Zygon International, Inc.; Dane Spotts; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 942-3171]

Zygon International, Inc.; Dane Spotts; 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, a Redmond,

Washington-based company and its owner from making any claims about the

performance, benefits, efficacy, or safety of any product or service

they market without having competent and reliable substantiation to

back up the claims. Zygon would also be required to pay up to $195,000

in consumer refunds. The Consent Agreement settles allegations stemming

from Zygon's marketing of five products: the ``Learning Machine,''

``SuperMind,'' ``SuperBrain Nutrient Program,'' ``Fat Burner Pills,''

and ``Day and Night Eyes.''

DATES: Comments must be received on or before June 17, 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:

Joel Winston, Federal Trade Commission, S-4002, 6th Street and

Pennsylvania Avenue, NW, Washington, DC. 20580. (202) 326-3153.

Lesley Anne Fair, Federal Trade Commission, S-4002, 6th Street and

Pennsylvania Avenue, NW, Washington, DC. 20580. 326-3081.

Dean C. Forbes, Federal Trade Commission, S-4002, 6th Street and

Pennsylvania Avenue, NW, Washington, DC. 20580. (202) 326-2831.

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 Zygon International, Inc., a corporation, and

Dane Spotts, individually and as an officer of said corporation.

The Federal Trade Commission having initiated an investigation of

certain acts and practices of Zygon International, Inc., a corporation,

and Dane Spotts, individually and as an officer 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 Zygon International, Inc., by

its duly authorized officer, and Dane Spotts, individually and as an

officer of said corporation, and their attorney, and counsel for the

Federal Trade Commission that:

1. Proposed respondent Zygon International, Inc., is a corporation

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

of the State of Washington, with its principal office of place of

business at 18368 Redmond Way, Redmond WA 98052.

Proposed respondent Dane Spotts is an officer of said corporation.

He formulates, directs and controls the policies, acts and practices of

said corporation and his 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 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 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.

[[Page 16799]]

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 Zygon International, Inc., a

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

Spotts, individually and as an officer of said corporation, and

respondents' agents, representatives, and employees, directly or

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

connection with the manufacturing, labeling, advertising, promotion,

offering for sale, sale, or distribution of any product or program 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 the use of such product or

program can or will have any effect on the user's:

A. Health or bodily structure or function, including but not

limited to sleep; weight, bodyfat content, or body shape or tone;

immune system; eyesight or night vision; stress; or jet lag; or

B. Smoking behavior, unless at the time of making such

representation, respondents possess and rely upon competent and

reliable scientific evidence that substantiates such representation.

For purposes of this Order, ``competent and reliable scientific

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

evidence based on the expertise of professionals in the relevant area,

that has been conducted and evaluated in an objective manner by persons

qualified to do so, using procedures generally accepted in the

profession to yield accurate and reliable results.

II.

It is further ordered That respondents Zygon International, Inc., a

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

Spotts, individually and as an officer of said corporation, and

respondents' agents, representatives, and employees, directly or

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

connection with the manufacturing, labeling, advertising, promotion,

offering for sale, sale, or distribution of any product or program 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 the use of such product or

program can or will have any effect on the user's cognitive or mental

functions or skills, including but not limited to reading, vocabulary,

learning, foreign language, verbal or math skills; intelligence or I.Q.

or that of the user's children; attention or concentration levels; or

memory, 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.

III.

It is further ordered That respondents Zygon International, Inc., a

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

Spotts, individually and as an officer of said corporation, and

respondents' agents, representatives, and employees, directly or

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

connection with the manufacturing, labeling, advertising, promotion,

offering for sale, sale, or distribution of any product or program in

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

Commission Act, do forthwith cease and desist from making any

representation, in any manner, directly or by implication:

A. Regarding the performance, benefits, efficacy, or safety of any

food, drug, or device, as those terms are defined in Section 15 of the

Federal Trade Commission Act, 15 U.S.C. 55, or dietary supplement,

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

and rely upon competent and reliable scientific evidence that

substantiates such representation.

B. Regarding the performance, benefits, efficacy or safety of any

product or service (other than a product or service covered under Part

III.A herein), 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.

IV.

It is further ordered That respondents Zygon International, Inc., a

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

Spotts, individually and as an officer of said corporation, and

respondents' agents, representatives, and employees, directly or

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

connection with the manufacturing, labeling, advertising, promotion,

offering for sale, sale, or distribution of any product or program in

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

Commission Act, do forthwith cease and desist from misrepresenting,

directly or by implication, the existence, contents, validity, results,

conclusions, or interpretations of any test or study.

V.

It is further ordered That respondents Zygon International, Inc., a

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

Spotts, individually and as an officer of said corporation, and

respondents' agents, representatives, and employees, directly or

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

connection with the manufacturing, labeling, advertising, promotion,

offering for sale, sale, or distribution of any product or program in

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

Commission Act, shall forthwith cease and desist from:

A. Representing, directly or by implication, that consumers can

receive a refund, through such terms as ``money-back guarantee'' or

similar terms, unless respondents refund the full purchase price at the

consumer's request in accordance with the provisions of Part V.B

herein;

B. Failing to refund the full purchase price in accordance with the

terms of a guarantee, warranty or refund policy within a reasonable

period of time after the consumer complies with the conditions for

receiving a refund that are stated clearly and prominently in the

advertisement or solicitation. For purposes of this Part, a

``reasonable period of time'' shall be:

1. That period of time specified in respondents' advertisement or

solicitation if such period is clearly and prominently disclosed in the

advertisement or solicitation; or

2. If no period of time is clearly and prominently disclosed in the

advertisement or solicitation, a period of thirty (30) days following

the date that the consumer complies with the conditions for receiving a

refund that are stated clearly and prominently in the advertisement or

solicitation.

VI.

It is further ordered That respondents Zygon International, Inc., a

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

Spotts, individually and as an officer of said corporation, are jointly

and severally liable for consumer redress as provided herein:

A. Not later than the date this Order becomes final, respondents

shall deposit into an escrow account to be established

[[Page 16800]]

by the Commission for the purpose of receiving payments due under the

provisions of this Order (``first escrow account''), the sum of

$150,000. These funds, together with accrued interest, less any amount

necessary to pay the costs of administering the first escrow account

and redress program herein, shall be used by the Commission or its

representative to provide refunds to any consumers:

1. Who, between the dates of October 15, 1995, and the date this

Order becomes final, have returned or return any product(s) purchased

from respondents to respondents for a refund within thirty days of

their receipt of the product(s); and

2. Who have not previously received either a full refund or a full

credit from a credit card issuer for the purchase of the product(s).

B. Any funds remaining in the first escrow account after refunds

have been paid to consumers under Part VI.A herein, in the discretion

of the Commission:

1. Shall be used to provide redress to purchasers of the Learning

Machine who request a refund not later than sixty (60) days after the

date this Order becomes final and have not previously received either a

refund pursuant to Part VI.A herein, a full refund from respondents, or

a full credit from a credit card issuer for the purchase of the

product(s);

2. Shall be used to provide redress to purchasers who, prior to

October 15, 1995, returned, or contacted respondents for authorization

to return, any product(s) purchased from respondents to respondents for

a refund within thirty (30) days of their receipt of the product(s);

have not previously received either a full refund or a full credit from

a credit card issuer for the purchase of the product(s); and whose

identities become known to respondents or the Commission within sixty

(60) days after the date this Order becomes final;

3. Shall be used to pay any attendant costs of administration; and/

or

4. Shall be paid to the United States Treasury.

C. At any time after this Order becomes final, the Commission may

direct the escrow agent to transfer funds from the first escrow

account, including accrued interest, to the Commission to be

distributed as herein provided. Respondents shall be notified as to how

the funds are distributed, but shall have no right to contest the

manner of distribution chosen by the Commission, provided that the

manner of distribution chosen by the Commission comports with the terms

of this Agreement. The Commission, or its representative, shall in its

sole discretion select the escrow agent. Costs associated with the

administration of the first escrow account and refund program provided

herein, if any, shall be paid from funds in the first escrow account.

D. Respondents relinquish all dominion, control and title to the

funds paid into the first escrow account, and all legal and equitable

title to the funds shall vest in the Treasurer of the United States and

in the designated purchasers. Respondents shall make no claim to or

demand for the return of the funds, directly or indirectly, through

counsel or otherwise; and in the event of bankruptcy of respondents,

respondents acknowledge that the funds are not part of the debtor's

estate, nor does the estate have any claim or interest therein.

E. Not later than the date this Order becomes final, respondents

shall deposit into a second escrow account to be established by the

Commission for the purpose of receiving payments due under the

provisions of this Order (``second escrow account''), the sum of

$45,000. These funds, together with accrued interest, less any amount

necessary to pay the costs of administering the escrow account and

redress program herein, shall be used by the Commission or its

representative to provide refunds to consumers if refunds owed to

consumers pursuant to Parts VI.A. and VI.B herein exceed the amount of

money in the first escrow account.

F. At any time after this Order becomes final, the Commission may

direct the escrow agent to transfer funds from the second escrow

account, including accrued interest, to the Commission to be

distributed as herein provided. Respondents shall be notified as to how

the funds are distributed, but shall have no right to contest the

manner of distribution chosen by the Commission, provided that the

manner of distribution chosen by the Commission comports with the terms

of this Agreement. The Commission, or its representative, shall in its

sole discretion select the escrow agent. Costs associated with the

administration of the second escrow account and refund program provided

herein, if any, shall be paid from funds in the second escrow account.

Any funds remaining in the second escrow account after all consumers

have received refunds pursuant to Part VI.A, VI.B.1, VI.B.2, and VI.E

herein shall be returned to respondents. If no funds from the second

escrow account are needed to provide redress to consumers provided

herein, the funds in the second escrow account, together with accrued

interest, shall be returned to respondents within seventy-five (75)

days after the date this Order becomes final. If funds from the second

escrow account are needed to provide refunds to consumers as provided

herein, the funds remaining in the second escrow account, together with

accrued interest, less any amount necessary to pay the costs of

administering the escrow account and redress program herein, shall be

returned to respondents within one hundred twenty (120) days after the

date this Order becomes final.

VII.

It is further ordered That within three (3) days after the date

this Order becomes final, respondents shall, to the extent available,

provide to the Commission, in computer readable form (standard MS-DOS

diskettes or IBM-mainframe compatible tape) and in computer print-out

form, a list of:

A. The name and address of all consumers in the United States who

purchased the Learning Machine;

B. The name, address, and date of refund of all consumers in the

United States who purchased the Learning Machine and received a full

refund from respondents;

C. The name, address, and date of credit of all consumers in the

United States who purchased the Learning Machine and received a full

credit from a credit card issuer for the purchase of the product(s);

and

D. The name, address, and date of refund of all consumers in the

United States who purchased any product(s) from respondents and

received a full refund between October 15, 1993 and October 15, 1995.

VIII.

It is further ordered That for three (3) years after this Order

becomes final, respondents, and their successors and assigns, shall

maintain and upon request make available to the Commission within three

(3) business days:

A. Documents and records demonstrating the manner and form of

respondents' compliance with Part VI of this Order; and

B. Copies of all correspondence and memorialization of other

communications to or from any consumer regarding refunds or requests

for refunds for any product(s) purchased from respondents.

IX.

It is further ordered That for five (5) years after the last date

of dissemination of any representation covered by this Order,

respondents, or their successors

[[Page 16801]]

and assigns, shall maintain and upon request make available to the

Federal Trade Commission or its staff for inspection and copying:

A. All materials that were relied upon in disseminating such

representation; and

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

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

call into question such representation, or the basis upon which

respondents relied for such representation, including but not limited

to, including complaints from consumers, and complaints or inquiries

from government organizations.

X.

It is further ordered That respondent Zygon International, Inc.,

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 future 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 responsiblities.

XI.

It is further ordered That respondent Zygon International, Inc.,

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.

It is further ordered That respondent Dane Spotts shall, for a

period of seven (7) years from the date of entry of this Order, notify

the Commission within thirty (30) days of the discontinuance of his

present business or employment and of his affiliation with any new

business or employment involving the advertising, offering for sale,

sale, or distribution of any consumer product or service. 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.

XIII.

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 complaint (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 paragraph in this Order that terminates in less than twenty

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 paragraph.

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 paragraph as

though the complaint was never 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.

XIV.

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.

Escrow Agreement

Whereas Zygon International, Inc. and Dane Spotts (``Zygon and Mr.

Spotts'') have agreed with the staff of the Federal Trade Commission

(``the staff'') to settle a certain proposed action against them, and

as part of the settlement of the proposed action for alleged violations

of Sections 5(a) and 12 of the Federal Trade Commission Act, it was

agreed that consumer redress will be paid;

Whereas the proposed Agreement Containing Consent Order to Cease

and Desist executed by the parties provides for the payment by Zygon

and Mr. Spotts of: (a) a minimum of $150,000 to be used for consumer

redress or as otherwise specified in the Agreement Containing Consent

Order to Cease and Desist; and (b) should the amount necessary for

consumer redress exceed $150,000, up to an additional $45,000 to be

used for consumer redress or as otherwise specified in the Agreement

Containing Consent Order to Cease and Desist;

Whereas the staff requires as a condition of its recommendation of

the proposed settlement to the Commission that $150,000 be held in

escrow (``first escrow'') and $45,000 be held in a separate escrow

(``second escrow''), pending approval of the settlement by the

Commission, before being disbursed as directed by the terms of the

Agreement Containing Consent Order to Cease and Desist;

Now, therefore, in consideration of the promises and mutual

covenants, agreements, and conditions herein contained, Zygon and Mr.

Spotts and the staff do hereby agree to and with each other as follows:

1. The Federal Trade Commission shall select the Escrow Agent for

the first escrow account. The Escrow Agent shall receive from Zygon and

Mr. Spotts the amount of $150,000, and will hold the same in trust for

designated purchasers of products sold by Zygon and Mr. Spotts

(``designated purchasers''), in accordance with the Agreement

Containing Consent Order to Cease and Desist, for paying any attendant

costs of administration, and for the Treasurer of the United States, by

depositing the same into the Escrow Agent's interest-bearing trustee

account. Zygon and Mr. Spotts will pay such $150,000 by a certified or

cashier's check or cash.

2. It is understood and agreed by the parties to this Escrow

Agreement that, by executing this Escrow Agreement, Zygon and Mr.

Spotts acknowledge that they relinquish all dominion, control and title

to the $150,000, and that all legal and equitable title to the $150,000

vests in designated purchasers, in accordance with the Agreement

Containing Consent Order to Cease and Desist, with remaining funds,

after the payment of any attendant costs of administration, vesting in

the Treasurer of the United States, subject to being divested as

specified in Paragraph 7 of this Escrow Agreement. Unless and until the

first escrow is terminated as provided herein, Zygon and Mr. Spotts

agree to make no claim to or demand the return of the $150,000,

directly or indirectly, through counsel, or otherwise. In the event of

Zygon's and/or Mr. Spotts' bankruptcy, Zygon and

[[Page 16802]]

Mr. Spotts agree to acknowledge by an appropriate written statement to

the bankruptcy court that the $150,000 is not part of their estate(s),

nor do their estate(s) have any claim or interest therein, unless and

until the first escrow is terminated and the $150,000 is returned to

Zygon and Mr. Spotts as specified in Paragraph 7 of this Escrow

Agreement.

3. The Federal Trade Commission shall select the Escrow Agent for

the second escrow account. The Escrow Agent shall receive from Zygon

and Mr. Spotts the amount of $45,000, and will hold the same in trust

for designated purchasers, in accordance with the Agreement Containing

Consent Order to Cease and Desist, and for paying any attendant costs

of administration, by depositing the same into the Escrow Agent's

interest-bearing trustee account. Zygon and Mr. Spotts will pay such

$45,000 by a certified or cashier's check or cash.

4. It is understood and agreed by the parties to this Escrow

Agreement that, by executing this Escrow Agreement, Zygon and Mr.

Spotts acknowledge that they relinquish all dominion, control and title

to that portion of the $45,000 in the second escrow necessary to pay

refunds to designated purchasers and any attendant costs of

administration, and that all legal and equitable title to the portion

of the $45,000 reserved for those designated purchasers vests in those

designated purchasers with remaining funds, after the payment of any

attendant costs of administration, vesting in Zygon and Mr. Spotts,

subject to being divested as specified in Paragraph 7 of this Escrow

Agreement. If no funds in the second escrow account are required to

provide redress to designated purchasers, the second escrow

principal,together with any interest earned on the second escrow

principal during the pendency of the second escrow, less any attendant

costs of administration, shall be returned to Zygon and Mr. Spotts in

accordance with the Agreement Containing Consent Order to Cease and

Desist. If funds in the second escrow account are required to provide

redress to designated purchasers, the remaining second escrow

principal, together with any interest earned on the second escrow

principal during the pendency of the second escrow, shall thereafter be

returned to Zygon and Mr. Spotts, less any attendant costs of

administration, in accordance with the Agreement Containing Consent

Order to Cease and Desist. Unless and until the second escrow is

terminated as provided herein, Zygon and Mr. Spotts agree to make no

claim to or demand the return of that portion of the $45,000 required

to pay designated purchasers, or that portion required for paying any

attendant costs of administration, directly or indirectly, through

counsel, or otherwise. In the event of Zygon's and/or Mr. Spotts'

bankruptcy, Zygon and Mr. Spotts agree to acknowledge by an appropriate

written statement to the bankruptcy court that the portion of the

$45,000 required to pay designated purchasers, or that portion required

for paying any attendant costs of administration, is not part of their

estate(s), nor do their estate(s) have any claim or interest therein,

unless and until the second escrow is terminated and the $45,000 is

returned to Zygon and Mr. Spotts as specified in Paragraph 7 of this

Escrow Agreement.

5. The $150,000 so held in the first escrow and the $45,000 so held

in the second escrow shall be disbursed in accordance with the

Agreement Containing Consent Order to Cease and Desist executed by the

parties, as well as with such other ancillary Federal Trade Commission

regulations or procedures respecting such disbursements as may be

applicable at the time.

6. The first escrow and the second escrow shall be irrevocable, and

the escrow funds, less any amount necessary to pay the cost of

administering the escrow accounts and redress program, shall be used

for no purpose other than payment of the consumer redress as specified

in the Agreement Containing Consent Order to Cease and Desist, except

that the unused portion of the second escrow principal, together with

any interest earned on the second escrow principal during the pendency

of the second escrow, shall be the property of Zygon and Mr. Spotts.

The parties agree, however, that this fact is not and will not be

interpreted as an admission or acknowledgment by either side that any

dominion, title or interest, either legal or equitable, in the portion

of the second escrow principal required to pay redress to designated

purchasers, or to pay any attendant costs of administration, remains in

Zygon and Mr. Spotts. The Escrow Agent shall return such unused portion

of the second escrow principal, together with any interest earned on

the second escrow principal during the pendency of the second escrow,

to Zygon and Mr. Spotts after consumer redress is paid to the

designated purchasers, and the attendant costs of administration are

paid, as specified in the Agreement Containing Consent Order to Cease

and Desist.

7. Except as otherwise provided in Paragraphs 4 and 6 of this

Escrow Agreement regarding the return of the unused portion of the

second escrow principal and any interest earned on the second escrow

principal during the pendency of the second escrow to Zygon and Mr.

Spotts, the Escrow Agent may terminate the first and second escrows and

return the principal and accrued interest from both escrow accounts to

Zygon and Mr. Spotts only if the Agreement Containing Consent Order to

Cease and Desist is not issued within two (2) years from the date the

first and second escrows are created.

8. The parties of this Escrow Agreement expressly agree that in the

event of a dispute, the escrow law of the State of New York shall

apply.

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has accepted an agreement to a

proposed consent order from Zygon International, Inc. (``Zygon''), and

its owner and officer, Dane Spotts.

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 or make final the agreement's proposed

order.

The Commission's complaint in this matter charges respondents with

deceptively advertising five products: the ``Learning Machine'' and the

``SuperMind,'' purported accelerated learning devices; the ``SuperBrain

Nutrient Program,'' a supplement claimed to improve intelligence and

memory; ``Fat Burner'' pills, a purported diet aid; and ``Day and Night

Eyes'' pills, a supplement claimed to improve vision. The complaint

also alleges that in many cases, respondents failed to honor their

advertised money-back guarantee. Ads for the products appeared in

national periodicals such as USA Today, Omni, Longevity, and USAir's

in-flight magazine, as well as in Zygon's ``SuperLife'' catalog and on

the Internet's World Wide Web.

According to the complaint, respondents made unsubstantiated

representations that the Learning Machine enables users to learn

foreign languages overnight, quadruple their reading speed, lose

weight, stop smoking, and improve their vocabulary, memory, math

skills, and learning ability. In addition, respondents claimed that the

device would enable children to learn at a rate of 300% to 500% faster

than their peers.

[[Page 16803]]

The complaint also alleges that respondents made unsubstantiated

representations that the SuperMind enables users to learn foreign

languages overnight, lose weight, and stop smoking; treats stress and

jet lag; improves the functioning of the immune system; increases I.Q.;

gives users the equivalent of eight hours of sleep after twenty minutes

of use; and improves users' ability to learn and retain information.

The complaint further alleges that respondents falsely represented that

the SuperMind has been proven in a university study to teach foreign

languages in one-third the time of traditional methods.

In addition, the complaint alleges that respondents represented

without substantiation that the SuperBrain Nutrient Program improves

users' memory, intelligence, concentration, and cognitive and mental

functions, and that when taken by pregnant women, will enhance the

intelligence of their children. According to the complaint,

respondent's claims that Fat Burner pills could enhance the body's

ability to burn fat and enable users to lose weight were also

unsubstantiated. Regarding Day and Night Eyes pills, the complaint

alleges that respondents made unsubstantiated claims that the product

could improve night blindness and give users clearer vision during the

day.

The complaint also alleges that respondents misrepresented that

consumers who returned products within thirty (30) days would receive a

full refund within a reasonable period of time. According to the

complaint, in numerous instances, refunds were not provided within a

reasonable period of time or at all. These practices are alleged to be

deceptive.

The proposed consent order contains provisions designed to remedy

the violations charged and to prevent respondents from engaging in

similar acts and practices in the future.

Part I of the order requires respondents to possess competent and

reliable scientific evidence to support any claim that a product or

program affects the user's health, bodily structure or function, or

smoking behavior. Part II requires respondents to possess adequate

substantiation for any claims that a product or program affects the

user's cognitive or mental functions, including reading, vocabulary,

learning, foreign languages, math skills, intelligence, I.Q.,

concentration levels, or memory. The substantiation level required is

competent and reliable evidence, which when appropriate must be

competent and reliable scientific evidence.

Part III.A requires respondents to possess competent and reliable

scientific evidence to substantiate performance, benefits, efficacy or

safety claims for foods, drugs, devices, or dietary supplements. Part

III.B requires that similar claims for all other products or services

be supported by competent and reliable evidence, which when appropriate

must be competent and reliable scientific evidence.

Part IV prohibits respondents from misrepresenting the existence,

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

study. Part V requires respondents to honor the terms of any advertised

refund policy, including an obligation to make refunds within a

reasonable period of time.

Part VI outlines a program to give refunds totalling up to $195,000

to eligible consumers. Refunds will be sent to Zygon customers who

returned products for a refund between October 15, 1995 and the date

the order becomes final, but never received a refund. Any remaining

funds may be returned to purchasers of the Learning Machine who seek a

refund from the Commission or respondents within sixty (60) days after

the order is final, and to other purchasers who sought a refund prior

to October 15, 1995, but never received it.

Parts VII through XII and XIV relate to respondents' obligations to

make available to the Commission records concerning consumer refunds

and future substantiation materials; to provide copies of the order to

certain Zygon personnel; to notify the Commission of changes in

corporate structure, or, in the case of the Mr. Spotts, changes in

employment that would involve the advertising, sale, or distribution of

any consumer product or service; and to file compliance reports with

the Commission. Part XIII provides that the order will terminate after

twenty years under certain circumstances.

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. 96-9280 Filed 4-16-96; 8:45 am]

BILLING CODE 6750-01-M