Gateway Educational Products, Ltd., et al.; Proposed Consent Agreement With Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 922 3021]

Gateway Educational Products, Ltd., 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, a California-based corporation and two

officers from making reading and comprehension claims for their

``Hooked on Phonics'' reading program or any other educational program

or product without possessing and relying upon competent and reliable

substantiating evidence. In addition, it would prohibit them from

representing that any endorsement represents the typical or ordinary

experience of consumers with any educational program or product without

possessing and relying upon competent and reliable substantiating

evidence.

DATES: Comments must be received on or before February 17, 1995.

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:

Joel Winston or Toby Levin, FTC/S-4002, Washington, DC 20580. (202)

326-3153 or 326-3156.

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

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 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

Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR

4.9(b)(6)(ii)).

In the matter of: Gateway Educational Products, Ltd., a

corporation, and John Shanahan and John Herlihy, individually and as

officers of said corporation. File No. 9223021.

Agreement Containing Consent Order To Cease and Desist

The Federal Trade Commission having initiated an investigation of

certain acts and practices of Gateway Educational Products, Ltd., a

corporation, and John Shanahan and John Herlihy, individually and as

officers of said corporation (``proposed respondents''), and it now

appearing 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 by and between Gateway Educational Products,

Ltd., by its duly authorized officer, and John Shanahan and John

Herlihy, individually and as officers of said corporation, and their

attorneys, and counsel for the Federal Trade Commission that:

1. Proposed respondent Gateway Educational Products, Ltd., is a

corporation organized, existing, and doing business under and by virtue

of the laws of the State of Delaware with its office and principal

place of business located at 1050 Katella Ave., Suite D, Orange,

California 92667.

Proposed respondents John Shanahan and John Herlihy are officers of

said corporation. They formulate, direct and control the policies, acts

and practices of said corporation and their address is the same as that

of said corporation.

2. Proposed respondents admit all the jurisdictional facts set

forth in the draft of complaint.

3. Proposed respondents waive:

(a) Any further procedural steps;

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

statement of findings of fact and conclusions of law; and

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

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

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

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

agreement is accepted by the Commission, it, together with the draft of

complaint contemplated thereby, will be placed on the public record for

a period of sixty (60) days and information in respect thereto publicly

released. The Commission thereafter may either withdraw its acceptance

of this agreement and so notify the proposed 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.

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

constitute an admission by proposed respondents that the law has been

violated as alleged in the draft of complaint, or that the facts as

alleged in the draft of complaint, other than the jurisdictional facts,

are true.

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

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

Commission pursuant to the provisions of Sec. 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 of complaint 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 right 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.

7. 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

Definitions

For purposes of this order, the following definitions shall apply:

A. ``HOP'' means the reading program known as ``Hooked on Phonics/

SRA Reading Power'' marketed by Gateway Educational Products, Ltd.

B. ``Educational program or product'' means any program of product

that provides instruction in any field of study, including but not

limited to any aspect of reading.

C. ``Competent and reliable scientific evidence'' means tests,

analyses, research, studies, or other evidence based on the expertise

of professionals in the relevant area, 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.

I.

It is ordered that respondents Gateway Educational Products, Ltd.,

a corporation, its successors and assigns, and its officers, and John

Shanahan and John Herlihy, individually and as officers of said

corporation, and respondents' agents, representatives, and employees,

directly or through any corporation, subsidiary, division or other

device, in connection with the manufacturing, labelling, advertising,

promotion, offering for sale, sale, or distribution of HOP or any other

educational program or product in or affecting commerce, as

``commerce'' is defined in the Federal Trade Commission Act, do

forthwith cease and desist from representing, in any manner, directly

or by implication, that such program or product:

A. Can or will quickly and easily teach persons with reading

problems or disabilities to read, regardless of the nature of the

problem or disability;

B. Is effective for teaching persons with learning disabilities,

including dyslexia and attention deficit disorders, to read;

C. Can or will cause users with reading problems or disabilities to

achieve significant improvement in reading levels or classroom grades;

D. Is effective for teaching persons in a home setting to read,

without the need for additional assistance such as a teacher or tutor;

E. Is effective for teaching reading comprehension skills;

F. Has helped nearly one million or any other number of students to

learn to read; or

G. Provides any other educational benefits,

unless at the time of making such representation, respondents possess

and rely upon competent and reliable evidence, which when appropriate

must be competent and reliable scientific evidence, that substantiates

such representation.

II

It is further ordered that respondents Gateway Educational

Products, Ltd., a corporation, its successors and assigns, and its

officers, and John Shanahan and John Herlihy, individually and as

officers of said corporation, and respondents' agents, representatives,

and employees, directly or through any corporation, subsidiary,

division or other device, in connection with the manufacturing,

labelling, advertising, promotion, offering for sale, sale, or

distribution of any educational program or product in or affecting

commerce, as ``commerce'' is defined in the Federal Trade Commission

Act, do forthwith cease and desist from representing, directly or by

implication, that any endorsement (as ``endorsement'' is defined in 16

CFR 255.0(b)) of the program or product represents the typical or

ordinary experience of members of the public who use the program or

product, unless at the time of making such representation, respondents

possess and rely upon competent and reliable evidence, which when

appropriate must be competent and reliable scientific evidence, the

substantiates such representation.

III

It is further ordered that respondents Gateway Educational

Products, Ltd., a corporation, its successors and assigns, and its

officers, and John Shanahan and John Herlihy, individually and as

officers of said corporation, shall for five (5) years after the date

of the last dissemination to which they pertain, maintains and upon

request make available to the Federal Trade Commission or its staff for

inspection and copying:

A. Any advertisement making any representation covered by this

order;

B. All materials that were relied upon by respondents in

disseminating any representation covered by this order; and

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

evidence in any respondent's possession or control that contradict,

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

which respondents relied for such representation, including complaints

from consumers.

IV

It is further ordered that respondent Gateway Educational Products,

Ltd., its successors and assigns, shall:

A. Within thirty (30) days after service of this order, provide a

copy of this order to each of its current principals, officers,

directors, and managers, and to all personnel, agents, and

representatives having sales, advertising, or policy responsibility

with respect to the subject matter of this order; and

B. For a period of five (5) years from the date of entry of this

order, provide a copy of this order to each of its principals,

officers, directors, and managers, and to all personnel, agents, and

representatives having sales, advertising, or policy responsibility

with respect to the subject matter of this order within three (3) days

after the person commences his or her responsibilities.

V

It is further ordered that respondent Gateway Educational Products,

Ltd., its successors and assigns, shall notify the Federal Trade

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

its corporate structure, including but not limited to dissolution,

assignment, or sale resulting in the emergence of a successor

corporation, the creation or dissolution of subsidiaries or affiliates,

the planned filing of a bankruptcy petition, or any other change in the

corporation that may affect compliance obligations arising out of this

order.

VI

It is further ordered that respondents John Shanahan and John

Herlihy shall, for a period of ten (10) years from the date of entry of

this order, notify the Commission within thirty (30) days of the

discontinuance of their present business or employment with respondent

Gateway Educational Products, Ltd., or its successors and assigns, and

of their affiliation with any new business or employment in connection

with the manufacturing, labelling, advertising, promotion, offering for

sale, sale, or distribution of any educational program or product. Each

notice of affiliation with any new business or employment shall include

the respondent's new business address and telephone number, current

home address, and a statement describing the nature of the business or

employment and his duties and responsibilities.

VII

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

days after service of this order, and at such other times as the

Federal Trade 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.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted an agreement to a

proposed consent order from Gateway Educational Products, Ltd.

(``Gateway''), and John Shanahan and John Herlihy, officers of Gateway.

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

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

Comments received during this period will become part of the public

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

agreement and comments received and will decide whether it should

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

order.

This matter concerns the ``Hooked on Phonics'' reading program

(``HOP''). The Commission's proposed complaint alleges that the

respondents represented in their advertisements and promotional

materials that HOP will quickly and easily teach persons with reading

problems or disabilities to read, regardless of the nature of the

problem or disability; is effective for teaching persons with learning

disabilities, including dyslexia and attention deficit disorders, to

read; will cause users with reading problems or disabilities to achieve

significant improvement in reading levels and classroom grades; is

effective for teaching persons in a home setting to read, without the

need for additional assistance such as a teacher or tutor; is effective

for teaching reading comprehension skills; has helped nearly one

million students to learn to read at home; and that testimonials or

endorsements appearing in the HOP advertising reflect consumers'

typical or ordinary experiences using HOP. The complaint alleges that

the respondents falsely represented that they relied upon a reasonable

basis for these representations.

The proposed consent order contains provisions designed to prevent

the respondents from engaging in similar acts and practices in the

future. Part I requires respondents to possess adequate substantiation

for the HOP efficacy claims alleged in the complaint, as well as for

any claims that any educational program or product will be effective

for teaching reading or provides any other educational benefit. The

substantiation level required is competent and reliable evidence, which

when appropriate must be competent and reliable scientific evidence.

Part II of the proposed order prohibits the respondents, in

advertising any educational program or product, from representing that

any endorsement represents the typical experience of consumers who use

the program or product, unless the claim is substantiated.

Parts III through VII relate to the respondents' obligations to

retain substantiation materials; to notify the Commission of changes in

corporate identity, or in the case of the individuals, employment; to

distribute copies of the order to certain employees; and to file

compliance reports with the Commission.

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 in any

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 94-31128 Filed 12-16-94; 8:45 am]

BILLING CODE 6750-01-M