Exxon Corporation; Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[Docket No. 9281]

Exxon Corporation; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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summary: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft amended

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

dates: Comments must be received on or before September 2, 1997.

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 & Pennsylvania Ave., NW, Washington, DC 20580.

(202) 326-3153. Michael Dershowitz, Federal Trade Commission, S-4002,

6th & Pennsylvania Ave., NW, Washington, DC 20580. (202) 326-3158.

supplementary information: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Section 3.25 of

the Commission's Rules of Practice (16 CFR 3.25), notice is hereby

given that the above-captioned 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. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the accompanying

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complaint. An electronic copy of the full text of the consent agreement

package can be obtained from the Commission Actions section of the FTC

Home Page (for June 24, 1997), on the World wide Web, at ``http://

www.ftc.gov/os/actions/htm.'' A paper copy can be obtained from the FTC

Public Reference Room, Room H-130, Sixth Street and Pennsylvania

Avenue, NW., Washington, DC 20580, either in person or by calling (202)

326-3627. 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 Rule of Practice (16 CFR

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

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade commission has accepted, subject to final

approval, an agreement containing a consent order from Exxon

Corporation (``Exxon''). Among other things, Exxon is engaged in the

manufacture and sale of automobile gasolines.

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.

This matter concerns allegedly deceptive advertising claims

regarding the performance attributes of Exxon gasolines. On September

11, 1996, the Commission issued a complaint challenging as

unsubstantiated Exxon's advertising claims that switching to Exxon 93

Supreme gasoline from other gasoline brands and from lower octane

grades of Exxon gasoline will significantly reduce automobile

maintenance costs for consumers generally. The complaint also

challenged as unsubstantiated Exxon's claim that switching to Exxon

gasolines from other brands will significantly reduce automobile

maintenance costs for consumers generally. The case was withdrawn from

litigation on April 25, 1997.

The proposed consent order contains both injunctive and consumer

education provisions designed to prevent respondent from engaging in

similar acts and practices in the future.

Part I of the proposed order prohibits respondent from making

unsubstantiated representations concerning the engine cleaning ability

of any gasoline or the effect of any gasoline on automobile maintenance

or maintenance costs.

Part I includes several ``safe harbors'' defining permissible

substantiation for certain types of engine cleaning claims. First, it

provides that any representation that a gasoline will keep clean or

clean up fuel injector deposits to a level that engine performance is

not adversely affected will be deemed to be substantiated if Exxon

possesses competent and reliable testing demonstrating no more than 5

percent flow restriction in each injector over the accumulation of

10,000 miles. In addition, Part I provides that any representation that

a gasoline will keep clean or clean up intake valve deposits to a level

that engine performance is not adversely affected will be deemed to be

substantiated by competent and reliable testing demonstrating intake

valve deposit weight of less than 100 mg-per-valve on average over the

accumulation of 10,000 miles. Finally, Part I of the proposed order

also allows truthful representations regarding the numerical octane

rating of any gasoline.

Part II and III of the proposed order contain a consumer education

remedy designed to educate drivers about how to determine their car's

octane needs. Part II requires Exxon to produce and disseminate a 15

second television message stating that most cars run properly on

regular octane, and that drivers should check their owner's manual. The

message must be broadcast in eighteen designated markets in two

separate waves beginning in September 1997. The order establishes a

performance standard that Exxon must meet in terms of the audience

exposure achieved by the ad for each market and in each wave. Exxon

must purchase sufficient air time so that the ad reaches 65% of the

target audience (adults ages 18-49) an average of 2.7 times per person

in the first wave, and 51% of the target audience an average of 2 times

in the second wave. Exxon must monitor the actual exposure the ad

achieves in each market, and should it fail to achieve at least 90

percent of the exposure levels specified in the order for each market,

it must seek additional spots from the television stations to meet the

specified targets.

Part III of the order requires Exxon to produce and disseminate a

consumer brochure that is mentioned in the 15 second broadcast message

required in Part II of the order. The brochure, which will be made

available free of charge at Exxon service stations, informs consumers

that most cars will not benefit from higher octane gasoline, and also

explains that consumers may need higher octane gasoline if their

owner's manual recommends it or if their car engine consistently knocks

or pings.

Parts IV, V, VI, and VII of the order require Exxon to maintain

copies of all materials relied upon in making any representation

covered by the order; to provide copies of the order to certain of the

company's personnel; to notify the Commission of any change in the

corporate structure that might affect compliance with the order; and to

file compliance reports with the Commission. Part VIII of the order is

a ``sunset'' provision, dictating that the order will terminate twenty

years from the date it is issued or twenty years after a complaint is

filed in federal court, by either the United States or the FTC,

alleging any violation of 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.

Statement of Commissioner Mary L. Azcuenaga Concurring in Part and

Dissenting in Part in Exxon Corporation, Docket No. 9281

Last year, the Commission issued a complaint against Exxon

Corporation and, in accordance with its practice, a Notice of

Contemplated Relief, the title of which is self-explanatory. The

complaint alleged that Exxon had made certain deceptive claims

concerning the need for its premium gasoline. Today the Commission

accepts for public comment a settlement that provide less relief than

the Commission contemplated when it issued the complaint and less

relief than it ordered against other companies that previously have

settled similar charges.\1\ I agree that the core provision of the

proposed order barring the allegedly deceptive claims is

appropriate,\2\ but I cannot agree to the omission of a broader

provision barring Exxon from making unsubstantiated claims concerning

``the relative or absolute attributes of any gasoline with respect to

engine performance, power [or] * * * acceleration.''

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\1\ See Sun Company, Inc., Docket C-3381 (consent order, May 6,

1992); Unocal Corporation, Inc., Docket C-3492 (consent order, April

24, 1994); Amoco Oil Company, Docket C-3655 (consent order, May 7,

1996).

\2\ Order para.Sec. I.

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An injunctive provision covering not just the specific claims

challenged in the complaint, but also, future deceptive claims of a

similar nature is a common feature in Commission advertising

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orders. It provides an important deterrent, because any future

advertising claims that do not comport with it are punishable by

substantial civil penalties. The Commission previously has challenged

similar advertising claims by three other gasoline companies, all of

which, unlike Exxon, agreed to settlements without litigation, and all

of which consented to inclusion of the broader injunctive relief

omitted from this order.

Exxon's advertisements seem likely to have contributed to consumer

misperceptions about the attributes of and the need for premium

gasoline as much as gasoline advertisements run by the other companies.

The more lenient injunctive coverage in Exxon's order will be less

effective in deterring future deception and may create perverse

incentives. In the future, companies may believe it is in their

interest to decline negotiated settlement until after litigation has

commenced if they think that the Commission will reward greater

intransigence.

Narrowing the injunction might be worthwhile if some other

effective remedy were added, and the proposed order adds a provision

that requires Exxon to produce and disseminate a 15-second television

commercial and distribute a certain number of copies of a brochure.\3\

Given the apparently entrenched consumer misperceptions allegedly

created by Exxon's challenged claims about the need for and attributes

of premium gasoline, a consumer education remedy is justified. The goal

of the consumer education campaign, to correct apparently widespread

and assuredly costly consumer misperceptions about the benefits of high

octane gasoline, is laudable. Unfortunately, I do not believe that this

particular campaign is likely to be effective. The Commission has

extensive experience with advertising techniques, and that experience

should tell us that there is a good deal more to creating a successful

advertisement than first meets the eye.\4\ The commercial is uninspired

at best, and we have no basis for concluding that it will be effective

in conveying the desired message to consumers or in changing their

misperceptions. The order does not provide a performance standard or

other means of assuring that this goal will be met.\5\

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\3\ The text of the negotiated advertisement is:

Hi, I'm Sherri Stuewer. I run Exxon's Baytown Refinery. We offer

three octane grades. Which is right for you? Most cars will run

properly on regular octane, so check your owner's manual * * * and

stop by Exxon for this helpful pamphlet.

\4\ The advertisement required by the order has not been

copytested.

\5\ The order could have specified survey methodology and

required that the advertisement be revised as needed until the

survey results showed that a minimum number or percentage of

consumers actually took the intended educational message from the

advertising spot. The Commission has taken this approach in the

past. RJR Foods, Inc., 83 F.T.C. 7, 16-21 (consent order, July 13,

1973).

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Although it may be argued that we similarly have no assurance of

the effectiveness of the broader injunction that was included in the

Notice of Contemplated Relief, we have, at least, the assurance that

further deceptive claims covered by the order may result in substantial

civil penalties and, therefore, that the company may think twice before

running advertisements that might mislead reasonable consumers about

the attributes of particular gasoline products. In addition, the

injunctive relief would remain in place for 20 years, far longer than

the likely effects of a single short-lived advertising campaign like

the one proposed. On balance, I believe that the notice order is

stronger. Perhaps the fact that Exxon was willing to sign this order

rather than the notice order should tell us something.

To the extent that the proposed order is more narrow than the

notice order, I respectfully dissent.

[FR Doc. 97-17280 Filed 7-1-97; 8:45 am]

BILLING CODE 6750-01-M