompson with engaging in deceptive practices in connection with the
advertising of the Jenny Craig Weight Loss Program. The advertisements
at issue contain variations of the claim that nine out of ten Jenny
Craig clients would recommend the Jenny Craig Weight Loss Program to a
friend.
According to the complaint, print and television advertisement for
the Jenny Craig Weight Loss Program represented that ninety percent or
more of Jenny Craig customers would recommend the Jenny Craig Weight
Loss Program. The complaint also alleges that those advertisements
represented that competent and reliable studies or surveys establish
that claim.
The complaint further alleges that J. Walter Thompson lacked
substantiation for its ``nine out of ten'' claims, and falsely claimed
that competent and reliable studies or surveys support those claims.
Finally, the complaint alleges that J. Walter Thompson knew or should
have known that these claims were false and misleading.
The consent order contains provisions designed to remedy the
violations charged and to prevent J. Walter Thompson from engaging in
similar deceptive and unfair acts and practices in the future.
Part I of the order prohibits J. Walter Thompson from
misrepresenting that any weight loss program is recommended, approved
or endorsed by any person, group or other entity unless it possesses
and relies upon competent and reliable evidence, which, when
appropriate, must be competent and reliable scientific evidence, that
substantiates the representation. Part I provides J. Walter Thompson
with a defense to liability if it neither knew nor had reason to know
of an inadequacy of substantiation for the representation.
Part II prevents J. Walter Thompson from misrepresenting, with
regard to any diet-related food, or any weight loss or weight control
program, weight loss product, health or fitness program or exercise
equipment, the existence, contents, validity, results, conclusions, or
interpretations of any test, study, or survey. ``Diet-related food'' is
defined as ``any food (as that term is defined in 15 U.S.C. Sec. 55(b))
whose labeling or advertising makes any claim regarding its weight loss
or weight maintenance benefits.'' Part II provides J. Walter Thompson
with a defense to liability if it neither know nor had reason to know
that the test, study or survey did not prove, demonstrate or confirm
the representation.
Part III requires J. Walter Thompson to maintain certain materials
relating to advertisements covered by this order and to make such
documents available for FTC inspection.
Part IV requires J. Walter Thompson to notify the Commission of any
changes in the corporate structure that might affect compliance with
the order.
Part V requires J. Walter Thompson to distribute copies of the
order to certain company officials and employees and certain other
representatives and agents of the company, and to secure from each such
person a signed statement acknowledging receipt of the order.
Part VI requires J. Walter Thompson to file with the Commission one
or more reports detailing compliance with the order.
The purpose of this analysis is to facilitate public comment on the
proposed order. It is not intended to constitute an official
interpretation of the agreement and proposed order or to modify in any
way their terms.
Benjamin I. Berman,
Acting Secretary.
Concurring Statement of Commissioners Roscoe B. Starek, III and
Christine A. Varney
In the Matter of J. Walter Thompson USA, Inc., File No. 942-3294
Although we have voted to accept the consent order negotiated
with J. Walter Thompson USA, Inc. (``JWT'') in this matter, we write
to comment on the scope of the product coverage in Part II of the
order. Part II addresses the false ``establishment'' claim
challenged in paragraphs five and six of the complaint, i.e., the
claim that a valid study or survey showed that ninety percent or
more of Jenny Craig Weight Loss Program customers would recommend
the program to their friends. Part II of the order prohibits
misrepresentations regarding the existence, contents, validity,
results, conclusions, or interpretations of any test, study, or
survey, in connection with the promotion of any weight loss or
weight control program, weight loss product, health or fitness
program, exercise equipment, or diet-related food.
On three previous occasions JWT has signed consent orders
settling allegations that it misrepresented the results of surveys
or tests.\1\ Because of the narrow scope of the product coverage
applicable to the relevant order provisions, the Commission, on each
occasion, had to pursue a new Section 5 case against the company,
rather than being able to seek civil penalties for an order
violation. Thus, the Commission's history with JWT raises the
question of whether broader product coverage is warranted in this
case.\2\
\1\ J. Walter Thompson Co., 97 F.T.C. 333 (1981) (complaint
alleged that JWT misrepresented that ``4 out of 5 dentists
recommend'' the Water Pik; consent order prohibits claims regarding
surveys of professional groups unless the surveys were designed,
executed, and analyzed in a competent and reliable manner); J.
Walter Thompson Co., 94 F.T.C. 331 (1979) (complaint alleged that
JWT misrepresented the results of tests of the cleaning
effectiveness of Sears dishwashers; consent order prohibits, in
advertising for major home appliances, misrepresenting the results
of tests, studies, surveys, etc.); J. Walter Thompson Co., 84 F.T.C.
736 (1974) (complaint alleged that JWT misrepresented the results of
studies on the safety of Ford automobiles; consent order prohibits,
in advertising for automobiles, presenting the results of tests,
experiments, or demonstrations unless competent and reliable to
prove the claimed feature).
\2\ It is true that this consent order has broader product
coverage than the prior JWT orders and appears to cover the range of
diet- and fitness-related products.
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Extension of an order's product coverage beyond the product or
service at issue in a complaint may be justified so long as the
order bears a reasonable relationship to the unlawful practices
alleged. See Stouffer Foods Corp., D. 9250, slip op. at 17 (Sept.
26, 1994) (citing Jacob Siegel Co. v. FTC, 327 U.S. 608, 612-13
(1946)). The Commission generally considers three criteria to
determine whether an order bears a reasonable relationship to a
particular Section 5 violation: (1) the seriousness and
deliberateness of the violation; (2) the ease with which the
violative claim may be transferred to other products; and (3)
whether the respondent has a history of prior violations. Stouffer,
slip op. at 17 (citing cases). All three elements need not be
present to warrant fencing-in. Sears, Roebuck & Co. v. FTC, 676 F.2d
385, 392 (9th Cir. 1982) (``In the final analysis, we look to the
circumstances as a whole and not to the presence or absence of any
single factor.'').
Although we do not have the benefit of a litigated record, from
the evidence presented so far, it appears that in this case, the
first two, and arguably the third, elements weigh in favor of broad
fencing-in. First, the alleged violations are both deliberate and
serious. The survey from which the ``nine out of ten'' claim was
derived was obviously and severely flawed. JWT, the largest ad
agency in the country, surely must be deemed to have expertise in
conducting consumer surveys. Any ignorance in this regard must have
been cured by the Commission's earlier decision to hold it liable
for the dissemination of misrepresentations about the results of
surveys.
The evidence also suggests the violations were serious, as
measured by the extent of dissemination. The ad campaign in question
was a national one that ran for over a year, and the ads were given
to franchisees to run in their areas. Furthermore, the great length
of the campaign's dissemination schedule indicates the campaign must
have been quite costly.
The second element, the ease with which the violative claims may
be transferred to other products, also supports fencing-in. The
results of surveys or studies are easily misrepresented, regardless
of the type of product or service. The fairly obvious
transferability of this type of claim is borne out by the prior
consent orders, as those cases involved a diverse range of product
[[Page 39399]]
categories (surveys of professionals, major home appliances, and
automobiles).
The final element is the respondent's history of past
violations. The question of whether consent orders may be used as
evidence of past violations is at best unsettled. Compare ITT
Continental Baking Co. v. FTC, 521 F.2d 207, 222 n.23 (2d Cir. 1976)
(because consent orders do not constitute an admission that the
respondent has violated the law, the Commission may not rely on
consent orders as evidence of additional illegal conduct when
formulating cease and desist orders in other proceedings) with
Thompson Medical Co., 104 F.T.C. 648, 833 n.78 (1984), aff'd, 791
F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987) (while
stating that a single consent order would not be used as a basis for
concluding that the respondent has a history of past violations, the
Commission expressly took no position on whether a pattern of
consent orders would be a sufficient history of past violations to
warrant fencing-in). Regardless of whether the prior consent orders
may be considered evidence of past violations, they show that JWT
was aware of the Commission's concern about this type of claim and
of the requirements of the law with respect to claims involving
surveys and tests.
Despite these concerns, for several reasons we believe that
accepting the order as negotiated appears to be appropriate. For
example, we understand that JWT has made clear it would litigate if
the Commission attempted to obtain broader coverage; litigation
inevitably presents resource allocation questions.\3\ In addition,
broad product coverage obviously weighs more heavily on an ad agency
such as JWT that handles accounts for a divers assortment of
products and services, than on a manufacturer or advertiser offering
a limited range of products.\4\ We write only to point out that in
light of all the circumstances of this case, broad product coverage
in Part II could have been justified as reasonably related to the
violations alleged.
\3\ Even so, a litigated order could be beneficial for several
reasons. First, in case of future similar violations by JWT, a
litigated order clearly could be used as evidence of prior law
violations. Second, while there is no guarantee that the Commission
would obtain broader product coverage in litigation than is
contained in this consent order, it seems unlikely that the
Commission would do any worse, and the potential gain is great, both
in terms of having JWT under a broader order and in terms of
precedential value for other cases. Third, a litigated opinion might
resolve some of the uncertainties concerning the precedential value
of prior consent orders.
\4\ On the other hand, the potential burden of a broad order is
partially mitigated by the fact that, as an ad agency, JWT's order
contains a safe harbor insulating it from liability unless it knows
or should know that the survey or test did not prove, demonstrate,
or confirm the representation. In addition, it is not unusual for
orders covering establishment claims to have broad product coverage
because the type of claim covered--the results or validity of tests
or surveys--is fairly discrete.
Statement of Commissioner Mary L. Azcuenaga Concurring in Part and
Dissenting in Part
J. Walter Thompson USA, Inc., File No. 942-3294
I dissent from Part II of the proposed consent order because the
product coverage is too narrow. Part II would prohibit J. Walter
Thompson from making deceptive establishment claims for any weight
loss or weight control program, weight loss product, health or
fitness program, exercise equipment, or diet-related food. Although
the product coverage in this provision does go beyond the product
with respect to which a violation has been alleged, given the
particular facts of this case, I would impose even broader product
coverage. In my view, J. Walter Thompson relied on a clearly flawed
study in making its deceptive claims, and it continued to make
claims based on this flawed study even after it had received
contradictory results from a more reliable study that it had
commissioned. J. Walter Thompson also could readily transfer
deceptive test result claims to other products, as demonstrated by
the fact that J. Walter Thompson has entered into three other
consent agreements to settle allegations that it made deceptive
claims concerning survey or test results for three disparate
products.\1\ Given that J. Walter Thompson's deception appears to
have been deliberate and that its deception readily could be
transferred to other products, see Stouffer Foods Corp., D. 9250,
slip op. at 17 (Sept. 26, 1994), broader product coverage is
appropriate.
\1\ J. Walter Thompson Co., 97 F.T.C. 323 (1981); (dental
cleaning device); J. Walter Thompson Co., 94 F.T.C. 331 (1979)
(dishwashers); J. Walter Thompson Co., 84 F.T.C. 736 (1974)
(automobiles). Assuming the allegations in this and the previous
cases to be true, we would have to conclude that J. Walter Thompson
has had difficulty comprehending that the conduct alleged is conduct
about which the Commission is concerned.
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[FR Doc. 95-18954 Filed 8-1-95; 8:45 am]
BILLING CODE 6750-01-M
