J. Walter Thompson USA, Inc.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 942 3294]

J. Walter Thompson USA, 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, a New York-based advertising agency,

which prepared advertisements for Jenny Craig, Inc., from claiming that

any weight-loss program is recommended, approved, or endorsed by any

person, group, or other entity, unless it possesses and relies upon

competent and reliable scientific evidence to substantiate the

representation. In addition, the consent agreement prohibits the

respondent from misrepresenting the existence, results, or

interpretations of any test, study, or survey.

DATES: Comments must be received on or before October 2, 1995.

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

Room 159, 6th Street and Pennsylvania Avenue NW., Washington, D.C.

20580.

FOR FURTHER INFORMATION CONTACT: Jeffrey Klurfeld or Matthew Gold,

Federal Trade Commission, San Francisco Regional Office, 901 Market

Street, Suite 570, San Francisco, CA 94103. (415) 744-7920.

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

The Federal Trade Commission having initiated an investigation of

certain acts and practices of J. Walter Thompson USA, Inc., a

corporation, and it now appearing that the proposed respondent is

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 J. Walter Thompson USA, Inc., a

corporation, by its duly authorized officer, and its attorney, and

counsel for the Federal Trade Commission that:

1. Proposed respondent J. Walter Thompson USA, 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 principal

place of business located at 466 Lexington Avenue, New York, New York

10017.

2. Proposed respondent admits all the jurisdictional facts set

forth in the draft of complaint.

3. Proposed 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 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.

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 respondent, 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

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decision, in disposition of the proceeding.

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

constitute an admission by proposed respondent of facts, other than

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

of complaint.

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 Section 2.34 of the

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

proposed respondent, (a) 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 (b) 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

respondent's address as stated in this agreement shall constitute

service. The proposed respondent waives any right it 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. The proposed respondent has read the proposed complaint and

order contemplated hereby. The proposed respondent understands that

once the order has been issued, it will be required to file one or more

compliance reports showing that it has fully complied with the order.

The proposed 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

For purposes of this order, the term ``diet-related food'' shall

mean any food (as that term is defined in 15 U.S.C. Sec. 55(b)) whose

labeling or advertising makes any claim regarding its weight loss or

weight maintenance benefits.

I

It is ordered that respondent, J. Walter Thompson USA, Inc., a

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

respondent's agents, representatives and employees, directly or through

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

with the advertising, promotion, offering for sale, or sale of any

weight loss program, 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 such program

is recommended, approved or endorsed by any person, group or other

entity, unless, at the time of making any such representation,

respondent possesses and relies upon competent and reliable evidence,

which when appropriate must be competent and reliable scientific

evidence, that substantiates such representation. For the purposes of

this order, ``competent and reliable scientific evidence'' shall mean

those tests, analyses, research, studies or other evidence based on the

expertise of professionals in the relevant area, that have 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, however, that it shall be a defense hereunder that the

respondent neither knew nor had reason to know of an inadequacy of

substantiation for the representation.

II

It is further ordered that respondent, J. Walter Thompson USA,

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

respondent's agents, representatives and employees, directly or through

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

with the advertising, promotion, offering for sale, or sale of any

weight loss or weight control program, weight loss product, health or

fitness program, exercise equipment, or diet-related food, 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, the existence, contents,

validity, results, conclusions, or interpretations of any test, study,

or survey.

Provided, however, that it shall be a defense hereunder that the

respondent neither knew nor had reason to know that the test, study or

survey did not prove, demonstrate or confirm the representation.

III

It is further ordered that for five (5) years after the date of the

last dissemination of the representation to which they pertain,

respondent, or its successors and assigns, 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, surveys, demonstrations or other

evidence in its possession or control that contradict, qualify, or call

into question such representation, or the basis relied upon for such

representation, including complaints from consumers.

IV

It is further ordered that respondent shall notify the Commission

at least thirty (30) days prior to the effective date of any proposed

change in the corporation that may affect compliance obligations under

this Order, including but not limited to any change in corporate name

or address, dissolution, assignment or sale resulting in the emergence

of a successor corporation, or the creation or dissolution of

subsidiaries.

V

It is further ordered that respondent shall, within ten (10) days

from the date of service of this Order upon it, distribute a copy of

this Order to each of its operating divisions, to each of its

managerial employees, and to each of its officers, agents,

representative or employees engaged in 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.

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

from the date of 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 an agreement, subject to

final approval, to a proposed consent order from respondent J. Walter

Thompson USA, Inc., a Delaware corporation.

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 that

agreement and the comments received and will decide whether it should

withdraw from the agreement and take

[[Page 39398]]

other appropriate action or make final the agreement's proposed order.

The Commission's complaint in this matter charges J. Walter

Thompson with engaging in deceptive practices in connection with the

advertising of the Jenny Craig Weight Loss Program. The advertisements

at issue contain variations of the claim that nine out of ten Jenny

Craig clients would recommend the Jenny Craig Weight Loss Program to a

friend.

According to the complaint, print and television advertisement for

the Jenny Craig Weight Loss Program represented that ninety percent or

more of Jenny Craig customers would recommend the Jenny Craig Weight

Loss Program. The complaint also alleges that those advertisements

represented that competent and reliable studies or surveys establish

that claim.

The complaint further alleges that J. Walter Thompson lacked

substantiation for its ``nine out of ten'' claims, and falsely claimed

that competent and reliable studies or surveys support those claims.

Finally, the complaint alleges that J. Walter Thompson knew or should

have known that these claims were false and misleading.

The consent order contains provisions designed to remedy the

violations charged and to prevent J. Walter Thompson from engaging in

similar deceptive and unfair acts and practices in the future.

Part I of the order prohibits J. Walter Thompson from

misrepresenting that any weight loss program is recommended, approved

or endorsed by any person, group or other entity unless it possesses

and relies upon competent and reliable evidence, which, when

appropriate, must be competent and reliable scientific evidence, that

substantiates the representation. Part I provides J. Walter Thompson

with a defense to liability if it neither knew nor had reason to know

of an inadequacy of substantiation for the representation.

Part II prevents J. Walter Thompson from misrepresenting, with

regard to any diet-related food, or any weight loss or weight control

program, weight loss product, health or fitness program or exercise

equipment, the existence, contents, validity, results, conclusions, or

interpretations of any test, study, or survey. ``Diet-related food'' is

defined as ``any food (as that term is defined in 15 U.S.C. Sec. 55(b))

whose labeling or advertising makes any claim regarding its weight loss

or weight maintenance benefits.'' Part II provides J. Walter Thompson

with a defense to liability if it neither know nor had reason to know

that the test, study or survey did not prove, demonstrate or confirm

the representation.

Part III requires J. Walter Thompson to maintain certain materials

relating to advertisements covered by this order and to make such

documents available for FTC inspection.

Part IV requires J. Walter Thompson to notify the Commission of any

changes in the corporate structure that might affect compliance with

the order.

Part V requires J. Walter Thompson to distribute copies of the

order to certain company officials and employees and certain other

representatives and agents of the company, and to secure from each such

person a signed statement acknowledging receipt of the order.

Part VI requires J. Walter Thompson to file with the Commission one

or more reports detailing compliance with the order.

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.

Benjamin I. Berman,

Acting Secretary.

Concurring Statement of Commissioners Roscoe B. Starek, III and

Christine A. Varney

In the Matter of J. Walter Thompson USA, Inc., File No. 942-3294

Although we have voted to accept the consent order negotiated

with J. Walter Thompson USA, Inc. (``JWT'') in this matter, we write

to comment on the scope of the product coverage in Part II of the

order. Part II addresses the false ``establishment'' claim

challenged in paragraphs five and six of the complaint, i.e., the

claim that a valid study or survey showed that ninety percent or

more of Jenny Craig Weight Loss Program customers would recommend

the program to their friends. Part II of the order prohibits

misrepresentations regarding the existence, contents, validity,

results, conclusions, or interpretations of any test, study, or

survey, in connection with the promotion of any weight loss or

weight control program, weight loss product, health or fitness

program, exercise equipment, or diet-related food.

On three previous occasions JWT has signed consent orders

settling allegations that it misrepresented the results of surveys

or tests.\1\ Because of the narrow scope of the product coverage

applicable to the relevant order provisions, the Commission, on each

occasion, had to pursue a new Section 5 case against the company,

rather than being able to seek civil penalties for an order

violation. Thus, the Commission's history with JWT raises the

question of whether broader product coverage is warranted in this

case.\2\

\1\ J. Walter Thompson Co., 97 F.T.C. 333 (1981) (complaint

alleged that JWT misrepresented that ``4 out of 5 dentists

recommend'' the Water Pik; consent order prohibits claims regarding

surveys of professional groups unless the surveys were designed,

executed, and analyzed in a competent and reliable manner); J.

Walter Thompson Co., 94 F.T.C. 331 (1979) (complaint alleged that

JWT misrepresented the results of tests of the cleaning

effectiveness of Sears dishwashers; consent order prohibits, in

advertising for major home appliances, misrepresenting the results

of tests, studies, surveys, etc.); J. Walter Thompson Co., 84 F.T.C.

736 (1974) (complaint alleged that JWT misrepresented the results of

studies on the safety of Ford automobiles; consent order prohibits,

in advertising for automobiles, presenting the results of tests,

experiments, or demonstrations unless competent and reliable to

prove the claimed feature).

\2\ It is true that this consent order has broader product

coverage than the prior JWT orders and appears to cover the range of

diet- and fitness-related products.

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Extension of an order's product coverage beyond the product or

service at issue in a complaint may be justified so long as the

order bears a reasonable relationship to the unlawful practices

alleged. See Stouffer Foods Corp., D. 9250, slip op. at 17 (Sept.

26, 1994) (citing Jacob Siegel Co. v. FTC, 327 U.S. 608, 612-13

(1946)). The Commission generally considers three criteria to

determine whether an order bears a reasonable relationship to a

particular Section 5 violation: (1) the seriousness and

deliberateness of the violation; (2) the ease with which the

violative claim may be transferred to other products; and (3)

whether the respondent has a history of prior violations. Stouffer,

slip op. at 17 (citing cases). All three elements need not be

present to warrant fencing-in. Sears, Roebuck & Co. v. FTC, 676 F.2d

385, 392 (9th Cir. 1982) (``In the final analysis, we look to the

circumstances as a whole and not to the presence or absence of any

single factor.'').

Although we do not have the benefit of a litigated record, from

the evidence presented so far, it appears that in this case, the

first two, and arguably the third, elements weigh in favor of broad

fencing-in. First, the alleged violations are both deliberate and

serious. The survey from which the ``nine out of ten'' claim was

derived was obviously and severely flawed. JWT, the largest ad

agency in the country, surely must be deemed to have expertise in

conducting consumer surveys. Any ignorance in this regard must have

been cured by the Commission's earlier decision to hold it liable

for the dissemination of misrepresentations about the results of

surveys.

The evidence also suggests the violations were serious, as

measured by the extent of dissemination. The ad campaign in question

was a national one that ran for over a year, and the ads were given

to franchisees to run in their areas. Furthermore, the great length

of the campaign's dissemination schedule indicates the campaign must

have been quite costly.

The second element, the ease with which the violative claims may

be transferred to other products, also supports fencing-in. The

results of surveys or studies are easily misrepresented, regardless

of the type of product or service. The fairly obvious

transferability of this type of claim is borne out by the prior

consent orders, as those cases involved a diverse range of product

[[Page 39399]]

categories (surveys of professionals, major home appliances, and

automobiles).

The final element is the respondent's history of past

violations. The question of whether consent orders may be used as

evidence of past violations is at best unsettled. Compare ITT

Continental Baking Co. v. FTC, 521 F.2d 207, 222 n.23 (2d Cir. 1976)

(because consent orders do not constitute an admission that the

respondent has violated the law, the Commission may not rely on

consent orders as evidence of additional illegal conduct when

formulating cease and desist orders in other proceedings) with

Thompson Medical Co., 104 F.T.C. 648, 833 n.78 (1984), aff'd, 791

F.2d 189 (D.C. Cir. 1986), cert. denied, 479 U.S. 1086 (1987) (while

stating that a single consent order would not be used as a basis for

concluding that the respondent has a history of past violations, the

Commission expressly took no position on whether a pattern of

consent orders would be a sufficient history of past violations to

warrant fencing-in). Regardless of whether the prior consent orders

may be considered evidence of past violations, they show that JWT

was aware of the Commission's concern about this type of claim and

of the requirements of the law with respect to claims involving

surveys and tests.

Despite these concerns, for several reasons we believe that

accepting the order as negotiated appears to be appropriate. For

example, we understand that JWT has made clear it would litigate if

the Commission attempted to obtain broader coverage; litigation

inevitably presents resource allocation questions.\3\ In addition,

broad product coverage obviously weighs more heavily on an ad agency

such as JWT that handles accounts for a divers assortment of

products and services, than on a manufacturer or advertiser offering

a limited range of products.\4\ We write only to point out that in

light of all the circumstances of this case, broad product coverage

in Part II could have been justified as reasonably related to the

violations alleged.

\3\ Even so, a litigated order could be beneficial for several

reasons. First, in case of future similar violations by JWT, a

litigated order clearly could be used as evidence of prior law

violations. Second, while there is no guarantee that the Commission

would obtain broader product coverage in litigation than is

contained in this consent order, it seems unlikely that the

Commission would do any worse, and the potential gain is great, both

in terms of having JWT under a broader order and in terms of

precedential value for other cases. Third, a litigated opinion might

resolve some of the uncertainties concerning the precedential value

of prior consent orders.

\4\ On the other hand, the potential burden of a broad order is

partially mitigated by the fact that, as an ad agency, JWT's order

contains a safe harbor insulating it from liability unless it knows

or should know that the survey or test did not prove, demonstrate,

or confirm the representation. In addition, it is not unusual for

orders covering establishment claims to have broad product coverage

because the type of claim covered--the results or validity of tests

or surveys--is fairly discrete.

Statement of Commissioner Mary L. Azcuenaga Concurring in Part and

Dissenting in Part

J. Walter Thompson USA, Inc., File No. 942-3294

I dissent from Part II of the proposed consent order because the

product coverage is too narrow. Part II would prohibit J. Walter

Thompson from making deceptive establishment claims for any weight

loss or weight control program, weight loss product, health or

fitness program, exercise equipment, or diet-related food. Although

the product coverage in this provision does go beyond the product

with respect to which a violation has been alleged, given the

particular facts of this case, I would impose even broader product

coverage. In my view, J. Walter Thompson relied on a clearly flawed

study in making its deceptive claims, and it continued to make

claims based on this flawed study even after it had received

contradictory results from a more reliable study that it had

commissioned. J. Walter Thompson also could readily transfer

deceptive test result claims to other products, as demonstrated by

the fact that J. Walter Thompson has entered into three other

consent agreements to settle allegations that it made deceptive

claims concerning survey or test results for three disparate

products.\1\ Given that J. Walter Thompson's deception appears to

have been deliberate and that its deception readily could be

transferred to other products, see Stouffer Foods Corp., D. 9250,

slip op. at 17 (Sept. 26, 1994), broader product coverage is

appropriate.

\1\ J. Walter Thompson Co., 97 F.T.C. 323 (1981); (dental

cleaning device); J. Walter Thompson Co., 94 F.T.C. 331 (1979)

(dishwashers); J. Walter Thompson Co., 84 F.T.C. 736 (1974)

(automobiles). Assuming the allegations in this and the previous

cases to be true, we would have to conclude that J. Walter Thompson

has had difficulty comprehending that the conduct alleged is conduct

about which the Commission is concerned.

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[FR Doc. 95-18954 Filed 8-1-95; 8:45 am]

BILLING CODE 6750-01-M