Unocal Corporation, et al.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 922 3123]

Unocal Corporation, et al.; 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, the three companies from making claims

about the attributes or performance of any gasoline without first

having scientific evidence to substantiate their claims. In addition,

the respondents would be required to mail their credit-card customers,

in certain states, a notice stating that most cars do not need a high

octane gasoline to perform properly, and to remind them to check their

owner's manual to determine the proper octane level of gasoline to

purchase.

DATES: Comments must be received on or before April 11, 1994.

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

room 159, 6th Street and Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Sue Frauens, FTC/Los Angeles Regional Office, 11000 Wilshire Blvd.,

Suite 13209, Los Angeles, CA. 90024. (310) 575-7890.

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

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 2.34 of

the Commission's Rules of Practice (16 CFR 2.34), notice is hereby

given that the following consent agreement containing a consent order

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

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

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

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

available for inspection and copying at its principal office in

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

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

Agreement Containing Consent Order To Cease and Desist

In the matter of Unocal Corporation, a corporation, Union Oil

Company of California, a corporation, and Leo Burnett Company, Inc.,

a corporation.

The Federal Trade Commission having initiated an investigation of

certain acts and practices of Unocal Corporation, a corporation, Union

Oil Company of California, a corporation, and Leo Burnett Company,

Inc., a corporation, hereinafter sometimes referred to as proposed

respondents, and it now appears that proposed respondents are willing

to enter into an agreement containing an order to cease and desist from

the use of the acts and practices being investigated.

It is hereby agreed That by and between Unocal Corporation, a

corporation, Union Oil Company of California, a corporation, and Leo

Burnett Company, Inc., a corporation, and counsel for the Federal Trade

Commission that:

1. Respondent Unocal Corporation is a corporation organized,

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

State of Delaware, with its office and principal place of business

at 1201 West Fifth Street, Los Angeles, California 90017.

2. Respondent Union Oil Company of California is a corporation

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

laws of the State of California, with its office and principal place

of business at 1201 West Fifth Street, Los Angeles, California

90017.

3. Respondent Leo Burnett Company, Inc. is a corporation

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

laws of the State of Delaware, with its office and principle place

of business at 35 West Wacker Drive, Chicago, Illinois 60601.

4. Proposed respondents admit all the jurisdictional facts set

forth in the draft complaint here attached.

5. Proposed respondents waive:

(a) Any procedural steps;

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

statement of findings of fact and conclusion of law;

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

or contest the validity of the order entered pursuant to this

agreement; and

(d) Any claim under the Equal Access To Justice Act.

6. This agreement shall not become part of the public record of

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

this agreement is accepted by the Commission, it, together with the

draft complaint contemplated thereby, will be placed on the public

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

thereto publicly released. The Commission thereafter may either

withdraw its acceptance of this agreement and so notify the proposed

respondents, in which event it will take such action as it may

consider appropriate, or issue and serve its complaint (in such form

as the circumstances may require) and decision, in disposition of

the proceeding.

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

constitute an admission by proposed respondents of facts, other than

jurisdictional facts, or of violations of law as alleged in the

draft complaint here attached.

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

Commission, and if such acceptance is not subsequently withdrawn by

the Commission pursuant to the provisions of Section 2.34 of the

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

proposed respondents: (1) Issue its complaint corresponding in form

and substance with the draft complaint here attached and its

decision containing the following order to cease and desist in

disposition of the proceeding; and (2) make information public in

respect thereto. When so entered, the order to cease and desist

shall have the same force and effect and may be altered, modified or

set aside in the same manner and within the same time provided by

statute for other orders. The order shall become final upon service.

Delivery by the U.S. Postal Service of the complaint and decision

containing the agreed-to-order to proposed respondents' address as

stated in this agreement shall constitute service. Proposed

respondents waive any rights they may have to any other manner of

service. The complaint may be used in construing the terms of the

order, and no agreement, understanding, representation, or

interpretation not contained in the order or the agreement may be

used to vary or contradict the terms of the order.

9. Proposed respondents have read the proposed complaint and

order contemplated hereby. They understand that once the order has

been issued, they will be required to file one or more compliance

reports showing that they have fully complied with the order.

Proposed respondents further understand that they may be liable for

civil penalties in the amount provided by law for each violation of

the order after it becomes final.

Order

I

It is Ordered That respondents Unocal Corporation, Union Oil

Company of California and Leo Burnett Company, Inc., corporations,

their successors and assigns, and their officers, agents,

representatives, and employees, directly or through any corporation,

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

advertising, labelling, packaging, offering for sale, sale or

distribution of Unocal 92 and 89 octane gasolines or any other

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

Federal Trade Commission Act, do forthwith cease and desist from

making any representation, directly or by implication, about:

A. The superiority of Unocal 92 or 89 octane in providing engine

power or acceleration for any automobile;

B. The superiority of Unocal 92 or 89 octane in prolonging the

longevity of an engine for any automobile; or

C. The relative or absolute attributes or performance of any

gasoline with respect to vehicle engine power, acceleration,

longevity, or any other performance characteristic, unless at the

time of making such representation, respondents possess and rely

upon competent and reliable scientific evidence that substantiates

the representation. For purposes of this Order, ``competent and

reliable scientific evidence'' shall mean tests, analysis, 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.

Provided That, nothing in this Order shall prohibit respondents

from truthfully representing the numerical octane rating of any

gasoline.

Provided further that, it shall be a defense hereunder that

respondent Leo Burnett Company, Inc. neither knew nor had reason to

know of an inadequacy of substantiation for the representation.

It is further ordered That for three (3) years after the date of

the last dissemination of the representation to which they pertain,

respondents Unocal Corporation, Union Oil Company of California and

Leo Burnett Company, Inc. shall maintain and upon request make

available to the Federal Trade Commission or its staff for

inspection and copying:

A. All materials relied upon to substantiate any claim or

representation covered by this Order; and

B. All tests, reports, studies or surveys in respondents'

possession or control that contradict any representation covered by

this Order.

III

It is further rodered That respondents Unocal Corporation, Union

Oil Company of California and Leo Burnett Company, Inc. shall

forthwith distribute a copy of this Order to all operating

divisions, subsidiaries, franchisees, officers, managerial

employees, and all of their employees or agents engaged in the

preparation or placement of advertisements or promotional materials

covered by this Order and shall obtain from each such employee a

signed statement acknowledging receipt of the order.

IV

It is further ordered That respondents Unocal Corporation, Union

Oil Company of California and Leo Burnett Company, Inc. shall notify

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

change in the corporation(s) such as a dissolution, assignment or

sale resulting in the emergence of a successor corporation, the

creation or dissolution of subsidiaries or any other change in the

corporation(s) that may affect compliance obligatings under this

Order.

V

It is further ordered That respondents Unocal Corporation, Union

Oil Company of California and Leo Burnett Company, Inc. shall,

within sixty (60) days after service upon them of this Order 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 they have complied with this Order.

It is further ordered That respondents Unocal Corporation and

Union Oil Company of California shall mail to the last known address

of all consumers who hold an active Unocal credit card on the date

this Order becomes final, and who reside in any of the states of

Oregon, Washington, Nevada, California, or Hawaii, an exact copy of

the Notice which is incorporated by reference as Appendix A.

The mailing shall not include any other documents that

contradict or in any way mitigate the information in the Notice.

Respondents Unocal Corporation and Union Oil Company of California

shall bear all costs of printing and disseminating the Notice. The

Notice shall be mailed by first class mail within 30 days of the

date of this Order becomes final.

Appendix A--Important Information About the Octane Needs of Your Car

As a Unocal customer, you probably know that Unocal offers three

grades of unleaded gasoline at its service stations: 87 octane

regular, 89 octane mid-grade, and 92 octane premium. The 89 and 92

octane grades are formulated primarily for vehicles that are

designed to operate on higher octanes (high-performance vehicles)

and for vehicles that may be experiencing engine knocking and

pinging.

In July 1991, the Federal Trade Commission issued a brochure

that advises consumers to purchase the lowest octane gasoline that

their cars can use without engine knocking or pinging. The brochure

notes that ``many experts believe that most cars do not need a high

octane gasoline to perform properly and efficiently.'' The brochure

also advises consumers to ``first check your owner's manual for the

recommended octane level.'' According to the brochure, if your

vehicle runs without knocking or pinging it generally does not need,

and will not perform better with, higher octane gasoline.

The octane requirements of your vehicle can vary over time or

under certain weather, altitude and driving conditions. If your car

is knocking or pinging at the octane level recommended in your

owner's manual, you may need a higher octane gasoline.

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 Unocal

Corporation, Union Oil Company of California, and Leo Burnette Company,

Inc. (``Respondents'').

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

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

received during this period will become part of the public record.

After sixty (60) days, the Commission will again review the agreement

and the comments received and will decide whether it should withdraw

from the agreement and take other appropriate action, or make final the

proposed order contained in the agreement.

Unocal Corporation and its wholly-owned subsidiary, Union Oil

Company of California, Inc. (collectively, ``Unocal'') are marketers of

gasoline and other petroleum products, including Unocal 89 and 92

octane gasolines. Leo Burnette Company, Inc. (``Leo Burnett) is an

advertising agency and prepared and disseminated advertisements for

Unocal gasoline.

The Commission's complaint in this matter charges Respondents with

making unsubstantiated claims in advertisements and promotional

materials for Unocal 89 and 92 octane gasolines. Specifically, the

complaint alleges that Respondents represented that Unocal 89 and 92

provide superior engine performance and longevity as compared to

regular unleaded gasoline, that would be significant to consumers, for

automobiles generally. The complaint alleges that Respondents

represented that they had a reasonable basis for these claims when, in

fact, they did not. The complaint further charges that Leo Burnett knew

or should have known that the claims were unsubstantiated.

The consent order contains provisions designed to remedy the

alleged violations. Part I of the order requires Respondents to cease

from making any representations regarding (a) the superiority of Unocal

89 or 92 octane gasolines in providing engine power or acceleration or

prolonging engine longevity, or (b) the relative or absolute attributes

or performance of any gasoline with respect to any performance

characteristic, unless they possess competent and reliable scientific

evidence to substantiate the claim. Part I states that nothing in the

order prohibits Respondents from truthfully representing the numerical

octane rating of any gasoline. Part I also provides that Leo Burnett

would have a defense to an alleged violation of the order if it neither

knew nor had reason to know that the substantiation for any

representation was inadequate.

Part II of the order requires Respondents to maintain and make

available to the Federal Trade Commission material relating to the

support for their representations. Part III requires Respondents to

provide a copy of the order to, and obtain a signed acknowledgement

from, their divisions, subsidiaries, franchisees, officers, managerial

employees and all other employees involved in advertising covered by

the order. Part IV requires Respondents to notify the Commission of

certain changes in corporate structure. Part V requires Respondents to

file written compliance reports with the Commission.

Part VI of the order requires Unocal to mail a notice to active

Unocal credit card holders in five states within thirty days after the

order is final. The five states are Oregon, Washington, Nevada,

California, and Hawaii.

The notice explains that Unocal sells three octane levels of

unleaded gasoline--87 regular, 89 mid-grade and 92 premium, and that

the last two grades are designed primarily for high performance

vehicles and vehicles that are experiencing engine knocking or pinging.

The notice then refers to a 1991 FTC brochure which advises consumers

to check their owner's manual for the recommended octane level and

purchase the lowest octane gasoline that does not result in knocking.

It notes that, according to the brochure, if the car runs without

knocking or pinging, it generally will not perform better with higher

octane. The notice further states that octane requirements can vary

under different conditions, and that if the car is knocking at the

recommended octane level, it may need a higher octane.

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

proposed order. It is not intended to constitute an official

interpretation of the agreement and proposed order or to modify in any

way their terms.

Donald S. Clark,

Secretary.

Separate Statement of Commissioner Deborah K. Owen, Concurring In Part,

and Dissenting in Part, in the Matter of Unocal Corporation, et al.

(File No. 922-3123)

I concur in the Commission's action to accept for public comment

an administrative complaint against, and consent agreement with,

Unocal Corporation and its advertising agency, Leo Burnett Company,

Inc., for allegedly making unsubstantiated octane performance and

longevity claims. However, based on the ad itself and the available

extrinsic evidence, I do not find reason to believe that Exhibit A

to the complaint (commonly referred to as the ``Love Is Forever''

ad) conveys the message alleged in Paragraph 8, that Unocal 92

octane provides significantly superior engine performance and

longevity for automobiles generally, as opposed to for high

performance automobiles. Accordingly, I respectfully dissent as to

Exhibit A, Paragraph 8, and all references to 92 octane gasoline in

the administrative complaint.

Statement of Roscoe B. Starek, III Concurring in Part and Dissenting in

Part, in Unocal Corporation, et al., Matter No. 922-3123

I support the decision to charge Unocal Corporation with

unsubstantiated representations regarding its 89 octane and 92 octane

gasoline. I further support the decision to charge Leo Burnett Company,

Inc. for unsubstantiated representations regarding 92 octane gasoline.

I dissent, however, from issuance of this complaint insofar as it

charges Leo Burnett with liability for the Unocal 89 octane claims.

Complaint paras. 9, 11, 12. In recent years, the Commission has

prosecuted three advertising agencies for very significant, even

egregious violations of Section 5 of the Federal Trade Commission Act

(FTC Act). Here, I think the record supports the conclusion that Leo

Burnett made substantial, good faith pre-dissemination efforts to

determine whether its 89 octane claim was substantiated. Hence, it is

my view that inclusion of the 89 octane allegation in the complaint

represents a significant and unnecessary departure from recent

precedent regarding advertising agency liability.

I also oppose inclusion of this allegation against Leo Burnett on

legal grounds. The FTC Act requires the Commission to make a two-step

determination before it issues a complaint: It must conclude first,

that it has reason to believe that an unfair or deceptive act or

practice has been committed, and second, that a proceeding would be in

the interest of the public. FTC Act, Section 5(b), 15 U.S.C. 45(b). The

record supports the conclusion that Leo Burnett requested and was

presented with factual information in support of the claim for 89

octane gasoline, although it also possessed some information that would

tend to undermine the general nature of the benefit provided by 89

octane gasoline. The Commission previously has held, with respect to a

claim requiring complex scientific substantiation, that where an

advertising agency requested and relied upon evidence that provided

some scientific basis for the claim, possession of additional

information tending to undermine the substantiation did not put the

agency on notice that substantiation was inadequate. Bristol-Myers Co.,

102 F.T.C. 21, 365-66 (1983). Given this precedent, and on the record

before us, I am not able to conclude that there is reason to believe

that Leo Burnett engaged in actionable conduct in connection with the

89 octane claims.

Moreover, elimination of the 89 octane charge from the complaint

would have simplified the complaint without the need for any

significant change in order coverage.\1\ Under these circumstances, it

does not appear that it is in the public interest to include this

charge in the complaint.

\1\While it would have appeared appropriate to exempt Leo

Burnett from Parts 1A and 1B of the order insofar as they

specifically pertained to engine power, acceleration and longevity

claims for 89 octane gasoline, Part 1C still would have fenced-in

these and other performance claims regarding any gasoline.

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[FR Doc. 94-3087 Filed 2-9-94; 8:45 am]

BILLING CODE 6750-01-M