Hawthorne Communications, Inc.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[Dkt. 9264]

Hawthorne Communications, Inc.; Proposed Consent Agreement With

Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

prohibit, among other things, an Iowa corporation from making any

representations about the performance, benefits, efficacy, or success

rate of any product or service concerning business opportunities unless

the respondent possesses competent and reliable evidence that

substantiates such representations. In addition, the consent agreement

would prohibit the respondent from misusing testimonials and

endorsements.

DATES: Comments must be received on or before July 25, 1994.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Jeffrey Dahnke, FTC/Denver Regional

Office, 1405 Curtis St., suite 2900, Denver, CO. 80202-2393. (303) 844-

2254.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 3.25(f) of

the Commission's Rules of Practice (16 CFR 3.25(f)), notice is hereby

given that the following consent agreement containing a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of sixty (60) days. Public comment is invited. Such

comments or views will be considered by the Commission and will be

available for inspection and copying at its principal office in

accordance with Sec. 4.9(b)(6)(ii) of the Commission's Rules of

Practice (16 CFR 4.9(b)(6)(ii)).

Agreement Containing Consent Order To Cease and Desist

In the matter of Hawthorne Communications, Inc., a corporation.

Docket No. 9264.

The agreement herein, by and between Hawthorne Communications,

Inc., a corporation, by its duly authorized officer, hereafter

sometimes referred to as respondent, and its attorney, and counsel for

the Federal Trade Commission, is entered into in accordance with the

Commission's Rule governing consent order procedures. In accordance

therewith the parties hereby agree that:

1. Respondent Hawthorne Communications, Inc., is a corporation

organized, existing and doing business under and by virtue of the laws

of the State of Iowa, with its office and principal place of business

located at 300 N. 16th Street, Fairfield, Iowa 52556.

2. Respondent has been served with a copy of the complaint issued

by the Federal Trade Commission charging it with violations of section

5(a) of the Federal Trade Commission Act, 15 U.S.C. 45(a) and has filed

an answer to said complaint denying said charges.

3. Respondent admits all the jurisdictional facts set forth in the

Commission's complaint in this proceeding.

4. Respondent waives:

(a) Any further procedural steps;

(b) The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of the law;

(c) All rights to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this agreement;

and

(d) any claim under the Equal Access to Justice Act.

5. This agreement shall not become a part of the public record of

the proceeding unless and until it is accepted by the Commission. If

this agreement is accepted by the Commission it will be placed on the

public record for a period of sixty (60) days and information in

respect thereto publicly released. The Commission thereafter may either

withdraw its acceptance of this agreement and so notify the respondent,

in which event it will take such action as it may consider appropriate,

or issue and serve its decision, in disposition of the proceeding.

6. This agreement is for settlement purposes only and does not

constitute an admission by respondent that the law has been violated as

alleged in the complaint, or that the facts as alleged in the

complaint, other than jurisdictional facts, are true.

7. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Section 3.25(f) of the

Commission's Rules, the Commission may without further notice to

respondent, (1) issue its decision containing the following order to

cease and desist in disposition of the proceeding, and (2) make

information public in respect thereto. When so entered, the order to

cease and desist shall have the same force and effect and may be

altered, modified or set aside in the same manner and within the same

time provided by statute for other orders. The order shall become final

upon service. Delivery by the U.S. Postal Service of the decision

containing the agreed-to order to respondent's address as stated in

this agreement shall constitute service. Respondent waives any right it

might have to any other manner of service. The complaint may be used in

construing the terms of the order, and no agreement, understanding,

representation, or interpretation not contained in the order or in the

agreement may be used to vary or to contradict the terms of the order.

8. Respondent has read the complaint and the order contemplated

hereby. It understands that once the order has been issued, ti will be

required to file one or more compliance reports showing that it has

fully complied with the order. Respondent further understands that it

may be liable for civil penalties in the amount provided by law for

each violation of the order after it becomes final.

Order

As used in this order, the term ``business opportunity'' means an

activity engaged in for the purpose of making a profit.

I

It Is Ordered that respondent, Hawthorne Communications, Inc., a

corporation , its successors and assigns, and its officers, agents,

representatives and employees, directly or through any corporation,

subsidiary, division or other device, in connection with the

advertising, offering for sale, sale or distribution of any Tronsoft

product or service, in or affecting commerce, as ``commerce'' is

defined in the Federal Trade Commission Act, do forthwith cease and

desist from selling, broadcasting, disseminating, or assisting or

encouraging others to sell, broadcast or disseminate the ``Freedom

Now'' commercial described in the complaint.

II

It Is Further Ordered that respondent, Hawthorne Communications,

Inc., a corporation, its successors and assigns, and its officers,

agents, representatives and employees, directly or through any

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

the advertising, offering for sale, sale or distribution of Tronsoft's

Home Business Starter Kit (``Starter Kit'') or any substantially

similar product, in or affecting commerce, as ``commerce'' is defined

in the Federal Trade Commission Act, do forthwith cease and desist from

misrepresenting, in any manner, directly or by implication, that:

A. Consumers who use such product readily succeed in starting and

operating successful businesses out of their own homes.

B. Consumers who use such product earn substantial income.

For purposes of this provision, ``substantially similar product''

means any product or material containing substantially similar

information or techniques as the Starter Kit and that purports to

instruct consumers how to start and operate a computer-based consulting

business at home.

III

It Is Further Ordered that respondent, Hawthorne Communications,

Inc., a corporation, its successors and assigns, and its officers,

agents, representatives and employees, directly or through any

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

the advertising, offering for sale, sale or distribution of the Starter

Kit or any other product or service concerning business opportunities,

in or affecting commerce, as ``commerce'' is defined in the Federal

Trade Commission Act, do forthwith cease and desist from representing,

directly or by implication, the performance, benefits, efficacy or

success rate of any such product or service, unless, at the time of

making the representation, respondent possess and relies upon competent

and reliable evidence, which when appropriate must be competent and

reliable scientific evidence, that substantiates such representation.

For purposes of this order, competent and reliable scientific evidence

shall mean tests, analyses, research, studies, or other evidence based

on the expertise of professionals in the relevant area, that has been

conducted and evaluated in an objective manner by persons qualified to

do so, using procedures generally accepted in the profession to yield

accurate and reliable results.

IV

It Is Further Ordered that respondent, Hawthorne Communications,

Inc., a corporation, its successors and assigns, and its officers,

agents, representatives and employees, directly or through any

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

the advertising, offering for sale, sale or distribution of any product

or service, in or affecting commerce, as ``commerce'' is defined in the

Federal Trade Commission Act, do forthwith cease and desist from:

A. Using, publishing, or referring to any endorsement (as

``endorsement'' is defined in Sec. 225(b), part 255, title 16, Code of

Federal Regulations) unless respondent has good reason to believe that

at the time of such use, publication, or reference, the endorsement

reflects the honest opinions, finding, beliefs, experience of the

endorser and contains no express or implied representations which would

be deceptive or unsubstantiated if made directly by respondent.

B. Representing, directly or by implication, that any endorsement

of the product or services represents the typical or ordinary

experience of members of the public who use the product or service

unless such is the case.

V

It Is Further Ordered that respondent shall distribute a copy of

this order to each of its operating divisions and to each officer,

agent and personnel responsible for the preparation, review or

placement of advertising, or other materials covered by this order, and

shall secure from each such person a signed statement acknowledging

receipt of this order.

VI

It Is Further Ordered that respondent shall for a period of five

(5) years from the entry of this order, notify the Federal Trade

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

the respondent, such as dissolution, assignment, or sale resulting in

the emergence of a successor corporation, the creation or dissolution

of new corporations or subsidiaries of the respondent, or any other

change in the corporation that may affect compliance obligations

arising out of this order.

VII

It Is Further Ordered that respondent, and its successors and

assigns, shall, for five (5) years after the date of the last

dissemination to which they pertain, maintain and upon request make

available to the Federal Trade Commission for inspection and copying:

A. All materials that were relied upon by respondent in

disseminating any representation covered by this order; and

B. All reports, tests, studies, surveys, demonstrations or other

evidence in respondent's possession or control that contradict,

qualify, or call into question such representation, or the basis upon

which respondent relied for such representation, including complaints

from consumers.

VIII

It Is Further Ordered that respondent shall, within sixty (60) days

after service of this order upon it and at such other times as the

Commission may require, file with the Commission a report, in writing,

setting forth in detail the manner and form in which it has complied

with this order.

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement to a proposed consent order from Hawthorne

Communications, Inc. (``respondent'' or ``Hawthorne'').

The proposed consent order has been placed on the public record for

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will decide whether it

should withdraw from the agreement or make final the agreement's

proposed order.

Description of Complaint

This matter concerns advertising practices related to the sale of

Tronsoft Inc.'s Freedom Now Home Business Starter Kit (``Starter

Kit''). The Commission's complaint, issued on November 16, 1993,

alleges that Hawthorne promoted the sale of the Starter Kit by

scripting and producing a 30-minute television commercial entitled

``Freedom Now,'' which was broadcast in various areas throughout the

United States.

The complaint alleges that through the use of statements and

depictions contained in the ``Freedom Now'' commercial, respondent

Hawthorne falsely represented that consumers who use the Starter Kit

will typically and readily succeed in starting and operating a business

out of their homes and will typically earn substantial income. In

addition, the complaint alleges that Hawthorne falsely represented that

testimonials appearing in the commercial reflected both the actual

experiences of the people appearing as testimonialists and the typical

experiences of members of the public who had used the Starter Kit.

Finally, the complaint alleges that Hawthorne, at the time it made

various representations in the commercial, lacked a reasonable basis

that substantiated those representations.

Description of the Proposed Consent Order

The proposed consent order contains provisions which are designed

to remedy the alleged advertising violations and to prevent the

respondent from engaging in similar acts and practices in the future.

The proposed order prohibits respondent from disseminating the

``Freedom Now'' commercial and from misrepresenting that consumers who

use the Starter Kit (or any substantially similar product) can

typically use such product to start a business and earn substantial

income. The proposed order would further prohibit Hawthorne from making

any representations about the performance, benefits, efficacy or

success rate of any product or service concerning business

opportunities unless Hawthorne possesses competent and reliable

evidence that substantiates such representations. The proposed order

also contains prohibitions about using or misusing testimonials and

endorsements. In particular, the order prohibits Hawthorne from using

testimonials that do not reflect the actual opinions, beliefs, or

experiences of the endorser and from falsely representing that any

testimonial reflects the typical experiences of members of the public

who use the product being advertised.

The proposed order would require Hawthorne to distribute the

proposed order to its divisions and to officers, agents, and any

employees with advertising responsibilities. The order also requires

respondent to notify the Commission of any changes in its corporate

structure and to retain for five years all materials that it relies

upon in making representations covered by the order, as well as all

materials that call the representations into question. Finally, the

order requires Hawthorne to file compliance reports within sixty days

and at other times as the Commission may order.

The purpose of this analysis is to facilitate public comment on the

proposed order, and it is not intended to constitute an official

interpretation of the agreement and proposed order or to modify its

terms in any way. The proposed consent order has been entered into for

settlement purposes only and does not constitute an admission by the

respondent that the law has been violated as alleged in the complaint.

Benjamin I. Berman,

Acting Secretary.

[FR Doc. 94-12623 Filed 5-23-94; 8:45 am]

BILLING CODE 6750-01-M