Computer Business Services, Inc.; Proposed Consent Agreement with Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 942-3311]

Computer Business Services, 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 or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would prohibit, among other things, the Sheridan,

Indiana home-based computer business opportunity firm from

misrepresenting the success rates or profitability of its clients and

from using deceptive testimonials or other deceptive statements to

entice consumers to buy its products. The firm would also be required

to disclose that federal laws restrict the use of certain automatic

telephone dialing systems it sells and to pay $5 million in consumer

redress.

DATES: Comments must be received on or before October 28, 1996.

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

Room 159, 6th St. and Pa. Ave., N.W., Washington, D.C. 20580.

FOR FURTHER INFORMATION CONTACT:

C. Steven Baker, Federal Trade Commission, Chicago Regional Office, 55

East Monroe Street, Suite 1860, Chicago, IL 60603. (312) 353-8156;

Catherine R. Fuller, Federal Trade Commission, Chicago Regional Office,

55 East Monroe Street, Suite 1860, Chicago, IL 60603. (312) 353-5576.

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

In the Matter of Computer Business Services, Inc., a

corporation, Andrew L. Douglass, individually and as an officer of

the corporation, Matthew R. Douglass, individually, and Peter B.

Douglass, individually.

The Federal Trade Commission has conducted an investigation of

certain acts and practices of Computer Business Services, Inc., Andrew

L. Douglass, individually and as an officer of Computer Business

Services, Inc., Matthew R. Douglass, and Peter B. Douglass, (``proposed

respondents''). Proposed respondents, having been represented by

counsel, are willing to enter into an agreement containing a consent

order resolving the allegations contained in the draft compliant.

Therefore,

It is hereby agreed by and between Computer Business Services,

Inc., Andrew L. Douglass, individually and as an officer of Computer

Business Services, Inc., Matthew R. Douglass, and Peter B. Douglass,

and counsel for the Federal Trade Commission that:

1. Proposed respondent Computer Business Services, Inc. is an

Indiana Corporation with its principal office or place of business at

CBSI Plaza, Sheridan, Indiana 46069.

2. Proposed respondent Andrew L. Douglass is an officer of Computer

Business Services, Inc. and resides at 9 E. 191st Street, Westfield,

Indiana 46074. His principal office or place of business is the same as

that of Computer Business Services, Inc.

3. Proposed respondent Matthew R. Douglass is a supervisory

employee of Computer Business Services, Inc. and resides at 9 Forest

Bay Lane, Cicero, Indiana 46034. His principal office or place of

business is the same as that of Computer Business Services, Inc.

4. Proposed respondent Peter B. Douglass is a supervisory employee

of Computer Business Services, Inc. and resides at 18846 Casey Rd.,

Sheridan, Indiana 46069. His principal office or place of business is

the same as that of Computer Business Services, Inc.

5. Proposed respondent admit all the jurisdictional facts set forth

in the draft complaint.

6. 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

[[Page 44062]]

validity of the order entered pursuant to this agreement.

7. 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, will be placed on the public record for a period of sixty

(60) days, and information about it publicly released. The Commission

thereafter may either withdraw its acceptance of this agreement and so

notify 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.

8. 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 complaint, or that the facts as

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

are true.

9. 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 and its decision containing the

following order in disposition of the proceeding, and (2) make

information about it public. 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 of the complaint and the decision and order to

proposed respondents by any means specified in Section 4.4 of the

Commission's Rules 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. No agreement,

understanding, representation, or interpretation not contained in the

order or in the agreement may be used to vary or contradict the terms

of the order.

10. Proposed respondents have read the draft complaint and consent

order. They understand that they may be liable for civil penalties in

the amount provided by law and other appropriate relief for each

violation of the order after it becomes final.

Order

Definitions

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

1. ``Business venture'' means any written or oral business

arrangement, however denominated, whether or not covered by the Federal

Trade Commission's trade regulation rule entitled ``Disclosure

Requirements and Prohibitions Concerning Franchising and Business

Opportunity Ventures,'' 16 CFR part 436, and which consists of payment

of any consideration for:

A. the right to offer, sell, or distribute goods, or services

(whether or not identified by a trademark, service mark, trade name,

advertising, or other commercial symbol); and

B. more than nominal assistance to any person or entity in

connection with or incident to the establishment, maintenance, or

operation of a new business or the entry by an existing business into a

new line or type of business.

2. ``Clearly and prominently'' shall mean as follows:

A. In a television or video advertisement, the disclosure shall be

presented simultaneously in both the audio and video portions of the

advertisement. The audio disclosure shall be delivered in a volume and

cadence sufficient for an ordinary consumer to hear and comprehend it.

The video disclosure shall be of a size and shade, and shall appear on

the screen for a duration, sufficient for an ordinary consumer to read

and comprehend it.

B. In a radio advertisement, the disclosure shall be delivered in a

volume and cadence for an ordinary consumer to hear and comprehend it.

C. In a print or electronic advertisement, the disclosure shall be

in a type size, and in a location, that is sufficiently noticeable for

an ordinary consumer to see and read, in print that contrasts with the

background against which it appears.

Nothing contrary to, inconsistent with, or in mitigation of the

disclosure shall be used in any advertisement.

3. Unless otherwise specified, ``respondents'' shall mean Computer

Business Services, Inc., a corporation, it successors and assigns and

its officers; Andrew L. Douglass, individually and as an officer of the

corporation; Matthew R. Douglass, individually; and Peter B. Douglass,

individually; and each of the above's agents, representatives and

employees.

4. ``In or affecting commerce'' shall mean as defined in Section 4

of the Federal Trade Commission Act, 15 U.S.C. 44.

5. ``Automatic telephone dialing system'' shall mean as defined in

the Telephone Consumer Protection Act, 47 U.S.C. 227(a)(1).

I

It is ordered that respondents, directly or through any

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

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

any business venture, shall not misrepresent, expressly or by

implication:

A. That consumers who purchase or use such business ventures

ordinarily succeed in operating profitable businesses out of their own

homes;

B. That consumers who purchase or use such business ventures

ordinarily earn substantial income;

C. The existence of a market for the products and services promoted

by respondents;

D. The amount of earnings, income, or sales that a prospective

purchaser could reasonably expect to attain by purchasing a business

venture;

E. The amount of time within which the prospective purchaser could

reasonably expect to recoup his or her investment; or

F. By use of hypothetical examples or otherwise, that consumers who

purchase or use such business ventures earn or achieve from such

participation any stated amount of profits, earnings, income, or sales.

Nothing in this paragraph or any other paragraph of this order shall be

construed so as to prohibit respondents from using hypothetical

examples which so not contain any express or implied misrepresentations

or from representing a suggested retail price for products or services.

II

It is further ordered that respondents, directly or through any

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

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

any business venture, shall not represent, expressly or by implication,

the performance, benefits, efficacy or success rate of any product or

service that is a part of such business venture, unless such

representation is true and, at the time of making the representation,

respondents possess and rely upon competent and reliable evidence that

substantiates such representation. For purposes of this order, if such

evidence consists of any test, analysis, research, study, or other

evidence based on the expertise of

[[Page 44063]]

professionals in the relevant area, such evidence shall be ``competent

and reliable'' only if it 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.

III

It is further ordered that respondents, directly or through any

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

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

any business venture or any product or service that is part of any

business venture in or affecting commerce, shall not:

A. Use, publish, or refer to any user testimonial or endorsement

unless respondents have good reason to believe that at the time of such

use, publication, or reference, the person or organization named

subscribes to the facts and opinions therein contained; or

B. Represent, in any manner, expressly or by implication, that the

experience represented by any user testimonial or endorsement of the

product represents the typical or ordinary experience of members of the

public who use the product, unless.

1. The representation is true and, at the time it is made,

respondents possess and rely upon competent and reliable evidence that

substantiates the representation; or

2. Respondents disclose, clearly and prominently, and in close

proximity to the endorsement or testimonial, either:

a. What the generally expected results would be for users of the

products, or

b. The limited applicability of the endorser's experience to what

consumers may generally expect to achieve, that is, that consumers

should not expect to experience similar results.

Provided, however, that when endorsements and user testimonials are

used, published, or referred to in an audio cassette tape recording,

such disclosure shall be deemed to be in close proximity to the

endorsements or user testimonials when the disclosure appears at the

beginning and end of each side of the audio cassette tape recording

containing such endorsements or user testimonials. Provided further,

however, that when both sides of an audio cassette tape recording

contain such endorsements or user testimonials, the disclosure need

only appear at the beginning and end of the first side and the end of

the second side of the audio cassette tape recording.

For purposes of this Part, ``endorsement'' shall mean as defined in

16 CFR 255.0(b).

IV

It is further ordered that respondents, directly or through any

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

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

any business venture utilizing, employing or involving in any manner,

an automatic telephone dialing system, shall disclose, clearly and

prominently, and in close proximity to any representation regarding the

use or potential use of an automatic telephone dialing system to

transmit an unsolicited advertisement for commercial purposes without

the prior express consent of the called party, that federal law

prohibits the use of an automatic telephone dialing system to initiate

a telephone call to any residential telephone line using an artificial

or prerecorded voice to transmit an unsolicited advertisement for

commercial purposes without the prior express consent of the called

party unless a live operator introduces the message. Nothing in this

paragraph or any other paragraph of this order shall be construed so as

to prohibit respondents from making truthful statements or explanations

regarding the laws and regulations regarding the use of automatic

telephone dialing systems.

V

It is further ordered that respondent Computer Business Services,

Inc., directly or through any corporation, subsidiary, division, or

other device, in connection with the advertising, promotion, offering

for sale, sale or distribution of any product or service, shall not

make any false or misleading statement or representation of fact,

expressly or by implication, material to a consumer's decision to

purchase respondents' products or services.

VI

It is further ordered that:

A. Respondents Computer Business Services, Inc., its successors and

assigns, Andrew L. Douglass, Matthew R. Douglass, and Peter B.

Douglass, shall pay to the Federal Trade Commission by electronic funds

transfer the sum of five million dollars ($5,000,000) no later than

fifteen (15) days after the date of service of this order. In the event

of any default on any obligation to make payment under this Part,

interest, computed pursuant to 28 U.S.C. Sec. 1961(a) shall accrue from

the date of default to the date of payment. In the event of default,

respondents Computer Business Services, Inc., its successors and

assigns, Andrew L. Douglass, Matthew R. Douglass, and Peter B.

Douglass, shall be jointly and severally liable.

B. Payment of the sum of five million dollars ($5,000,000) in

accordance with subpart A above shall extinguish any monetary claims

the FTC has against Jeanette L. Douglass and George L. Douglass based

on the allegations set forth in the Complaint as of the date of entry

of this Order. Nothing is this paragraph or any other paragraph of this

order shall be construed to prohibit the FTC from seeking

administrative or injunctive relief against Jeanette L. Douglass or

George L. Douglass.

C. The funds paid by respondents Computer Business Services, Inc.,

its successors and assigns, Andrew L. Douglass, Matthew R. Douglass,

and Peter B. Douglass, pursuant to subpart A above shall be paid into a

redress fund administered by the FTC and shall be used to provide

direct redress to purchasers of Computer Business Services, Inc.

Payment to such persons represents redress and is intended to be

compensatory in nature, and no portion of such payment shall be deemed

a payment of any fine, penalty, or punitive assessment. If the FTC

determines, in its sole discretion, that redress to purchasers is

wholly or partially impracticable, any funds not so used shall be paid

to the United States Treasury. Respondents Computer Business Services,

Inc., its successors and assigns, Andrew L. Douglass, Matthew R.

Douglass, and Peter B. Douglass, shall be notified as to how the funds

are disbursed, but shall have no right to contest the manner of

distribution chosen by the Commission. Customers of respondents, as a

condition of their receiving payments from the Redress Fund, shall be

required to execute releases waiving all claims against respondents,

their officers, directors, employees, and agents, arising from the sale

of Computer Business Services, Inc. business ventures by respondents

prior to the date of issuance of this order. The Commission shall

provide respondents Computer Business Services, Inc., its successors

and assigns, Andrew L. Douglass, Matthew R. Douglass, and Peter B.

Douglass, with the originals of all such executed releases received

from respondents' customers.

VII

It is further ordered that respondents Computer Business Services,

Inc., its successors and assigns, Andrew L. Douglass, Matthew R.

Douglass, and Peter B. Douglass, shall for a period of five (5) years

after the last date of dissemination of any representation covered by

this order, maintain and

[[Page 44064]]

upon request make available to the Federal Trade Commission for

inspection and copying:

A. All advertisements and promotional materials containing the

representation;

B. All materials that were relied upon in disseminating the

representation; and

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

evidence in their possession or control that contradict, qualify, or

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

representation, including complaints and other communications with

consumers or with governmental or consumer protection organizations.

VIII

It is further ordered that respondent Computer Business Services,

Inc., and its successors and assigns, and respondent Andrew L.

Douglass, for a period of five (5) years after the date of issuance of

this order, shall deliver a copy of this order to all current and

future principals, officers, directors, and managers, and to all

current and future employees, agents, and representatives having

responsibilities with respect to the subject matter of this order, and

shall secure from each such person a signed and dated statement

acknowledging receipt of the order. Respondents shall deliver this

order to current personnel within thirty (30) days after the date of

service of this order, and to future personnel within thirty (30) days

after the person assumes such position or responsibilities.

IX

It is further ordered that respondent Computer Business Services,

Inc. and its successors and assigns shall notify the Commission at

least thirty (30) days prior to any change in the corporation that may

affect compliance obligations arising under this order, including but

not limited to a dissolution, assignment, sale, merger, or other action

that would result in the emergence of a successor corporation; the

creation or dissolution of a subsidiary, parent, or affiliate that

engages in any acts or practices subject to this order; the proposed

filing of a bankruptcy petition; or a change in the corporate name or

address. Provided, however, that, with respect to any proposed change

in the corporation about which respondents learn fewer than thirty (30)

days prior to the date such action is to take place, respondents shall

notify the Commission as soon as is practicable after obtaining such

knowledge. All notices required by this Part shall be sent by certified

mail to the Associate Director, Division of Enforcement, Bureau of

Consumer Protection, Federal Trade Commission, Washington, D.C. 20580.

X

It is further ordered that respondents Andrew L. Douglass, Matthew

R. Douglass and Peter B. Douglass, for a period of five (5) years after

the date of issuance of this order, shall notify the Commission of the

discontinuance of his or her current business or employment, or of his

or her affiliation with any new business or employment. The notice

shall include respondents' new business addresses and telephone numbers

and a description of the nature of the business or employment and his

or her duties and responsibilities. All notices required by this Part

shall be sent by certified mail to the Associate Director, Division of

Enforcement, Bureau of Consumer Protection, Federal Trade Commission,

Washington, DC 20580.

XI

It is further ordered that Computer Business Services, Inc. and its

successors and assigns, and respondents Andrew L. Douglass, Matthew R.

Douglass and Peter B. Douglass shall, within sixty (60) days after the

date of 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.

XII

This order will terminate twenty (20) years from the date of its

issuance, or twenty (20) years from the most recent date that the

United States or the Federal Trade Commission files a compliant (with

or without an accompanying consent decree) in federal court alleging

any violation of the order, whichever comes later; provided, however,

that the filing of such a complaint will not affect the duration of:

A. Any Part in this order that terminates in fewer than twenty (20)

years;

B. This order's application to any respondent that is not named as

a defendant in such complaint; and

C. This order if such complaint is filed after the order has

terminated pursuant to this Part.

Provided, further, that if such complaint is dismissed or a federal

court rules that the respondent did not violate any provision of the

order, and the dismissal or ruling is either not appealed or upheld on

appeal, then the order will terminate according to this Part as though

the complaint had never been filed, except that the order will not

terminate between the date such complaint is filed and the later of the

deadline for appealing such dismissal or ruling and the date such

dismissal or ruling is upheld on appeal.

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 respondents Computer

Business Services, Inc., Andrew L. Douglass, an officer of the

corporate respondent and Matthew R. Douglass and Peter B. Douglass,

individually.

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 the comments received and will decide whether it should

withdraw from the agreement and take other appropriate action or make

final the agreement's proposed order.

This matter concerns earnings and success claims made regarding

business ventures promoted by respondents. The Commission's complaint

charges that respondents made false and unsubstantiated claims that

consumers who purchase or use respondents' business ventures ordinarily

succeed and earn substantial income. In fact, the complaint alleges,

the vast majority of consumers never even recoup their initial

investment. The complaint also alleges that respondents falsely

represented that endorsements appearing in respondents' advertisements

reflect the actual experiences of its customers and that those

endorsements reflect the typical or ordinary experience of purchasers

of respondents' business ventures. Further, the complaint alleges that

respondents represented that consumers can successfully utilize

automatic telephone dialing systems to market their businesses but

failed to disclose that federal law prohibits the use of such systems

in the untended mode to initiate a call to any residential telephone

line in certain circumstances.

The proposed consent order contains provisions designed to remedy

the violations charged and to prevent the respondents from engaging in

similar acts and practices in the future. The proposed order extends to

all business ventures and to all products or services that are part of

any business venture.

Part I of the proposed consent order prohibits the respondents from

misrepresenting the earnings or success

[[Page 44065]]

of its purchasers, the existence of a market for the products or

services promoted by respondents, or the amount of time within which a

prospective purchaser can reasonably expect to recoup his or her

investment. Part II of the proposed order prohibits the respondents

from misrepresenting the performance, benefits, efficacy or success

rate of any product or service that is a part of such business venture,

unless at the time such representation is made the respondents

possesses and relies upon competent and reliable evidence that

substantiates the representation. Part III of the proposed order

prohibits the respondents from misrepresenting that a user testimonial

or endorsement is typical or ordinary and from using, publishing or

referring to any user testimonial or endorsement unless respondents

have good reason to believe that at the time of such use, publication

or reference, the person or organization named subscribes to the facts

and opinions stated herein. Part IV of the proposed order requires

respondents to disclose, in close proximity to any representation

regarding the use or potential use of an automatic telephone dialing

system, that federal law prohibits the use of an automatic telephone

dialing system to initiate a telephone call to any residential

telephone line using an artificial or prerecorded voice to transmit an

unsolicited advertisement for commercial purposes without the prior

express consent of the called party unless a live operator introduces

the message.

The remaining parts of the proposed consent order require the

respondents to maintain materials relied upon to substantiate claims

covered by the order, to distribute copies of the order to each of its

operating divisions and to certain company officials, to notify the

Commission of any changes in corporate structure that might affect

compliance with the Order, and to file one or more compliance reports.

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

proposed consent 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.

[FR Doc. 96-21772 Filed 8-26-96; 8:45 am]

BILLING CODE 6750-01-M