Appendix — Encyclopaedia Britannica, Inc. v. Federal Trade Commission

Supreme Court brief1980

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Text

OCT 31 1979

&... RODAK, JR., CLERK

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1979

No. 79-697

ENCYCLOPAEDIA BRITANNICA, INC. AND BRITANNICA

HOME LIBRARY SERVICES, INC.,

Petitioners,

vs.

FEDERAL TRADE COMMISSION,

Respondent.

APPENDIX.

Gunthorp-Warren Printing Company, Chicago e Financial 6-6565

APPENDIX.

TABLE OF CONTENTS.

| PAGE

Decision of the United States Court of Appeals for the

Seventh Circuit entered August 2, 1979............. Al

Federal Trade Commission Proceedings

Opimion of the Commission. ...<........cc0ce0e> A26

I rt Gene ks iw hhc go wack haem Be A37

Initial Decision by Administrative Law Judge...... A52

In the

UNITED STATES CouRT OF APPEALS

For the Seventh Circuit

No. 76-1477

ENCYCLOPAEDIA BRITANNICA, INC., and BRITANNICA HOME

LIBRARY SERVICES, INC.,

Petitioners,

VS.

FEDERAL TRADE COMMISSION,

Respondent.

On Petition to Review a Final Order of the

Federal Trade Commission

ARGUED FEBRUARY 17, 1977—DeEcIpDED AuGusT 2, 1979

Before FAIRCHILD, Chief Judge, and SPRECHER and Woop,

Circuit Judges.

FAIRCHILD, Chief Judge. This is a petition to review an order

of the Federal Trade Commission holding that certain practices

of petitioners, Encyclopaedia Britannica, Inc. and its subsidiary,

Britannica Home Library Services, Inc. (hereinafter referred to

jointly as Britannica) violated § 5 of the Federal Trade Com-

mission Act, 15 U.S.C. § 45(a)(1)', and ordering Britannica

1. At the time this proceeding was instituted, 15 U.S.C.

§ 45(a)(1) provided: “Unfair methods of competition in com-

merce, and unfair or deceptive acts or practices in commerce, are

declared unlawful.” This section has since been amended in ways

not relevant to this appeal.

to cease and desist from certain practices. Some of the cease and

desist provisions of the orders were so framed as to forbid

certain customary sales and promotional activity unless specified

notices were given. These notice provisions are the subject of

this review.

I. THE AGENCY PROCEEDING

Encyclopaedia Britannica, Inc. is a New York Corporation

with its principal place of business in Chicago. As is widely

known, Britannica publishes, sells, and distributes encyclopedias,

textbooks, general reference works, and other educational and

literary products throughout the world. The primary sales

method is direct selling at the homes of customers.

The complaint which initiated the proceeding before the

Commission was issued December 11, 1972. It charged decep-

tive practices in recruitment of sales representatives, in sales

presentations to members of the public in obtaining leads to

persons who will allow Britannica sales representatives into their

homes, in seeking subscriptions to book promotions, and in

collection procedures. On December 16, 1974, after trial hear-

ings, ALJ Barnes entered very extensive findings, conclusions,

and a remedial order. In respects not material on this review, the

ALJ found deceptive and unfair practices in recruiting advertise-

ments, in certain sales devices, a mail order program, and the

use of types of collection letters. On this review, Britannica has

narrowed its challenges to remedial provisions relating to decep-

tion on initial contact of salesmen with consumers, and to

deception in certain advertised offerings.

A. The ALJ summarized his detailed findings concerning

“Initial Contact With Consumers,” in part as follows:

“The primary means by which EB [Britannica] sells its

products and services is through the door-to-door solicita-

tion of consumers. . . . EB’s salesmen utilize numerous

devices which disguise the purpose of the salesman’s initial

contact with prospects—devices which essentially are ruses

for gaining admission into prospects’ homes ‘not in the

role of a salesman’ . . . . These devices are approved by

EB’s management, are made available to its salesmen, and

the salesmen are trained by EB to effectively use such

devices.—

“One ploy used to gain entrance into prospects’ homes

is the Advertising Research Analysis questionnaire. This

form questionnaire is designed to enable the salesman to

disguise his role as a salesman and appear as a surveyor

engaged in advertising research. EB fortifies the deception

created by the questionnaire with a form letter from its

Director of Advertising—for use with those prospects who

may question the survey role. These questionnaires are

thrown away by salesmen without being analyzed for any

purpose whatsoever.—

“Thus, the record is clear that EB’s sales representatives

misrepresented and failed to disclose the purpose of the

initial contact with prospects. These practices were au-

thorized and condoned by EB... .”

The portions of the ALJ’s order challenged by Britannica and

remedying the practices above described require Britannica to

cease and desist from:

“D. Visiting the home or place of business of any per-

sons for the purpose of soliciting the sale, rental or

lease of any publications, merchandise or service, un-

less at the time admission is sought into the home or

place of business of such person, a card 3 inches by

5 inches in dimension, with all words in 10-point

bold-face type, with the following information, and

none other, in the indicated order, is presented to such

person:

(1) the name of the corporation;

(2) the name of the salesperson;

(3) the term “Encyclopedia Sales Representative”

[or other applicable product];

(4) the terminology: “The purpose of this represen-

tative’s call is to solicit the sale of encyclopedias

[or other applicable product]; and

;

(5) the statement: This card should be kept as part

of your permanent records of this transaction.

[Paragraph 5 was deleted from the order by the Commission.]

“E. Failing to give the card, required by Paragraph II D,

above, to each such person, to direct each such per-

son to read the information contained on such card,

and to provide each such person with an adequate

opportunity to read the card before engaging any such

person in any sales solicitation.

In discussing the remedial order, the ALJ said he had “taken

into consideration . . . (1) the numerous violations of law by

respondents which this record establishes, consisting of conduct

which has been declared unlawful by the Commission over the

years, (2) the fact that this order must be designed to protect

the general consuming public which includes the ignorant, the

unthinking and the credulous . . ., (3) respondents’ past record

of unlawful conduct as determined in previous Commission pro-

ceedings, [1952 and 1961 orders concerning representations

with respect to allegedly ‘special’ prices and the like] and (4) the

fact that ‘. . . once the Government has successfully borne the

considerable burden of establishing a violation of law, all doubts

as to the remedy are to be resolved in its favor’... .”

With respect to the Initial Contact deception, the ALJ wrote

as follows:

“The Order contains provisions which prohibit respond-

ent from misrepresenting the purpose of contacting persons

in their homes or places of business, and require respondent

to clearly inform prospects in telephone talks and at the

door that the purpose of the visit is to solicit the sale of

respondent’s products or services. This will correct respond-

ent’s misrepresentations and deceptions as shown by the

record. As one of EB’s former corporate officials testified,

the ability to gain admittance into the home is essential to

respondent’s business operations (Balsano, Tr. 1542).

Thus, elimination of misrepresentations and deceptions in

gaining admittance into homes is crucial to this Order as

well. There is no conceivable business or other justification

for misrepresenting the purpose of a salesman’s visit. A

homeowner is entitled to know the purpose behind any

visit by a salesman. The time has arrived to put an end to

deceptions of this type.

“For these reasons, the Order entered herewith requires

EB’s salesmen to present the prospect with a card which

clearly discloses the purpose of the visit. Respondent

strenuously objects to such an Order provision (RPF III-7;

RM, p. 43; RRM, p. 17); however, no satisfactory alterna-

tives are suggested. The use of a disclosure card should

prove effective to eliminate misrepresentations and decep-

tions in obtaining appointments with homeowners, or in

gaining admittance into homes. If this provision proves un-

duly onerous, relief from this provision can be requested

at a later date.

“The Order also requires respondent’s salesmen to give

the prospect an opportunity to read the card at the door

before any sales presentation can commence. This seems

ample disclosure of the purpose of the salesman’s visit.

Thus, complaint counsel’s proposal for different size cards

depending upon the method of intital contact with a pros-

pect seems superfluous and is rejected.”

The requirement of the Card-at-the-Door was debated in the

briefs of counsel on appeal to the Commission. Britannica

pointed to testimony that the required presentation of the card

would have a devastating effect upon a rational interchange

between salesman and prospect. Britannica proposed as less

drastic alternatives (1) the requirement of oral disclosure and

of training of sales personnel to make such disclosures, and

(2) the requirement that the sales representative present an

ordinary business card, disclosing his title as “Sales Represen-

tative.”

Commission counsel argued several aspects of the greater

effectiveness of the prescribed card, as compared with an ord-

inary business card, in giving persons clear notice of the caller’s

sales purpose and an opportunity to protect themselves from

unwanted harassment.

A6é .

The opinion of the Commission dealt specifically with

Britannica’s concern over the Card-at-the-Door requirement.

Adverting in detail to evidence that Britannica’s sales represen-

tatives have been trained to conceal the sales purpose of seeking

admission to a home, the Commission concluded that “[t}he

company-described disguise techniques necessitate inclusion of

an order provision requiring clear and conspicuous disclosure

of the fact that the representative is a salesman and of the true

purpose of gaining entry into the home.”

The Commission concluded that the prescribed advice to the

customer to keep the card did “not appear to be necessary in

order to provide a clear and conspicuous disclosure of the

nature and purpose of the call” and omitted that prescription.

B. The ALJ summarized his detailed findings concerning

“Lead-Getting Activities,” in part, as follows:

“EB’s magazine and direct-mail advertisements as well

as contest entry cards, used to obtain the names of persons

who will be contacted by EB’s salespersons for the purpose

of persuading such persons to purchase EB’s products, do

not disclose the fact that persons who respond will be

contacted by EB’s salespersons.—

“. . . Respondent also points out that EB’s salesmen

usually telephone prospects prior to visiting them personal-

ly. These fact differences do not change the basic decep-

tion inherent in EB’s methods. EB’s magazine advertise-

ments affirmatively mislead the public into believing that

all materials and information will come by mail—direct

from the publisher. . . . Some of the contest entry cards

indicate EB is giving away prizes in celebration of its 200th

anniversary, that there is no obligation in filling out a

card.—

“The sole purpose of these activities is to obtain leads

to prospects. The only way to protect the public, to correct

the misrepresentations in respondent’s lead-getting activi-

ties, is to inform the public of the true motives behind

respondent’s offers of free information and prizes—that

respondent has a profit motive and will seek to sell its

products to those who respond to its devices. These are

material facts the public should know. Disclosure that a

salesman may call to make a sales presentation of respond-

ent’s products and services will correct respondent’s mis-

representations and make these material facts available to

the public.”

The portions of the ALJ’s order challenged by Britannica and

remedying the practices above described require Britannica to

cease and desist from:

“A. Disseminating or causing to be disseminated any ad-

vertisement or promotional material which solicits

participation in any contest, drawing or sweepstakes,

or solicits any response to any offer of merchandise,

service or information unless any such solicitation

clearly and conspicuously discloses the following state-

ment in 10-point bold-face type:

NOTICE TO CONSUMER—PERSONS WHO

REPLY AS REQUESTED MAY BE CONTACTED

BY A SALESPERSON FOR THE PURPOSE OF

SELLING [insert name of applicable product].

“B. Providing any return card, coupon or other device

which is used to respond to any advertisement or pro-

motional material covered by Paragraph II A above,

unless the following statement clearly and conspicu-

ously appears in 10-point bold-face type in immediate

proximity to the space provided for a signature or

other identification of the responding party:

NOTICE TO CONSUMER—PERSONS WHO

RETURN THIS [insert name of applicable device]

MAY BE CONTACTED BY A SALESPERSON

FOR THE PURPOSE OF SELLING [insert name of

applicable product].

In discussing these portions of the remedial order, the ALJ

wrote as follows:

“EB is prohibited by the Order from disseminating any

promotional material or providing any contest entry card

which does not clearly disclose that any person responding

to such materials may be contacted by a salesperson. This

provision does not require that a salesperson call, but

merely informs the public of respondent’s intent in dis-

seminating such materials and the risks or obligations

which may be involved. This is information the public

should have, and it does not unduly interfere with any of

respondent’s business operations.”

On appeal to the Commission, Britannica argued that the

disclosure is unnecessary and in any event is not the least drastic

alternative. Britannica took issue with the choice of words, and

suggested that at most there might be a requirement that Britan-

nica disclose in clear print that the responding individual may

be contacted to see if he would desire further information on

the particular product.

In response, Commission counsel emphasized the support in

the record for the fact that a substantial number of consumers

do not want visits from encylopedia salespersons, and that by

failing to disclose that those who respond are subject to an un-

announced visit by a salesperson, Britannica obtains a greater

number of responses.

The opinion of the Commission treated specifically the por-

tion of the order requiring these disclosures in advertising or

promotional material which solicits participation in contests

and the like, or solicits a response to an offer of merchandise,

service, or information. It said:

“The Commission has determined that these order pro-

visions are needed to inform the consumer that the card

Or coupon response will trigger the delivery of material

and information by a sales representative whose call is for

the purpose of selling. Such knowledge cannot be gleaned

by the consumer who reads the ads or who enters the

contest. The ads mislead the consumer in that the wording

portrays all information as coming by mail and direct from

the publisher. A number of contest entry cards portray the

give-away merely as a celebration of the company’s bicen-

tennial and suggest that a consumer who fills in the card

will not be imposed upon. We reject respondent’s conten-

tion that disclosure is unnecessary and that the language

of the disclosure is ‘negative.’ ”

The Commission’s order was issued March 9, 1976.

Britannica does not challenge the sufficiency of the evidence

to support the findings of violation, nor does it challenge the

propriety of a remedial order. Rather, Britannica focuses its

attack on the provisions requiring specified disclosures on initial

contact with prospective customers and in certain types of lead-

getting material. Britannica argues that these remedial provisions

should be set aside because: (1) the disclosures ordered by the

Commission are not the least restrictive altcrnative for curing

deception; (2) the Commission failed to state reasons for its

choice of remedy in violation of the Administrative Procedure

Act, 5 U.S.C. § 557(c); (3) the Commission’s order uncon-

stitutionally infringes on Britannica’s First Amendment right to

advertise and solicit sales; (4) the Commission abused its dis-

cretion in its method of enforcement; and (5) Britannica did

not have an opportunity to rebut information it believes the

Commission considered in selecting the remedy. We will now

consider each of these contentions, respectively.

Il. WHETHER THE COMMISSION EXCEEDED ITS

STATUTORY AUTHORITY IN REQUIRING THE

AFFIRMATIVE DISCLOSURES IN THIS CASE

- Once a violation of the Act has been found, our role in re-

viewing the remedy is a narrow one. As the Supreme Court has

stated:

The Commission is the expert body to determine what

remedy is necessary to eliminate the unfair or deceptive

trade practices which have been disclosed. It has wide lati-

tude for judgment and the courts will not interfere except

where the remedy selected has no reasonable relation to

the unlawful practices found to exist.

Jacob Siegel Co. v. FTC, 327 U.S. 608, 612-13 (1946). See

also, e.g., Gilbertville Trucking Co. v. U.S., 371 U.S. 115,

130 (1962); L. G. Balfour Co. v. FTC, 442 F.2d 1, 23 (7th

A10

Cir. 1971).* If an FTC order bears no reasonable relationship

to the unlawful conduct, however, courts may narrow the scope

of the order accordingly. E.g., Chrysler Corp. v. FTC, 561 F.

2d 357, 364 (D.C. Cir. 1977); ITT Continental Baking Co. v.

FTC, 532 F. 2d 207, 220-21 (9th Cir. 1976). Similarly, courts

may modify FTC orders if a less onerous remedy would have

the same effect in furthering the governmental interest of pre-

venting deception as the remedy chosen. FTC v. Royal Milling

Co., 288 U.S. 212 (1933). Cf., Beneficial Corp. v. FTC, 542

F, 2d 611 (3d Cir. 1976), cert. denied 97 S. Ct. 1679 (1977).

However, the Commission in framing its remedy is “not limited

to prohibiting the precise misrepresentations that had occurred

in the past.” National Com’n. on Egg Nutrition v. FTC, 570

F, 2d 157, 163-64. As the Supreme Court has stated:

We think it reasonable for the Commission to frame its

order broadly enough to prevent respondents from engag-

ing in similarly illegal practices in future advertisements. As

we said in Federal Trade Comm'n v. Ruberoid Co., 343

U. S. 470, 473: ‘[T]he Commission is not limited to pro-

hibiting the illegal practice in the precise form in which

it is found to have existed in the past.’ Having been caught

violating the Act, respondents ‘must expect some fencing

in.’ Federal Trade Comm’n v. National Lead Co., 352

U.S. 419, 431.

FTC v. Colgate-Palmolive Co., 380 U.S. 374, 395 (1965).

Cf. National Society of Professional Engineers v. United States,

435 U.S. 679, 698 (1978).

We have no hesitancy in concluding that the requirement of

the disclosures on initial contact and in the so-called promotional

materials were reasonably related to the deceptive practices

found. We do not think Britannica seriously contends that re-

quired disclosure in some form is an improper remedy, and the

choice the Commission made as to form and content of the

2. It is well established that the Commission is authorized to

require affirmative action as a remedy in addition to a cease and

desist order. E.g., Warner Lambert Co. v. FTC, 562 F. 2d 749, 756

(D. C. Cir. 1977); Waltham Watch Co. v. FTC, 318 F. 2d 28 (7th

Cir.), cert. denied 375 U.S. 944 (1963).

All

disclosures could not be deemed an abuse of discretion. These

choices were well within the range.

Il. WHETHER THE COMMISSION ADEQUATELY AR-

TICULATED THE REASONS FOR ITS CHOICE OF

PRESCRIBED FORMS OF DISCLOSURE

Britannica contends that the remedial provisions under attack

must be set aside because the Commission failed to state rea-

sons for its discretionary choice of forms of disclosure. Britan-

nica points to the requirement of 5 U.S.C. § 557(c) (Adminis-

trative Procedure Act), that “All decisions . . . shall include a

statement of . . . findings and conclusions, and the reasons or

basis therefor, on all the material issues of . . . discretion pre-

sented on the record .. . .” See also, Burlington Truck Lines v.

U.S., 371 U.S. 156 (1942), faulting the ICC for failure to

make findings and an analysis to justify its choice between two

different available and apparently adequate remedies.

We have set out or summarized the findings, conclusions, and

comments of the ALJ and Commission concerning the decep-

tive practices at which these remedies are directed. There is

emphasis on the studied character of the deceptions. We think

these clearly set forth adequate reasons for requiring affirmative

disclosure of the sales purposes involved rather than a simple

command to cease the deception. Britannica suggested to the

ALJ and the Commission less onerous forms of disclosure, i.e.,

oral rather than written (except for an ordinary business card)

in the initial contact and less blunt reference to the sales purpose

of the contact to be expected by a person answering a promo-

tional ad.

It is true that the ALJ and Commission made no express

comparison between the suggested less onerous forms of dis-

closure and the form adopted. With respect to the initial contact,

the ALJ wrote that the card as ordered “should prove effective”

and “no satisfactory alternatives are suggested.” The Commis-

Al2

sion asserted the need for “clear and conspicuous disclosure”

and indicated its consideration of that standard in deciding to

omit the portion of the card suggesting that the recipient keep

it. We think there is the clearest implication from these remarks

in the context of the record that the alternatives had been

considered and been found not to be adequately effective.

With respect to the required disclosure in lead-getting activi-

ties, the ALJ wrote “This is information the public should have,

and it does not unduly interfere with any of respondent’s busi-

ness operations.” The Commission asserted that the provisions

“are needed,” and rejected Britannica’s contention that the lan-

guage is “negative.” Again its seems clear to us that the

suggested alternative had been considered and found not to be

adequately effective.

Burlington is readily distinguishable. There the available

remedies were quite different, and the Court found every indica-

tion that the remedy not chosen would have been effective. In

the present case, the matters at issue are only the form of the

disclosure to be required, and it seems clear, though not ex-

pressly stated, that the Commission considered the less onerous

forms suggested and decided they would not be adequately

effective. We do not consider that the Administrative Procedure

Act, nor Burlington requires us to set aside the challenged pro-

visions because the Commission did not expressly make the

comparison.

IV. WHETHER THE ORDER OF THE COMMISSION IN-

FRINGES ON BRITANNICA’S CONSTITUTIONAL

RIGHT TO ADVERTISE AND SOLICIT SALES

The proposition that commercial speech enjoys some degree

of First Amendment protection can no longer be seriously ques-

tioned. See, e.g., Bates v. State Bar of Arizona, 433 U.S. 350

(1977); Virginia Pharmacy Board v. Virginia Consumer Coun-

cil, 425 U.S. 748 (1976); National Com’n. on Egg Nutrition,

Al3

supra, It is also beyond question, however, that deceptive ad-

vertising is subject to regulation. As the Supreme Court stated

in Bates v. State Bar of Arizona, supra, 433 U.S. at 383:

Advertising that is false, deceptive, or misleading of

course is subject to restraint. See Virginia Pharmacy Board

v. Virginia Consumer Council, 425 U.S. at 771-772, and

n. 24, 96 S.Ct., at 1830-1831. Since the advertiser knows

his product and has a commercial interest in its dissemina-

tion, we have little worry that regulation to assure truth-

fulness will discourage protected speech. Id., at n. 24, 96

S.Ct. at 1830. And any concern that strict requirements

for truthfulness will undesirably inhibit spontaneity seems

inapplicable because commercial speech generally is cal-

culated. Indeed, the public and private benefits from com-

mercial speech derive from confidence in its accuracy and

reliability. Thus, the leeway for untruthful or misleading

expression that has been allowed in other contexts has little

force in the commercial arena.

While Britannica does not dispute the general proposition that

deceptive advertising can be regulated, it does argue that the

affirmative disclosures required by the Commission in this case

go beyond the constitutionally permissible.

A remedy for deceptive advertising which is broader than is

necessary to prevent future deception or correct past deception

is impermissible under the First Amendment. E.g., National

Com’n. on Egg Nutrition, supra, 570 F. 2d at 164; Beneficial

Corp. V. FTC, supra, 542 F. 2d at 619. In National Com’n. on

Egg Nutrition, supra, the FTC ordered a trade association to

cease and desist from disseminating advertisements containing

statements to the effect that there is no scientific evidence that

eating eggs increases the risk of heart disease. The FTC also

ordered the trade association to include in any future advertise-

ments or public statements it made regarding the relationship

between eating eggs and heart disease the affirmative statement

that many medical experts believe eating eggs may increase the

risk of heart disease. This court modified this aspect of the order

as overbroad under the First Amendment:

Al4

The First Amendment does not permit a remedy broader

than that which is necessary to prevent deception .

The . . . [additional statement] in its present form would

require NCEN [the trade association] to argue the other

side of the controversy, thus interfering unnecessarily with

the effective presentation of the pro-egg position. The de-

sired preventive effect can be achieved by requiring the

disclosure that there is a controversy among the experts

and NCEN is presenting its side of that controversy. The

additional statement in the form now ordered by the FTC

should be required only when NCEN chooses to make a

representation as to the state of the available evidence or

information concerning the controversy. As thus modified,

the challenged condition would not unnecessarily curtail

NCEN’s right to present its position. 570 F.2d at 164.

Similarly, in U. S. v. National Soc. of Professional Engineers,

555 F. 2d 978 (D.C. Cir. 1977), affd 435 U.S. 679 (1978),

the court held that an engineering society violated § 1 of the

Sherman Act by adopting and enforcing a rule against competi-

tive fee bidding. The Court of Appeals, however, also held (in

a ruling not reviewed by the Supreme Court) that a requirement

that the Society state affirmatively that it does not consider

competitive bidding to be unethical was contrary to the First

Amendment:

In view of the foregoing, we affirm the district court’s

decree, except in one respect in which we think the decree

is overbroad: It not only enjoins the Socicty from adopting

any policy statement which describes price competition as

‘unethical,’ but also orders the Society to state affirmatively

that it does not consider competitive bidding to be un-

ethical. To force an association of individuals to express

as its own opinion judicially dictated ideas is to encroach

on that sphere of free thought and expression protected by

the First Amendment. 555 F.2d at 984.

Finally, in Beneficial Corp. v. FTC, supra, the Third Circuit

modified a Commission order which required excision of a short

copyrighted and heavily promoted phrase from its advertising

Al5

material when revision of the context within which the phrase

was used could eliminate deception.

In the present case, however, the Commission order does not

require Britannica to argue a side of a controversy to which it

is opposed as in Egg Nutrition or National Soc. of Professional

Engineers, nor does it require Britannica to delete a copyright

phrase as in Beneficial Corp. Rather, the order of the Commis-

sion directs truthful disclosure of Brilannica’s purposes. Both

the public and consumers have a strong interest “that the stream

of commercial information flow cleanly as well as freely.” Vir-

ginia State Board, supra, at 772. “Indeed, the public and private

benefits from commercial speech derive from confidence in its

accuracy and reliability.” Bates, supra, 433 U.S. at 383. More-

over, in light of the Commission’s finding that clear and con-

spicuous disclosure is required to prevent future deception by

Britannica, we are not persuaded that a remedy ordered by the

Commission is not the least restrictive alternative which will

adequately further the legitimate governmental interest of the

prevention of deception.

V. THE COMMISSION’S METHOD OF ENFORCEMENT

AGAINST BRITANNICA

The Commission has wide discretion in selecting its methods

of remedying deceptive and unfair practices. E.g., NLRB v. Bell

Aerospace Co., 416 U.S. 267, 290-95 (1974); FTC v.

Universal-Rundle Corp., 387 U.S. 244, 251-52 (1967); Moog

Industries v. FTC, 355 U.S. 411, 413 (1958); SEC v. Chenery

Corp., 332 U.S. 194, 202-03 (1947). This discretion extends

to the decision whether to proceed by rulemaking or adjudica-

tion. E.g., Bell Aerospace Co., supra, at 294 SEC v. Chenery

Corp., supra, at 203.

Despite the Commission’s discretionary power to proceed by

adjudication, Britannica argues that the Commission has no

Al6

power to enter radically different orders against direct com-

petitors.®

The Commission has the power to act against one firm

practicing an industry-wide illegal practice. E.g., FTC v.

Universal-Rundle Corp., supra, 387 U.S. at 251; L. G. Balfour

Co. v. FTC, 442 F. 2d 1, 24 (1971); Rabiner & Jontow, Inc.

Vv. FTC, 386 F. 2d 667, 669 (2d Cir. 1967); Johson Products

Co. v. FTC, 549 F. 2d 35, 41 (7th Cir. 1977). The Commis-

sion must be accorded wide latitude in its enforcement strategy

for “the Commission alone is empowered to develop that en-

forcement policy best calculated to achieve the ends contem-

plated by Congress and to allocate its available funds and

personnel in such a way as to execute its policy efficiently and

economically.” Moog Industries, Inc. v. FTC, 355 U.S. 411,

413 (1958).

Nevertheless, the discretion of the Commission is not un-

limited and may be “overturned . . . [for] a patent abuse of

discretion.” Moog Industries, supra, at 414; Johnson Products

Co., supra, 549 F. 2d at 41. If the Commission elects to litigate

against similarly situated competitors, for example, it cannot

place one competitor at a competitive disadvantage by arbitrarily

treating one violator differently from another, Garrett v. F. C. C.,

513 F.2d 1056, 1060 (D.C. Cir. 1975). As this court has

stated:

[T]he Commission’s orders are to serve a remedial and

not a punitive function, . . . and the Commission may not

issue orders which would arbitrarily destroy one of many

violators in the market. . . . It is the responsibility of the

Commission to perform a ‘reasonable evaluation’ of the

3. Britannica also contends that the Commission violated 5

U.S.C. §555(e) of the Administrative Procedure Act by denying

its petition for rulemaking without analysis or reasons. Whatever the

merit of this argument, however, it has no bearing on the validity of

the Commission’s order after an adjudicative proceeding in this case.

Rule making proceedings and adjudicative proceedings are not neces-

sarily mutually exclusive. See Lehigh Portland Cement Co. v. FTC,

a i 628 (E.D. Va. 1968), aff'd 416 F.2d 971 (4th

ir. ;

ite eh ageE

Seeker ¢.*

Al7

competitive situation to ascertain whether a particular order

would be contrary to the purpose of the laws sought to

be enforced.

L. G. Balfour Co., supra, 442 F.2d at 24 (citations omitted).

The facts of this case, however, do not support Britannica’s

claim of discriminatory treatment. It is true, as Britannica points

out, that an earlier order against a minor competitor required

only orai disclosure. P. F. Collier & Son Corp. v. FTC, 427

F. 2d 261, 265-66, footnote 6 (6th Cir. 1970), cert. denied

400 U. S. 926 (1970). Use of a less exacting remedy in a case

litigated almost a decade prior to the present controversy does

not, however, establish discriminatory enforcement. To establish

such a claim, a competitor would have to show not only that

competitors were treated differently, but that no rational reason

exists to support the differential treatment. Differences in remedy

may be attributable to any number of reasons including a

realization that earlier remedies were ineffective. A prior in-

sufficient order does not necessitate the insufficiency of all later

orders. P. F. Collier, supra, 427 F. 2d at 276.

Recent action by the Commission further demonstrates that

Britannica has not been put at a competitive disadvantage as a

result of discriminatory enforcement. In a proceeding against

Grolier, a principal competitor of Britannica, the Commission

imposed a remedy virtually indentical to the disputed provisions

in this case after a finding that Grolier has been engaging in the

same practices as Britannica. Jn the Matter of Grolier, Inc., FTC

Docket No. 8879. The record, therefore does not support a claim

of discriminatory enforcement by the Commission.

VI. THE APG ISSUE

Britannica points to a memorandum entitled “Analytical Pro-

gram Guide for the Direct Selling Industry’ (APG) and related

documents, which Britannica has attempted to examine, but

which have only partially been disclosed. Britannica suggests that

Al8

the APG may contain “misinformation and undisclosed evi-

dence” which Britannica has not had an opportunity to- rebut.

Britannica further suggests that the “previously undisclosed evi-

dence [is] of great relevance to the question of remedy in this

”

case.

Britannica first learned of the existence of the APG in May,

1975, and made several motions before the Commission seeking

an opportunity to examine and rebut the APG materials before

decision by the Commission. The motions were denied. In deny-

ing the last, a motion to reopen the record for this purpose

(March 2, 1976) the Commission referred to Britannica’s con-

tention “that the Commission has utilized the documents in

the decision-making process in this adjudicative matter” and

asserted

“This motion is plainly without merit. The Commission

has based its determinations and order in this matter solely

upon the record compiled in Docket No. 8908.”

In May, 1975 Britannica also began an action in the Northern

District of Minois seeking an injunction against the completion

of the proceeding now before us (Docket No. 8908) and also.

seeking the right to inspect and copy the APG materials under

FOIA. The requested injunction was denied, an appeal taken,

and this court denied an injunction pending appeal. En-

cyclopaedia Britannica, Inc. v. FTC, 571 F.2d 1013 (7th Cir.

1975). That appeal was dismissed on Britannica’s motion June

30, 1975. The action for FOIA relief, proceeded until judg-

ment was entered in favor of FTC March 20, 1979. Britannica

has appealed (No. 79-1522).

We are not, of course, deciding Appeal No. 79-1522, al-

though we take judicial notice of the record therein. We have

denied a recent motion by Britannica to stay consideration herein

until decision of Appeal No. 79-1522. The issues pertaining to

Britannica’s claim of right to disclosure of additional APG

materials under FOIA may well be different from the question

whether Britannica has shown that the APG materials so in-

= =

Al9

fluenced the Commission order here under review that the

matter must be remanded to the Commission to reopen the

record, disclose the APG materials, and give Britannica an

opportunity to rebut them insofar as they might appear to be

relevant.

The APG itself is a memorandum dated July 28, 1972, ap-

parently after the staff had recommended to the Commission

that a complaint be filed against Britannica, and had submitted

a proposed remedial order to be served with the complaint. The

author of the APG was a staff attorney, Division of Evaluation,

and the Assistant to the Director, Bureau of Consumer Pro-

tection. The APG was addresed to Mr. Pitofsky, the Director,

and is endorsed with his approval. The full APG contains 79

pages. ;

Part I of the APG is entitled “Introduction: scope, back-

ground and purpose of the memorandum.” It contains general

observations on the expenditure of effort by the FTC in the

past to regulate the abuses of the direct selling industry, a con-

clusion that the FTC has as yet made little effort to gain an

overall perspective on the industry and reference to the ques-

tion raised by some members of the staff whether the FTC

should be involved in regulation of the industry. The stated

purpose of the APG is “to provide as adequate a direct selling

industry overview as possible and, on the basis of that over-

view, to propose an appropriate comprehensive FTC regulatory

policy to control the industry’s abuses.”

A secondary purpose is indicated as providing a study of

the industry which will preserve relevant experience and ideas

of staff for the benefit of future staff when problems in the

industry «arise.

The sections of the APG, other than the Introduction, are

II. Industry profile, social and economic significance of the

industry; patterns of industry regulation; industry trends.

iI. Direct selling industry abuses; FTC resource allocation

in dealing with these abuses.

A20

IV. Survey of past, present and contemplated FTC direct

selling industry regulatory action.

V. Regulatory alternatives; proposed regulatory goals and

strategies; evaluation of present programs.

VI. Summary of policy considerations and recommenda-

tions.

Clearly enough direct selling of encyclopedias by Britannica

and others is within the scope of the APG. The field is divided

into high ticket and low ticket categories, based on

price, and among thirteen so-called high ticket categories,

the sixth includes encyclopedias and other book-form publica-

tions and educational services. In a survey of pending and

planned regulatory actions in the field, there is reference to

the recommendation pending before the Commission that a

complaint be issued against Britannica, along with a reference

to an already issued complaint against Grolier, Inc. and con-

sideration of a possible complaint against Field Enterprises, Inc.,

Britannica’s largest competitors.

According to a Second Revised Index filed by the Commis-

sion in the FOIA action in district court, the APG “was used

by the Bureau of Consumer Protection to evaluate existing and

proposed activities in the direct selling industry and was sub-

mitted to the Commission as a proposal for such use by the

Commission. It was never finally adopted by the Commission.”

Summaries in the index do indicate that in portions of

APG not disclosed, the author referred to the proposed form

of remedial order recommended by the staff to be served with

the complaint against Britannica. These references occurred in

the course of his survey of past regulation, his discussion of his

views as to appropriate order provision, and his discussion of

rules which the Commission could adopt. Summaries also in-

dicated that the APG had been submitted to the Commission by

Mr. Pitofsky July 31, 1972, with recommendations; that various

Commissioners had exchanged their views by memoranda, and

Se 7

A21

that on November 1, 1972, the Commission had directed the

staff to perform specified internal tasks with reference to APG.

District Judge Roszkowski, in ordering judgment for the

Commission in the FOIA case, noted that he had examined in

camera the APG and related material. “We have compared

the contents of the APG with the allegations found in the Com-

mission’s complaint in Docket No. 8908 and find them to be

substantially dissimilar.” After examining the related materials,

he stated, in part, “We simply add that these seventeen docu-

ments do not contain private transmittals of binding Ccm-

mission opinions or legal interpretations which in any fashion

constitute secret agency law.”

We have before us the formal assurance of the Commission

that it has based its determination and order solely upon the

record in this proceeding. We must presume that the regularity

of administrative action, and accordingly members of the Com-

mission and the ALJ knew and observed the distinction between

an adjudicatory proceeding and consideration of problems and

policies relevant to the general administrative responsibilities

of the Commission. See United States v. Chemical Foundation,

272 U.S. 1, 14-15 (1926). We have carefully read the dis-

closed portions of the APG and the Commission’s summaries of

the omitted portions and related documents. All are consistent

with the APG being a generalized study with recommendations

of programs which the Commission might, but apparently has

not directed its staff to implement. We have the benefit of

Judge Roszkowski’s reactions after reading all the material.

We are not persuaded of any probability that the fact find-

ing in this adjudicatory proceeding has been influenced by as-

sertions in the APG or that either the ALJ or Commission felt

that his or its discretion had been constrained by the APG or any

Commission treatment thereof.

The order under review will be affirmed and enforced.

Woop, Circuit Judge, dissenting.

A22

I respectfully dissent. The issues are fairly presented in the

majority opinion, but my view differs. |

Britannica does not question on appeal the Commission’s

underlying findings about prior sales techniques, but objects

to the prescribed cures which go beyond a mere cease and

desist order. First, the company objects to the requirement for

the use of a warning card by sales representatives, and secondly,

to the inclusion in all lead-producing advertisements as well as

in any provided mail response forms, the “Notice to Consumer”

warning.

The Commission has seen fit to dictate the exact size of the

warning card, 3” x 5”, the exact language to be printed on it

and “none other,” and even the particular type to be used in its

printing, 10-point bold-face type. Further, with this card in hand

a salesman is directed to immediately give it to a prospect and to

“direct each such person to read it” before anything else is said

or done. The Commission has similarly dictated the wording,

size, and type to be used in the “Notice to Consumer” to be

contained in the advertising and has specified where the warn-

ing is to be placed on return forms. Those measures have been

ordered by the Commission without any apparent consideration

of the adverse side effects upon Britannica likely to result from its

prescription, or the use of less onerous alternatives to accomplish

its same purposes. I do not see in the record any implication,

much less any clear implication as the majority does that the

remedies are the result of a reasoned determination or analysis.

Britannica has suggested acceptable alternative measures to

accomplish the same purposes which the company views as not

offending legal and constitutional standards. For example, it is

suggested that instead of the dictated sales representative's warn-

ing card that a fully identifying business card be used coupled

with an oral disclosure of the purpose of the sales representa-

tive’s contact. Britannica suggests that its sales people would be

trained to reveal their sales purposes and to avoid anything mis-

leading. Britannica also argues that it should have a little more

eee Og ANNE at 0 piel Lt

. A23

freedom in composing its own advertising. The company does

not object to the elimination of anything which might suggest

that a prospect will not be contacted by a sales representative.

The company also would be willing to clearly disclose, but in

its Gwn words, that prospects who respond to advertising may

likely be contacted by a sales representative.

In my view this is a case where an agency, though with good

intentions, in its big brother role has unnecessarily intruded too

far into the conduct of legitimate business. The Commission

surely has more compelling responsibilities than to dictate the

size, wording, and printer’s type to be used inflexibly by the

company. Britannica was not given the opportunity to propose

or to submit any less damaging forms of remedies to the Com-

mission for prior review.

The remedies appear to me to go beyond any reasonable cure

and are more akin to bureaucratic punishment imposed upon a

company found by the Commission to be errant. Britannica

makes plain the severe, adverse business impact which can be

anticipated by its use of the prescribed stark warnings and

procedures. It seems to me that to require a salesperson to use

the warning card will suggest to many prospects that the sales

representative and his company are afflicted with some strange

market place malady. Even prospects who are predisposed to

acquire for themselves and families the wealth of information

found in an encyclopaedia may be expected to turn to some

competitor who does not exhibit such abnormal and strange

commercial behavior. After all, to be disturbed by the unex-

pected call of a sales representative or even to suffer a change

of mind after purchase of an encyclopedia ordinarily would not

be viewed as injurious to a customer’s health. Those persons

who show any interest in encyclopaedias may be expected to be

those with enough intelligence not to be hopelessly at the mercy

of sales representatives. I see no need for making all prospective

customers wards of the government when something less may

suffice.

A24

When Justice Stevens was a member of this court, he wrote

in Papercraft Corp. v. Federal Trade Commission, 472 F.2d

927, 933 (7th Cir. 1973):

“We are conscious of the deference to be accorded to the

expertise of the administrative agency, particularly in the

fashioning of remedies. But when it selects an untried and

blunt instrument which will certainly cause some impair-

ment of statutory objectives [competition], we require a

more careful exposition of its justification before we will

sanction it as a proper remedial tool. The Commission

failed to make an adequate demonstration of the need for

its exceptional remedy.”

That comment is not without some relevance to this case. We

are not bound by our deference to the Commission’s expertise

to sanction any remedy the Commission may impose without

explanation, or analysis, or any other visible justification when

there is the reasonable likelihood that something less harsh to a

legitimate business would accomplish the same Commission ob-

jectives. As in Siegal Co. v. Federal Trade Commission, 327

U. S. 608, 613 (1940), we are left in the dark as to why some

less drastic and damaging remedy would not suffice.

The Commission has brought to our attention the Supple-

mental Opinion on Petition for Rehearing in Warner-Lambert

Co. v. Federal Trade Commission, 562 F.2d 749 (D.C. Cir.

1977). That opinion explains why certain corrective advertis-

ing was considered justified to overcome 50 years of deceptive

advertising in which Listerine had been proclaimed and pur-

chased as a remedy for colds. However, even in those circum-

stances Judge Robb dissented on the basis that the corrective

advertising was beyond the Commission’s statutory authority

and that the Commission had no authority to punish or impose

liability for past conduct. In any event, there is no lingering

effect of prior advertising needed to be overcome in the present

case.

I would prefer to deny enforcement of the Commission’s or-

der and remand for reconsideration of a more appropriate

remedy to be supported by a rational analysis.

ce aI eR ERMR AND 2a a nw a

A25

There remains the additional issue involving certain materials

sought by Britannica under the Freedom of Information Act

which the company fears may have exerted some influence on

the Commission outside the record. A separate appeal is pend-

ing which is an outgrowth of that issue. The majority presumes

the regularity of the administrative action. Since the objection-

able remedies imposed stand unsupported in the record, I would

wait in the resolution of this case until we are fully informed

about the other appeal and its possible effect, if any, upon this

case. That would consolidate related matters and avoid to some

extent having to rely on implications and presumptions in re-

solving this case.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

A26

IN THE MATTER OF

ENCYCLOPAEDIA BRITANNICA, INC., ET AL.

Order, Opinion, etc., in Regard to Alleged Violation of

The Federal Trade Commission Act

Docket 8908. Complaint, Dec. 11, 1972—

Final Order, Mar. 9, 1976

GPINION OF THE COMMISSION

By DOLE, Commissioner:

[1] This matter is before the Commission on appeal of En-

cyclopaedia Britannica and its wholly-owned subsidiary, Britan-

nica Home Library Services, respondents [hereinafter referred

to as “respondent”], and the cross-appeal of complaint counsel

from the initial decision of Administrative Law Judge Ernest

Barnes in the above-styled proceeding. Judge Barnes found that

respondent had engaged in deceptive acts in the recruitment of

sales personnel and in the promotion and sale of encyclopedias,

other books and related services. Judge Barnes also found that

respondent had engaged in deception in its manner of gaining

entry into the consumer’s home and in its debt collection

practices.

FTC OPINION

Encyclopaedia Britannica publishes, sells and distributes

throughout the world, textbooks, encyclopedias, reference and

educational materials, other literary works and services, and

training courses. Respondent’s products, in addition to Ency-

clopaedia Britannica, include Compton’s Encyclopedia, Great

Books of The Western World, and Great Books Reading Plans.

Encyclopaedia Britannica makes the most substantial portion

of its sales in the home. It maintains a sale force [2] of some

2,000 sales representatives which it recruits, in part through

newspaper advertisements.’ Britannica Home Library Services

1. I. D. at 8-10.

A27

sells and distributes books and other merchandise through ad-

vertising and mailings.” It is engaged exclusively in a mail order

business throughout the United States.

Judge Barnes’ order places respondent under certain prohibi-

tions and requires it to take certain affirmative actions in con-

nection with respondent’s recruitment of sales representatives,

its debt collection practices, its product marketing and distribu-

tion practices in the home and its advertising.

The thrust of respondent’s appeal in this matter concerns the

order.* Respondent’s principal concern is with the order’s re-

quirement that Britannica’s representative present a 3” x 5”

card at the time admission is sought into the home for the purpose

of soliciting a sale. Britannica’s representative must direct the

consumer to read the card on which is printed in 10-point, bold-

face type: (1) the name of the corporation; (2) the name of the

sales representative; (3) the term “Encyclopedia Sales Repre-

sentative”; (4) the statement, “The purpose of this representa-

tive’s call is to solicit the sale of encyclopedias”; and (5) the

statement, “This card should be kept as part of your permanent

records of this transaction.”*

Except in one respect, hereinafter noted, the Commission

upholds the administrative law judge’s order provisions requiring

the 3” x 5” card disclosure. Respondent’s training tapes, which

are required to be used in the instruction of all of its sales repre-

sentatives,” emphasize that training in effective sales techniques

2. I.D. at 111. Encyclopaedia Britannica formulates, directs

and controls the acts and practices of Britannica Home Library

Services. Ibid.

3. We reject outright respondent’s contention that Section 5 of

the Federal Trade Commission Act does not extend to recruitment

practices, see, e.g., Educators Association Inc. v. FTC, 108 F.2d

470, 472 (2d Cir. 1939), modified on other grounds, 118 F. 2d 562

a Cir. 1941), and that these practices were “local,” see I. D.

86-87.

4. Order Paragraphs 11(D) and (EB).

5. Tr. at 3124 (Mr. Holmes); see Tr. at 3173-74 (Mr.

Martinez).

: :

“

it}

. y

tte

A28

is “all meaningless if you can’t get in [3] the home of a prospect.

* * *”6 We have concluded that respondent’s sales representatives

have been trained to disguise the main purpose of the visit in a

way which deceives the consumer as to the real reason the

representative seeks admittance to the home—to make a sale.

For example, respondent’s representatives are trained to deliver

verbatim a three-paragraph spiel’ which respondent character-

izes “as having the distinct advantage” of allowing the repre-

sentative to approach the prospect’s door “not in the role of a

salesman” but rather in the role of a company representative

who is delivering a free booklet and making an advertising

effectiveness survey.®

While one of the reasons claimed for delivering the requested

booklet in person is to conduct an advertising survey, it is

nevertheless clear from the explanation which accompanies

the three-paragraph “door approach” that this reason is a

guise to gain entry for the purpose of making a sales pitch.

Respondent’s tape explains the “accomplishments” of the door

approach [4] as follows: “[W]e have identified ourselves,”® and,

by hand delivering the requested booklet, “we have taken a

giant step toward overcoming, before it arises, their objection,

6. CX 647-A (training tape, “Door Approach and A. R. A.”).

7. “Hello, Mr. Jones, I’m Bill Smith from the Great Ideas

Program. Someone in your family requested a free booklet, and I

stopped by to deliver it. Incidentally, it’s free.”

“You’re welcome, Mr. Jones. You see, one of the reasons we are

delivering the booklet in person is that the company is making a

study of the effectiveness of our national advertising in each local

area. Our director of advertising has instructed me to check your

answers to a few quick questions. May I step in and complete my

report so I can return it at once to our director of advertising?”

“Actually, Mr. Jones, it’s only six simple questions. We hope this

will enable us to spend our advertising appropriation more wisely.

Perhaps this letter from our director of advertising will better explain

the purpose of our advertising analysis. Do you mind if we step

inside so you can take a moment to read the letter?” Ibid.

8. Ibid.

9. The caller is not identified as a sales representative. See

footnote 7.

A29

‘all we wanted was the booklet.’” By handing the prospect the

book “in a frank and confident manner, we also appear harmless

to the prospect. * * *” The advertising survey “explains one

of the reasons for our call, takes us out of the role of a sales-

man” and affords the prospect a reason “to honor our request

for admission to his home—not in the role of a salesman.”

Since “[s]ome of them do not respond at this point because

they are skeptical or may simply believe you are a salesman,”

the prospect is shown a letter from the advertising director which

adds “authenticity to the purpose of our call” and which condi-

tions the prospect to give “a positive response to our request

to step inside, still not in the role of a salesman.” Respondent

underlines the importance of the door approach by promising

that, if it is learned and delivered verbatim, the sales representa-

tive has:

* * * the guarantee established by hundreds of Great Book

salesmen who have used it over the years in the field that

it will get you into the largest number of homes of any

door approach ever used by any company * * *.*°

The company-prescribed disguise techniques” necessitate in-

clusion of an order provision requiring clear and conspicuous

disclosure of the fact that the representative is a salesman [5]

10. CX 647-A (training tape, “Door Approach and A. R. A.”).

11. Other examples are found in respondent’s “Telephone

Talks,” which are used to obtain access to the home at an appointed

day and time. The opening line of the “Telephone Talks” contains

the statement, “I am calling to give you the details on how to obtain

the new Britannica Program,” e.g. CX 582-B. The consumer is then

told that he or she has won a free medical encyclopedia and will be

entered in another drawing. “Everything will be explained in detail

in the free Gift Certificate that we will give you so you can receive

your medical encyclopedia, and to enter you in the $500 educational

award drawing. I simply have to stop by to certify the free Gift

Certificate you and M. - ---- together * * *.” CX 582-C (emphasis

in original) ; CX 582-D (emphasis in original) ; CX 582-B (emphasis

supplied). .

The opening line, if construed as a sales pitch disclosure, is

effectively countermanded by the remainder of the talk so that the

consumer remains deceived as to the real reason for the visit.

A30

and of the true purpose of gaining entry into the home. We

point out additionally that the company has taught its sales

representatives to affirmatively misrepresent the true purpose

of the call, even when asked. This occurs, for example, in a

training tape dealing with the “telephone appointment plan,”

which is an approach technique used in conjunction with another

method of promotion, “give-aways.” After the consumer has

been told that he or she has won a consolation prize, a medical

encyclopedia, the representative states that “there is absolutely

no obligation on your part. You don’t have to buy Britannica;

you don’t even have to listen to a sales presentation.” When the

representative is asked directly the reason for his visit, the tape

instructs the sales representative to reply that he “simply [has]

to stop by and certify the gift certificate * * *.”*

[6] Judge Barnes’ order would require a statement on the

3” x 5” card that “This card should be kept as part of your

permanent records of this transaction.” This statement does not

appear to be necessary in order to provide a clear and con-

12. CX 619 (training tape, “Telephone Appointment Plan”).

The tape purports to be drawn from actual phone calls with

consumers. CX 620-C.

{Consumer:] Could I ask you, what are you coming here

for, what are you going to do?

[Sales representative:] Well, as I explained * * *

{Consumer:] Don’t come here for nothing. Let’s put it that

way. I’m not buying any encyclopedias.

[Sales represeniative:] Yes, well did you understand the

other things I said to you, Mrs. Feinberg? You not only have

the medica] encyclopedia, which is yours, but you are also

going to be entered into a drawing, to be held the 15th of next

month, for an additional $500 educational award. As I said,

everything will be explained in detail in this free gift certificate

that we’ll give you so that you can receive your medical encyclo-

pedia and we can enter you in the additional $500 award

drawing. I simply have to stop by and certify the gift cert’ficate

with “ and Mr. Feinberg, together. That's the purpose of

my call.

[Consumer:] O. K. Fine, if that is what it is, then fine.

CX 619, CX 620 T & U. (emphasis supplied).

A31

spicuous disclosure of the nature and purpose of the call. The

other elements of the card disclosure and the size of the card

should suffice in this regard.

As to respondent’s recruiting advertisements, Judge Barnes’

order requires respondent to describe the positions offered as

“door-to-door” selling.’* Respondent contends that the terms

will be construed by job seekers as “cold canvassing,” which

means selling door-to-door without leads or previous appoint-

ments.'* Respondent requests that, at most, it should be required

to designate its selling method as “in home,” a phrase which

encompasses various approaches, We think respondent's posi-

tion is a reasonable one, and complaint counsel does not oppose

the designation.’* We have accordingly modified order Paragraph

I(B) (2).

Respondent also objects to the required disclosure in its job

offer advertisements that it is “recruiting persons for the sole

purpose of selling” and to the related provision prohibiting re-

spondent from representing to prospective sales representatives

that they will be trained in management or [7] in office admini-

stration.!* Respondent contends that the “sole purpose of selling”

13. Order Paragraphs I(A) and (B).

14. According to respondent, “cold canvassing” selling is viewed

with great disfavor by job applicants, particularly when the product

involved is an expensive one, such as encyclopedia. Judge Barnes’

order requires respondent to disclose the products, e.g., encyclo-

pedia, in the recruitment advertisements. Order Paragraph I(B) (3).

15. Complaint counsel requests that, if respondent’s version is

granted, respondent should be specifically prohibited from represent-

ing that the position being advertised involves no “cold canvassing”

or words of similar import. Complaint counsel claims that respond-

ent’s practice has been to represent that no “cold canvassing” is

utilized at all and that, in fact, respondent does utilize this sale

method as an alternative approach. Order Paragraph I(A) (1) bars

respondent for misrepresenting, “in any manner, the job for which

any person is being solicited.” (Emphasis supplied). That provision

recludes respondent from misrepresenting that no “cold canvassing”

is utilized and appears to be an adequate remedy without further

specificity.

16. Order Paragruph I1(A)(2) and (B).

A32

disclosure will preclude it from truthfully advertising for genuine

managerial openings which involve an element of selling but

which are not solely selling jobs. We see no reason, however,

to strike this disclosure. The disclosure is triggered only if the

recruit is to engage in “door-to-door sales,”!7 and as the ad-

ministrative law judge found, it was Encyclopaedia Britannica’s

policy “to hire everybody, initially, as a door-to-door salesman

and to develop managers from within the ranks of its own sales-

man * * *,.”!® The provision addresses this practice.

The prohibition against representing that sales recruits will

be trained in management or administration is responsive to the

administrative law judge’s finding that respondent did not main-

tain a management training program as such. Judge Barnes

found, moreover, that respondent did not begin to train persons

for managerial positions until they had been promoted to

“Deputy Field Trainer,” some four to six months after they had

worked exclusively as a sales representative.'® Accordingly, we

uphold Judge Barnes’ order in this regard.?°

The order prohibits respondent from making guaranteed

income claims unless at least thirty percent (30%) of the

persons holding similar positions in the office offering the posi-

tion received an equivalent or greater income during the preced-

ing twelve months.”* We have deleted this provision. The modified

order bans misrepresentations of guaranteed income. A related

order provision requires affirmative disclosure, prior to the time

respondent enters into a guaranteed income employment con-

tract, of the percentage of persons employed in similar positions

17. Order Paragraph I(B).

18. I.D., Finding 24.

19. Ibid.

20. We agree with complaint counsel’s suggestion that should

respondent determine to develop or expand into a bona fide mana-

gerial or administrative training program it may petition the Com-

mission for modification of relevant order provisions.

21. Order Paragraph I(A)(3).

et ee

A33

who earn the stated income.”* The ban on misrepresentations,

coupled with the disclosure, should suffice to correct respondent’s

guaranteed income deceptions.

[8] We uphold, with slight modification, the provisions in

the order** which require that a letter and portions of the

order** be furnished prospective sales recruits at the initial

interview. The letter explains that employees must obey the

Commission’s order. Complaint counsel argues for a stronger

letter warning and respondent requests that it be required to

furnish only an oral summary of the order. Having considered

the arguments,” we have concluded that the letter should also

state explicitly that the failure of respondent’s employee to

abide by the order’s provisions constitutes a violation of a

Federal law. The letter attached as Appendix A of the order

has been modified to comport with this determination. Re-

spondent, if it chooses, may provide the prospective employee

with an explanation, either orally, in writing or both, of the

pertinent provisions of the order, but the Commission has deter-

mined not to modify the requirement that respondent furnish

copies of the provisions specified.

In connection with its merchan ising program, Judge Barnes

found that respondent had misrepresented the value of the

merchandise and services being offered for sale to consumers

as well as “savings” claims. The claimed retail prices of re-

spondent’s publications which are utilized by sales representa-

22. Order Paragraph I(C)(5).

23. Order Paragraph I(D).

24. Paragraphs I-III and VI.

25. Complaint counsel’s letter would point out that substantial

penalties can be imposed for a knowing violation of the order and

would also invite the reader to report suspected violations to the

Commission.

Respondent contends that the negative implications of the order

will inhibit respondent’s recruiting abilities and requests that re-

spondent be permitted, instead, to require a recruit to study the

order at the completion of his training, when the order “might be

comprehensible to him.” Appeal Brief of Respondents at 40, n.**

A34

tives in selling the product do not reflect prices at which such

publications have been sold in substantial quantities to the

general public.” The administrative law judge found that the

number of Great Books and Encyclopaedia Britannica that were

sold at retail prices were less than 9 percent and less than 3

percent, respectively. In response to these findings, Judge Barnes

prohibited respondent from representing a price for a [9] product

as its regular retail price unless at least forty percent (40% )

of its unit sales for the product is made at that price, or higher,

for the previous six months.

We are not persuaded that the order should depart from the

Commission’s guides, Deceptive Pricing, 16 C. F. R. § 233. The

Guides provide, inter alia, that the retail price may be described

as a selling price if “substantial” sales are made at the retail

level. We have accordingly modified the “retail price” provi-

sions” and the “savings claims” provisions.?®

We also agree with the argument on appeal that the order

should require respondent to attach to each consumer contract

a price list and a list of items being offered for free and to dis-

close orally at the signing of the contract that a price list is

attached, Judge Barnes found that the sales presentation was

designed to mislead the purchaser into believing that substantial

savings are to be achieved when in fact there are no savings

and no merchandise is given free.” The administrative law judge

determined that to require a “cooling-off” period would provide

effective protection for consumers from respondent’s misrepre-

sentations and deceptions. Accordingly, he ordered respondents

to comply with the Cooling-Off Period For Door-To-Door Sales,

16 C.F.R. § 429.1. While the administrative [10] law judge

was correct in ordering compliance with the Cooling-Off Rule,

the Commission has modified the order to require the furnishing

26. I. D. Finding 68.

27. Paragraphs II I(1) and (2).

28. Paragraphs II I(3) and (4).

29. I.D. at 96.

A35

of a list of current prices of respondent’s products and a list of

free items. This information will enable the contracting con-

sumer to appraise the strength of his bargain—to compare the

contract with the authorized list prices and determine whether

or not any savings claim is true and whether any claims of free

items are, in fact, accurate. The contracting consumer has no

other basis to gauge the truthfulness of respondent’s savings

claims or offers of free items unless respondent furnishes this

information. We reject respondent’s claim that to require it to

supply this information is burdensome* or unwarranted.**

We have also modified order Paragraph II(F) 5(b) so as to

preclude respondent from offering an item as “free” unless,

inter alia, no publication, merchandise or service has been of-

fered as “free” for six months of the last twelve. As presently

drafted an item could be offered as “free” if that item had not

been offered as “free” for six months of the last twelve. Without

this order change, respondent could substitute different items

as the “free” item at six-month intervals and thus represent that

an item is “free” although the price for the item was included

in the regular price of the goods.

We turn now to that portion of the order dealing with ad-

vertising or promotional material that solicits participation in

a contest or solicits a response to an offer of information or

product. Judge Barnes’ order* requires respondent to disclose to

30. Indeed, Britannica has begun a similar practice of voluntarily

disseminating a price booklet at the time of sale. See Tr. at 3216-18,

(testimony of Mr. Martinez).

31. Since the order bans use of the cooperative offer in con-

nection with which the savings claims were made, respondent con-

tends that there is no need for the lists or the disclosure. We are

not impressed with the argument; savings claims can take a number

of forms and are not limited to sales based on cooperative offers.

See Standard Educators, Inc. v. FTC, 475 F.2d 401, 406 n. 2

(D. C. Cir. 1973) (specially reduced price to member of military);

Basic Books, Inc. v. FTC, 276 F.2d 718, 720 (7th Cir. 1960)

(reduction in regular price for a limited time); American Marketing

Associates, Inc., 73 F.T.C. 213, 264-65 (1968) (mothers’ club

membership plan).

32. Order Paragraphs II(A) and (B).

A36

readers that those who reply may be contacted by a salesman.

A similar disclosure is required in the return card or coupon

which accompanies the advertising or promotional material.

The Commission has determined that these order provisions are

needed to inform the consumer that the card or coupon re-

sponse will trigger the delivery of material and information by

[11] a sales representative whose call is for the purpose of sell-

ing. Such knowledge cannot be gleaned by the consumer who

reads the ads or who enters the contest. The ads mislead the

consumer in that the wording portrays all information as coming

by mail and direct from the publisher.** A number of contest

entry cards portray the give-away merely as a celebration of

the company’s bicentennial and suggest that a consumer who

fills in the card will not be imposed upon.** We reject respond-

ent’s contention that disclosure is unnecessary and that the lan-

guage of the disclosure is “negative.”

We accept the contention that the order’s requirement that

respondent comply with the Commission’s trade regulation rule

dealing with negative option plans®* be deleted. The prohibi-

tions and affirmative disclosures as set forth in the order®* deal

elaborately and sufficiently with the abuses in respondent’s con-

tinuity program.

* * * * *

We are not persuaded by the other contentions made by

counsel. Thus, we reject complaint counsel’s request for pro-

visions dealing with respondent’s billing practices,*7 and we

reject complaint counsel’s request that the order require respond-

33. I.D., Findings 84-85.

34. I. D. at 98-99.

35. Use of Negative Option Plans By Sellers In Commerce, 16

C.F.R. § 425.1 (1973). .

36. Paragraphs IV(A)(B)(C) and (D).

37. The terms of the Fair Credit Billing Act, 15 U.S.C.

§ 1601, et seq. (1974), are applicable to respondent’s practices.

A37

ent to survey its customers in order to elicit violations of the

order.**

Having considered the arguments in this matter, we have

concluded that the public interest is best served in this proceed-

ing by the issuance of the attached order.

FINAL ORDER

This matter having been heard by the Commission upon the

cross-appeals of complaint counsel and respondents’ counsel

from the initial decision and upon briefs and oral argument in

support thereof and opposition thereto, and the Commission,

for the reasons stated in the accompanying opinion, having

granted the appeals in part:

It is ordered, That pages 1-117 of the initial decision of the

administrative law judge be, and they hereby are, adopted as

the findings of fact and conclusions of law of the Commission,

with the following exceptions: those portions of pages 103-110

(“The Remedy”) which are inconsistent with the opinion of the

Commission herein.

Other findings of fact and conclusions of law of the Commis-

sion are contained in the accompanying opinion.

It is ordered, That respondent Encyclopaedia Britannica, Inc.,

and its successors and assigns, officers, agents, representatives

and employees, directly or indirectly, through any corporation,

subsidiary, division, or other device, in connection with the re-

cruitment of persons to sell, rent, lease, or distribute any text-

book, encyclopedia, reference, or educational material, or any

other publication, merchandise, or service, in commerce, or

38. However, we accept the suggestion of complaint counsel

that recruiting activities should be included within the proscription

of Paragraph III of the order. Paragraph III prohibits respondent

from making any representation or instruction through its training

tapes or other documents which is inconsistent with Paragraph II

of the order. We have added Paragraph I, recruitment activities, to

the proscription of Paragraph III.

A38

affecting commerce, as “commerce” is defined in the Federal

Trade Commission Act, do forthwith cease and desist from:

A. Representing, directly or by implication, either orally or

in writing, that:

(1) Respondent is offering positions in such fields as adver-

tising analysis, public relations, marketing, interviewing, or in

any field other than door-to-door sales, if door-to-door sales is

included, to any extent, in the position for which persons are

being recruited; or misrepresenting, in any manner, the job

for which any person is being solicited;

(2) persons will be trained as management trainees, or for

other positions of responsibility concerned with administrative

office functions; or misrepresenting, in any manner, the amount

and type of training that will be given;

(3) any person who may be employed will contact prospects

in their homes or places of business for the purposes of con-

ducting surveys, advertising promotions, or other nonselling

functions; or misrepresenting, in any manner, the purposes for

which any person is engaged.

B. Misrepresenting, in any maner, the amount of income to

be earned by any person or that may be earned by any person,

the method of payment, or any condition or limitation imposed

upon the compensation of any person.

C. Failing to disclose, clearly and conspicuously, in all ad-

vertising offering employment in any way involving door-to-

door sales:

(1) that respondent is recruiting persons for the sole purpose

of soliciting or selling;

(2) that such soliciting or selling will be on an “in home”

basis;

A39

(3) that the products or services being sold are encyclopedias

or services to be used in connection therewith, or in the event

that encyclopedias or such related services are not being sold,

the products and services being sold; and

(4) the basis for compensating persons so engaged.

D. Failing to clearly and conspicuously advise, both orally

and in writing, any prospective sales employee at the initial

face-to-face interview, and prior to executing any employment

agreement with any such person, the following information:

(1) All those disclosures set forth in Paragraph I C above;

(2) a complete and detailed description of each condition

and limitation imposed upon the receipt of any compensation;

(3) where applicable, notification that such person will not

be paid for-time spent during orientation and training;

(4) a complete and detailed description of any expense or

expenses any such person may incur in performing the required

duties; and

(5) the percentage of persons holding similar positions en-

gaged by the office offering the position during the twelve (12)

months immediately preceding the offer, who have actually re-

ceived an equivalent, or greater, income than that promises

under the terms of any such agreement.

E. Failing to furnish to persons at the initial face-to-face

interview, and prior to executing any employment agreement

with any such person, a copy of Paragraphs I, II, III and VI

of this order, together with a cover letter as set forth in Appen-

dix A attached hereto.

It is further ordered, That respondent Encyclopaedia Britan-

nica, Inc., and its successors and assigns, officers, agents, repre-

sentatives and employees, directly or indirectly, through any

corporation, subsidiary, division or other device,. in connection

with the publishing, advertising, offering for sale, sale, rental,

lease or distribution of any textbook, encyclopedia, reference or

’

A40

educational material; or any other publication, merchandise or

service. in commerce, or affecting commerce, as “commerce” is

defined in the Federal Trade Commission Act, do forthwith

cease and desist from:

A. Disseminating or causing to be disseminated any adver-

tisement or promotional material which solicits participation in

any contest, drawing or sweepstakes, or solicits any response to

any offer of merchandise, service or information unless any such

solicitation clearly and conspicuously discloses the following

statement in 10-point boldface type: NOTICE TO CONSUM-

ER—PERSONS WHO REPLY AS REQUESTED MAY BE

CONTACTED BY A SALESPERSON FOR THE PURPOSE

OF SELLING [insert name of applicable product].

B. Providing any return card, coupon or other device which

is used to respond to any advertisement or promotional material

covered by Paragraph II A above, unless the following statement

clearly and conspicuously appears in 10-point boldface type in

immediate proximity to the space provided for a signature or

other identification of the responding party: NOTICE TO

CONSUMER—PERSONS WHO RETURN THIS [insert name

of applicable device] MAY BE CONTACTED BY A SALES-

PERSON FOR THE PURPOSE OF SELLING [insert name of

applicable product].

C. Failing to disclose clearly und conspicuously, at the be-

ginning of any te.ephone call to any prospective customer, the

fact that the individual making the call is either soliciting the

sale, rental or lease of publications, merchandise or services for

respondent, or is arranging for a sales solicitation to be made,

and that if the prospective customer so agrees, respondent will

send a salesperson to visit said prospect for the purpose of

soliciting the sale, rental or lease of said publications, merchan-

dise or services.

D. Visiting the home or place of business of any person for

the purpose of soliciting the sale, rental or lease of any publica-

A41

tions, merchandise or service, unless at the time admission is

sought into the home or place of business of such person, a card

3 inches by 5 inches in dimension, with all words in 10-point

bold-face type, with the following information, and none other,

in the indicated order, is presented to such person.

(1) the name of the corporation;

(2) the name of the salesperson;

(3) the term “Encyclopedia Sales Representative” [or other

applicable product];

(4) the terminology: “The purpose of this representative’s

call is to solicit the sale of encyclopedias” [or other applicable

product].

E. Failing to give the card, required by Paragraph II D,

above, to each such person, to direct each such person to read

the information contained on such card, and to provide each

such person with an adequate opportunity to read the card be-

fore engaging any such person in any sales solicitation.

F. Representing, directly or by implication, either orally or

in writing that:

(1) Any person calling on any prospective purchaser is:

9 66

(a) engaged in or connected with “advertising,” “marketing,”

“promotion,” “education” or anything other than the door-to-

door sale of encyclopedia or other reference materials.

(b) conducting, taking or participating in a survey, advertis-

ing research analysis or any other information gathering activity,

livering or disseminating prizes, gifts, gift certificates, chances

in any contest, drawing, sweepstakes, educational fund or any

other merchandise or item of chance;

(2) only a few minutes will be required to complete the visit

inside the prospective purchaser’s home or place of business; or

A42

misrepresenting, in any manner, the period of time required to

complete the sales or other presentation;

(3) an offer is limited, must be accepted immediately or

within any specified time period, or is a special offer, unless

such is a fact; or misrepresenting, in any manner, the duration

of any sales offer;

(4) any publication, merchandise or service is being offered

free, without cost, or is given as a bonus or otherwise to any

prospective purchaser of respondent’s publications, merchandise

or services agreeing to perform any advertising, promotional or

selling function, including but not limited to, any of the follow-

ing acts or similar acts:

(a) permit their names to be listed as local owners of the

product or service;

(b) provide the name of any person who may be interested in

purchasing any publication, merchandise or service;

other item which may be used in advertising; or

(5) any publication, merchandise or service is being offered

free, without cost, or is given as a bonus or otherwise to any

purchaser of respondent’s publications, merchandise or services,

pursuant to any agreement to purchase, rent or lease any other

publication, merchandise, service or combination thereof from

respondent, unless:

(a) the contract price for the purchase, rental or lease of any

such other publication, merchandise, service, or combination

thereof, has remained at the said price or above for at least

six (6) months within the last twelve (12) months immediately

preceding the time at which the representation is made;

(b) no publication, merchandise or service has been offered

free, without cost or given as a bonus or otherwise with the

sale, rental or lease of any such other publication, merchandise,

service or combination thereof, to any person for a period of at

A43

least six (6) months within the last twelve (12) months imme-

diately preceding the time at which the representation is made;

and

thereof, of equivalent or greater value, has been eliminated by

respondent from any such other publication, merchandise,

service, or combination thereof, with which the free, without

cost or bonus publication, merchandise or service is being

offered;

Provided, however, Any such prices as are restricted by Para-

graph If F (5)(a) of this order may be altered at any time by

respondent to reflect bona fide changes in market conditions.

G. Representing, directly or by implication, either orally or

in writing that:

(1) Any person using any research service will receive

answers to questions regarding all subjects other than legal or

medical advice; or misrepresenting, in any manner, the research

service that will be furnished to subscribers;

(2). any answer provided by any research service is the

product of detailed, exhaustive or original research generated

by the specific question asked by any person utilizing said

service, unless such is the fact; or misrepresenting, in any man-

ner, the extent of research, preparation or quality of any answer

furnished by any such research service.

H. Failing to disclose, clearly and conspicuously, in writing

on all promotional materials describing any research service,

and orally during the course of any sales or other presentation

relating to said service, each condition or limitation placed upon

the use of such research service.

I. Representing to any person directly or by implication,

either orally or in writing that:

(1) any price is the retail, regular, usual or words of similar

import or effect, price for any publication in any binding, mer-

A44

chandise or service, unless respondent is making a substantial

number of its unit sales for each such publication in each such

binding, merchandise or service, individually, at or above the

represented price;

(2) any price is the retail, regular, usual, or words of similar

import or effect, price for any set of publications in any binding

and in combination with any other publication, merchandise or

service, unless respondent is making a substantial number of its

unit sales for each such set of publications in each said binding

individually or in combination at or above the represented

price;

(3) savings may be realized by the purchase, rental or lease

of any publication, merchandise or service, or any combination

thereof, from respondent’s former prices for its products unless:

(a) such savings claims are based upon retail, regular, or

usual prices, or combination prices, arrived at in accordance

with Paragraph II 1(1) and (2) above;

(b) respondent clearly and conspicuously specifies the publi-

cation, merchandise or service, or combination thereof, and the

price from which the savings are to be realized; and

quality in all material respects with the publication, merchandise

or service sold at the higher price;

(4) savings may be realized by the purchase, rental or lease

of any publication, merchandise or service, or any combination

thereof, from comparable products of competitors unless:

(a) respondent clearly and conspicuously specifies the publi-

cation, merchandise or service, or combination thereof, from

which the savings are to be realized;

(b) the price utilized for comparison purposes is the price at

which a substantial number of persons have purchased the item

referred to in (a) immediately above;

in all material respects to the product being sold.

A45

J. Misrepresenting in any manner, either orally or in writing:

(1) the amount of savings to be realized by any person who

enters into an agreement with respondent for any publication,

merchandise or service; or

(2) that any publication, merchandise or service is being

offered free or without charge, or is given to any such person.

K. Failing to comply with any and all provisions of the

Commission’s Trade Regulation Rule, Cooling-Off Period For

Door-To-Door Sales, (16 C. F. R: § 429.1), which are in effect

on the date this order becomes effective, and with any modifica-

tions or changes in the aforesaid rule which may be made from

time to time. A copy of the said rule shall be made a part of

this order for purposes of complying with other provisions

hereof.

L. Initiating contact with any purchaser through any means

for any reason from the time said purchaser enters into any

agreement containing a NOTICE OF CANCELLATION, as

required by Paragraph II K of this order, until said buyer’s

cancellation period has expired.

M. Failing to maintain a copy of each NOTICE OF CAN-

CELLATION received pursuant to Paragraph II K of this or-

der, and making said documents available for inspection and

copying by the Commission’s staff upon reasonable notice. Any

such NOTICE shall be maintained for a period of three (3)

years from date of receipt by respondent.

N. Failing to keep adequate records, which shall be main-

tained for a period of three (3) years and made available to

the Commission’s staff for inspection and copying upon reason-

able notice, from which the validity of any savings claims,

retail price claims, comparative value claims, or other repre-

sentations of the type described in Paragraphs II F(5), I I and

II J of this order can be determined.

O. Failing to attach to any contract for the sale, rental or

lease of any publication, merchandise, service or combination

A46

thereof a written statement that clearly and conspicuously dis-

closes, ard only discloses, the following information in the indi-

cated order and manner: (1) in 12-point boldface type size

the terminology:

PRICE LIST

THE FOLLOWING PRICES ARE THE only AUTHOR-

IZED PRICES AT WHICH THE LISTED ITEMS MAY

BE OFFERED. ANY PRICE NOT LISTED BELOW IS’

UNAUTHORIZED AND FALSE!

(2) a list of ail publications in each binding, merchandise,

service or combination thereof currently offered for sale, rental

or lease, and in immediate conjunction thereto each price at

which respondent is authorized to offer said product or service

pursuant to Paragraph II I of this order.

(3) in 12-point bold-face type the terminology:

FREE ITEMS

ONLY THE FOLLOWING PRODUCTS AND SER-

VICES MAY BE OFFERED FREE. YOU ARE PAY-

ING FOR ANY ITEMS RECEIVED AND NOT

LISTED BELOW!

(4) a list of all publications, merchandise or services cur-

rently offered as free, without cost, or as a bonus pursuant to

Paragraph II F(5) of this order.

P. Failing to orally instruct any person at the time said

person signs any contract for sale, rental or lease of any publica-

tion, merchandise, service or combination thereof, pursuant to

an ora] sales presentation, that a “Price List” is attached to

said person’s contract.

Ill

It is further ordered, That respondent Encyclopaedia Britan-

nica, Inc., and its successors and assigns, officers, agents, repre-

sentatives and employees, directly or indirectly through any

A47

corporation, subsidiary, division, or other device, in connection

with the recruitment, training, or orientation of any person to

sell, rent, lease or distribute any textbook, encyclopedia, refer-

ence or educational material, or any other publication, mer-

chandise or service, in commerce, or affecting commerce, as

“commerce” is defined in the Federal Trade Commission Act,

do forthwith cease and desist from making, distributing or using

any training tapes, sales manuals, or any other document, method

or device which contains any representation or instruction in-

consistent with any provision of Paragraph I or Paragraph II

of this order.

It is further ordered, That respondents Encyclopaedia Britan-

nica, Inc. and Britannica Home Library Services, Inc. and their

successors and assigns, officers, agents, representatives and em-

ployees, directly or indirectly, through any corporation, subsi-

diary, division or other device, in connection with the ad-

vertising, offering for sale, sale or distribution of any textbook,

encyclopedia, reference or educational material, or any other

publication, merchandise or service through the use of anv

program, plan, method, or device, that provides or purports to

provide for the sale or distribution of any of said items to any

person at intervals on an approval basis, in commerce, or affect-

ing commerce, as “commerce” is defined in the Federal Trade

Commission Act, do forthwith cease and desist from:

A. Representing, directly or by implication, either orally or

in writing that:

(1) Any person has the option to receive each publication,

merchandise or service, separately and individually, and to

accept or reject same, unless such person is allowed in ali in-

stances to receive and to purchase or reject each such publica-

tion, merchandise or service separately and individually;

(2) any person will not receive any further publication,

merchandise or service after he notifies respondents of his

A48

cancellation of any such program, plan or method of sale or

distribution, unless such is the fact; or misrepresenting, in any

manner, any consequence resulting from any person’s cancel-

lation of his participation in any such program, plan, or method

of sale or distribution; and

(3) any person incurs no risk or obligation by joining or

participating in any such program, plan, or method of sale or

distribution; or misrepresenting, in any manner, any condition,

tight, duty or obligation imposed on any person.

B. Disseminating, or causing the dissemination of, any

advertisement which fails to disclose in a clear and conspicuous

manner:

(1) A description of the conditions and terms of any such

program, plan, or method of sale or distribution, and the duties,

risks and obligations of any subscriber thereto; and

(2) a description of each publication, merchandise or service

to be offered for sale, the billing charge to be made therefor,

the anticipated total number of publications, merchandise or

services included in any such program, plan or method of sale

or distribution, the number of publications, merchandise or

services that will be included in each shipment of such items,

and the number of and the intervals between each such shipment.

C. Failing to disclose, clearly and conspicuously, on any

return coupon, order form or any other document used for re-

sponding to any such program, plan, or method of sale or dis-

tribution, the following information:

(1) The anticipated total number of publications, merchan-

dise or services included in any such program, plan, or method

of sale or distribution;

(2) the number of publications, merchandise or services that

will be included in each shipment of such items; and

(3) the number of and the intervals between each such

shipment.

A49

D. Failing to disclose, clearly and conspicuously, in im-

mediate conjunction with any publication, merchandise, service

or notice thereof sent to any subscriber, the anticipated date on

which respondents will initiate processing of the next shipment

of any such item.

E. Failing to provide to any person in conjunction with each

notice of any shipment of any publication, merchandise or serv-

ice, a clear and conspicuous means by which said person may

exercise his option or right to cancel said shipment, if such is

his right.

It is further ordered, That respondents Encyclopaedia Britan-

nica, Inc. and Britannica Home Library Services, Inc. and their

successors and assigns, officers, agents, representatives and em-

ployees, directly or indirectly, through any corporation, sub-

sidiary, division or other device, in connection with the collec-

tion or attempted collection of any debt allegedly owing to re-

spondents for the purchase or other receipt of any textbook,

encyclopedia, reference or educational material, or any other

publication, merchandise or service, in commerce, or affecting

commerce, as “commerce” is defined in the Federal Trade Com-

mission Act, do forthwith cease and desist from representing,

directly or by implication, either oraliy or in writing that:

A. Any letter, notice or other communication which has

been prepared, originated or composed by respondents has

been prepared, originated or composed by any other person,

firm or corporation; and

B. suit will be instituted to recover any delinquent debt,

or that any delinquent debt will be transferred to any attorney

with instructions to institute suit, or that any other legal step tc

collect any outstanding debt will be taken, unless a definite date

is set forth for such action and such are the facts; or misrepre-

senting, in any manner respondents’ relationship with, or instruc-

tions to, any attorney, or the course of action that will be taken

by any attorney.

het pe ee sh a ee ae et - Fe

A50

It is further ordered, That respondents, Encyclopaedia Britan-

nica, Inc. and Britannica Home Library Services, Inc., do the

following:

A. Deliver, by registered mail, a copy of this order to each

of their salesmen, agents, solicitors, independent contractors,

or to any person engaged in the promotion, sale or distribution

of any of the publications, merchandise or services included

in this order, and to any person engaged by respondents to

perform such duties in the future at the time such person is so.

engaged;

B. Obtain from each person described in Paragraph VI(A)

a signed statement setting forth his intention to conform his

business practices to the requirements of this order; retain said

statement during the period of three (3) years thereafter; and

make said statement available to the Commission’s staff for

inspection and copying upon reasonable notice;

C. advise each such present and future salesman, agent,

solicitor, independent contractor or any person engaged in the

promotion, sale or distribution of any of the publications, mer-

chandise or services included in this order that respondents will

terminate the engagement or services of any such person, unless

such person agrees to and does furnish to respondents a state-

ment required by Paragraph VI (B), above; and

D._ if any such person will not agree to file a statement with

respondents as required by Paragraph VI(B) above and be

bound by the provisions of this order, the respondents shall

immediately terminate the services of such person.

VII

It is further ordered, That the respondents shall forthwith

distribute a copy of this order to each of their operating divisions,

ASI

Vill

It is further ordered, That respondents shall notify the Com-

mission at least thirty (30) days prior to any proposed change

in any of the corporate respondents such as dissolution, assign-

ment or sale resulting in the emergence of a successor corpora-

tion, the creation or dissolution of which may affect compliance

obligations arising out of this order.

It is further ordered, That respondents shall, within sixty (60)

days after the effective date of this order, file with the Com-

mission a report in writing setting forth in detail the manner

and form in which they have complied with this order.

APPENDIX A

NOTICE

Attached hereto are the pertinent provisions of a cease and

desist order entered against Encyclopaedia Britannica by the

Federal Trade Commission, an agency of the Federal Govern-

ment. Violation of any provision of this Order can result in

severe monetary penalties to Encyclopaedia Britannica. If you

are employed by Encyclopaedia Britannica, you will be required

to observe the provisions of this Order. Violation of any pro-

vision of this Order by an employee constitutes a violation of

a Federal law.

You should carefully read this Order before agreeing to any

employment arranged with Encyclopaedia Britannica.

[President]

Encyclopaedia Britannica

A52

INITIAL DECISION BY ERNEST G. BARNES,

ADMINISTRATIVE LAW JUDGE

December 16, 1974

PRELIMINARY STATEMENT

[1] Respondents Encyclopaedia Britannica, Inc. (hereinafter

referred to as “EB”), a corporation, and Britannica Home Li-

brary Services, Inc. (hereinafter referred to as “BHLS”), a cor-

poration, are charged with violation of Section 5 of the Federal

Trade Commission Act, as amended (15 U.S.C. § 45).

The complaint, issued by the Commission on December 11,

1972, has three parts. Count I alleges that respondent EB, in

connection with recruiting persons for door-to-door [2] solicita-

tion of sales of its products, has falsely represented, directly or

by implication, through statements and representations in ad-

vertisements in various publications of general circulation and

through oral statements of its representatives or agents that it

is (1) offering positions in non-selling fields, (2) offering to

hire persons as management trainees or in other positions con-

cerned principally with administrative office functions, (3) of-

fering monthly incomes in excess of $500 per month, and (4)

offering positions that involve contacting persons in their homes

primarily for non-selling Purposes. In truth and in fact, the

complaint alleges, EB is (1) recruiting persons principally as

salesmen in the door-to-door sales of respondent’s products;

(2) persons are not hired by respondent specifically for training

in how to assume administrative functions, but are hired to sell;

(3) conditions and limitations imposed by respondent upon the

receipt of stated incomes result in few, if any, persons being

paid the represented incomes; and (4) persons hired by respond-

ent do not contact persons in their homes primarily for the

purposes represented by respondent, but for the purpose of so-

licitation of sales of respondent’s products.

A53

The complaint further alleges that EB, for the purpose of

inducing persons to purchase its publications, merchandise and

services, utilizes various forms of promotional materials in con-

junction with oral representations which represent that (1) EB’s

salesmen are contacting persons in their homes for non-selling

purposes; (2) EB is offering items without cost to persons agree-

ing to do certain acts; (3) persons who purchase respondent’s

publications will realize significant savings from the stated prices

at which substantial sales of said products have been made by

respondent to the general public; (4) EB’s representatives will

take only a few minutes to complete their presentations inside

prospects’ homes or places of business; (5) persons subscribing

to respondent’s Library Research Service can obtain answers to

questions regarding any subject; and (6) answers provided by

respondent’s Library Research Service are the product of de-

tailed, exhaustive or original research generated by the specific

questions asked by the subscribers to said service. In truth and

in fact, the complaint alleges, (1) the principal purpose for

respondent’s sales representatives contacting persons in their

homes is to sell respondent’s products; (2) respondent is not

offering certain of its [3] publications or services without cost;

(3) persons who purchase respondent’s products will not realize

substantial savings from claimed resale prices; (4) respondent’s

sales representatives frequently take several hours to complete

their presentations in the homes of prospects; (5) persons sub-

scribing to respondent’s Library Research Service do not receive

answers to questions regarding all subjects, as respondent im-

poses many conditions and limitations which are not disclosed:

and (6) in most instances, answers provided by respondent are

form responses and not the product of detailed, exhaustive and

original research generated by the specific questions asked by

subscribers.

The complaint further alleges that EB has conducted various

contests and utilized other promotional devices for the purpose

of obtaining leads to persons who will be contacted by respond-

A54

ent’s salesmen, but that respondent fails to inform such persons

of the material fact that, as a result of responding to such con-

tests and promotional devices, they will be subjected to a lengthy

sales presentation for respondent’s products.

Count II of the complaint alleges that BHLS, in connection

with the offering for sale and the sale of continuity book pro-

grams, has represented, directly or by implication, through state- —

ments and representations in advertisements placed in various

publications of general circulation and in promotional materials

mailed to members of the general public, that subscribers to

said continuity book programs are accorded the option of re-

ceiving and accepting a single book at a time until the expira-

tion of the continuity programs and that persons who subscribe

to said continuity programs do so without risk or obligation. In

truth and in fact, the complaint alleges, subscribers to respond-

ents’ continuity program are not accorded the option of receiving

on approval each book separately. Further, EB and BHLS do

not clearly and conspicuously disclose that all but the first few

books will be shipped by means of single-bulk shipments and

that subscribers to EB and BHLS continuity programs are

subject to certain risks or obligations, such as to notify respond-

ents to prevent shipment of additional books, to return to

respondents all books found unacceptable, and to pay for all

books not returned to respondents.

[4] The complaint also alleges that the failure of EB and

BHLS to adequately advise subscribers of the material fact that

the subscribers will receive all but the first few books by single-

bulk shipments unfairly places an undue burden on subscribers

to affirmatively notify respondents in order to prevent shipment

of books not expressly and knowingly authorized by said sub-

scribers, and that such subscribers are subject to repeated and

unrelenting mailings of bills and dunning letters for unwanted

and unordered merchandise which, in many instances, has been

previously returned to respondents.

ASS

The complaint further alleges that EB and BHLS, for the

purpose of collecting debts allegedly due and owing to EB and

BHLS pursuant to contracts relating to the purchase of EB and

BHLS products, have attempted to induce payment of accounts

by sending dunning letters and notices which falsely represent,

directly or by implication, that said letters and notices on the

letterheads of attorneys are prepared and mailed by those in-

dividuals, and that EB and BHLS regularly transfer accounts

to attorneys with instructions to institute suit or take other legal

measures to collect an alleged outstanding debt. In truth and in

fact, the complaint alleges, the letters and notices on letterheads

of attorneys are prepared and mailed by EB and BHLS, and

respondents do not regularly transfer accounts to attorneys to

institute suits or to take legal action to collect allegedly out-

standing debts.

Under Count III, the abdve statements and representations

and the failure to disclose material facts are alleged to have the

Capacity and tendency to mislead members of the public into

the erroneous and mistaken belief that said statements and rep-

resentations were, and are, true and complete, or into the pur-

chase or retention of, and payments for, substantial quantities of

said publications, merchandise, and services by reason of said

erroneous and mistaken belief. The said practices are alleged

to be to the prejudice and injury of the public and of respondents’

competitors, and to constitute unfair methods of competition

or deceptive acts or practices in commerce in violation of Sec-

tion 5 of the Federal Trade Commission Acct.

[5] Respondents filed their answer to the complaint on Feb-

ruary 9, 1973, which contained certain admissions, but gener-

ally denied that any of their acts and practices are in violation

of the Federal Trade Commission Act.

Thereafter, on October 15, 1973, respondents were granted

leave to amend their answer, and on October 23, 1973, EB and

BHLS amended their answer, denying that the matters com-

plained of in Paragraphs 5 and 6 of the complaint are matters of

A56

which the Federal Trade Commission has jurisdiction under

Section 5 of the Federal Trade Commission Act.

On October 17, 1973, the administrative law judge certified

to the Commission respondents’ request for a suspension of the

adjudicatory hearings pending a ruling by the Commission on

respondents’ petition to the Commission for the initiation of a

trade regulation rule-making proceeding governing the business

practices of companies engaged in the in-home sales of encyclo-

paedia and other educational materials. On October 26, 1973,

the Commission denied respondents’ request for a suspension of

hearings.

After various pretrial proceedings, hearings for complaint

counsel’s case-in-chief were held on the following dates: No-

vember 1-2, 1973 (Washington, D. C.); November 6-9, 12-15,

1973 (Chicago, Illinois); December 4-6, 1973 (Kansas City,

Missouri); December 10, 1973 (Denver, Colorado); January

21-24, 1974 (New York, New York); and February 13-15,

1974 (Washington, D. C.). Complaint counsel completed their

case-in-chief on April 1, 1974 in Chicago, Illinois. On the same

day, EB and BHLS commenced defense hearings which were

held on April 1-5, 1974 in Chicago, Illinois, and on April 16,

1974 in Washington, D.C. Complaint counsel did not present

evidence in rebuttal. The record for the reception of evidence

was closed by order dated May 29, 1974.

Complaint counsel called 84 witnesses who can be categorized

as follows: 25 ex-salesmen; 47 consumers or purchasers of re-

spondents’ products; and 12 company officials and employees.

Respondents called 12 witnesses who were company officials.

There were 27 days of formal hearings, and over 1,000 exhibits,

many multipaged, received in evidence during the hearings.

[6] After several extensions of time, proposed findings of fact

and supporting memoranda were filed by the parties on August

21, 1974, and reply briefs were filed on October 18, 1974.

This proceeding is before the undersigned upon the complaint,

answers, testimony and other evidence of record, proposed find-

AS7

ings of fact, conclusions and supporting memoranda filed by

the parties. These submissions have been given careful consider-

ation and, to the extent not adopted by this Initial Decision in

the form proposed or in substance, are rejected as not supported

by the record or as immaterial. Any motions not heretofore or

herein specifically ruled upon, either directly or by the necessary

effect of the conclusions in this Initial Decision, are hereby de-

nied. The findings of fact made herein are based on a review of

the entire record and upon the demeanor of the witnesses who

gave testimony in this proceeding.

For the convenience of the parties, the findings of fact made

herein include references to the principal supporting evidentiary *

items in the record. Such references are intended to serve as

convenient guides to the testimony and exhibits supporting the

findings of fact, but do not necessarily represent complete sum-

maries of the evidence considered in arriving at such findings.

References to the record are set forth in parentheses, and cer-

tain abbreviations, as hereinafter set forth, are used:

CCPF—Proposed Findings of Fact, Conclusions of Law and

Order submitted by Complaint Counsel, followed by the Pro-

posed Finding being referenced.

RPF—Proposed Findings of Fact, Conclusions of Law and

Order submitted by Respondents, followed by the Proposed

Finding being referenced.

CCB—Brief submitted by Complaint Counsel in support of

their Proposed Findings of Fact, Conclusions of Law and Order,

followed by the page or pages being referenced.

[7] RM—Post-Hearing Memorandum of Respondents, fol-

lowed by the page or pages being referenced.

CCRB—Reply Brief submitted by Complaint Counsel, fol-

lowed by the page or pages being referenced.

RRF—Reply of Respondents to Complaint Counsel’s Pro-

posed Findings of Fact, followed by the page or pages being

referenced.

A58

RRM—Reply Memorandum of Respondents In Opposition

to the Post-Hearing Memorandum of Complaint Counsel, fol-

lowed by the page or pages being referenced.

CX—Commission’s Exhibit, followed by the number of the

exhibit being referenced.

RX—Respondents’ Exhibit, followed by the number of the

exhibit being referenced.

References to the official transcript are by witness’ name

whose testimony is being referenced, followed by the page num-

ber or numbers of the official transcript.

FINDINGS OF FACT

I. IDENTITY AND BUSINESS OF RESPONDENTS

1. Respondent Encyclopaedia Britannica, Inc. (hereinafter

referred to as “EB”) is a corporation organized, existing, and

doing business under and by virtue of the laws of the State of

New York, with its principal place of business located at 425

North Michigan Ave., Chicago, Illinois (Complaint and

Answer, Par. 1). Through its various organizational divisions

and wholly-owned subsidiary, Britannica Home Library Services,

Inc., EB publishes, sells and distributes, throughout the world,

textbooks, encyclopedias, reference and educational materials,

training courses, and other literary works and services. Its

volume of business has been, and is, substantial (Complaint and

Answer, Par. 1).

[8] 2. Respondent Britannica Home Library Services, Inc.

(hereinafter referred to as “BHLS”) is a corporation organized,

existing and doing business under and by virtue of the laws of

the State of Illinois, with its principal office and place of business

located at 425 North Michigan Ave., Chicago, Illinois. It is a

wholly-owned subsidiary of respondent Encyclopaedia Britan-

nica, Inc., and sells and distributes books and other merchandise

A59

through advertising and mailings. Its volume of business has

been, and is, substantial (Complaint and Answer, Par. 2).

3. EB dominates and controls, and furnishes the means, in-

strumentalities, services and facilities for BHLS (Complaint and

Answer, Par. 4).

4. In the course and conduct of their businesses, as afore-

said, respondents now cause, and for some time last past have

caused, said products to be shipped and distributed from their

places of business or their sources of supply to purchasers and

prospective purchasers thereof located in various States of the

United States other than the State of origination, distribution or

storage of said products. Respondents disseminate, transmit and

receive, and have caused to be disseminated, transmitted and

‘received, sales promotional materials, invoices, checks, collec-

tion notices and various other commercial papers or documents

in the course of advertising, selling, distributing, and collecting

payment for said products among and between the several

States of the United States. Respondents maintain, and at all

times mentioned herein have maintained, a substantial course

of trade in such books and other products or services in com-

merce, as “commerce” is defined in the Federal Trade Commis-

sion Act (Complaint and Answer, Par. 3).

5. EB operates through three sales divisions which are not

separate legal entities, but part of the corporate structure. Each

division recruits and trains its own sales forces, has its own

advertising and marketing departments, and is primarily re-

sponsible for the marketing of its specific publications, mer-

chandise and services (RX 155C). The principal products and

services of these sales divisions are:

Encyclopaedia Britannica Sales Division

Encyclopaedia Britannica

Britannica Junior Encyclopaedia

A60

[9] Britannica/Merriam Webster World Language

Dictionary

Britannica World Atlas

The Annals of America —

Britannica Pre-School Library

Young Children’s Encyclopaedia

Britannica Bookcase

3-volume replica of original set

World Globe

Bible

Library Research Service

Great Books Sales Division

Great Books of the Western World

Gateway to the Great Books

Great Books Reading Plans

The Annals of America

Britannica/Merriam Webster World Language Dictionary

Bookcase

Bible

Library Research Service

Educational Fund Awards Program

Reading Dimensions Program

Family Participation Plan

Compton’s Encyclopedia Sales Division

Compton’s Encyclopedia

Young Children’s Precyclopedia

Dictionary

Atlas

A6él

Table Rack/Bookstand

Compton World Globe

Library Research Service (RX 155C.)

The Great Books Sales Division was abolished in approximately

1971 and its sales personnel were assigned to work under the

supervision of the Encyclopedia Sales Division (RX 155; Base-

man, Tr. 2827; Swanson, Tr. 3522). Compton’s Encyclopedia

in recent years has been sold by BHLS by mail (RX 155; Swan-

son, Tr. 3522; Harden, Tr. 3616-18).

[10] 6. EB is essentially a direct selling organization; it makes

the most substantial portion of its sales in the home (RX 155C).

EB’s sales in the home are door-to-door sales, as that term is

defined in the Commission’s Trade Regulation Rule Concerning

a Cooling-Off Period for Door-To-Door Sales. The Commis-

sion defines a “door-to-door sale” as “A sale * * * in which

the seller or his representative personally solicits the sale, includ-

ing those in response to or following an invitation by the buyer,

and the buyer’s agreement or offer to purchase is made at a

place other than the place of business of the seller” (16 C. F. R.

§ 429.1; Promulgated October 18, 1972; effective June 7,

1974). BHLS, the EB subsidiary, is engaged exclusively in the

mail order business throughout the United States (RX 155C,

D).

7. EB has reported more than $70 million annually in gross

domestic sales (RX 155H). The Encyclopaedia Britannica

Sales Division of EB maintains a sales force of approximately

2,000 salesmen (Swanson, Tr. 3521), who are assigned to 21

divisions throughout the country (CX 379-400).

Il. RECRUITING PRACTICES

A. Dissemination of Recruiting Advertisements

8. In the regular course and conduct of its business, and for

the purpose, among others, of recruiting personnel for solicita-

A62

tion of sales of its products door-to-docr, local offices of EB

have disseminated, and have caused to be disseminated, adver-

tisements in various publications of general circulation (Com-

plaint and Answer, Par. 5). Prior to their dissemination and

publication, the advertisements are approved by EB’s legal de-

partment and corporate officers for use by EB’s local offices

(CX 5D-E; Holmes, Tr. 3121; Martinez, Tr. 3167-68; Sollo,

Tr. 3043; Balzano, Tr. 1516). Hiring Ad Catalogs are dissem-

inated to “ALL DIVISION AND DISTRICT MANAGERS”

(CX 5-D) to be used as an “absolute guide” in determining

which advertisements may be published by the local offices of

EB for the purpose of recruiting salesmen (Sollo, Tr. 3076-77;

cf. Balzano, Tr. 1516). CX 5 is the Hiring Ad Catalog that

was issued by EB on August 1, 1970. CX 405 is a hiring ad

guide for EB’s Compton’s division.

[11] 9. Through its local offices, EB has placed recruiting

advertisements in such highly circulated newspapers as the New

York Times, Boston Globe, Washington Post, Chicago Tribune,

St. Louis Post-Dispatch, Denver Post, Los Angeles Times, De-

troit Free Press, and Philadelphia Inquirer (see CX 7-357; Van

Allen, Tr. 628; Holmes, Tr. 3120). CX 5, the Hiring Ad Cata-

log for the Encyclopaedia Britannica Sales Division, covering

February 1, 1970 through August 1, 1970, demonstrates that

there were several thousand “inquiries” in response to the re-

cruiting advertisements used in the period January-June 1970

(see Sollo, Tr. 3031; Joy, Tr. 2950; Baseman, Tr. 2814-15).

EB has a high “turnover rate” in sales personnel (Davis, Tr.

3462-64), so that recruitment of sales personnel is an important

aspect of sales promotion (Cohan, Tr. 3431).

B. Types of Advertisements Utilized

(1) Blind Advertisements

10. Blind recruiting advertisements are advertisements which

fail to disclose (1) the type of job position being offered; (2)

A63

the corporate identity of the firm which has placed the ad; or,

(3) the product/service for which the applicant is expected to

have responsibilities (Galvez, Tr. 3256; Davis, Tr. 3464).

Numerous examples of “blind” advertisements are in the record

(CX 5G-H, 5-Z-7, 5-Z-22, 5-Z-44; see also, CX 5-I-Q, 5-V, 5-

X, 5-Z-(3-4), 5-Z-(8-9), 5-Z-(11-14), 5-Z-(23-25), 5-Z-(33-

35), 5-Z-48, 5-Z-52, 5-Z-(57-58), 5-Z-71, 5-Z-(72-74),

366C-E, 1840). EB places some such blind ads in sections of

the newspaper other than “Salesmen-Wanted” columns (CX 28,

34-42, 47-48, 59, 81, 85, 113, 115, 118-120, 245, 304-306,

308, 352). CX 28 was placed in the “Display” column of the

newspaper and has the words “Guidance Materials” in the

upper right corner of the advertisement. CX 41 is an advertise-

ment for “Management Trainees” which was placed in the “Male

Help” column of the newspaper.

11. It is EB’s corporate policy generally not to disclose in

its recruiting advertisements either the company name, the

identity of its products and services, or the nature of the job

position being offered. EB has determined that the use of blind

recruiting advertisements is “vital to the conduct of the business”

(Balzano, Tr. 1543; accord, Davis, Tr. 3464-65). “The blind

advertisement [12] was the one that was used to a greater ex-

tent * * * so the managers would have the opportunity of inter-

viewing the greatest number of people who were seeking em-

ployment” (Bergstrom, Tr. 1470). “Most of the salesmen were

recruited as a result of those blind ads. * * * But the bulk, the

large majority of our people were recruited through the blind

ads” (Holmes, Tr. 3122; see also, Van Allen, Tr. 627-628;

Heinzman, Tr. 925; Burgoyne, Tr. 1072; Bergstrom, Tr. 1468-

69; Balzano, Tr. 1515-17; Tafolla, Tr. 1716-17; Eastaugh, Tr.

2247; Lang, Tr. 2328; Clauss, Tr. 2347-2350; Caine, Tr.

2462-63; Baseman, Tr. 2825; Holmes, Tr. 3121-22; Martinez,

Tr. 3168; Galvez, Tr. 3256; Gregg, Tr. 3358-3360; Cohan,

Tr. 3432; Davis, Tr. 3452, 3464-65; accord, CX 405; see

Bresnik, Tr. 411).

Oe me eee ae ee -

A64

12. Various corporate witnesses testified about why EB

utilizes blind ads:

* * * there would be a greater selection of the type of

people that we would interview (Martinez, Tr. 3168).

* * * * *

A. * * * We found that running open ads wasn’t too

successful because the popular misconception was that

people who sold encyclopaedias went around knocking on

doors (Cohan, Tr. 3432).

ak * * * *

A. ** * Experience had taught our managers that you

will get a greater number of people or prospects to interview

through a blind ad by the very nature of the fact that

most people do not consider themselves as sales types, and

if you said you wanted a sales person they will say, “This

rules me out because I have either had no experience or I

would be no good at it” (Bergstrom, Tr. 1470).

* > * * *

Q. Why did you run blind ads?

[13] A. *** we didn’t want anything to detract or

detract these people from answering our ads (Holmes, Tr.

3122-23).

Respondents acknowledge that blind advertisements make it

possible for Britannica to attract and recruit persons who do

not think of themselves as potential Britannica sales representa-

tives (RPF IT 1).

13. EB’s Weekly Hiring and Training Reports show the

extent to which EB’s blind ads result in generating “inquiries,”

“interviews” and persons “entering training” (see, e.g., CX 14

[23 inquiries, 7 interviews, 2 entering training]; CX 81 [57 in-

quiries, 14 interviews, 2 entering training]; CX 87 [82 inquires,

14 interviews, 2 entering training]; CX 116 [37 inquiries, 6

interviews, 2 entering training]; CX 221 [112 inquiries, 46

interviews, 7 entering training]; CX 222 [49 inquiries, 6 inter-

views, 3 entering training ]}; CX 334 [37 inquiries, 6 interviews,

2 entering training]).

A65

-.14, EB’s Weekly Hiring and Training Reports also show the

extent to which EB’s open ads result in generating “inquiries,”

“interviews” and persons “entering training” (see, e.g., a Dallas

Division “open ad” campaign, especially ads which appear on

CX 259 [10 inquiries, 5 interviews, 7 entering training]; CX

263 [39 inquiries, 11 interviews, 10 enterng training]; CX 264

[35 inquiries, 18 interviews, 18 entering training]; CX 271

[18 inquiries, 13 interviews, 12 entering training]; CX 272

[18 inquiries, 15 interviews, 8 entering training]; CX 276 [12

inquiries, 8 interviews, 8 entering training]). An EB spokesman

testified as to why EB open ads produce a much higher ratio

of persons entering training than its blind ads (Bergstrom, Tr.

1470):

Q. But when you ran open ads would you say your

average of persons who in fact were hired for the position

was better [than for blind ads]?

A. Yes, it wiil be. You get far fewer but you will

stand a chance of hiring—ratiowise your percentage will

be better.

[14] 15. EBs recruiting advertisements have a telephone

number which interested persons are to call in order to arrange

an interview (CX 5). It is the policy of EB, in responding to

telephone inquiries, not to disclose over the telephone the name

of the company or that the job involves door-to-door selling.

The testimony of an ex-telephone receptionist confirms this

policy (Gervasio, Tr. 2170):

Q. What if any instructions were you given with respect

to answering the telephone?

A. When I answered the telephone, I was to answer

with the last four digits of the phone number, to never give

out the name of the company * * * (See also, Gregg, Tr.

3360-61.)

16. When most prospective salesmen arrived for their initial

interviews, they were still not told immediately what position was

being offered nor the identity of respondent (Gregg, Tr. 3360-

A66

61; Bresnik, Tr. 412; Van Allen, Tr. 630; Eastaugh, Tr. 2229-

2231; Cambria, Tr. 2255-56). Employees were directed to

conceal the name of “Encyclopaedia Britannica” (Gervasio, Tr.

2172):

Q. What, if anything, or what, if any instructions were

you given about what to say to a person coming to the office

responding to a recruiting advertisement?

A. The only thing I would do is give the aptitude test

and give it to them to make it out. Other than that no other

instructions. If I were sitting in the front office, any material

that had Encyclopaedia Britannica on it, I would have

to remove it, cover it up, hide it, as long as they did not

see the name of the company.

Q. Who told you to do this?

A. The division manager.

Q. What, if any instructions were you given as to

what to say to a person who came in to the office asking

about what the company is or what type of product was

involved?

[15] A. I couldn’t give them any information. (See Gregg,

Tr. 3360-61; Cohan, Tr. 3432; Davis, Tr. 3464-65;

Holmes, Tr. 3127-28; Kalstein, Tr. 2003-2004; Bisping,

Tr. 709-711; see also, Toncrai, Tr. 550-552; Yee, Tr. 987;

Cambria, Tr. 2256-59).

17. In recruiting advertisements, in telephone responses

to such advertisements, and at initial interviews with job ap-

plicants, EB has failed to disclose the following material facts:

(a) The position being offered is in door-to-door selling;

(b) the position is being offered by EB; and

erence materials.

(2) Advertisements Representing Positions Other Than

Door-To-Door Selling

18. EB utilizes some recruiting advertisements which repre-

sent that the position being offered does concern “sales”; how-

A67

ever, such ads fail to disclose either EB’s corporate identity or

its product. EB’s purpose in using such blind ads is that it does

not desire to disclose that the position being offered is door-to-

door sales of encyclopedias. Thus, EB is able to recruit persons

who would not otherwise have responded to its ads (RPF II 1;

Balzano, Tr. 1543; Holmes, Tr. 3123; Martinez, Tr. 3168-

3169; Davis, Tr. 3463-65; see, e.g., CX 5-O, 5-U, 5-Z-1,

5-Z-10, 5-Z-(26-27), 5-Z-38, 5-Z-45, 5-Z-(49-51), 5-Z-(61-

63), 5-Z-71). While some recruiting advertisements disclose its

corporate identity, in some such ads EB expressly claims that

the position being offered is not in door-to-door selling. The

following is one such ad (CX 5-Z-37; accord, CX 5-Z-8): [16]

OUR 200TH

ANNIVERSARY

ENCYCLOPAEDIA

BRITANNICA

NEEDS

PARTTIME AND FULL

TIME SALES HELP

NO DOOR TO DOOR

SELLING;—NO

CANVASSING—NO

SOLICITING

+ * * oa *

CALL

+ * * * *

19. EB’s August 1, 1970 Hiring Ad Catalog contains ad-

vertisements stating that respondent is offering positions which

include “mgmt., administration, personnel, credit, public rela-

tions and sales promotion” (CX 5-Z-20, 5-Z-33, 5-Z-71), and

that EB is immediately willing to start training “S men * * * in

advertising and sales promotions division” at “$700 PER MONTH”

A68

(CX 286). EB also places ads in newspapers which represent

that it is recruiting persons to train or to work in marketing and

sales. These ads carry at their top, in bold print, the term

“MARKETING” (CX 5-Z-25, 218, 257, 317). The text of some

of these advertisements states that EB is “seeking college grads

*** to enter marketing training. Will guarantee you $725

PER MO.” (CX 257). Through the use of such advertising

formats, EB is able to recruit as salespersons college students

who are marketing majors and are looking for positions in the

field of marketing (Bresnik, Tr. 411). EB has run ads entitled

“Marketing Sales” (CX 992), and has placed them in the

marketing sales section of the classified ads of newspapers

(Eastaugh, Tr. 2248-49). EB also represents that it is offering

job positions in the field of “sales promotion” (CX 5-U, 217;

see also, CX 286), and as an instructor (CX 5-Z-12) or demon-

strator (CX 5-Z-13). This latter approach is used to attract

persons with the professional qualifications of teachers to demon-

strate educational aids (CX 405-1). Some of the ads which EB

employs represent that the job being offered requires operating

at an executive level (CX 5-N). Other advertisements repre-

sent the products involved to be “research [17] service products”

(CX 1506). Some of EB’s ads represent that it is recruiting

persons to deliver free advertising information to families in

their homes; for example:

To all the families who have sent for information from

us free. We just do not have enough * * * representatives to

deliver the information you have requested.

4 * + * *

REPRESENTATIVES URGENTLY NEEDED * * #

(CX 5-Z-59).

Other ads represent that respondent is recruiting persons to

survey families in their homes; for example:

COLLEGE STUDENTS Needed to interview families in this

area * * * GREAT IDEAS PROGRAM * * * (CX 330).

A69

20. Once persons have been recruited as salesmen, EB

“trains such persons on how to sell and sends them out to sell”

(Respondents’ Answer, Par. 6(2)). These persons are trained to

make door-to-door sales of EB’s products. This is illustrated by

the testimony of EB’s New York Divisional Manager, Mr.

Cohan (Tr. 3440):

Q. *** What kind of training do people receive who

respond to blind [recruiting] ads?

A. Well, basically we only had one kind of training.

Since all the people that I hired were hired to be sales

representatives in my district, they received our standard

training which equipped them to go out into the field, make

a standard presentation, close the sale the way it was sup-

posed to be closed’ and, hopefully, write the order. (Ac-

cord, Sollo, Tr. 3035, 3065; Joy, Tr. 2963-64, 2993-95;

Baseman, Tr. 2815-16; Holmes, Tr. 3122-24; [18] Marti-

nez, Tr. 3168-69; Gregg, Tr. 3365-66; Davis, Tr. 3470-

72; Galvez, Tr. 3256-57; Balzano, Tr. 1515-16; Bresnik,

Tr. 415; Kalstein, Tr. 2000-2008; Laferriere, Tr. 2102-

2110; Eastaugh, Tr. 2228-2233.)

Respondent contends that it is not engaged in door-to-door

selling; that EB is a lead organization whose salesmen do not

canvas door-to-door but instead follow “leads” or inquiries from

prospective customers (RPF II 5; RRF, p. 3). All the evidence

confirms, however, that EB is primarily engaged in thé door-to-

door sale of its publications, merchandise or services, and that it

recruits hundreds of persons each year to transact these sales

(RX 155; Davis; Tr. 3462-63). Also, salesmen do engage in

door-to-door canvassing, or “cold canvassing” (Findings 34,

40, infra). Substantial reliance upon so-called “leads” does not

remove EB’s sales activities from what is known as door-to-door

sales (Finding 6, supra). Thus, EB is not offering positions in

the fields represented. To the contrary, EB is recruiting persons,

principally, as salesmen in the door-to-door sale of respondent’s

publications, merchandise or services.

A70

(3) Advertisements Representing Management Training

21. The following are typical and illustrative of EB’s man-

agement trainee hiring ads:

SAVE ME!!

My company just promoted 3 of my key men to manage-

ment positions after only 4 months and now I’m going out

of my mind trying to find 3 good men to fill the holes in my

organization. These men should want a very good income,

an excellent future and management training. If you meet

our requirements we will guarantee you up to: PER $625

MON'-1.

Houston * * * Cal] * * * (CX 5-H; cf. Martinez, Tr.

3199.)

* * * * *

[19] Managers WE PROMOTE $25,000 & up Potential

We are looking to train experienced salesmen & sales

managers. For new management openings in our

growing $170 million company.

Salary & guarantee arrangements. Full company

benefits. Complete training program 9 assignments in

Los Angeles. * * * (CX 5-J; cf., CX 391.)

* * * * *

MANAGEMENT TRAINEE

INTERNATIONAL CONCERN

Up to $1000 per month Guaranteed if you meet our

requirements,

First years earnings to 20M * * * cal] * * * (CX

5-V.)

* Ok oe + *

EXECUTIVE SALES TRAINEE

$800 Month guarantee

Must meet company requirements. We need several

qualified persons to enter our executive training pro-

gram. You will receive 90 days of extensive training.

A71

Must be over 21, good car & able to start training

immediately.

** * call * * * (CX 5-W.) [20]

* eS * * *

MANAGEMENT TRAINEE $675 monthly guaran-

tee, if you meet requirements. Call * * * (CX 35;