Petition — Fedders Corp. v. Federal Trade Commission
Supreme Court brief1976
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FILED
{APR 19. 1976
In THE
Supreme Court of the United States
October Term, 1975.
Guy.
No. 75-1508
FEDDERS CORPORATION,
Petitioner,
Vs.
FEDERAL TRADE COMMISSION,
Respondent.
Petition (With Appendix) for Writ of Certiorari to the
United States Court of Appeals for the Second Cir-
cuit.
SypNEY B. WERTHEIMER
JEFFREY H. SCHNEIDER
Attorneys for Petitioner
425 Park Avenue
New York, N. Y. 10022
WEISMAN, CELLER, Spett, Mop.iin,
WERTHEIMER & SCHLESINGER
Of Counsel
Suprerne Court. U. S. -
TABLE OF CONTENTS
Oprnions BELOw
JURISDICTION —
QueEsTION PRESENTED ... ”
Sratrrory Provisions INVOLVED ns
STATEMENT OF THE CASE ™
Reasons FoR GRANTING THE WRIT
CoNncLUSION
APPENDIX:
Complaint
Order Amending Complaint
Order Further Amending Complaint
Answer to Further Amended Complaint -.........
Initial Decision, Dated July 15, 1974
Final Order, Dated January 14, 1975
Decision and Opinion of U. S. Court of Appeals
Copies of Five Advertisements referred to in
Petition
Cases Cited
Country Tweeds, Ine. v. F.T.C., 326 F.2d 144 (2d
Cir. 1964) Ri
IF.T.C. v. Colgate-Palmolive Co. 380 U.S. 374
(1965) A
11
u INDEX
F.T.C. Mandel Bros., Ine., 359 U.S. 385 (1950)............ “—
F.T.C. v. National Lead Co., 352 U.S. 419 (1957)........ 12
F.T.C. v. Ruberoid Co., 343 U.S. 470 a 6,12
Firestone Tire and Rubber Co., 481 F.2d 246 (6th
Cir. 1973), cert. den., 414 U.S. 1112 (1973).............. 11
Jacob Siegel Co. v. F.T.C., 327 U.S. 608 i 6,12
Royal Milling Co. v. F.T.C., 288 U.S. 217 (1933)........ 6,13
Vanity Fair Paper Mills, Ine. vy. F.T.C., 311 F.2d
450 (2d Cir. 1962) 8
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28 U.S.C.:
IN THE
Supreme Court of the United States
October Term, 1975
No.
—_<>—
FEDDERS CORPORATION,
Petitioner,
against
FEDERAL TRADE COMMISSION,
Respondent.
PETITION (WITH APPENDIX) FOR A WRIT OF
CERTIORARI TO THE UNITED STATES COURT
OF APPEALS FOR THE SECOND CIRCUIT
The petitioner, Fedders Corporation (“Fedders”), prays
that a writ of certiorari be issued to review the final judg-
ment herein of the United States Court of Appeals for
the Second Circuit (the “Court of Appeals”).
Opinions Below
The opinion of the Court of Appeals, to date unre-
ported, is reproduced in the Appendix (App. 69a). The
cease and desist order (the “Commission’s Order”) and
the Opinion of the Commission, rendered by Commis-
sioner Paul Rand Dixon are reproduced in the Appendix
(App. 58a).
Jurisdiction
The judgment of the Court of Appeals herein was dated
and entered on January 21, 1976. The jurisdiction of
this Court is invoked under 28 U.S.C. §1254(1).
Question Presented
Whether the Court of Appeals erred in sustaining
the Commission’s Order insofar as it forbade a very
broad spectrum of unlawful practices* which, Fedders
submits, are not reasonably related to the single un-
lawful practice charged and proven**.
Statutory Provisions Involved
(a) Section 5 (a)(1) of the Federal Trade Commission
Act, 15 U.S.C. 45(a)(1), which reads as follows:
“Unfair methods of competition in or affecting
ecommerce, and unfair or deceptive acts or practices
in or affecting commerce, are declared unlawful.”
* To wit, any false statement as to the air cooling, dehumidifica-
tion, or circulation characteristics, capacity or capabilities of any <'r
conditioner.
** To wit, that Fedders’ air conditioners are the only ones that
possess the characteristic known as “reserve scoling power” (it
being conceded for purposes of this litigation. at Fedders’ air
conditioners do possess that characteristic, althoug: ot uniquely).
eC
(b) Section 5 (b) of the Federal Trade Commission
Act, 15 U.S.C. 45 (b), which provides, in pertinent part,
as follows:
“Whenever the Commission shall have reason to
believe that any such person, partnership, or cor-
poration has been or is using any unfair method
of competition or unfair or deceptive act or prac-
tice in or affecting commerce, and if it shall ap-
pear to the Commission that a proceeding by it in
respect thereof would be to the interest of the pub-
lic, it shall issue and serve upon such person, part-
nership, or corporation a complaint stating its
charges in that respect and containing a notice of
a hearing upon a day and at a place therein fixed
at least thirty days after the service of said com-
plaint . . . If upon such hearing the Commission
shall be of the opinion that the method of competi-
tion or the act or practice in question is prohibited
by sections 41 to 46 and 47 to 58 of this title, it
shall make a report in writing in which it shall
state its findings as to the facts and shall issue and
cause to be served on such person, partnership, or
corporation an order requiring such person, part-
nership, or corporation to cease and desist from
using such method of competition or such act or
practice.”
Statement of the Case
The Commission’s complaint as finally amended’,
charged, and Fedders admitted, that Fedders had dis-
seminated a claim that its air conditioners were unique
* Reproduced at App. la; Fedders’ answer to the complaint as
finally amended is reproduced at App. 13a.
in that they possess a performance characteristic which
other air conditioners do not possess, namely, “reserve cool-
ing power”. During the course of the hearing before the
Administrative Law Judge, the parties stipulated that
for all purposes “reserve cooling power” means “ability
to function satisfactorily under conditions of extreme heat
and humidity”. That in fact Fedders’ air conditioners do
possess this characteristic was never challenged by the
Commission.
It is beyond question that the above false claim of
uniqueness of a single performance characteristic (“re-
serve cooling power”) was the only offense charged and
proved in this proceeding (see Finding of Fact 25, App.
36a). Commission counsels’ briefs to the Commission and
the Court of Appeals sought to establish that Fedders
had admitted disseminating other types of false state-
ments. The Court of Appeals, however, put this matter
to rest as follows:
“The administrative law judge put it somewhat
confusedly when he said that ‘{Fedders] has ad-
mitted disseminating a false performance claim for
its room air conditioners relating to the uniqueness
of the ability of its room air conditioners to fune-
tion satisfactorily at conditions of extreme heat and
humidity’. [Fedders] made no such admission but
rather admitted only false claims of uniqueness,
the only deceptions charged in the complaint.”
(Emphasis added.)*
All of the evidence submitted was in the form of writ-
ten stipulations, joint exhibits or Fedders’ exhibits re-
ceived in evidence without objection. No witnesses were
tendered by either side.
* App. 75a-76a.
Hy)
The salient provisions of the Commission’s Order are
three paragraphs numbered (1) through (3), respectively.
Paragraph (1) thereof deals with representations con-
cerning uniqueness. In effect it forbids Fedders from not
only falsely claiming uniqueness of t#® ‘reserve cooling
power” capabilities of its air conditioners but from falsely
claiming that they are unique in any material respect.
Paragraph (2) of the Commission’s Order insofar as
pertinent, forbids Fedders from “making . . . any state-
ment ... as to the air cooling, dehumidification or cir-
culation characteristics, e.pacity or capabilities of any air
conditioner, unless at the time of such representation
[Fedders] has a reasonable basis for such statement .. .
which shall consist of competent scientific, engineering or
other similar objective material or industry-wide stand-
ards based on such material.”
Paragraph (3) of the Commission’s Order, in effect,
requires Fedders to maintain documentation in support
of the objective basis, for each of its advertising claims
required by paragraph (2) thereof.
Fedders did not and does not quarrel with paragraph
(1) of the Commission’s Order. It petitioned for the Court
of Appeals’ review of the Order, pursuant to 15 U.S.C.
§ 45 (c), on the ground that paragraphs (2) and (3) there-
of cover a wide range of unlawful practices not reasonably
related to the single unlawful practice (false claim of
uniqueness of reserve cooling power) charged and proved,
and on the second ground that the requirement in para-
graph (2) of the Commission’s Order that objective proof
be adduced for all advertising claims covered by that
paragraph, whether or not such claims were objective in
nature, was improper.
The Court of Appeals unanimously affirmed the Com-
mission’s Order.*
Reasons for Granting the Writ
While it is elementary that in framing a cease and de-
sist order, the Commission is not limited to prohibiting
the offending conduct in the precise form in which it was
found to have existed in the past (F.7.C. v. Ruberoid
Co., 343 U.S. 470 (1952)), and that the Commission has
the power, within its discretion, to enjoin “like and re-
lated practices” (F.7.C. v. Mandel Bros., Inc., 359 U.S.
385, 392-393 (1959)), it is abundantly clear that the Com-
mission’s discretion does not extend to enjoining conduct
which “has no reasonable relationship to the unlawful
practices found to exist.” Jacob Siegel Co. v. F.T.C.,
327 U.S. 608 (1946), at 613. Expressed in somewhat
different terms, the guiding principle is that:
“(tjhe order should go no further than is reason-
ably necessary to correct the evil and preserve the
rights of competitors and public; .. .”
Royal Milling Co. v. F.T.C., 288 U.S. 217 (1933) at 217.
At all stages of this proceeding to date, there was little
difference between the contending briefs in respect to the
basie legal principles governing the permissible scope of
Commission orders; the dispute lay in the application of
those principles.
* With respect to the second ground of Fedders’ objection to
paragraphs (2) and (3), although the Court of Appeals did not grant
Fedders’ prayer to modify the Commission’s Order so as to speci-
fically negate any requirement for objective proof of a subjective
claim, its opinion stated that the Order as framed does not require
objective proof of subjective assertions. Hence Fedders does not
further pursue this ground, there being no need to do so.
Fedders has painstakingly attempted to demonstrate to
the Court of Appeals, and before that, to the Commis-
sion, that there is a marked difference in kind between,
on the one hand, claiming, contrary to the fact, that a
capability concededly possessed by an advertised product
is possessed only by that product and, on the other hand,
falsely claiming a capability which the advertiser’s prod-
uct does not possess at all; and, accordingly, that such
widely different claims cannot be labeled as “reasonably
related practices”. At no time during the course of this
matter has Fedders’ position in this respect, which is
critical to a determination of the permissible breadth of
the Commission’s Order, been controverted other than by
broad-brush superficial analysis.
On this crucial point the Court of Appeals simply de-
ferred to the expertise of the Commission as follows:
“ .. as the Commission held, . .. the claim of
uniqueness in having ‘reserve cooling power’ was
also a performance claim by implication. ‘Unique-
ness,’ as the Commission footnoted, ‘is obviouly both
an attribute in itself and one facet of broader cate-
gories of product characteristics, such as price, per-
formance and warranty terms’.
“As to this finding, that the uniqueness claim as
to reserve cooling power implies to consumers a
claim of high cooling performance in extreme con-
ditions of heat and humidity, we are in the very
realm of the Commission’s greatest expertise—what
constitutes deception in advertising. . .. On the
basis of this finding of implicit misrepresentation
the remedial order appears sound as reasonably
related thereto." (App. 76a)
What the Court of Appeals appears to be saying is
that when Fedders claimed the uniqueness of the “reserve
cooling power” capability of its air conditioners, it neces-
sarily, ipso facto, also claimed that its air conditioners
provide high cooling performance in extreme conditions
of heat and humidity, and that, accordingly, if the asser-
tion of uniqueness is false, the falsity of the high cooling
performance claim must also follow.
However, as heretofore stated,* the reserve cooling
power capability of Fedders’ air conditioners and their con-
sequent “ability to function satisfactorily under condi-
tions of extreme heat and humidity”** have never been
challenged. Accordingly, it is plain that the nexus which
the Court of Appeals found between a false uniqueness
claim and a false claim as to the underlying characteris-
tics, sufficient in the Court’s opinion for them to be
deemed “reasonably related” practices, lacks any real sub-
stance. The only misrepresentation by Fedders was its
explicit claim that its air conditioners were the only ones
possessing reserve cooling power. No implicit misrepre-
sentation can be found therein with respect to the cool-
ing performance of Fedders’ air conditioners for the
simple reason that their ability to cool satisfactorily even
under extreme heat and humidity conditions has at all
times been conceded.
What is meant by “reasonably related” has been articu-
lated in terms of whether the conduct prohibited by a
cease and desist order, insofar as it goes beyond the
actual unlawful conduct proved, is merely a “variation
on the basic theme.”***
* See page 4 supra.
** The stipulated meaning of the term “reserve cooling power”
(see page 4 supra).
*** Country Tweeds, Inc. v. F.T.C., 326 F.2d 144 (2d Cir. 1964) ;
Vanity Fair Paper Mills, Inc. v. F.T.C., 311 F.2d 480 (2d Cir. 1962).
9
Utilizing this “basic theme” approach, the necessary
starting point is the determination of the essence of the
unlawful conduct. Consider the following example of Fed-
ders’ uniqueness advertisement:
“Only Fedders has reserve cooling power”
Since the only misrepresentation is the italicized por-
tion of this statement (the reserve cooling power capa-
bility of Fedders’ equipment being unchallenged as afore-
said), it is the claim of uniqueness that constitutes the
essence or “basic theme” of the misrepresentation. Con-
sequently, any extension of the coverage of the order be-
yond the specific wrong proved (false uniqueness claim
as to reserve cooling power) must flow from its basic
“uniqueness” theme. Such an extension was effected by
paragraph 1 of the Commission’s Order, which forbade
uniqueness claims false “in any material respect”. Fed-
ders does not challenge this extension. However, para-
graph 2 of the Commission’s Order shifts the focal point
to the performance characteristic itself, having nothing
to do with “uniqueness” and, therefore, having nothing to
do with the actual wrong committed. Accordingly, Fed-
ders does challenge this provision. It is not a “variation
on the basic theme” but, rather, creates an altogether new
theme.
The difference between claiming an attribute for a
product which it in fact does not possess and claiming
that your product is the only one possessing that attri-
bute when in fact other products possess it as well in-
volves more than a semantic difference. There is also a
broad difference in practical effect between the two as-
sertions.
Let us suppose that a consumer is induced to purchase
an air conditioner by an advertisement claiming that the
product has reserve cooling power. If the assertion is
10
false and, accordingly, the unit stops functioning during
a spell of unusually hot weather, the consumer is com-
pletely frustrated. Relying on a representation which
turned out to be false, he has bought a piece of machinery
which failed him when he needed it most. But suppose,
on the other hand, that the same consumer purchases an
air conditioner in reliance upon a representation that it is
the only one that has reserve cooling power and suppose,
further that the air conditioner does have this capability
(although not uniquely) and, accordingly, that it fune-
tions adequately during the same hot spell. The consumer
is hurt, if at all, only to the extent, if any, that the price
of the unit he bought exceeds the price of a comparable
unit of another manufacturer also possessing reserve cool-
ing power. Despite the misrepresentation, he would
have received substantially what he bargained for—a
unit that operates satisfactorily during unusually hot
weather.
The Commission’s Order encompasses within its scope
substantially all of the capabilities which are of primary
interest to a prospective purchaser of an air conditioner;
mainly, the performance of the unit in terms of its ability
to cool air, and to circulate and humidify it in the course
of doing so. And yet, the Commission’s Order was is-
sued,
(i) against a company whose prior record with the
Commission is unblemished;
(ii) against a company which, long prior to the issu-
ance of the complaint herein, discontinued the of-
fending practice*; and
*It is undisputed that on December 22, 1971, Fedders discon-
tinued, and did not resume, any reference to reserve cooling power,
in its advertising, whether coupled with the uniqueness claim or by
itself. (Initial Decision, p. 23, Ist para., App. 42a). The complaint
was issued on June 11, 1973.
11
(iii) in response to a single unlawful practice of Fed-
ders, to wit: the claim that Fedders’ air condi-
tioners were unique in possessing a characteristic
known as “reserve cooling power” when, in fact,
other air conditioners also possessed that charac-
teristic, which, when viewed in the context of Fed-
ders’ general advertising program, comprised a
relatively insignificant portion of that program.
It is undisputed that the challenged advertisements
taken in a sample area and during a sample period of
time*, in terms of their cost, constituted only about 7/10
of 1% of Fedders’ total advertising expenditures** and
that they were not, unlike the “stops 25% faster” claim
in Firestone Tire and Rubber Co., 481 F.2d 246 (6th Cir.
1973), cert. den., 414 U.S. 1112 (1973), or the sensational
“shave the sandpaper” television commercial which was
the subject matter of F'.7.C. v. Colgate-Palmolive Co., 380
U.S. 374 (1965), the dominant theme in a broad-based and
intensive advertising campaign.
Furthermore, the Commission found that in the major-
ity of instances the unique reserve cooling power claim
was not featured or otherwise emphasized in the offend-
ing advertisements***. To the contrary, it was usually
* Pursuant to the Administrative Law Judge’s suggestion the
parties stipulated information provided by Fedders as to the chal-
lenged advertisements with respect to a sample area which included
the Florida area, the Washington, D.C. metropolitan area, the Phila-
delphia metropolitan area and the New York metropolitan area, for
its fiscal years ending August 31, 1970 and August 31, 1971, respec-
tively.
** Finding of Fact 18, App. 3la.
*** Finding of Fact 20, App. 34a.
12
“buried” in small type among a considerable number of
other claims.*
The Commission could hardly have promulgated a more
sweeping order had Fedders committed a broad range of
unlawful practices, which, it obviously did not. Though
Fedders’ single wrongful practice is no less wrongful be-
cause of the above-discussed mitigating factors, their
presence makes the Commission’s Order that much more
difficult to justify.
While we are mindful of this Court’s observation that
“those caught violating the Act must expect some fenc-
ing in”, F.T.C. v. National Lead Co., 352 U.S. 419 (1957)
at 431, we respectfully submit that in the present instance
the Commission has seen fit to erect a fence of monu-
mental proportions around a violation which is not only
narrow in scope but which cannot by any reasonable
standards be deemed flagrant.
Diligent research by counsel has failed to reveal any
decisions of this Court which provide guideposts for deter-
mining the permissible outer boundaries of the Com-
mission’s “fencing in”, other than the broad generaliza-
tions of “like and related practices”, “reasonable related-
ness to the unlawful practices”, and “reasonably necessary
to correct the evil”, language set forth in Ruberoid, Man-
del Bros. and Siegel, supra. Since this Court, insofar as
known to counsel, has never narrowed a Commission ad-
vertising order for over-breadth, it has never had ocea-
sion to indicate, in any more than the above general terms,
what the outer “fencing limits” are.
* Copies of those of the offending advertisements as appeared in
the five media of largest circulation in the sample area, are set forth
at App. 79a. Copies of these advertisements, as well as copies of all
of the other offending advertisements which appeared in the sample
area during the sample period, were received in evidence, without
objection, as Respondent’s Exhibit 1 before the Commission.
i
13
Fedders respectfully submits that, under the cireum-
stances here presented, this Court by narrowing the Com-
mission’s Order, as urged by Fedders, to embrace false
claims as to the uniqueness of Fedders’ products in any
respect, would, and should, firmly establish that the teach-
ing of Royal Milling, supra that “[t]he order should go
no further than is reasonably necessary to correct the
evil...” is meaningful, and that the Commission’s “ex-
pertise” is not necessarily the controlling factor in deter-
mining the scope of an order, and that in an appropriate
ease this Court will not hesitate to cut down the scope
of an order where the Commission has plainly gone too
far.
CONCLUSION
For the foregoing reasons, Fedders prays that this
Court issue a writ of certiorari to review the judg-
ment and decision of the Court of Appeals for the
Second Circuit.
Respectfully submitted,
Sypney B. WertTHEIMER
JEFFREY H. SCHNEIDER
Attorneys for Petitioner
WertsMan, CeLLeR, Spett, Mopiin,
WERTHEIMER & SCHLESINGER
Of Counsel
la
APPENDIX.
Complaint.
UNITED STATES OF AMERICA,
Berore FeperaL Trape ComMISSION.
<=
In THE MATTER
of
F ‘ - °
EDDERS CoRPORATION, a corporation.
Docket No. 8932
——~<
Pursuant to the provisions of the Federal Trade Com-
mission Act, and by virtue of the authority vested in it
by said Act, the Federal Trade Commission, having rea-
son to believe that Fedders Corporation, a corporation,
hereinafter referred to as respondent, has violated the
provisions of said Act, and it appearing to the Commis-
sion that a proceeding by it in respect thereof would be
in the publie interest, hereby issues its complaint stating
its charges in that respect as follows:
ParacrarH One: Respondent Fedders Corporation is
a corporation organized, existing and doing business
under and hy virtue of the laws of the State of New York
with its principal office and place of business located at
Edison, New Jersey.
Paracrarn Two: Respondent Fedders Corporation is
now and has been engaged in the advertising, offering
for sale, sale and distribution of Fedders air conditioners,
including Fedders Model ACL20K34X Room Air Con-
ditioners (hereinafter referred to as Fedders ACL room
air conditioners).
ParacraPn THree: In the course and conduct of its
aforesaid business, respondent Fedders Corporation now
causes and has caused its air conditioners, when sold, to
2a
Complaint
be transported from its place of business in the State of
New Jersey to purchasers thereof located in various
states of the United States, and in the District of
Columbia. Respondent Fedders Corporation therefore
maintains, and at all times mentioned herein has main-
tained, a substantial course of trade in said air condi-
tioners in commerce, as “commerce” is defined in the
Federal Trade Commission Act.
ParacraPH Four: In the course and conduct of its busi-
ness as aforesaid, and at all times mentioned herein, re-
spondent Fedders Corporation has been, and is now, in
substantial competition in commerce with corporations,
firms and individuals engaged in the sale of air condi-
tioners of the same general type as that sold by respond-
ent.
ParacraPH Five: In the course and conduct of its
business as aforesaid, and for the purpose of inducing
the sale of the said air conditioners in commerce, as
“commerce” is defined in the Federal Trade Commission
Act, respondent has disseminated, and caused to be dis-
seminated, certain advertisements of said ACL room air
conditioners, including but not limited to, advertise-
ments printed in newspapers located in various states
of the United States and in the District of Columbia,
which newspapers are disseminated across states lines.
Paracrarpu Six: Typical of the statements and repre-
sentations centained in said advertisements, but not all
inclusive thereof, is the following segment of the print
advertisement for Fedders ACL room air conditioners:
Reserve Cooling Power—only Fedders has this
important feature. It’s your assurance of cooling
on extra hot, extra humid days.
Paracrapn Seven: By and through the use of the
aforesaid statements and representations, respondent has
3a
Complaint
represented, directly or by implication, that reserve cooling
power is a unique feature of Fedders home air condi-
tioners, not found in ether air conditioners.
ParacraPH Eicut: In truth and in fact, “reserve cool-
ing power,” referring to an increased cooling capacity at
high loading conditions, is not a unique feature of Fed-
ders ACL room air conditioners. In fact, comparable
air conditioners made by other companies provide an
increase in cooling capacity at high loading conditions.
Therefore, the statements and representations referred
to in Paragraphs Six and Seven were and are false,
misleading, and deceptive, and the advertisements referred
to in Paragraphs Five, Six, and Seven were and are un-
fair or deceptive acts or practices in commerce in viola-
tion of Section 5 of the Federal Trade Commission Act.
ParacrapH Nine: By and through the use of the afore-
said statements and representations, respondent has also
represented, directly or by implication, that at the time
the aforesaid statements and representations were made,
respondent had a reasonable basis from which to con-
clude that Fedders ACL room air conditioners, compared
with other room air conditioners, had a significantly in-
creased cooling capacity at high loading conditions under
customary conditions of use.
Paracrapo Ten: In truth and in fact, at the time
the aforesaid statements and representations were made,
respondent had no reasonable basis from which to con-
clude that Fedders ACL room air conditioners, compared
with other room air conditioners, had a significantly in-
creased cooling capacity at high loading conditions under
customary conditions of use.
Therefore, the statements and representations referred
to in Paragraphs Six, Nine, and Ten were and are false,
misleading and deceptive, and the advertisements referred
to in Paragraphs Five and Six were and are unfair or
4a
Complaint
deceptive acts or practices in commerce in violation of
Section 5 of the Federal Trade Commission Act.
ParacraPpH Eveven: By and through the use of the
aforesaid statements and representations, respondent has
also represented, directly or by implication, that Fed-
ders ACL home air conditioners, compared with other
room air conditioners, have a significantly increased cool-
ing capacity at high loading conditions under customary
conditions of use. At the time said statements and repre-
sentations were made, respondent had no reasonable basis
from which to conclude that such was the fact.
Therefore, the statements and representations referred
to in Paragraphs Six and Eleven were and are false, mis-
leading and deceptive, and the advertisements referred
to in Paragraphs Five and Six were and are unfair or
deceptive acts or practices in commerce in violation of
Section 5 of the Federal Trade Commission Act.
ParacraPu Twetve: The use by respondent of the
aforesaid unfair or deceptive acts or practices has had,
and now has, the capacity and tendency to mislead a sub-
stantial portion of the purchasing public into the errone-
ous and mistaken belief that said statements and represen-
tations were and are true and into the purchase of sub-
stantial quantities of said products by reason of said er-
roneous and mistaken belief.
ParacrarnH THirtTeen: The aforesaid acts or practices
of respondent, as herein alleged, were and are all to the
prejudice and injury of the public and of respondent’s
competitors, and constituted and now constitute unfair
methods of competition in commerce and unfair or decep-
tive acts or practices in commerce in violation of Section
5 of the Federal Trade Commission Act.
WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade
Commission on this 11th day of June A. D., 1973 issues its
complaint against said respondent.
5a
Complaint
NOTICE
Notice is hereby given to each of the respondents here-
inbefore named that the 2nd day of August A. D. 1973,
at 10:00 o’clock is hereby fixed as the time and 1101
Building, 11th & Pa. Avenue, N. W., Washington, D. C.
as the place when and where a hearing will be had be-
fore an administrative law judge the Federal Trade Com-
mossion, on the charges set forth in this complaint, at
which time and place you will have the right under said
Act to appear and show cause why an order should not
be entered requiring you to cease and desist from the
violations of law charged in this complaint.
You are notified that the opportunity is afforded you
to file with the Commission an answer to this complaint
on or before the thirtieth (30th) day after service of
it upon you. Answer in which the allegations of the
complaint are contested shall contain a concise statement
of the facts constituting each ground of defense; and
specific admission, denial, or explanation of each fact
alleged in the complaint or, if you are without know!-
edge thereof, a statement to that effect. Allegations of
the complaint not thus answered shall be deemed to
have been admitted.
If you elect not to contest the allegations of fact set
forth in the complaint, the answer shall consist of a
statement that you admit all of the material allegations
to be true. Such an answer shall constitute a waiver of
hearings as to the facts alleged in the complaint, and
together with the complaint will provide a record basis on
which the administrative law judge shall file an initial
decision containing appropriate findings and conclusions
and an appropriate order disposing of the proceeding.
In such answer you may, however, reserve the right to
submit proposed findings and conclusions and the right
to appeal the initial decision to the Commission under
6a
Complaint
Section 3.52 of the Commission’s Rules of Practice for
Adjudicative Proceedings.
Failure to answer within the time above provided shall
be deemed to constitute a waiver of your right to appear
and contest the allegations of the complaint and shall
authorize the administrative law judge, without further
notice to you, to find the facts to be as alleged in the
complaint and to enter an initial decision containing
such findings, appropriate conclusions and order.
The following is the form of order which the Commis-
sion has reason to believe should issue if the facts are
found as alleged in the complaint. If, however, the Com-
mission should conclude from record facts developed in
any adjudicative proceedings in this matter that the
proposed order provisions as to Fedders Corporation
might be inadequate fully to protect the consuming public
or the competitive conditions of the air conditioning in-
dustry, the Commission may order such other relief as
it finds necessary or appropriate.
ORDER
Ir is onpERED that respondent Fedders Corporation, its
suecessors and assigns, officers, agents, representatives
and employees, directly or through any corporation, sub-
sidiary, division or other device, in connection with the
advertising, offering for sale, sale or distribution in
commerce as “commerce” is defined in the Federal Trade
Commission Act, of the respective products hereinafter
referred to, do forthwith cease and desist from:
1. representing, directly or by implication, that an
increase in cooling capacity at high loading con-
ditions of Fedders room air conditioners is a unique
feature of such air conditioners;
9
i
7a
Complaint
representing, directly or by implication, that any
air conditioner, on the basis of a comparison
thereof with the air conditioners of other manu-
facturers then being marketed in the United States
in commercial quantities, is unique in any other
material respect, unless such is the fact;
representing directly or by implication, that Fed-
ders room air conditioners, compared with other
room air conditioners, have a significantly increased
cooling capacity at high loading conditions of use,
unless at the time such representation is made, re-
spondent has a reasonable basis for such representa-
tion, which may consist of competent scientific, en-
gineering, or other similar objective material, or
industry-wide standards based on such material.
making, directly or indirectly, any other statement
or representation in any advertising or sales promo-
tional material as to the performance characteristics
of any Fedders air conditioner, unless at the time of
such representation respondent has a_ reasonable
basis for such statement or representation, which
may consist of competent scientific, engineering,
or other similar objective material, or industry-wide
standards based on such material.
failing to maintain and produce accurate records
which may be inspected by Commission staff mem-
bers upon reasonable notice:
(a) which consist of documentation in support of
any claim included in advertising or sales
promotional material disseminated by respond-
ent, insofar as the text of such claim is pre-
pared, or is authorized and approved, by any
person, who is an officer or employee of re-
spondent, or of any division or subdivision of
respondent, or by any advertising agency en-
8a
Complaint
gaged for such purpose by respondent or by
any such division or subsidiary, which claim
concerns the performance characteristics of,
or the uniqueness of any feature of, any Fed-
ders air conditioning product or system; and
(b) which provided the basis upon which respond-
ent relied as of the time the claim was made;
and
(c) which shall be maintained by respondent for
a period of three years from the date such ad-
vertising or sales promotional material was
last disseminated by respondent or any divi-
sion or subsidiary of respondent.
The provisions of paragraph 5 shall be in effect for
a period of ten (10) years from the date this order be-
comes final.
Iv IS FURTHER ORDERED that respondent corporation shall
forthwith distribute a copy of this order to each of its
operating divisions and to each of its officers, agents,
representatives or employees who are engaged in the
preparation or placement of advertisements.
Ir is FURTHER ORDERED that respondent notify the
Commission at least thirty (30) days prior to any pro-
posed change in the corporate respondent such as dissolu-
tion, assignmeut or salc, resulting in the emergence of
a successor corporation, the creation or dissolution of
any subsidiaries engaged in the manufacture and/or sale
in commerce of air conditioning products or systems, or
any other changes in the corporation which may ma-
terially affect compliance obligations arising out of the
order.
Ir IS FURTHER ORDERED that respondent shall, within
sixty (60) days and at the end of six (6) months after
the effective date of the order served upon it, file with
SS ©
9a
Complaint
the Commission a report, in writing, signed by respond-
ent, setting forth in detail the manner and form of its
compliance with the order to cease and desist.
IN wITNESS wWHEREOF, the Federal Trade Commission
has caused this, its complaint, to be signed by its Secre-
tary and its official seal to be hereto affixed, at Washing-
‘ton, D. C., this 11th day of June A. D., 1973.
By the Commission.
CHARLES A. TOBIN,
Secretary.
(Seal.)
10a
Order Amending Complaint.
UNITED STATES OF AMERICA,
Berore Fepera TrapE Commission.
(Same Trrzez.]
By motion filed August 27, 1973, complaint counsel
has moved to amend the complaint herein to correct a
typographical error in respect to the model number of
the air conditioner set forth in the complaint. Complaint
counsel’s motion would change the model number of the
room air conditioner set forth in Paragraph Two of the
complaint from ACL20E3DX to ACL20E3EX. The un-
dersigned has been advised that respondent’s counsel has
no objection to tke proposed amendment to the complaint.
Accordingly,
It is onpDERED that the complaint herein be, and it hereby
is, amended as follows:
(1) Paragraph Two, line four, change Model ACL20-
K3DX to Model ACL20F3EX;: and
(2) Paragraphs Five-Six, Eight-Eleven, to the extent
they incorporate by reference the model number
designation in Paragraph Two, are amended to
agree with Paragraph Two, as amended.
s/ ERNEST G. BARNES,
Administrative Law Judge.
September 5, 1973
lla
Order Further Amending Complaint.
UNITED STATES OF AMERICA,
BeroreE FrperaL TrapeE Commission.
[Same TIT.e. ]
At a prehearing conference held herein on November
30, 1973, the undersigned orally on the record made sevy-
eral amendments to the complaint (Tr. 43, 48-49, 74).
Since prehearing conferences are not public unless all
parties agree otherwise (Section 3.21[c] of the Rules of
Practice), the record of this prehearing conference is
nonpublic. It is appropriate that a formal order issue
amending the complaint so that the publie record will re-
flect the amendments to the complaint, which have hereto-
fore been made. Accordingly,
Tr 1s orpERED that the complaint herein be, and it hereby
is, amended as follows:
(1) Paragraph Two: Line 3, change “Fedders air condi-
tioners” to “Fedders room air conditioners”; lines 4
and 5, place period after “Room Air Conditioners” and
delete all language enclosed in parentheses.
(2) Paragraph Five: Line 6, delete “ACL”.
(3) Paragraph Six: Line 4, delete “ACL”.
(4) Paragraph Seven: Line 4, substitute “room” for
“home”; line 5, insert “room” after “other”.
(5) Paragraph Eight: Line 3, delete “ACL”; line 4, in-
sert “room” after “comparable”.
(6) Paragraph Nine: Line 5, delete “ACL”; line 6, in-
sert “all” after “with”.
(7) Paragraph Ten: Line 3, delete “ACL”; line 4, in-
sert “all” after “with”.
12a
Order Further Amending Complaint
(8) Paragraph Eleven: Line 3, delete “ACL”, sub-
stitute “room” for “home”; line 4, insert “all” after
“with”.
Respondent filed an Answer To Further Amended Com-
plaint on December 28, 1973. It is the undersigned’s
understanding that respondent’s answer was in response
to the complaint, as orally amended on the record at the
prehearing conference of November 30, 1973. Respond-
ent’s amended answer therefore took into consideration
the amendments to the complaint which are made here-
inabove. However, in order that there be no misunder-
standing, respondent is hereby given until January 21,
1974 to file any amended answer which respondent may
deem necessary because of the complaint amendments
made herein. Accordingly,
IT Is FURTHER ORDERED that respondent be, and it hereby
is, given until January 21, 1974 to file a further amended
answer if desired.
January 10, 1974
s/ ERNEST G. BARNES,
Administrative Law Judge.
*
18a
Answer to Further Amended Complaint.
UNITED STATES OF AMERICA,
Berore Fepera, Trape Commission.
[Same Trtte.]
Respondent, as and for its answer to the complaint
herein, as amended to the date hereof:
1. Admits Paragraph ONE, Paragraph TWO, Para-
graph THREE, Paragraph FOUR and Paragraph FIVE.
2. As to Paragraph SIX, admits that the statement be-
ginning with the word “RESERVE” and ending with the
word “days” set forth in Paragraph SIX was contained
in advertisements disseminated by respondent, and ex-
cept as admitted as aforesaid, denies each and every fact
alleged in Paragraph SIX.
3. As to Paragraph SEVEN, admits that by the use of
the statements specifically set forth in Paragraph SIX
of the complaint, respondent represented, directly or by
implication, that reserve cooling power is a unique feature
of Fedders room air conditioners; but avers that the
aforesaid representation of uniqueness of reserve cooling
power was so infrequently made and constituted so small
a percentage of respondent’s advertising expenditures
that its impact upon the purchasing public was insig-
nificant, and except as admitted and averred as afore-
said, denies each and every fact alleged in Paragraph
SEVEN.
4. As to Paragraph EIGHT (which consists of two para-
graphs, the second of which is not numbered), admits that
“reserve cooling power”, referring to ability to function
satisfactorily under conditions of extreme heat and hu-
midity, is not a unique feature of Fedders room air con-
ditioners and that comparable room air conditioners
made by some other companies have such ability and
l4a
Answer to Further Amended Complaint
feature, and, except as admitted as aforesaid, denies each
and every other fact alleged in Paragraph MIGHT.
5. As to Paragraphs NINE, TEN and KLEVEN, ad-
mits that by the use of the statement specifically set
forth in Paragraph SIX of the complaint, respondent
represented, by implication, that at the time the afore-
said statement was made respondent had a reasonable
basis from which to conclude that Fedders room air con-
ditioners, compared with all other room air conditioners,
had a significantly superior ability to function satis-
factorily under conditions of extreme heat and humidity,
further admits that at the time said statement was made
respondent had no reasonable basis for such conclusion;
repeats and realleges the averment set forth as part of
Paragraph “3” of the within answer, and, except as ad-
mitted and averred as aforesaid, denies each and every
fact alleged in Paragraphs NINE, TEN and ELEVEN,
including, without limitation, those alleged in the unnum-
hered second paragraphs of Paragraphs TEN and
ELEVEN.
§. Denies each and every fact alleged in Paragraph
TWELVE and Paragraph THIRTEEN.
AS AND FOR AN AFFIRMATIVE DEFENSE
7. Respondent, in good faith, many months prior to the
issuance of notice by the Commission of a proposed ad-
judicative proceeding against respondent in respect to
the facts alleged in the complaint, ceased disseminating
all advertising material relating to “reserve cooling
power” and has not since resumed the dissemination of
anv such material.
ne ———
15a
Answer to Further Amended Complaint
AS AND FOR A SECOND AFFIRMATIVE DEFENSE
8. The relief sought by the Commission, as set forth in
the form of proposed order attached to the complaint, is
unjustifiably broad in its scope.
AS AND FOR MITIGATING CIRCUMSTANCES WHICH, IF THE
CHARGES ALLEGED IN THE COMPLAINT ARE SUSTAINED, MUST
BE CONSIDERED IN FRAMING ANY ORDER ENTERED HEREIN
9. Respondent repeats and realleges the allegations of
Paragraph “8” hereof with the same force and effect as
if set forth at length hereat.
10. The only advertising claim of respondent alleged
herein to have been false, misleading or deceptive is the
claim of uniqueness of the ‘reserve cooling power” fea-
ture of its air conditioners. This claim was one of ap-
proximately ten advertising claims made by respondent
as to which respondent, by order of the Commission, was
required, on or about October 13, 1973 to furnish sup-
porting material. Respondent duly furnishod such ma-
terial in response to all of the other advertising claims
above referred to, and none of such other claims has
been challenged by the Commission.
December 24, 1973
Weisman, CreLuer, Sperr, Mopun &
WERTHEIMER
Attorneys for Respondent Fedders
Corporation
Office & P. O. Address
New York, New York 10022
By /s/ Sypney B. WerrHermer
A Partner of the Firm
16a
Initial Decision, Daied July 15, 1974.
UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION
(Same Tirte. ]
Initial Decision
By Ernest G. Barnes, Administrative Law Judge.
Heidi P. Sanchez, Esquire,
Paul G. Foldes, Esquire
for the Commission.
Sydney B. Wertheimer, Esquire,
Weisman, Celler, Spett, Modlin &
Wertheimer,
New York, N. Y.,
Attorney for Respondent.
Preliminary Statement
Respondent Fedders Corporation, a corporation, is
charged with violation of Section 5 of the Federal Trade
Commission Act, as amended (15 U.S.C. 45). The com-
plaint issued by the Commission on June 11, 1973, alleges
that respondent, in connection with the advertising, of-
fering for sale, sale and distribution of its room air
conditioners to purchasers thereof, has represented, di-
rectly or by implication, through statements and repre-
sentations in advertisements placed in newspapers of
interstate circulation, that “reserve cooling power” (here-
inafter sometimes referred to as “RCP”) is a unique
feature of its room air conditioners, not found in other
room air conditioners. However, in truth and in fact,
the complaint alleges, RCP, referring to an increased cool-
17a
Initial Decision, Dated July 15, 1974
ing capacity at high loading conditions, is not a unique
feature of Fedders room air conditioners, but that, in
fact, comparable room air conditioners made by other
companies provide an increase in cooling capacity at high
loading conditions.
The complaint further alleges that respondent has also
represented that, at the time the aforesa:d statements
and representations were made, respondent had a rea-
sonable basis from which to conclude that the Fedders
room air conditioners, compared with other room air
conditioners, had a significantly increased cooling capacity
at high loading conditions under customary conditions of
use. In truth and in fact, the complaint alleges, at the
time the said statements and representations were made,
respondent had no reasonable basis for such statements
and representations.
The complaint also alleges that by and through the use
of the aforesaid statements and representations in respect
to RCP, respondent has represented, directly or by im-
plication, that the Fedders room air conditioners, com-
pared with other room air conditioners, have a_ signifi-
cantly increased cooling capacity at high loading condi-
tions under customary conditions of use. At the time said
statements and representations were made, the complaint
alleges, respondent had no reasonable basis from which to
conclude that such was the fact.
In brief, the complaint alleges that respondent has (1)
made a uniqueness claim for its room air conditione ©
when such is not a fact, (2) has represented that it had
a reasonable basis for making a uniqueness claim for its
room air conditioners when it had no reasonable basis for
making such a claim, and (3) has represented that its
room air conditioners, when compared with other room
air conditioners, have a significantly increased cooling
capacity at high loading conditions under customary con-
— .
18a
Initial Decision, Dated July 15, 1974
ditions of use when it had no reasonable basis from which
to conclude that such was the fact.
The above practices are alleged to have the capacity
and tendency to mislead a substantial portion of the pur-
chasing public into the erroneous and mistaken belief
that said statements and representations were and are
true, and into the purchase of substantial quantities of
said products by reason of such erroneous and mistaken
belief. The said practices are alleged to be false, mis-
leading and deceptive, and constitute unfair methods of
competition and unfair or deceptive acts or practices in
commerce in violation of Section 5 of the Federal Trade
Commission Act.
Respondent’s Answer, filed August 14, 1973, generally
admitted the practices alleged in the complaint, but de-
nied that such conduct was unlawful. Respondent also
interposed an affirmative defense, asserting that respond-
ent, “in good faith, many months prior to the issuance
of notice by the Commission of a proposed adjudicative
proceeding against respondent in respect to the facts al-
leged in the complaint, ceased disseminating all advertis-
ing material relating to ‘reserve cooling power’ and has
not since resumed the dissemination of any such material.”
Respondent’s Answer also alleges “as and for mitigating
circumstances .. . in framing any order” that its claim
as to the uniqueness of the RCP feature of its room air
conditioners is the only advertising claim of respondent
alleged in the complaint to be false, misleading or decep-
tive, and was one of approximately ten advertising claims
made by respondent as to which it was required, by Com-
mission Order of October 13, 1971, to furnish supporting
material. Respondent’s Answer asserts that it “duly fur-
nished such material in response to all the other adver-
tising claims above referred to, and none of such other
claims has been challenged by the Commission.”
19a
Initial Decision, Dated July 15, 1974
Thereafter, on August 17, 1973, complaint counsel filed
a Motion To Strike Affirmative Defenses on the grounds
that they are without merit, do not constitute an affirma-
tive defense, and are appropriately denials. On August
24, 1973, Motion Of Complaint Counsel For Summary
Decision was filed.
At a prehearing conference held on August 27, 1973,
it was agreed that complaint counsel would file a motion
to amend the complaint, and on that date Motion Of
Complaint Counsel To Amend Complaint And To Amend
Motion For Summary Decision was filed. Thereafter, on
September 6, 1973, the undersigned issued an order grant-
ing an extension of time until September 21, 1973 for
respondent to file an answer to the amended complaint,
which time to answer was subsequently extended until
November 12, 1973.
At a further prehearing conference held on November
30, 1973, respondent’s Answer To Amended Complaint filed
on November 12, 1973, was discussed. In its Answer,
respondent generally admitted the factual allegations of
the complaint (see PHC Tr. 56-60), but denied those para-
graphs which allege the respondent’s conduct to be un-
lawful. At the said prehearing conference, the complaint
was further amended on the record by the undersigned as
follows (PHC Tr. 74):
“T think the two major points were that the com-
plaint is concerned with all Fedders room air con-
ditioners, and is concerned with all advertisements
which made the claim that reserve cooling power
was unique, and in paragraphs 9 through 12, we
are reading into the complaint, ‘compared with all
other room air conditioners.’ Those are the amend-
ments, and I think making them on the record here
is sufficient.”
20a
Imtial Decision, Dated July 15, 1974
Respondent, in response to the amendments made orally
at the prehearing conference, filed an Answer To Fur-
ther Amended Complaint on December 28, 1973. So that
the public record would reflect these amendments to the
complaint made at the prehearing conference, an Order
Further Amending Complaint was issued by the under-
signed on January 10, 1974. Respondent was given until
January 21, 1974 to further amend its Answer, if neces-
sary. No further answer was filed.
The First Stipulation Of The Parties was filed on March
19, 1974. This Stipulation provides that the term “re-
serve cooling power” shall refer to the description of
that term which is stated in Paragraphs 5 and 8 through
11 of respondent’s Answer To Further Amended Com-
plaint, complaint counsel thereby in effect adopting re-
spondent’s definition of RCP in lieu of the definition of
that term set forth in the complaint. The Second Stip-
ulation Of The Parties, also filed on March 19, 1974, is an
agreement that the information contained therein is a fair
and accurate description of the extent of dissemination
of Fedders room air-conditioner advertising in four sample
areas over a two-year period.
A further prehearing conference scheduled for March
27, 1974 was cancelled and rescheduled for March 29,
1974 because of the illness of counsel for respondent. Due
to the continued illness of counsel for respondent, the
pre-hearing conference scheduled for March 29, 1974 was
cancelled, and a formal hearing was scheduled by the
undersigned for April 16, 1974.
At the formal hearing held on April 16, 1974, no wit-
nesses were called; respondent’s exhibits 1 A-Z-55, 2
A-B, and Joint Exhibit 1 A-I were received in evidence;
complaint counsel’s Motion To Strike Affirmative Defenses
and Motion For Summary Decision were denied on the
record; the record was closed for the reception of evi-
dence; and, upon request of counsel for respondent, the
2la
Initial Decision, Dated July 15, 1974
filing of simultaneous proposed findings was postponed
from May 16, 1974 to May 30, 1974, and the filing
of replies thereto postponed from May 30, 1974 to June
10, 1974 (Tr. 99-101). Respondent's time in which to sub-
mit a reply was subsequently extended to June 12, 1974.
A Stipulation Of The Parties, dated April 10, 1974, re-
ferring to the term “reserve cooling power”, was filed
on April 13, 1974. On April 24, 1974, an Order Incor-
porating Into The Record Stipulation Of The Parties,
dated April 19, 1974, was issued by the undersigned. By
this Stipulation, the parties accepted respondent’s defi-
nition of “reserve cooling power” for all purposes of this
proceeding.
. The parties have submitted proposed findings, support-
ing memoranda, and proposed orders. Respondent has
also filed a reply brief. This proceeding is therefore
hefore the undersigned based upon the complaint, as
amended, the answers filed by respondent, the stipula-
tions of the parties, the joint exhibit of the parties, the
proposed findings and memoranda submitted by the par-
ties, and respondent’s reply brief. No witnesses were
called to testify, and the exhibits of record are by stipu-
lation. Thus, the basic facts herein are undisputed.
The submissions by the parties have been given care-
ful consideration and, to the extent not adopted by this
decision in the form proposed or in substance, are re-
jected as not supported by the record or as immaterial.
Any motions not heretofore or herein ruled upon, either
directly or by the necessary effect of the conclusions in
this decision, are hereby denied. The findings of fact
made herein are based on a review of the entire record
and include references to the principal supporting evi-
dence in the record. Such references are intended to
serve as convenient guides, but do not necessarily repre-
sent complete summaries of the evidence considered in
arriving at such findings.
22a
Initial Decision, Dated July 15, 1974
References to the record are set forth in parentheses,
and certain abbreviations, as hereinafter set forth, are
used:
CPF —Proposed Findings of Fact, Conclusions
of Fact And Law, And Order submitted
by Complaint Counsel.
CM ——Memorandum In Support Of The Pro-
posed Findings of Fact, Conclusions of
Fact And Law, And Order submitted by
Complaint Counsel.
RAFAC -—-Respondent’s Answer To Further
Amended Complaint.
RPF —Respondent’s Proposed Findin gs of
Fact And Conclusions of Law.
RB —Respondent’s Brief To The Administra-
tive Law Judge.
RO -—-Proposed Order submitted by Respond-
ent.
RX -—-Respondent’s Exhibits.
Jt. Stip. —-Joint stipulation submitted by the par-
ties. (The abbreviation will be followed
by the number of the stipulation and the
page number upon which the evidence
being cited appears.)
Jt. Kx. —Joint Exhibit of the parties.
PHC Tr. —Transcript of the prehearing confer-
ences, followed by the page number be-
ing referenced.
Tr. —Transcript of the formal hearing, fol-
lowed by the page number being refer-
enced.
—
23a
Initial Decision, Dated July 15, 1974
Findings of Fact
Identity And Business of Respondent
1. Respondent Fedders Corporation, hereinafter some-
times referred to as “Fedders”, is a corporation organ-
ized, existing and doing business under and by virtue of
the laws of the State of New York, with its principal
office and place of business located at Edison, New Jer-
sey (Admitted, RAFAC, Par. 1).
2. Respondent Fedders is now and has been engaged
in the advertising, offering for sale, sale and distribu-
tion of Fedders air conditioners, including Fedders room
air conditioners (Admitted, RAFAC, Par. 1).
3. In the course and conduct of its aforesaid business,
respondent Fedders now causes and has caused its air
conditioners, when sold, to be transported from its place
of business in the State of New Jersey to purchasers
thereof located in various states of the United States,
and in the District of Columbia. Respondent Fedders
therefore maintains, and at all times mentioned herein
has maintained, a substantial course of trade in said
air conditioners in commerce, as “ecommerce” is defined
in the Federal Trade Commission Act (Admitted, RAFAC,
Var. 1).
4. In the course and conduct of its business as afore-
said, and at all times mentioned herein, respondent Fed-
ders has been, and is now, in substantial competition in
commerce with corporations, firms and individuals en-
gaged in the sale of air conditioners of the same general
type as that sold by respondent (Admitted, RAFAC,
Par. 1).
5. In the course and conduct of its business as afore-
said, and for the purpose of inducing the sale of its
24a
Initial Decision, Dated July 15, 1974
said air conditioners in commerce, as “commerce” is de-
fined in the Federal Trade Commission Act, respondent
has disseminated, and caused to be disseminated, certain
advertisements of its room air conditioners, including but
not limited to, advertisements printed in newspapers lo-
cated in various states of the United States and in the
District of Columbia, which newspapers are dissemi-
nated across state lines (Admitted, RAFAC, Par. 1).
The Challenged Advertisements
6. Pursuant to a resolution of the Federal Trade Com-
mission dated June 9, 1971, and amended July 7, 1971,
entitled “Resolution Requiring Submission of Special Re-
ports Relating to Advertising Claims and Disclosure
Thereof by the Commission in Connection with a Public
Investigation”, 36 Fed. Reg. 12,058 (June 9, 1971), as
amended, 36 Fed. Reg. 14,680 (July 7, 1971) (Motion of
Complaint Counsel For Summary Decision, Appendix A,
p. 1, Appendix B, p. 1), on September 30, 1971, the Com-
mission ordered respondent Fedders to file a Special Re-
port on specific advertising claims. One of the adver-
tising claims for which the Commission requested docu-
mentation and other substantiation by Special Report
was:
“Reserve Cooling Power—only Fedders has this
important feature. It’s your assurance of cooling
on extra hot, extra humid days.”
The information demanded was:
“All documentation and other substantiation for
the claim that only the Fedders room air condi-
tioner has extra cooling power that assures cool-
ing on extra hot, extra humid days.” (Motion of
Complaint Counsel For Summary Decision, Appen-
dix A, p. 4.)
eee me eee
25a
Initial Decision, Dated July 15, 1974
The specific advertisement questioned by the Commission’s
Special Report appeared in The Monroe Morning World,
Monroe, Louisiana, June 10, 1971 (Motion of Complaint
Counsel For Summary Decision, Appendix A, p. 3).
7. Respondent filed its response to the Commission’s
Special Report on December 22, 1971. In its response,
Fedders admitted the lack of substantiation for the claim
that RCP was unique to Fedders. Respondent stated:
“As to claim that only Fedders has this reserve
cooling power feature, we have found that this
claim is not substantiated and do not propose to
include it in any further advertising copy which
we may promulgate.” (Motion of Complaint Coun-
sel For Summary Decision, Appendix B, p. 3.)
8. The advertisement set forth in the © jission’s
Special Report was incorporated in Paragraph Six of
the complaint herein and was alleged in Paragraphs Seven
and Eight of the complaint to be a uniqueness claim for
Fedders room air conditioners, which is false and decep-
tive. Respondent has admitted that this advertisement
represented, directly or by implication, that RCP is a
unique feature of Fedders room air conditioners. Re-
spondent further admitted that RCP, referring to ability
to function satisfactorily under conditions of extreme heat
and hmaidity, is not a unique feature of Fedders room
air conditioners and that comparable room air condi-
tioners made by some other companies have such ability
and feature (RAFAC, pp. 1-2).
The complaint in Paragraph Fight alleges that RCP re-
fers to “an increased cooling capacity at high loading
conditions”. The parties have stipulated that RCP re-
fers to the “ability to function satisfactorily under con-
ditions of extreme heat and humidity” (First Stipula-
tion Of The Parties; RAFAC, p. 2; Stipulation Of The
26a
initial Decision, Dated July 15, 1974
Parties dated April 19, 1974). These meanings are es-
sentially equivalent and any distinction between the two
definitions is without significance in this proceeding.
9. By and through the use of the aforesaid statements
and representations, respondent has represented, directly
or by implication, that RCP is a unique feature of Fedders
room air conditioners, not found in other room air con-
ditioners (Admitted, RAFAC, p. 1). In truth and in
fact, RCP, referring to an ability to function satisfactorily
under conditions of extreme heat and humidity, is not a
unique feature of Fedders room air conditioners. In
fact, comparable room air conditioners made by some
other companies function satisfactorily under conditions
of extreme heat and humidity (Admitted, RAFAC, p. 2).
Therefore the statements and representations that RCP
is a unique feature of Fedders room air conditioners is
false, misleading, and deceptive.
10. By and through the use of the aforesaid statements
and representations, respondent has also represented, di-
rectly or by implication, that, at the time the aforesaid
statements and representations were made, respondent had
a reasonable basis from which to conclude that Fedders
room air conditioners, compared with all other room air
conditioners, had a significantly superior ability to fune-
tion satisfactorily under conditions of extreme heat and
humidity (Admitted, RAFAC, Par. 5). In truth and in
fact, at the time the aforesaid statements and representa-
tions were made, respondent had no reasonable basis to
support the representation that Fedders room air condi-
tioners, compared with all other room air conditioners,
had a significantly superior ability to function satisfac-
torily under conditions of extreme heat and humidity (Ad-
mitted, RAFAC, Par. 5). Therefore, the statements and
representations were and are false, misleading and decep-
tive.
— ———————-
27a
Initial Decisivn, Dated July 15, 1974
11. By and through the use of the aforesaid statements
and representations, respondent has also represented, di-
rectly or by implication, that Fedders room air condi-
tioners, compared with all other room air conditioners,
have a significantly increased cooling capacity at high
loading conditions under customary conditions of use. At
the time said statements and representations were made,
respondent had no reasonable basis from which to con-
clude that such was the fact (Admitted, RAFAC, Par. 5).
Therefore, the statements and representations were and
are false, misleading and deceptive.
12. The use by respondent of the aforesaid false, mis-
leading and deceptive statements and representations has
had, and now has, the capacity and tendency to mislead
a substantial portion of the purchasing public into the
erroneous and mistaken belief that said statement- and
representations were and are true and into the purchase
of substantial quantities of said products by reason of
said erroneous and mistaken belief.
Respondent’s Defenses
13. In its answers, filed herein, including its Answer To
Further Amended Complaint, respondent, as and for an
affirmative dcfense, alleges that it, in good faith, many
months prior to the issuance of notice by the Commis-
sion of a proposed adjudicative proceeding against re-
spondent in respect to the facts alleged in the complaint,
ceased disseminating all advertising material relating to
RCP and has not since resumed the dissemination of any
such material. Respondent further alleged, as and for
mitigating circumstances if the allegations in the com-
plaint are sustained, that the advertising claim alleged
in the complaint to be false, misleading or deceptive is
only one of approximately ten advertising claims made
by respondent as to which it was required by the Com-
28a
Initial Decision, Dated July 15, 1974
mission to furnish supporting material. Respondent fur-
nished such material in respect to the other advertising
claims in response to the Commission’s Order, and none
of the other claims have been challenged by the Com-
mission (RAFAC, pp. 3-4). Respondent further affirma-
tively averred in its Answer To Further Amended Com-
plaint that the challenged statements and representations
of uniqueness of RCP were so infrequently made and con-
stituted so small a percentage of respondent's advertising
expenditures that its impact upon the purchasing public
was insignificant (RAFAC, pp. 1-2).
Respondent’s Expenditures For
RCP Advertisements
14. In view of respondent’s contentions concerning the
insubstantiality of advertisements claiming uniqueness for
RCP, the Administrative Law Judge suggested there
should be submitted for the record the total advertising
expenditures, the total number of advertisements which
utilized the term “reserve cooling power”, the expendi-
tures for those advertisements, the total number of adver-
tisements which utilized a claim of uniqueness for “re-
serve cooling power”, the total expenditures for those ad-
vertisements, as well as sample advertisements of both
types. It was further suggested by the Administrative
Law Judge that such information could be hased on a
sample area (PHC, Tr. 70).
15. The sample areas agreed upon by the parties for
the above purposes are as follows:
(1) The Florida Area:
This area, serviced during the years involved by Cain
& Bultman, as distributor, comprised the entire State
<a .~—eee
29a
Initial Decision, Dated July 15, 1974
of Florida (except the extreme northwest portion
thereof), and the eleven southeasternmost counties of the
State of Georgia.
(2) The Washington, D. C. Metropolitan Area:
This area, serviced during the years involved by Ameri-
ean Appliance Wholesalers, as distributor, consisted of
the District of Columbia, together with thirteen Virginia
counties and five Maryland counties in the surrounding
area.
(3) The Philadelphia Metropolitan Area:
This area, serviced during the years involved by Samuel
Jacobs Distributors, Inc. and its subsidiaries and affili-
ates, as distributors, consisted of the City of Philadel-
phia and nearby counties, of which twenty-one were in
the State of Pennsylvania, eight in the State of New Jer-.
sey, and two in the State of Delaware.
(4) The New York Metropolitan Area.
This area, serviced during the years involved by L & P
Electrie Co., Inc. and its subsidiaries and affiliates, as
distributors, consisted of New York City, Long Island,
the eigh* southernmost counties of New York adjacent
to New York City, thirteen counties in eastern and north-
ern New Jersey, six counties in western and central Con-
necticut, and three counties in the southernmost part of
Massachusetts (Respondent’s Response To Commission’s
Motion For Summary Decision, Exhibit 1 of the Pochick
Affidavit; Tr. 88-90).
16. The time period agreed upon for the sample areas
was the two fiscal years of respondent ending August
31, 1970 and August 31, 1971, respectively (Second Stipu-
lation Of The Parties, p. 1; RPF, p. 9).
30a
Initial Decision, Dated July 15, 1974
17. The parties stipulated that Fedders’ total advertis-
ing expenditures for each fiscal year in each sample area
for Fedders air conditioners of all types were approxi-
mately as follows (Second Stipulation Of The Parties) :
Fiseal F iseal
1969-1970 1970-1971
Florida $176,000 $245,000
Washington, D. C. $ 35,000 $ 24,000
Philade]phia $180,000 $118,000
New York $860,000 $846,000
Of the above total, the following represents total adver-
tising expenditures for each year in each sample area for
cooperative newspapers advertising of Fedders room air
conditioners (Second Stipulation Of The Parties; Tr.
90) :
Fiscal Fiseal
1969-1970 1970-1971
Florida $ 90,036.04 $ 77,857.76
Washington, D. C. $ 28,760.87 $ 6,717.95
Philadelphia $ 99,810.15 $ 44,388.59
New York $247,403.62 $142,313.53
The parties have stipulated that the total number of
insertions of cooperative newspaper advertisements in
each sample area wer? as follows (Second Stipulation Of
The Parties) :
Fiscal Fiscal
1969-1970 1970-1971
Florida 1229 920
Washington, D. C. 163 85
Philadelphia 985 309
New York 1997 1202
; ‘
3la
Initial Decision, Dated July 15, 1974
Further, the parties stipulated that the following rep-
resents the total number of cooperative newspaper ad-
vertisements claiming RCP and the total expenditures for
such advertisements (Second Stipulation Of The Parties;
Stipulation Of The Parties dated Aprii 19, 1974):
Fiscal Fiscal
1969-1970 1970-1971
Inser- Expendi- Inser- Expendi-
tions tures tions tures
Florida 252 $ 29,002.72 111 $15,067.38
Washington, D.C. 73 $ 10,987.70 25 §$ 2,236.24
Philadelphia 291 $ 29,940.69 132 $17,409.14
New York 1487 $129,131.33 738 $48,266.75
The parties have stipulated that, of the above number
of cooperative newspaper advertisements, the following
number claimed uniqueness to Fedders of RCP followed
by the expenditure for such advertisements:
Fiscal Fiscal
1969-1970 1970-1971
Inser- Expendi- Inser- Expendi-
tions tures tions tures
Florida 37 $2,899.38 35 $5,946.05
Washington, D. C. ) $ 826.91 8 $ 371.93
Philadelphia 33 $4,876.74 ) $ 896.74
New York 33 $1,750.06 ) $ 701.90
18. On the basis of the above stipulated figures, re-
spondent’s expenditures for cooperative advertisements
claiming uniqueness for RCP constitute the following
32a | 33a
Initial Decision, Dated July 15, 1974 | Initial Decision, Dated July 15, 1974
19. On the basis of the above stipulated figures, re-
spondent’s advertisements claiming uniqueness for reserve
cooling power and advertisements not claiming unique-
ness for reserve cooling power, and the expenditures
therefor, constitute the following ratio to the total num-
ratio to total advertising expenditures and to total co-
operative advertising expenditures:
Ratio Expenditures
For Advertisements
ae a er a
Total 2-yr. Expen- Claiming Uniqueness ber of cooperative advertisements utilized by respondent
ditures for Adver- For Reserve Cooling and the following ratio for the expenditures for such ad-
tisements Claiming Power to Total Ad- vertisements :
Total 2-yr. Ex- Uniqueness for Re- vertising Expendi-
penditures serve Cooling Power tures Total Number Total Number Co- Total Number Coop-
— ee sesne e1 * Cooperative operative Advertise- erative Advertise-
Wading B.C porn <ameiie aaa * Advertisements ments 1969-1971 ments Claiming
, ndaaggdieae , outa — 1969-1971 Claiming Reserve Uniqueness For Re-
Philadelphia 298,000 5,773.48 1.94 % Cooling Power serve Cooling Power
New York 1,706,000 2,451.96 143%
sniieitiinitanieie aaa - Florida 2149 363 72
$2,484,000 $18,269.71 136% Washington, D. C. 248 98 si
Philadelphia 1294 423 49
New York 3199 2225 42
Totals — —_— —
6890 3109 173
Ratio Advertisements Claiming Uniqueness for Re-
serve Cooling Power To All Reserve Cooling Power
Advertisements 1969-1971
. ’ All Areas 5.56 %
Ratio Expenditures Total Expenditures For Advertise- Total Expenditures For Advertise-
' wer Advertisements ments Claiming Reserve Cooling ments Claiming Uniqueness For Re-
Total 2 yr. Expendi- Claiming Uniqueness Power 1969-1971 serve Cooling Power 1969-1971
Total 2-yr. Co- tures For Adver- For Reserve Cooling
operative Ad- tisements Claiming Power to Total Co-
vertising Ex- Uniqueness For Re- operative Advertising
penditures serve Cooling Power Expenditures
Florida $167,893.80 $ 8,845.43 5.27%
Washington, D. C. 35,478.82 1,198.84 3.38%
Philadelphia 144,198.74 5,773.48 4.04%
New York 389,717.15 2,451.96 63%
$737,288.51 $18,269.71 2.47%
34a
Initial Decision, Dated July 15, 1974
Florida $ 44,070.10 $ 8,845.43
Washington, D. C. 13,223.94 1,198.84
Philadelphia 47,349.83 5,773.48
New York 177,398.08 2,451.96
$282,041.95 $18,269.71
Ratio Expenditures For Advertisements
Claiming Uniqueness For Reserve Cool-
ing Power To All Reserve Cooling
Power Advertisements 1969-1971
All Areas 7.8%
20. In the Florida subarea, the majority of the ad-
vertisements with unique RCP claims were in newspapers
with circulations of less than 50,000. Iowever, there
were several advertisements placed in newspapers with
daily cireulation figures in excess of 170,000. In the
Washington, D. C. subarea, most of such insertions were
in small publications, none with a circulation of over
30,000 and most under 12,000. In the Philadelphia sub-
area, roughly one-half of the insertions were in small
town or small city publications, with circulations of un-
der 100,000. Several advertisements appeared in the
Philadelphia Inquirer with a daily circulation of over
450,000. In the New York City subarea, all of the inser-
tions were in small town or small city newspapers, the
largest with a cireulation of 66,000. Examination of the
texts of these advertisements discloses that the unique
RCP claim was featured in only a minority of the adver-
tisements (RX 1).
21. The parties hereto have further stipulated that re-
spondent’s expenditures for advertising which claimed
“reserve cooling power” were, with insignificant excep-
Ab ee ne oe ES OR | oe eet
35a
Initial Decision, Dated July 15, 1974
tions (the cost of certain store display cards and the
imprints on certain factory cartons), confined to the
aforesaid cooperative advertisements (Stipulation Of The
Parties dated April 19, 1974).
Respondent’s Advertisements Not Claiming
Uniqueness For Reserve Cooling Power
22. Complaint counsel contend that Fedders’ advertise-
ments, referring to RCP without claiming uniqueness,
suggested the superiority of the feature with language
similar to that used in the uniqueness claims.. Samples
of advertisements selected by complaint counsel and _ re-
spondent as representative of such advertisements are
contained in the record (Second Stipulation Of The Par-
ties, Attachment A). These advertisements, while not
claiming uniqueness for “reserve cooling power”, state
the following with respect to “reserve cooling power”:
“RESERVE COOLING POWER... it’s Fedders engi-
neering ‘extra’ which gives maximum cooling even
when sunload reaches 115° ... and other units
fail!”
“Fedders Sound Barrier models—as close to per-
fect as an air conditioner can get ... plus Re-
serve Cooling Power for an extra cooling strength.”
“You get Reserve Cooling Power for extra hot.
extra humid days.”
“Pius Reserve Cootinc Power, Too (for extra
hot, humid days).”
“And you get: Reserve Cooling Power for extra
hot, humid days; .. .”
23. Complaint counsel introduced no evidence to estab-
lish consumer perception of the representations contained
in respondent’s advertisements, or that there were latent
36a
Initial Decision, Dated July 15, 1974
or implied messages in the statements. The Administra-
tive Law Judge must therefore exercise his own judgment
‘as to the representations, express or implied, contained in
respondent’s advertisements.
24. These advertisements, which state that “reserve
cooling power” is an “extra” or is a feature designed for
extra hot, humid days, or gives extra cooling strength,
do not claim such feature is unique with Fedders room
air conditioners. The only advertisement which contains
a comparative claim is the first representation set forth
above, which states that “reserve cooling power” is a
Fedders engineering “extra” which gives maximum cool-
ing even when sunload reaches 115°, and other units fail.
This is a comparative representation, but it does not com-
pare Fedders room air conditioners with all other room
air conditioners.
25. The complaint challenges as unlawful Fedders’
statements and representations that “reserve cooling
power” is “a unique feature of Fedders room air condi-
tioners” when such was not a fact (Paragraphs Seven
and Kight); that, by and through the uniqueness claim,
ledders represented, directly or by implication, that Fed-
ders had a reasonable basis from which to conclude the
Fedders room air conditioners had a significantly in-
creased ability to function satisfactorily under conditions
of extreme heat and humidity when compared with all
other room air conditioners, when in fact Fedders had
no reasonable basis for making such claim (Paragraphs
Nine and Ten); and that, by and through the use of the
uniqueness claim, Fedders also represented, directly or
by implication, that Fedders room air conditioners, com-
pared with all other room air conditioners, have a sig-
nificantly increased ability to function satisfactorily under
conditions of extreme heat and humidity when Fedders
had no reasonable basis to conclude that such was the
fact (Paragraph Eleven). Thus, the unlawful representa-
ae teenie nee
ee ee
Patina Nk et St
37a
Initial Decision, Dated July 15, 1974
tions made by Fedders, which are challenged in the
complaint, arise from the “uniqueness” claim for Fedders
air conditioners, as set forth in Paragraph Six of the
complaint.
26. A “uniqueness” claim necesssarily connotes a com-
parison with all other air conditioners, unless the litera!
wording of the complaint warrants some other interpre-
tation (see 1TT Continental Baking Company, Inc., et al.,
Docket No. 8860, Opinion Of The Commission, dated
October 19, 1973, Slip Op., pp. 14-15). In fact, the Ad-
ministrative Law Judge amended the complaint allega-
tions in this matter to specifically state that the unique-
ness representations of superiority were to be measured
against all other room air conditioners (PHC Tr. 48-49;
Order Further Amending Complaint, January 10, 1974).
The Administrative Law Judge therefore concludes that
the representative advertisements of Fedders room air
conditioners, which utilize “reserve cooling power”, but
which do not claim uniqueness for this feature, are not
challenged in the complaint.
27. The stipulated advertising figures in the record
establish that 45.1% of respondent’s cooperative advertise-
ments utilize RCP representations, and 2.51% of respond-
ent’s cooperative advertisements claim uniqueness for
RCP. Of all advertisements claiming RCP, 5.56% thereof
claim uniqueness. As far as expenditures are concerned,
2.47% of total cooperative advertising expenditures were
for advertisements claiming RCP. Of expenditures for
advertisements claiming RCP, 7.8% thereof was expended
for advertisements claiming uniqueness for RCP. In
view of the small percentage of advertisements claim-
ing uniqueness for RCP and the small percentage of
expenditures for advertisements claiming uniqueness for
RCP in relation to respondent’s total advertising pro-
gram involving RCP claims, the Administrative Law
Judge concludes, in the absence of any evidence pre-
38a
Initial Decision, Dated July 15, 1974
sented by either party bearing on this issue, that there
was no carry-over effect on consumers, from advertise-
ments claiming uniqueness for RCP to advertisements
merely claiming RCP. The record is silent as to the type
of in-store display ecards utilized, or the extent of their
use (see Finding 21).
Respondent’s Discontinuance Defense
28. When Fedders responded to the Commiission’s Spe-
cial Report on December 22, 1971, it stated as follows:
“As to the claim that only Fedders has this re-
serve cooling power feature, we have found that
this claim is not substantiated and de not propose
to include it in any further advertising copy which
we may promulgate” (Motion of Complaint Coun-
sel For Summary Decision, Appendix B, p. 3; Jt.
Ex. 1).
Also, on December 22, 1971, KFedders sent a bulletin
to all of its distributors advising that “Old powerful
selling friends like ‘Reserve Cooling Power’, ‘multi-room
cvoling’, ‘cools three rooms, even a smai! home’, ‘installs
in minutes’, ‘germicidal filter’ ave wo longer.” Distributors
were further advised that they are not to use any of
the advertisements provided in 1971 and earlier years.
Distributors are requested to advise dealers that adver-
lisements must not inake any claims for the Fedders prod-
uct that are not made in Fedders’ supplied 1972 materials
(Jt. Ex. 1 H).
This bulletin does not acknowledge that “reserve cool-
ing power” claims were untrue, or were capable of mis-
leading customers, or could not be proved or substan-
tiated. Instead, the bulletin states that Fedders is “elimi-
nating every phrase that could possibly be questioned by
the FTC” (Jt. Ex. 1H). The bulletin also indicates that
“reserve cooling power”, along with the other advertis-
39a
Initial Decision, Dated July 15, 1974
ing representations, are being eliminated “not that they
are not provable or that they are misleading, but simply
because the explanation and qualifications that would have
to be included in each ad would take up too much space”
(Jt. Ex. 1 H).
29. An affidavit by Harold Boxer, Director of Merchan-
dising of Fedders, which is attached to Respondent’s Re-
sponse To Commission’s Motion For Summary Decision,
stated that the Fedders Advertising Department in or
about 1964 or 1965 coined the phrase “reserve cooling
power” as an expression of the operating characteristics
under extreme temperatures of Fedders room air condi-
tioners, and the words had been featured in Fedders’
advertising through 1971.
30. In an affidavit attached to Respondent’s Response
To Commission’s Motion For Summary Decision, Paul
(. Anderson, Advertising Manager for Room air Condi-
tioners of Fedders, stated that all references to “reserve
cooling power” were completely dropped from Fedders’
advertising in December 1971 and that those words have
not been used by Fedders in the preparation of further
advertising matter.
31. Sam Muscarnera, House Counsel for Fedders, has
submitted an affidavit dated April 15, 1974, which has
been received into the record by stipulation of counsel
for the parties (Jt. Ex. 1 C-G). Mr. Musearnera has
set forth the steps taken by Fedders in order to maintain
firmer control, insofar as possible, over advertising. Mr.
Muscarnera also stated that “the likelihood of Fedders’
repetition of the offending practices charged is exceed-
ingly remote” (Jt. Ex. 1 @).
32. The Commission served its Order To File Special
Report calling for advertising substantiation on respond-
ent on October 15, 1971; notice of a proposed adjudicative
40a
Initial Decision, Dated July 15, 1974
hearing was served on respondent on October 12, 1972;
and the formal complaint herein issued on June 11, 1973
(RPF, p. 7).
33. There is no evidence in the record indicating that
any claims for “reserve cooling power” have been dis-
seminated since December 22, 1971 (Jt. Ex. A-E).
34. “Climatrol” brand room air conditioners are manu-
factured by Fedders, and marketed through a wholly-
owned subsidiary known as Mueller Climatrol Corp. An
advertisement for “Climatrol” central air conditioners ap-
peared in the March 4, 1974 issue of Newsweek magazine
which claimed, among other things, that the rotary com-
pressor of the unit was “exclusive”. This advertisement
was called to Fedders’ attention by complaint counsel,
who questioned the use of the word “exclusive” by Clima-
trol in light of the fact that similar products are manu-
factured and marketed by Fedders under the “Fedders”
brand. Fedders has maintained, in an affidavit submit-
ted by Mr. Muscarnera, that Mueller Climatrol Corp., in
contrast to the great iiajority of Fedders’ subsidiaries
and divisions, is semiautonomous, and its sales and ad-
vertising staff operate independently of the advertis-
ing organization and personnel of Fedders. Consequently,
up to the time the above advertisement appeared, Mueller
Climatrol Corp. had not cleared its advertising through
Fedders, as had other Fedders divisions. Mueller Clima-
trol had previously been advised by Fedders to avoid the
use of the word “exclusive” in any context whenever pos-
sible, and, accordingly, as early as October 15, 1973, had
substituted the word “exciting” for the word “exclusive”
as applied to the rotary compressor (Jt. Ex. 1 F).
35. While the exclusivity of the rotary compressor in
the residential central air conditioning field is not chal-
lenged in this proceeding, the use of the word “exclusive”
as to “Climatrol” brand units could, from a technical
4la
Initial Decision, Dated July 15, 1974
standpoint, create confusion in consumers’ minds unless
accompanied by appropriate explanatory material (Jt. Ex.
1 F). This incident is of sign. fieance to this proceeding
in view of respondent’s discontinuance argument, since it
clearly indicates that Fedders had not taken appropriate
steps, at least as of October 1973, to prevent the promul-
gation of false or deceptive advertisements by all its sub-
sidiaries and divisions because Climatrol advertisements
were not cleared through Fedders as of that date. In
fact, it appears that as late as March 1974, Fedders’ divi-
sions and subsidiaries were utilizing advertisements con-
taining representations which had not been reviewed and
cleared by responsible Fedders officials.
Conclusions.
The complaint, as amended by the Administrative Law
Judge, charges that respondent represented that reserve
cooling power is a unique feature of Fedders room air
conditioners, not found in other room air conditioners,
and that, in fact, respondent had no such reasonable basis
as to Fedders room air conditioners. The complaint, as
amended, also charges respondent with representing that
it had a reasonable basis for the claim that reserve cool-
ing power is unique with Fedders room air conditioners
and that, in fact, respondent had no such reasonable basis
for such representation. The amended complaint further
charges that by use of the uniqueness claim, respondent
represented that its room air conditioners operated in a
way superior to the functioning of other room air condi-
tioners, and that such is not a fact.
In its Answer To Amended Complaint, respondent ad-
mitted making these representations, that it had no rea-
sonable hasis therefor, and that there was no basis in
fact for the representations. Therefore, all. allegations of
unlawful conduct charged in the complaint have been
admitted. Under the doctrine pronounced hy the Com-
42a
Initial Decision, Dated July 15, 1974
mission in Pfizer, “* * * it is an unfair practice in viola-
tion of the Federal Trade Commission Act to make an
affirmative product claim without a reasonable basis for
making that claim.” Pfizer, Inc., Docket 8819, Opinion
of the Commission, 81 F. T. C. 23, 62 (1972).
Thus, the only issues remaining after the pleadings
are whether these admittedly unlawful acts and practices
have the tendency and capacity to mislead a substantial
portion of the purchasing public; whether discontinuance
is a defense to an order in this proceeding; and whether
respondent’s conduct was sufficiently serious to support
an order.®
Discontinuance
It is undisputed that claims relating to reserve cooling
power have been discontinued. The circumstances sur-
rounding discontinuance, set forth hereinafter, are like-
wise undisputed.
The advertising campaign for reserve cooling power
was of lengthy duration, beginning at least in the mid-
sixties and continuing until late 1971, the date of the dis-
continuance. The extended usage of the claims is a strong
indication of the importance of said claims to the ad-
vertising strategy followed by respondent. Respondent
has referred to the reserve cooling power advertising
claims as an “[O]ld powerful selling friend(s)” (Jt. Ex.
1 TT).
*In its reply brief respondent states: ‘‘The central issues
are two: first, whether under all the cireumstaneces here in-
volved, the complaint should be dismissed by reason of Respond-
ent’s discontinuance of the offending practice, and second, if
the complaint is not dismissed, whether Complaint Counsel’s
Proposed Order * * * is impermissibly broad’’ (Reply Brief,
pp. 1-2).
43<
Initial Decision, Dated July 15, 1974
The discontinuance of reserve cooling power claims in
late 1971 cannot be considered to have been a volun-
tary action. The record establishes that the discontinu-
ance occurred as a direct result of respondent’s aware-
ness of the Commission’s investigation of its advertising.
The record clearly demonstrates that it was only during
the preparation of the response to the Commission’s Spe-
cial Report that respondent made the decision to dis-
continue the uniqueness claim, as well as the more gen-
eral claim regarding reserve cooling power. It was not
until the same date that respondent filed its response to
the Special Report with the Commission that it warned
its distributors to stop making any reserve cooling power
claims. “In other words respondent stopped violating
the law when it learned that the law’s hand was already
on its shoulder, * * *.” Coro, Inc., et al., Docket 8346,
Opinion of the Commission, 63 F. T. C. 1164, 1201 (1963).
“*That discontinuance of an unlawful practice, of itself,
does not necessarily preclude the issuance of a cease and
desist order is so well settled as to preclude further argu-
ment.’” Giant Food, Inc., Docket 7773, Opinion of the
Commission, 61 F. T. C. 326, 356 (1962), citing Marlene’s
Inc. v. F. T. C., 216 F. 2d 556, 559 (7th Cir. 1954). Fur-
ther, the courts have consistently recognized the propriety
of a cease and desist order when, as in this case, the dis-
continuance was not entirely voluntary. Galter v. F. T. C.,
186 F. 2d 810, 812, 813 (7th Cir. 1951), cert. den. 342
U. S. 818 (1951); Euqene Dietzqen Co. v. F. T. C., 142
F. 2d 321, 330 (7th Cir. 1944), cert. den. 323 U. S. 730
(1944). Thus, the fact that respondent’s discontinuance
is directly attributable to the Commission’s investigation
must he given substantial weight when judging the merits
of respondent’s discontinuance.
The First Cireuit in Coro, Inc., v. F. T. C., 338 F. 2d
149, 153 (1964), cert. den. 380 U. S. 954 (1965), in up
holding a Commission cease and desist order based on a
44a
Initial Decision, Dated July 15, 1974
showing of unfair and deceptive practices used in only
one percent of the business solicited by a respondent
which had no prior record of violations of the Federai
Trade Commission Act, found the following circumstances
which it said negated the respondent’s defense of dis-
continuance :
“But Coro gave the line of business up only
after the Commission had started to investigate its
practices therein and only a few months before the
Commission filed its complaint, and we have only
the current corporate officers’ expression of inten-
tion not to resume the business. Coro has not dis-
posed of its plant. It is still in the costume jewelry
business and there is nothing to suggest that it
does not intend to continue in that general indus-
try.”
The facts in the present case closely resemble the cir-
cumstances found hy the Court in Coro. Respondent con-
tinues to sell air conditioners, continues to advertise air
conditioners, and could resume making deceptive adver-
tising claims at any time in the future. The only special
circumstance demonstrated by respondent is affidavits sub-
mitted by corporate officials.
The steps taken by respondent’s officials to insure that
future advertising violations will be avoided appear less
than satisfactory. The record shows that one of the
respondent’s subsidiaries has as recently as March, 1974,
long after the complaint herein had issued, widely dis-
seminated a questionable uniqueness claim for an im-
portant performance characteristic of an air conditioner.
Tn a joint exhibit, Mr. Muscarnera, respondent’s in-house
counsel, stated in an affidavit that a recent advertisement
in a national news weekly magazine for a central air
conditioner manufactured by Fedders, but sold under the
Climatrol label, made a claim of exclusivity for Clima-
trol’s rotary compressor, when central air conditioners
45a
Initial Decision, Dated July 15, 1974
sold under the Fedders label also have the exact same
feature. Most importantly, Mr. Muscarnera admitted that
he was unaware of the dissemination of this particular
advertisement until it was recently brought to his at-
tention by complaint counsel.
The philosophy on which the Commission’s Ad Sub-
stantiation Program is based, is that corporations must
strive to exercise a higher level of responsibility than
previously, by assuring themselves that before they dis-
seminate an advertising claim, suflicient substantiation
exists to constitute a reasonable hasis as to the validity
of such claim. Pjizer, Inc., supra. The Administrative
Law Judge is definitely in accord with the holding in
Pfizer. Clearly, respondent’s admission of dissemination
of a performance claim for its room air conditioners over
a period of several years without having a reasonable
basis therefor demonstrates a deficiency in the mainte-
nance of the required standard of corporate responsi-
bility in the past. Moreover, despite respondent’s assur-
ances of future discontinuance of this type of objection-
able conduct, and recitation of precautions taken to pre-
vent such future reeurrences, the March, 1974 Climatrol
advertisement suggests that responcdent’s officers have
failed to exercise adequate precautions to prevent re-
spondent’s unsubstantiated advertising claims.
Therefore, the Administrative Law Judge is of the
opinion that a cease and desist order is both necessary
and proper in this proceeding. Without an order, the
publie has no definite assurance that the unlawful prac-
tices will not be resumed at some time in the future.
Fairyfoot Products Co. v. F. T. C., 80 F. 2d 684, 686-687
(7th Cir. 1935).
Respondent’s Defense Based on Insubstantiality
Respondent argues that the impact of the offending ad-
vertising claims upon the purchasing public could not
46a
Initial Decision, Dated July 15, 1974
have been substantial, in light of the limited circulation
of the media in which the advertisements containing such
claims were placed, the relatively few insertions involved,
the small expenditures involved and their insignificance
in relation to respondent’s total advertising effort, and
the fact that in most instances such claims were not fea-
tured in the advertisements in which they appeared, but
were included merely as one of a considerable number of
other claims (RB, p. 8).
In the present case, respondent considered the claims
for reserve cooling power as a significant selling device—
an old powerful selling friend (Jt. Ex. 1 H). The repre-
sentation was utilized for several years, and was dis-
continued only when questioned by the Commission. The
advertisement represented that only Fedders gives assur-
ance of cooling on extra hot, extra humid days. Such
a representation is the raison d’etre for an air condition-
ing unit—it is an extremely material representation.
Thus, there can be no question that the challenged claims
for this major feature were material.
Even when a claim is material, the Commission has at
times chosen not to issue an order when it has found
the violation to be so minor as to be de minimis. The
doctrine is usually applied, however, where it appears the
violation was an isolated, unintentional act, unlike the
offender’s usual practices. The Commission has been re-
luetant to invoke the de minimis doctrine, particularly in
the case of advertising violations, and has in the past
held one or a few advertisements to be sufficiently serious
to justify the issuance of an order in the public interest
(see F. T. C. v. Colqate-Palmolive Co., et al., 380 U. S.
374, 395 (1965) (3 advertisements); Gimbel Bros., Inc.,
v. F. T. C., 116 F. 2d 578, 579 (2d Cir. 1941) (advertise-
ments published twice); Gimbel Bros., 60 F. T. C. 359
(1962) (one advertisement), appeal dismissed 7 S. & D.
549 (3d Cir. 1962); and Baldwin Bracelet Corp., et al.,
oo tA es oe
47a
Initial Decision, Dated July 15, 1974
61 M. T. C. 1245, 1363 (1962), aff’d 325 F. 2d 1012 (D. C.
Cir. 1963), cert. den. 377 U. S. 923 (1964).
As the following figures show, this case deals not with
an isolated incident, but with many different advertise-
ments, each containing a deceptive representation, in-
serted in many newspapers, presumably on a national
scale. Considering only the sample areas over the desig-
nated period of two years, there were the following num-
bers of insertions of advertisements claiming uniqueness
of reserve cooling power: 72 insertions in Florida, 17 in
Washington, D. C., 42 in Philadelphia, and 42 in New
York, for a total of 173 insertions.
Respondent emphasizes that only %4 of 1% of its total
advertising expenditures in the sample areas was spent
on reserve cooling power uniqueness claims, and of that
total the expenditures for cooperative advertising bearing
uniqueness claims in relation to total cooperative adver-
tising expenditures had a ratio of only 214%; and that
only $18,269.00 was spent on cooperative advertising uti-
lizing uniqueness claims during the two-year period in
the sample areas (RPF, pp. 8-16). Respondent would
thus conclude that the offending claims did not have the
tendency and capacity to mislead a substantial portion
of the purchasing public (RPF, p. 16).
The record does not show what proportion of national
sales or advertising the sample areas constitute. There-
fore, an accurate projection of the total number of in-
sertions of offending advertisements is impossible. The
record does show that reserve cooling power claims were
run over a period of several years, although the record
does not show what form the advertisements took or
whether uniqueness claims were utilized. However, if the
{wo-year period examined were typical of what occurred
on a national scale, which the sampling device presup-
poses, we can safely speculate that the total numbers of
deceptive uniqueness advertisements may have run well
48a
Initial Decision, Dated July 15, 1974
in‘o the thousands and expenditures therefor into the
hundreds of thousands of dollars.
Respondent’s argument merely establishes that the chal-
lenged advertising constituted a small portion of respond-
ent’s total advertising program; it does not establish
that the false advertising claims were without impact on
the public. Clearly, the violation, concerning a material
claim broadly disseminated, involving hundreds, perhaps
thousands of newspaper advertisements, cannot be re-
garded as de minimis. The Administrative Law Judge
finds the language of the Commission in the Baldwin
Bracelet matter particularly appropriate: “* * * we are
not prepared to say that deception is all right if practiced
in moderation.” (61 F. T. C. 1363). Nor is deception per-
missible if practiced in small town newspapers of limited
circulation (Reply Brief, p. 17). The Act also includes
within its protection residents of small towns (see Charles
Of The Ritz Dist. Corp. v. F. T. C., 143 F. 2d 676, 679
[2d Cir. 1944]).
The Administrative Law Judge coneludes, therefore,
that respondent’s dissemination of uniqueness representa-
tions for reserve cooling power, which were not in fact
true and substantiated, constituted a substantial practice
involving a material performance claim. Accordingly,
these representations had the tendency and capacity to
mislead a substantial portion of the purchasing publie and
are of such a magnitude as to warrant a cease and desist
prohibition.
The Remedy
It is well settled that the Commission may, and should,
enter an order of sufficient breadth to insure that a re-
spondent will not engage in future violations of the law.
To this end the Commission has wide discretion in fash-
ioning an appropriate order. See Jacob Siegel Co. v. F.
T. C., 327 UT. S. 608, 611-13 (1946); F. T. C. v. Ruberoid
- te ET ed Lee ot 8
Ministre rey
49a
Initial Decision, Dated July 15, 1974
Co., 343 U. S. 470, 473 (1952); F. T. C. v. National Lead
Co., 352 U. S. 419, 428-30 (1957); F. T. C. v. Colgate-
Palmolive Co., 380 U. S. 374, 392 (1965). Commission
orders have been consistently upheld whenever the orders
are reasonably related to the unlawful practices found to
exist and are clear and precise so that they may be
understood by those against whom they are directed.
Jacob Siegel, supra, at 611-13; Ruberoid, supra, at 473;
F. T. C. v. Cement Institute, 333 U. S. 683, 726 (1948).
The Commission, within this framework, may reason-
ably ban the precise practice found to violate the Federal
Trade Commission Act, and may enjoin “like and related”
practices. IF’. T. C. v. Mandel Bros., Inc., 359 U. S. 385,
392-393 (1959); Niresk Industries, Inc., v. F. T. C., 278
F. 2d 337, 343 (7th Cir. 1960), cert. den. 364 U. S. 883
(1960); Consumers Products of America, Inc., et al. v.
F. T. C., 400 F. 2d 930, 933 (3d Cir., 1968), cert. den. 393
U. S. 1088 (1969). Further, a respondent “caught vio-
lating the Act must expect some fencing in.” F. T. C. v.
National Lead Co., swpra, at 510. While recognizing that
it would be inappropriate to narrow the scope of the
order to the precise misrepresentation made (uniqueness
of a single characteristic, namely, “reserve cooling
power”), respondent submits that it is entirely fitting and
proper for the order to be confined to unfounded claims
of uniqueness of any attribute or characteristic. Respond-
ent contends that the notice order, embracing as it does
all “performance characteristics” of any Fedders air con-
ditioners, “is completely impermissible” (RB, pp. 14-15).
The form of order served with the complaint would
prohibit uniqueness claims of any kind and misrepresenta-
tions of performance characteristics of any kind. The
notice order also provides for record keeping. Complaint
counsel have made minor changes in their proposed form
of order from the form of order served with the com-
plaint.
50a
Initial Decision, Dated July 15, 1974
The order entered by the Administrative Law Judge
herewith prohibits respondent from making any unique-
ness claims. It would also prohibit the making of any
representation as to a performance characteristic of any
air conditioner unless, at the time of the making of the
representation, respondent had a reasonable basis for such |
representation. The order entered herewith also requires
that records of the documentation in support of per-
formance claims be maintained for three (3) years after
such claims are made and that such records be made
available to the Commission upon reasonable notice. The
record-keeping provision is limited to ten (10) years from
the date the order becomes final. Thus, the Administra-
tive Law Judge has basically adopted the proposed order
served with the complaint and recommended by complaint
counsel, with minor changes which are without substan-
tial substance such as combining specific prohibitions into
the broader prohibition.
Respondent has admitted disseminating a false per-
formance claim for its room air conditioners relating to
the uniqueness of the ability of its room air conditioners
to function satisfactorily at conditions of extreme heat
and humidity. Respondent seems to acknowledge (RB, p.
15) that the order may properly extend beyond the eon-
fines of this one misrepresentation. The Administrative
Law Judge is of the opinion the order should prohibit
respondent from making any performance claim for its
air conditioners unless it possesses adequate substantia-
tion for the claim at the time the representation is made.
The Commission has recognized the propriety of orders
governing all performance characteristics, The Firestone
Tire and Rubber Co., Docket 8818, 81 FE. TC. 398, . 475
(1972), aff'd 481 F. 24 246, 250 (6th Cir. 1973), cert. den.
42 U.S.L.W. 3362 (December 18, 1973). This provision
of the order simply states explicitly the requirements al-
ready recognized by Pfizer: the Possession of a veason-
able basis for any material claim at the time the claim
5la
Initial Decision, Dated July 15, 1974
is disseminated. Because this provision simply sets or
a presently-existing obligation, it imposes little additiona
burden upon respondent, even extending it to all air
conditioners. .
The record-keeping provision requires respondent to
keep, and make available to the Commission, those ma-
terials which constitute substantiation for any perform-
ance claims which may be made. These are the same
materials which the Commission is presently empowered
to demand in Section 6(b) Orders to File Special Reports.
Consequently, the record-keeping provision, also an exist-
ing duty, reasonably incorporates all air conditioners.
The only requirement included in this provision not pre-
viously spelled out by the Commission is that respondent
retain such substantiation materials for three years, and
this specific time requirement is not burdensome. .
The requirement of record retention is the best possible
method of preventing the recurrence of unsubstantiated
claims. The requirement imposes little additional burden
upon a respondent, which musi, according to Pfizer, pos-
sess the materials at the time the claim is disseminated.
At the same time, the retention will expedite Commission
examination of the materials as soon as it suspects an
unsubstantiated claim may have been or is about to be
disseminated (after reasonable notice to respondent).
The Commission, as affirmed by the Sixth Cireuit Court
of Appeals, recognized the usefulness of a record-reten-
tion provision in the recent case, Firestone Tire and Rub-
her Co., supra, 481 F. 2d at 250. In that case, the iden-
tical three-year retention provision as proposed herein,
was ordered and affirmed.
Accordingly, the order entered herewith is believed to
be both appropriate and necessary to prevent future vio-
lations of the law.
52a
Initial Decision, Dated July 15, 1974
Conclusions of Law
The Federal Trade Commission has jurisdiction over
the respondent and this proceeding is in the public in-
terest.
2. Respondent Fedders Corporation is a corporation or-
ganized, existing and doing business under and by vir-
tue of the laws of the State of New York with its prin-
cipal office and place of business located at Edison, New
Jersey.
3. Respondent Fedders Corporation is now and has
been engaged in the advertising, offering for sale, sale
and distribution of Fedders room air conditioners. In
the course and conduct of its aforesaid business, respond-
ent Fedders Corporation now causes and has caused its
air conditioners, when sold, to be transported from its
place of business in the State of New Jersey to pur-
chasers thereof located in various states of the United
States, and in the District of Columbia. Respondent Fed-
ders Corporation therefore maintains, and at all times
mentioned herein has maintained, a substantial course of
trade in said air conditioners in commerce, as “commerce”
is defined in the Federal Trade Commission Act.
4. In the course and conduct of its business as afore-
said, and at all times mentioned herein, respondent Fed-
(ers Corporation has been, and is now, in substantial
competition in commerce with corporations, firms and
individuals engaged in the sale of air conditioners of the
same general type as that sold by respondent.
5. In the course and conduct of its business as afore-
said, and for the purpose of inducing the sale of the
said air conditioners in commerce, as “commerce” is de-
fined in the Federal T'rade Commission Act, respondent
has disseminated, and caused to be disseminated, certain
advertisements of said room air conditioners, including
5 ll ae! natin da wee
er a
an ee
53a
Initial Decision, Dated July 15, 1974
but not limited to, advertisements printed in newspapers
located in various states of the United States and in the
District of Columbia, which newspapers are disseminated
across state lines. Typical of the statements and repre-
sentations contained in said advertisements is the fol-
lowing segment of the print advertisement for Fedders
room air conditioners: J
“Reserve Cooling Power—only Fedders has this
important feature. It’s your assurance of cooling
on extra hot, extra humid days.”
6. By and through the use of the aforesaid statements
and representations, respondent has represented, directly
or by implication, that reserve cooling power is a unique
feature of Fedders room air conditioners, not found in
other room air conditioners. In truth and in fact, “re-
serve cooling power”, referring to the ability to function
satisfactorily under conditions of extreme heat and humid-
ity, is not a unique feature of Fedders room air condi-
tioners. In fact, comparable room air conditioners made
by other companies function satisfactorily under condi-
tions of extreme heat and humidity. Therefore, such
statements and representations were and are false, mis-
leading and deceptive.
7. By and through the use of the aforesaid statements
and representations, respondent has also represented, di-
rectly or by implication, that, at the time the aforesaid
statements and representations were made, respondent
had a reasonable basis from which to conclude that the
Fedders room air conditioners, compared with all other
room air conditioners, had a significantly superior ability
to function satisfactorily under conditions of extreme
heat and humidity. In truth and in fact, at the time the
aforesaid statements and representations were made, re-
spondent had no reasonable basis from which to conclude
that Fedders room air conditioners, compared with all
d4a
Initial Decision, Dated July 15, 1974
other room air conditioners, had a significantly superior
ability to function satisfactorily under conditions of ex-
treme heat and humidity. Therefore, the statements and
representations were and are false, misleading and decep-
tive. '
8. By and through the use of the aforesaid statements
and representations, respondent has also represented, di-
rectly or by implication, that Fedders room air condi-
tioners, compared with all other room air conditioners,
have a significantly superior ability to function satisfac-
torily under conditions of extreme heat and humidity. At
the time said statements and representations were made,
respondent had no reasonable basis from which to con-
clude that such was the fact. Therefore, the statements
and representations were and are false, misleading and
deceptive.
9. The use by respondent of the aforesaid false, mis-
leading and deceptive acts and practices have had, and
now have, the capacity and tendeney to mislead a sub-
stantial portion of the purchasing public into the er-
roneous and mistaken belief that said statements and
representations were and are true and into the purchase
of substantial quantities of said products hy reason of
said erroneous and mistaken belief.
10. The aforesaid acts or practices of respondent, as
herein found, were and are all to the prejudice and injury
of the publie and of respondent’s competitiors, and consti-
tuted and now constitute unfair methods of competition
in commerce and unfair or deceptive acts or practices in
commerce in violation of Section 5 of the Federal Trade
Commission Act (15 U. S. C. 45).
|
ea eee
a
55a
Initial Decision, Dated July 15, 1974
Order
Ir 1s Orperep that respondent Fedders Corporation, its
successors and assigns, officers, agents, representatives
and employees, directly or through any corporation, sub-
sidiary, division or other device, in connection with the
advertising, offering for sale, sale or distribution in com-
merce as “commerce” is defined in the Federal Trade
Commission Act, of air conditioners do forthwith cease
and desist from:
1. Representing, directly or by implication, that any
air conditioner, on the basis of a comparison thereof
with the air conditioners of other manufacturers
then being marketed in the United States in com-
mercial quantities, is unique in any material re-
spect, unless such is the fact;
2. making, directly or indirectly, any statement or
representation in any advertising or sales promo-
tional materia! as to the performance character-
isties of any air conditioner including, but not
limited to, air cooling, heating, cleaning, circula-
tion, dehumidification or humidification, efficiency
and quietness of operation, unless at the time of
such representation respondent has a reasonable
basis for such statement or representation, which
may consist of competent scientific, engineering, or
other similar objective material, or industry-wide
standards based on such material.
3. failing to maintain accurate records which may be
inspected by Commission staff members upon rea-
sonable notice:
(a) which consist of documentation in support of
any claim included in advertising or sales pro-
motional material disseminated by respondent, inso-
56a
Initial Decision, Dated July 15, 1974
far as the text of such claim is prepared, or is
authorized and approved, by any person, who is an
officer or employee of respondent, or of any divi-
sion or subdivision of respondent, or by any ad-
vertising agency engaged for such purpose by re-
spondent or by any such division or subsidiary,
which claim concerns the performance character-
istics (including buat not limited to air cooling,
heating, cleaning, circulation, dehumidifieation or
humidification, efficiency and cuietness of opera-
tion) of, or the uniqueness of any feature of, any
of respondent’s air condition :=rs;
(b) which provided the hasis upon which re-
spondent relied as of the time the claim was made;
and
(c) which shall be maintained by respondent for
a period of three years from the date such advertis-
ing or sales promotional material was last dis-
seminated by respondent or any division or sub-
sidiary of respondent.
The provisions of Paragraph 3 hereof shall be in ef-
fect for a period of ten (10) vears from the date this
order becomes final.
Ir is Furrner Orperep that respondent corporation
shall forthwith distribute a copy of this order to each of
its operating divisions and to each of its officers, agents,
representatives or employees who are engaged in the
preparation or placement of advertisements.
Iv 1s FurTHer Orperep that respondent notify the Com-
mission at least thirty (30) days prior to the effective
date of any proposed change in the corporate respondent
such as dissolution, assignment, or sale, resulting in the
emergence of a successor corporation, the creation or
-
POL, A DPI a:
ee ei ed
en
At aeatbtAS tha.
o7a
Initial Decision, Dated July 15, 1974
dissolution of any subsidiaries engaged in the manufac-
ture and/or sale in commerce of air conditioning products
or systems, or any other changes in the corporation
which may materially affect compliance obligations aris-
ing out of the order.
Ir 1s FurtHer Orperep that respondent shall, within
sixty (60) days after the effective date of the order, file
with the Commission a report, in writing, setting forth
in detail the manner and form of its compliance with
this order.
July 15, 1974
s/ ERNEST G. BARNES,
Administrative Law Judge.
58a
Final Order, Dated January 14, 1975.
UNITED STATES OF AMERICA,
Berore FEeperaL Trape ComMIssIoNn.
Commissioners:
Lewis A. Engman, Chairman.
Paul Rand Dixon.
Mayo J. Thompson.
M. Elizabeth Hanford.
Stephen Nye.
{Same Trrzez.]
This matter having been heard by the Commission upon
the appeal of respondent’s counsel from the initial deci-
sion, and upon briefs and oral argument in support thereof
and opposition thereto, and the Commission, for the rea-
sons stated in the accompanying Opinion, having denied
the appeal:
Ir 1s Orperep that the initial decision of the adminis-
trative law judge, pages 1-30, is adopted as the Findings
of Fact and Conclusions of Law of the Commission, ex-
cept insofar as certain comments on pages 29-30 are in-
consistent with the conclusions on pages 5-6 of the ac-
companying Opinion, and subject to the following changes:
P. 2, line 4, omit “that”
P. 3, line 9, word 4 “asserting”
P. 15, substitute 6.5% for 7.8%
P. 18, line 36, substitute 6.5% for 7.8%
Other Findings of Fact and Conclusions of Law of the
Commission are contained in the accompanying Opinion.
It 1s FurtHer Orperep that the following order be
entered:
te Cee ss
ee ie a ee
59a
Final Order, Dated January 14, 1975
Order
Ir 1s Orperep that respondent Fedders Corporation,
its successors and assigns, officers, agents, representa-
tives and employees, directly or through any corporation,
subsidiary, division or other device, in connection with the
advertising, offering for sale, sale or distribution in com-
merce as “commerce” is defined in the Federal Trade Com-
mission Act, of air conditioners, do forthwith cease and
desist from:
1. Represeuting, directly or by implication, that any air
conditioner, on the basis of a comparison thereof with
the air conditioners of other manufacturers then being
marketed ii the United States in commercial quantities,
is unique in any material respect, unless such is the fact;
2. Making, directly or indirectly, any statement or rep-
resentation in any advertising or sales promotional ma-
terial as to the air cooling, dehumidification, or circula-
tion characteristics, capacity or capabilities of any air
conditioner, unless at the time of such representation
respondent has a reasonable basis for such statement or
representation, which shall consist of competent scientific,
engineering or other similar objective material or in-
dustry-wide standards based on such material;
3. Failing to maintain accurate records which may be
inspected by Commission staff members upon reasonable
notice :
(a) which consist of documentation in support
of any claim included in advertising or sales pro-
motional material disseminated by respondent, in-
sofar as the text of such claim is prepared, or is
authorized and approved, by any person, whe is an
officer or employee of respondent, or of any divi-
sion or subdivision of respondent, or by any ad-
vertising agency engaged for such purpose by re-
60a
Final Order, Dated January 14, 1975
spondent or by any such division or subsidiary,
which claim conecerius the air cooling, dehumidifica-
tion, or circulation characteristics, capacity, or ca-
pability of, or the uniqueness of any feature of, any
of respondent’s air conditioners;
(b) which provided the basis upon which re-
spondent relied as of the time the claim was made;
and
(c) which shall be maintained by respondent for
a period of three years from the date such adver-
tising or sales promotional material was last dis-
seminated by respondent or any division or subsid-
iary of respondent.
The provisions of paragraph 3 hereof shall be in ef-
fect for a period of ten (10) years from the date this
order becomes final.
Ir 1s FurrHer Orperep that respondent corporation
shall forthwith distribute a copy of this order to each
of its operating divisions and to each of its officers,
agents, representatives or employees who are engaged in
the preparation or placement of advertisements.
Iv is FurtHEeR Orperep that respondent notify the Com-
mission at least thirty (30) days prior to the effective
date of any proposed change in the corporate respond-
ent such as dissolution, assignment or saie, resulting in
the emergence of a successor corporation, the creation
or dissolution of any subsidiaries engaged in the manu-
facture and/or sale in commerce of air conditioning prod-
ucts or systems, or any other changes in the corporation
which may materially affect compliance obligations aris-
ing out of the order.
ts ce
he" sate tem 6 late hi wal ts as alia
thy Dat I OTR ne hate tat NS ON te A
ee
6la
Final Order, Dated January 14, 1975
Ir 1s Furrner Orperep that respondent shall, within
sixty (60) days after the effective date of the order, file
with the Commission a report, in writing, setting forth
in detail the manner and form of its compliance with tis
order.
By the Commission.
CHARLES A. TOBIN
Secretary
Seal
Issued: January 14, 1975
62a
UNITED STATES OF AMERICA,
Berore Feperat TrapeE CommMIssion.
Commissioners:
Lewis A. Engman, Chairman
Paul Rand Dixon
Mayo J. Thompson
M. Elizabeth Hanford
Stephen Nye
——>—
In THE MatTrTeR
of
Feppers CorporaTIoNn, a corporation.
Docket No. 8932
<>—
Opinion of the Commission.
By Dixon, Commissioner :
The complaint in this matter was issued on June 11,
1973, and charged respondent with dissemination of false
and misleading advertisements in violation of Section 5
of the Federal Trade Commission Act, as amended (15
U.S.C. 45). In particular the complaint alleged that
respondent had represented through advertisements in
newspapers of interstate circulation that (1) “reserve
cooling power™ is a unique feature of its room air con-
‘Hereinafter sometimes ‘‘RCP,’’ stipulated by the parties
to mean ‘‘ability to function satisfactorily under conditions
of extreme heat and humidity.’’ (I. D. 8)
The foliowing abbreviations are used herein:
I. D. —TInitial Decision (Finding No.)
I. D. p. —Initial Decision (Page No.)
RB —Respondent’s Appeal Brief (Pave No.)
ew
te lin
\
m :
:
63a
Final Order, Dated January 14, 1975
ditioners, not found in other room air conditioners; (2)
Fedders’ room air conditioners compared with all other
room air conditioners have a significantly increased cool-
ing capacity at high loading conditions under customary
conditions of use; and (3) Fedders had a reasonable basis
for concluding that its produet compared with all other
room conditioners has said increased cooling capacity.
Drawing on a brief record consisting of stipulations, joint
exhibits, and a few respondent’s exhibits’, the administra-
tive law judge sustained the complaint and recommended
entry of an order. On appeal respondent has taken es-
sentially the same position as it took before the adminis-
trative law judge, conceding the falsity of, and absence of
reasonable basis for, the challenged representations but
raising so-called affirmative defenses of “abandonment”
and “insubstantiality,” and arguing in the alternative that
the order should be diminished in scope. We find the af-
firmative defenses to be patently without merit, as did
the administrative law judge, but we believe that a slight
modification of the order he has proposed is appropriate.
I. [nsubstanttality
Respondent argues that it should be absolved from any
liability in this matter because the number of offending
advertisements constituted only a small percentage of re-
spondent’s total advertising expenditures. Evidence sub-
mitted by respondent indicated that in four sample areas,
New York, Philadelphia, Washington, D. C., and Florida,
during the sample two-year period ending August 31,
1971, the number of untruthful advertisements totaled 173
*In describing the record in this case, the administrative
law judge neglected to make reference to certain exhibits sub-
mitted by respondent separately (I. D. p. 5, third full para-
graph). There is no indication, however, that the administra-
tive law judge did not actually consider these exhibits in
fashioning his decision, and in any event the Commission has
fully considered said exhibits in its own review of the record.
64a
Final Order, Dated January 14, 1975
or 0.8% of all advertisements for reserve cooling power,
and expenditures on such advertisements were $18,269 or
6.0% of all expenditures for advertisements touting RCP.
(1. D. 17, 18) Respondent asserts in its appeal brief that
the sample area accounted for “at least 35%” of its total
United States’ sales and advertising expenditures for the
sample period.’ Whatever the total number of offending
advertisements may have been, it is clear to us that evi-
dence from the sample area alone was quite sufficient to
destroy whatever weight might be accorded respondent’s
defense of insubstantiality.
The Commission has previously issued orders in cases
involving no inore than one or a few deceptive advertise-
ments. [See Gimbel Bros., 60 FTC 359, 368 (1962), appeal
dismissed per stipulations, No. 14019 (3d Cir. Oct. 8, 1962)
unreported; Gimbel Bros., Inc., v. FTC, 116 F. 2d 578,
\79 (2d Cir. 1941).] Here, in an area apparently ac-
counting by respondent’s estimate for far less than half
of all its sales, 173 separate false advertisements were
disseminated over a two-year period. This was 173 more
than the law allows, and far more than warrant an ap-
peal to the discretion of the Commission to omit an order
in a litigated case. The fact that these advertisements
constituted only a small percentage of respondent’s total
advertising program is wholly irrelevant. It merely
demonstrates the truism that a larger advertiser inevitably
"RB 13. The administrative law judge, noting that adver-
tisements for RCP had been run for several years prior to
the sample period, concluded that the actual number of offend-
ing advertisements may have totaled in excess of 1,000. (I. D.
p. 27) Respondent challenged this extrapolation, though it did
agree to use a sampling procedure. The parties apparently
disagree as to whether the sample may be taken as representa-
tive of Fedders’ advertising during the entire period in which
RCP advertisements were run, or simply as representative of
Fedders’ advertising throughout the country for the sample
two-year period. Resolution of this disagreement is not neces-
sary for our decision.
65a
Final Order, Dated Janwary 14, 1975
has more opportunities than a smaller one to engage in
ceceptive practices. Similarly, we are entirely unim-
pressed with the fact that the offending advertisements
appeared in non-urban newspapers with less circulation
than metropolitan dailies. We are pleased to note, how-
ever, that respondent does not maintain that “deception
is all right if practiced in moderation” nor that “decep-
tion is permissible if practiced in small town newspapers
of limited cireulation” (RB 13-14), though the learned
administrative law judge may be excused for having re-
ceived the contrary impression. (I. D. p. 27) In all events
the magnitude of the false advertising in this case cannot
constitute an affirmative defense to the allegations of the
complaint, nor does it give any reason to think that an
order is not required to remedy the violation.
Il. Abandonment
Respondent further argues that it abandoned the offend-
ing practice in late 1971. It was stipulated at trial that
RCP advertising was discontinued at this time, following
determination by respondent, in response to an advertising
substantiation order served on it by the Commission, that
claims for the uniqueness of RCP could not be substan-
tiated. The Commission has been properly parsimonious,
if not totally unvielding, in its adjudicative recognition of
the defense of abandonment, and courts have been re-
luctant to vacate Commission orders on those grounds
except in the most extreme circumstances not present here,
such as where a corporate respondent had existed from
the relevant line of business under circumstances in which
re-entry seemed improbable. National Lead Co. v. FTC,
997 F. 2d 825, 839 et seq. (7th Cir. 1955), reversed in other
respects, 352 U. S. 419 (1957). Certainly the mere dis-
continuance of an offending practice in the face of in-
quiry by a law enforcement agency can under no circum-
stances he argued to amount to a defense. It is undis-
puted that respondent did not discontinue the challenged
advertising until it had received an Order to File Special
66a
Final Order, Dated January 14, 1975
Report, requesting substantiation for the false representa-
tion. The situation is in essence no different from that in
Coro, Inc., 63 FTC 1164 (1963), aff’d 338 F. 2d 149 (ist
Cir. 1964), cert. denied 380 U. S. 954 (1965), upon which
the administrative law judge relied. While it is true that
the mere issuance by the Commission of an advertising
substantiation order is not meant to imply that the re-
cipient is suspected af wrongdoing, it is also clear that
an order to file this special report pursuant to Section
6(b) of the FTC Act is an investigatory tool of the Com-
mission, just as much as a subjoena issued pursuant to
Section 9 of the Act, and having received such an order
Fedders’ subsequent discontinuance can hardly be viewed
as being borne of spontaneous recognition of the error of
its ways. Respondent disseminated plainly false adver-
tisements for at least two years, discontinuing them only
upon discovering that at long last the government would
be reviewing the claims. These circumstances are not
such as can breed confidence that respondent may be re-
lied upon in the future to regulate its own advertising
when the government may again not be looking over its
shoulder, without the encouragement of an order. And
we find without merit the contention that the circumstances
of discontinuance in this case should be consdered an
affirmative defense to an otherwise plain violation of law.‘
‘It is also unclear, as the initial decision points out, to
what extent respondent has actually managed to eliminate
false claims of the sort challenged here from its advertising.
(I. D. pp. 34-35.) It appears that in March 1974, an adver-
tisement ran in Newsweek claiming ‘‘exclusivity’’ for a feature
of respondent’s ‘‘Climatrol” brand room air conditioner when
in fact others of respondent’s air conditioners possessed the
same attribute. We do not think that this circumstance is es-
sential to our finding that the abandonment defense must fail.
It is, however, an additional ground for that conclusion, and
suggests that even during the pendency of these proceedings,
when respondent has had an unusual interest in avoiding repeti-
tion of false claims (to demonstrate the lack of necessity for
an order) it has been unable to do so.
ell sahara alana Reena s enn hath wnat le sat Alea
67a
Final Order, Dated January 14, 1975
Ill. Order
The argument put forth most seriously by respondent
concerns the scope of the order entered by the adminis-
trative law judge. Respondent objects to paragraph II
of the order, which prohibits false performance claims,
and to paragraph III, to the extent it requires mainte-
nance of substantiating materials for performance claims.
Respondeut contends that the representation challenged
in this case was not a performance claim at all, but only a
uniqueness claim, and that the order should be no broader
that paragraph I, which prohibits false uniqueness claims,
while paragraph III should be modified to require main-
tenance of substantiation for uniqueness claims only.
We cannot agree that the false representations here in
question dealt only with “uniqueness” and not “perform-
ance,” nor do we believe that an order dealing only with
uniqueness claims would be in the public interest or serve
to prevent future occurrences of the sort involved here.
In claiming that only Fedders’ air conditioners pos-
sessed RCP, respondent was clearly making a statement
about the performance of its product, namely that this
performance was unmatched. What rendered these false
representations material in the eyes of consumers, and no
doubt what led respondent to make them, was the message
they conveyed about the relative performance of the prod-
uct, and not merely the message of “uniqueness” in some
disembodied sense.* An order addressed only to unique-
SConsider an advertisement for air conditioners that repre-
sented them to be unique because of being painted with red,
white, and green stripes. Certainly the consumer would be left
thinking that the advertised air conditioner was ‘‘unique,’’ but
the Commission might be at pains to show that such a claim was
material, nor can we imagine a sane advertiser spending money
to make it. Uniqueness is obviously both an attribute in itself
and one facet of broader categories of product characteristics,
such as price, performance, and warranty terms.
68a
Final Order, Dated January 14, 1975
ness claims and not to performance claims would be in-
adequate to insure that the same species of misrepresenta-
tion as has here occurred will not happen again.
It remains then to consider the scope of the prohibition
on false characterizations of performance. The adminis-
trative law judge and complaint counsel recommend a
prohibition on misrepresentation of all performance char-
acteristics. The performance characteristic in this case
which was untruthfully and without reasonable basis rep-
resented to be unique involved air cooling capacity under
conditions of extreme heat and humidity. In view of all
the circumstances of this case, including the fact that only
one performance characteristic was misrepresented, we be-
lieve that the order should be narrowed slightly to forbid
only misrepresenttaions of performance characteristics of
the general sort involved in the offending advertisements.
An appropriate order is appended.
By the Commission.
January 14, 1975
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——
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a
69a
Decision and Opinion of U. S. Court of Appeals.
UNITED STATES COURT OF APPEALS
For THE Seconp Circuit
No. 104—September Term, 1975.
(Argued October 31, 1975 Decided January 21, 1976.)
Docket No. 75-4051
—<—_—
Feppers Corp.,
Petitioner,
v.
FeperaL TrapE ComMIssIon,
Respondent.
=<_>—
Before:
Mutuican, Oakes and MEsKILL,
Circuit Judges.
Petition to review cease and desist order issued by
Federal Trade Commission against Fedders Corporation.
Petitioner’s claim is that the FTC order applies to unsub-
stantiated “performance” claims although its advertising
was deceptive only insofar as it claimed “uniqueness.”
Petition denied.
Sypney B. Werruermer, New York, N. Y. (Jef-
frey H. Schneider, Weisman, Celler, Spett,
Modlin & Wertheimer, New York, N. Y., of
counsel), for Petitioner.
70a
Decision and Opinion of U. S. Court of Appeals
Dennis H. Hynes, Attorney, Federal Trade Com-
mission (Robert J. Lewis, General Counsel,
Gerald Harwood, Assistant General Coun-
sel, Federal Trade Commission, of counsel),
for Respondent.
Oakes, Circuit Judge:
Petitioner seeks review of a final order entered against
it by the Federal Trade Commission. The order stems
from an investigation and determination by the Commis-
sion that petitioner has made serious misrepresentations
in the advertising claims it has used to promote sales of
its air conditioning equipment. Specifically, the Commis-
sion found that Fedders has claimed in its advertising that
its air conditioners are unique, because they have “reserve
cooling power,” a term which the parties agree was in-
tended to imply an unusual ability to produce cold air
under extreme conditions of heat and humidity. In fact,
however, the Fedders conditioners had no objective tech-
nical advantage over the equipment manufactured by its
competitors. Accordingly, the Commission concluded that
petitioner was engaging in misrepresentations in its adver-
tising in violation of Section 5(a) of the Federal Trade
Commission Act, 15 U.S.C. §45(a).' A cease and desist
15 U.S.C. §45 provides in pertinent part:
(a)(1) Unfair methods of competition in commerce, and
unfair or deceptive acts or practices in commerce, are de-
clared unlawful.
(6) The Commission is empowered and directed to pre-
vent persons, partnerships, or corporations . . . from using
unfair methods of competition in commerce and unfair or
deceptive acts or practices in commerce.
|
;
:
:
71a
Decision and Opinion of U. S. Court of Appeals
order was entered by the Commission which prohibits
Fedders from:?
1. Representing, directly or by implication, that any
air conditioner, on the basis of a comparison thereof
with the air conditioners of other manufacturers then
being marketed in the United States in commercial
quantities, is unique in any material respect, unless
such is the fact;
2. Making, directly or indirectly, any statement or
representation in any advertising or sales promotional
material as to the air cooling, dehumidification, or cir-
culation characteristics, capacity or capabilities of any
air conditioner, unless at the time of such represen-
tation respondent has a reasonable basis for such
statement or representation, which shall consist of
competent scientific, engineering or other similar ob-
jective material or industry-wide standards based on
such material... .
Review is sought here under 15 U.S.C. §45(ce).
*Other provisions of the Commission’s order require the peti-
tioner to maintain records available for FTC staff inspection
which show the documentary materials in support of any claim
disseminated in Fedders advertising concerning ‘‘the air cooling,
dehumidification, or circulation characteristics, capacity, or capa-
bility of, or the uniqueness of any feature of, any of respondent’s
air conditioners.’’ The order was issued on January 14, 1975, and
is to be in effect for a period of ten years.
(2a
Decision and Oninion «; U. &. curt of Appeals
Fedders does not challenge §° Commission’s finding
that Fedders’ advertising in,vlved misrepresentations.*
Instead, it contends that the Commission’s order is imper-
missibly broad in that it prohibits practices which are not
sufficiently related to the unlawful practice actually found
by the Commission and that these practices are, therefore,
outside the proper scope of the Commission’s remedial
order. See Jacob Siegel Co. v. FTC, 327 U.S. 608 (1946) ;
FTC v. Royal Milling Co., 288 U.S. 212 (1933). More spe-
cifically the claim is, as it has been all along,* that the
order appealed from covers not only “uniqueness” claims
of the type which has been found false by the administra-
“There were in fact three misrepresentations found by the
Commission, none of which are chailenged here: (1) that ‘‘re-
serve cooling power’’ is a unique feature of the Fedders room
air conditioners; (2) that Fedders room air conditioners com-
pared with all other conditioners have a significantly increased
cooling capacity at high loading conditions urder customary use;
and (3) that Fedders had a reasonable basis for concluding that
compared with all other room air conditioners its product had
that increased cooling capacity.
As will be diseussed in the text below the Commission also
found that
|ijm claiming that on!y Fedders’ air conditioners possessed
RCP, respondent was clearly making a statement about the
performance of its product, namely that this performance
was unmatched. What rendered these false representations
material in the eyes of consumers, and no doubt what led
respondent to make them, was the message they conveyed
about the relative performance of the product, and not
merely the message of ‘‘uniqueness” in some disembodied
sense.
‘The Commission in its original complaint set forth an order
which it had ‘‘reason to believe should issue’’ if the facts were
found as indeed they were. Paragraph 4 of this draft order for-
bade any performance claims unless substantiated and from its
initial answer petitioner has objected to any restriction on “‘per-
formance’’ claims. Paragraph 2 of the administrative law judge's
order applied to any and all unsubstantiated performance claims
but the Commission’s final order, set forth in the text at footnote
2, limited this paragraph to performance claims relating to ‘‘air
cooling, dehumidification, or circulation characteristics.’’
73a
Decision and Opinion of U. S. Court of Appeals
tive law judge, but also covers advertising claims with
respect to “performance characteristics” of the prodwet,
i.e., air cooling, dehumidification and circulation, which Ped-
ders claims were not involved in the FTC proceeding. Since
Fedders quite properly agrees that the Commission has the
power within its diseretion to enjoin “like and relwted acts”
to the one condemned, FTC v. Mandel Bras., Ime., 359 U.S.
385, 393 (1959), the question before us is whether the Com-
mission’s order is sufficiently narrow to some within that
standard. We hold that it is and deny the petition for
modification of the order.
There is much broad language in the cases that the Com-
mission has a wide discretion in its choice of a remedy
to “cope with the unlawful practices” disclosed by the
record. Id. at 392; Jacob Siegel Co. v. F7©, supra, 327 U.S,
at 611. The Commission
is not limited to prohibiting “the illegal practice in
the precise form” existing in the past. FTC v. Ruber-
oid Co., 343 U.S. 470, 473 [1952]. .This agency, like
others, may fashion its relief’ to restrain “other like
or related unlawful acts.” Labor Board v. Express
Pub. Co., 312 U.S. 426, 436 | 1941],
FTC wv. Mandel Bros., Inc., supra, 359 U.S at 392. “One
eannot generalize as to the proper scope of these orders.
It depends on the facts of each case and a jadgment as to
the extent to which a particular violator should be fenced
in.” Jd. Congress has placed the primary responsibility
for fashioning orders upon the Commission, and for this
reason the courts should not lightly choose to modify the
Commission’s orders. FTC ». Colgate-Palmolive Co., 380
U.S. 374, 392 (1965); FTC © Cement Institute, 333 US.
683, 726 (1948). So long as the remedial order is reason-
ably reiated to the unlawful practiees found to exist, the
Commission’s order should he upheld. FTC v. National
Lead Co., 352 U.S. 419, 428 (1957); Hoving Corp. v. PTC,
290 F. 2d 803, 806 (2d Cir. 1961).
74a
Decision and Opinion of U. 8. Court of Appeals
At the same time we take full cognizance of the peti-
tioner’s point that, as we expressed it in Country Tweeds,
Inc. v. FTC, 326 F. 2d 144, 149 (2d Cir. 1964), the overall
concept of “reasonableness” has required the narrowing
of deceptive advertising orders so that they more closely
relate to the offending co. duct while “still sufficiently pro-
hibiting ‘variations on the basic theme.’” See Vanity Fair
Paper Mills, Inc. v. FTC, 311 F. 2d 480, 487 (2d Cir. 1962).
See also Spiegel, Inc. v. FTC, 411 F. 2d 481 (7th Cir.
1969). Mr. Justice Jackson’s admonitions in his Ruberoid
dissent, 343 U.S. at 480 et seq., have not gone unheeded
in the courts. And we are fully aware of the suggestion
in FTC v. Henry Broch & Co., 368 U.S. 360, 367-68 (1962),
reiterated in FTC v. Colgate-Palmolive Co., supra, 380
U.S. at 392, that the stiff penalty procedures under §45(J),
see Brown & Williamson Tobacco Corp. v. FTC, No. 75-6081
(2d Cir. Dee. 22, 1975), slip op. 1187, may well require a
more specific and precise order than would have been
necessary prior to the enactment of those penalties in
1959.° We note, however, that no problem of lack of spec-
ificity or precision in the order is involved here. Fedders’
argument is that a false “performance” claim is not simply
a “variation upcn the basie theme” of a false “unique-
ness” claim. A performance misrepresentation, the argu-
ment runs, is an offense so distinct from and so much
greater than a faise claim of uniqueness as not to be “like
or related.”
There is no dispute that paragraph 1 of the Commis-
sion’s order is reasonably related to the unlawful misrep-
"See United States v. J. B. Williams Co., 498 F. 2d 414 (2d
Cir. 1974), for the statutory scheme regarding penalties.
Professor Jaffe attributes the Vanity Fair and Country
Tweeds modifications of FTC orders to the suggestion in FTC v.
Henry Broch & Co., 368 U. 8. 360 (1962). See L. Jaffe, Judicial
Control] of Administrative Action 316-18 (1965).
ee Re ea ee
75a
Decision and Opinion of U. S. Court of Appeals
resentations Fedders has engaged in. Ordering Fedders
to cease and desist from making claims that its air con-
ditioners are “unique in any material respect, unless such
is the fact,” is obviously directly responsive to the Com-
mission’s finding that Fedders’ claim that its products
possessed a “reserve cooling power” was a spurious claim
of unique product quality. Petitioner properly concedes
that the Commission has authority “to frame its order
broadly enough to prevent [the petitioner] from engaging
in similarly illegal practices in future advertisements.”
FTC v. Colgate-Palmolive Co., supra, 380 U.S. at 395.
Clearly, paragraph 1 of the order in this case was made
well within that authority.
Paragraph 2 of the FTC order, we think, stands on no
different footing. This part of the order, which forbids
petitioner from making advertising claims as to the “air
cooling, dehumidification, or circulation characteristics,
capacity or capabilities of any air conditioner” unless sub-
stantiated is also reasonably related to the prior misrepre-
sentations which Fedders employed in its sales program.
The false claim made by Fedders that its air conditioners
possessed “reserve cooling power” implied that some fea-
ture of the cooling, dehumidifying or circulation systems
of the equipment allowed them to perform better than
other air conditioners would at extreme temperature and
humidity conditions. That is to say, the vague design
claim relating to a reserve cooling power implicated the
basic performance characteristics of the entire product.
The administrative law judge put it somewhat confusedly
when he said that “Respondent has admitted disseminating
a false performance claim for its room air conditioners
relating to the uniqueness of the ability of its room air
conditioners to function satisfactorily at conditions of ex-
treme heat and humidity.” The respondent, petitioner here,
76a
Decision «nd Opinion of U. S. Court of Appeals
made no such admission but rather admitted only false
claims of uniqueness, the only deceptions charged in the
complaint. But as the Commission held, note 3 supra, the
claim of uniqueness in having “reserve cooling power” was
also a performance claim by implication. “Uniqueness,” as
the Commission footnoted, “is obviously both an attribute
in itself and one facet of broader categories of product
characteristics, such as price, performance and warranty
terms.”
As to this finding, that the uniqueness claim as to reserve
cooling power implies to consumers a claim of high eooling
performance in extreme conditions of heat and humidity,
we are in the very realm of the Commission’s greatest
expertise—what constitutes deception in advertising. See
United States v. J. B. Williams Co., 498 F. 2d 414, 445 (2d
Cir. 1974) (dissenting opinion). As such the reviewing
court must give the Commission’s findings “great weight.”
See 'TC v. Colgate-Palmolive Co., supra, 380 U.S. at 385.
On the basis of this finding of implicit misrepresentation
the remedial order appears sound as reasonably related
thereto. National Dynamics Corp. v. FTC, 492 F. 2d 1333,
1236 (2d Cir.) (per euriam), cert denied, 419 U.S. 993
(1974). By limiting the order to unsubstantiated repre-
sentations as to “cooling, dehumidification, or circulation
characteristics, capacity or capabilities,” as opposed to the
administrative law judge’s proscription as to “any” per-
formance characteristic, which would include energy usage,
durability or quietness, for example, the Commission has
done the necessary limitation which reasonableness would
require. More than this a reviewing court may not direct.
Fedders makes two additional arguments bearing upon
the scope of the Commission’s order, but these are subject
to speedy disposition. Petitioner argues that since the
unlawful acts complained of had been discontinued prior
to the filing of the Commission’s complaint, its cessation
of the offending activity, combined with its written assur-
em gem
eee A Ee ATE Bi nen Ae
77a
Decision and Opinion of U. S. Court of Appeals
ance that it will not again resume it, weighs in favor of
limiting the order. See Country Tweeds, supra, 326 F. 2d
at 149. The fact that Fedders may have discontinued the
offending practice before the Commission issued the com-
plaint in this case, however, does not bar a cease-and-desist
order, where the public interest otherwise requires it.
Diener’s, Inc. v. FTC, 494 F. 2d 1132, 1133 (D.C. Cir. 1974)
(per curiam) ; Cotherman v. FTC, 417 F. 2d 587, 595 (5th
Cir. 1969) ; Libby-Owens-Ford Glass Co. v. FTC, 352 F. 2d
415, 418 (6th Cir. 1965). Furthermore, the term “reserve
cooling power” had been used in Fedders advertising for
six or seven years—the claims were described in a bulletin
to its distributors as “[o]ld powerful selling friends.”
These were not, then, merely casual advertising claims.
Their discontinuance, the administrative law judge found,
was not a “voluntary action” but came about as a result
of Fedders’ “awareness of the Commission’s investigation
of its advertising.” The propriety of the order, under the
case law, cannot be challenged. Coro, Inc. v. FTC, 338 F. 2d
149, 153 (1st Cir. 1964), cert. denied, 380 U.S. 954 (1965) ;
Galter v. FTC, 186 F. 2d 810, 812-13 (7th Cir.), cert. denied,
342 U.S. 818 (1951).
Fedders also claims that the Commission’s order is overly
broad because it is not, by its terms, limited to objective
representations of uniqueness or performance character-
istics but also prohibits subjective product claims which
are, by definition, incapable of being proven by “scientific
or engineering” data. But we do not read the order to have
intended the restriction suggested by petitioner. It is only
the claim which fairly, if not necessarily, implies some
underlying objective basis which the order reaches. We
would not hamstring the Commission by reading its order
to apply only to “objective” claims, since it is the impliedly
as well as actually objective assertions which effect the
deception the Commission is attempting to forestall. On
the other hand, we need not and do not consider, in the
78a
Decision and Opinion of U. S. Court of Appeals
light of the proceeding below, see Swift & Co. v. United
States, 393 F. 2d 247, 256 (7th Cir. 1968), that the order
was aimed at the purely subjective arguments which mer-
chants sometimes indulge in while hawking their wares.*
The Commission order may not be construed to have in-
tended to restrict petitioner by requiring objective data
to support purely subjective claims; absent an aura of
underlying objective support suggested by the advertise-
ment when viewed as a whole. If there is any uncertainty
in the application of this order to the petitioner, the uncer-
tainty may be resolved under the Commission’s Rules of
Practice which permit petitioner to ascertain in advance
whether a particular advertising claim comes within the
scope of the order, 16 C.F.R. §§ 3.61(d), (e). FTC v. Col-
gate-Palmolive Co., supra, 380 U.S. at 394; Vanity Fair
Paper Mills, Inc. v. FTC, supra, 311 F. 2d at 488.
Petition dismissed.
*The Commission, in its brief, has admitted that ‘‘to the ex-
tent that Fedders makes claims that are solely subjective for
their product, there is no need for substantiation.’’
Copies of Five Advertisements Referred to in Petition.
(See opposite page.) j=
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Count on really great multi-room cooling and count up the big
savings, too. This special Fedders Red Ribbon air conditioner is
only 24” wide — packs more comfort for its siza than any air con-
ditioner made. Coois large open-plan living dining areas — even
an entire floor of a modest home. Cools quietly too, thanks to
Sound B-: ‘er design, Fedders total approach to sound contro’.
This is the pre-season air conditioner yalue of the year. Get this
famous Fedders today, pocket the savings, and look forward to
the most refreshing summer of your life.
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@ Automatic precision thermostat
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Bi Fiex-Mount pull-out sides
fa Washable germicidal tilter
BB Powerful dehumidification
B Exclusive Reserve Cooling Power
@ Totally enclosed-zinoclad cabinet
Other Great Red Ribbon Values
115 volts, 7.5 amps
only $179.95
reg. $209.95
for master bedrooms,
other medium-size rooms
Model ASTO7F2EY
f 7,000 BTU’s
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Reon
11,000 BTU’s
115 volts, 12 amps
only $21 9.95
reg. $259.95
for large areas,
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Model ACTIIF20¥ _
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