) is a...Empire Newsletter or successor publication; B. For a period of five (5) years after the...

152 FEDERAL TRADE COMMISSIO:- DECISIO:-S

Complaint 114 F.TC.

h THE MATTER OF

EMPIRE STATE PHARMACEUTICAL SOCIETY, I.\C.

CO:-SEXT ORDER, ETC. , 1:\1 REGARD TO ALLEGED VIOLATIO), OF

SEC. 5 OF TilE FEDERAL TRADE CG:nIISSION ACT

Docket 9238. Complaint, Mm' 1990 1Jecision, Feb. , 1991

This eonscnl order prohibits , among other things , a trade association from organizingor encouraging any agreement among pharmacy firms to refuse to enier into orto withdraw from any third-party prescription plan. The consent agreementamong other things , also prohibits the respondent , for a period of ten years , fromcontinuing any meeting at which representatives of pharmacy firms exchangeinformation concerning the firms ' intention to enter into , reluse to enter into , orwithdraw from any third-party prescription p!an , and from communicating to anyfirm any information concerning any other pharmacy firm s intention to enter

into , refuse to enter into , or to withrlraw from any existing or proposed third-

party prescription plan.

Appearcmces

For the Commission: K""C11 G. Roka.1 and Micha.el D. McNeely.

For the respondent: Jerome 1. Sager, EmpiTe Siale Plwnnaceulica.1Sociely, :'ew York , N.

COMPI.AI:'T

Pursuant to the provisions of the Federal Trade Commission Actand by virtue of the authority vested in it by said Act, the FederalTrade Commission , having reason to believe that the Empire StatePharmaceutical Society, Inc. has violated the provisions of said Actand it appearing to the Commission that a proceeding by it in respectthereof would be in the public interest, hereby issues its complaintstating its charges in that respect as follows:

PARACRAPH 1. Respondent Empire Stite Pharmaceutical Society,Inc. ("Empire ) is a corporation organized, existing and doingbusiness under and by virtue of the laws of the State of New Yorkwith its principal offce located at 12 West 23rd Street, New YorkNew York. Respondent Empire is an association of pharmacy ownersin the State of :\ew York. In J 986 , respondent Empire was affiliatedwith the Long Island Pharmaceutical Society.

EMPIRE STATE PHARMACEUTICAL SOCIETY, INC. 153

152 Complaint

PAR. 2. Members of respondent Empire hold ownership interests inpharmacy firms that , except to the extent that competition has beenrestrained as alleged herein , have been and now are in competitionwith each other and with other pharmacy firms and other health careproviders in the State of .\ew York.

PAR. 3. Respondent' s general business or activities , and the acts andpraetices described below , are in or affect commerce , as " commerceis defined in the Federal Trade Commission Act, 15 V. C. 45.

PAR. 4. Respondent Empire is and has been , at all times relevant tothis complaint , a corporation organized for the profit of its memberswithin the meaning of Section 4 of the Federal Trade Commission Actas amended, 15 U. C. 44.

PAR. 5. Customers often receive prescriptions through healthbenefit programs under which a third-pmty payer compensates thepharmacy for the prescription according to a predetermined formula.The New York State Employees Prescription Program is a prescrip-tion drug benefit plan made available by the State of New York to itsemployees, its retirees , certain other persons , and their dependents.There were approximately 500 000 beneficiaries covered by theEmployees Prescription Program in 1986. Since July 1 , 1986 , TheEquitable Life Assurance Society of the United States has insured theEmployees Prescription Program , and PAID Prescriptions , Inc. , a

wholly-owned subsidiary of Medco Containment Services , Inc. , has

administered it.PAR. 6. Pharmacies are solicited to participate in the Employees

Prescription Program. Pharmacies that participate in the EmployeesPrescription Program accept as payment in full a reimbursement ofthe ingredient cost of the drug and a professional fee for dispensing

the drug. The Employees Prescription Program provides a formula fordetermining the reimbursement of the ingredient cost of drugsdispensed.

PAR. 7. Absent collusion between or among pharmacy firms , eachpharmacy firm would decide independently whether to participate inthe Employees Prescription Program, and the State of :\ew York

would enjoy the benefits of competition among pharmacy firms.PAR. 8. In May 1986 , PAID Prescriptions , Inc. formally solicited

pharmacy participation in the Employees Prescription Program underterms to become effective on July 1 , 1986. Among the proposed termswere changes in the reimbursement level for ingredient costs, anincrease in the professional fee , and the offer of additionall'eimbul'se-

154 FEDERAL TRADE CmnnSSIO:\ DECISIO:\S

Complaint 114 F.

ment for the use of generic drugs. The proposed terms were intendedto reduce the price the State paid for the Employees PrescriptionProgram , and thus minimize costs , while offering reimbursement highenough to attract a suffcient number of participating pharmacies to

ensure that Employees Prescription Program beneficiaries would haveadequate access to medication.PAR. 9. In 1986 , members of respondent Empire held ownership

interests in pharmacy firms that participated in many prescription

drug benefit plans offered by third-party payers, including theEmployees Prescription Program as it existed prior to .Iuly 1. Suchpharmacy firms would have suflered a significant Joss of customershad their competitors participated in the Employees PrescriptionProgram at a time when they were not participating.PAR. 10. In :V!arch 1986 ew York State informed respondent

Empire of the proposed terms of the Employees Prescription Programand respondent Empire then communicated this information to itsmembers. Thereafter , respondent Empire held a meeting at whichowners of pharmacy firms informed other owners of pharmacy firmsthat they would not participate in the proposed Employees Prescrip-

tion Program. Respondent Empire exhorted pharmacy owners torefuse to participate in the proposed Employees Prescription Program.Through these exchanges of information and other acts , and throughthe activities of respondent Empire , pharmacy-owning members ofrespondent and other owners of pharmacy firms agreed to refuse toparticipate in the Employees Prescription Program at the proposed

reimbursement level , for the purpose of increasing the level ofreimbursement offered by the State of New York under theEmployees Prescription Program.

PAR. 11. Respondent Empire has restrained competition among

pharmacy firms by acting as a combination of at least some of itsmembers and others, to increase the price paid to participatingpharmacies under the Employees Prescription Program and to deny tothe State the benefits of competition.

PAR. 12. The combination or conspiracy and the acts and practicesdescribed above have unreasonahly restrained and continue unreason-ably to restrain competition among pharmacists and pharmacies in\'ew York , and have injured consumers in the following ways , among

others:

A. Price competition among pharmacy firms with respect to third-party prescription benefit plans has been and continues to be reduced;

156 fl:DERAL TRADE COMMISSION DECISIONS

Decision and Ordcr 11 4 F.TC.

organized , existing and doing business under and by virtue of tbe lawsof tbe State of New York , witb its office and principal place of

business located at 12 West 23rd Street, ),ew York , New York.2. Tbe Federal Trade Commission bas jurisdiction of the subject

matter of this proceeding and of the respondent , and the proceeding isin the public interest.

ORDI:R

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

A. Empire means the Empire State Pharmaceutical Society, Inc.and its directors , committees, officers , representatives , agents , em-ployees , successors and assigns;

B. Third-party payer means any person or entity that provides aprogram or plan pursuant to which such a person or entity agrees topay for prescriptions dispensed by pharmacies to individuals describedin such plan or program as eligible for such coverage ("CoveredPersons ), and includes, but is not limited to , health insurance

companies; prepaid hospital , medical , or other health service planssuch as Blue Cross and Blue Shield plans; health maintenanceorganizations; preferred provider organizations; prescription service

administrative organizations; and health benefits programs forgovernment employees , retirees and dependents;

C. Particl:pation agreenwnt" means any existing or proposedagreement , oral or written , in which a third-party payer agrees toreimburse a pbarmacy for the dispensing of prescription drugs toCovered Persons , and the pharmacy agrees to accept such paymentfrom the third-party payer for such prescriptions dispensed during theterm of the agreement;

D. Pharmacy jirrn means any partnership, sale proprietorship orcorporation , including all of its subsidiarres , affiliates , divisions andjoint ventures , that owns , controls or operates one or more pharma-cies , including the directors , officers , employees , and agents , of suchpartnership, sale proprietorship or corporation as well as the directorsofficers , employees , and agents of such partnership , sole proprietor-ship s or corporation s subsidiaries , affiliates, divisions and joint

ventures. The words " subsidiary

, "

affiliate , and "joint venture

EMPIRE STATE PHARMACEUTICAL SOCIETY, l:\C. 157

152 Decision and Order

refer to any firm in which there is partial (10%

ownership or controJ between corporations.

or more) or total

II.

It is oTdeTed That Empire, directly, indirectly, or througQ any

corporate or other device , in or in connection with its activities in oraffecting commerce , as " commerce " is defined in Section 4 of theFederal Trade Commission Act , shall forthwith cease and desist from:

A. Entering into , threatening or attempting to enter into, orga-

nizing, encouraging, continuing, cooperating in , or carrying out anyagreement between or among pharmacy firms, either express orimplied , to withdraw from , threaten to withdraw from , refuse to enter

into , or threaten to refuse to enter into , any participation agreement;B. For a period of ten (10) years after the date this order becomes

final , continuing a formal or informal meeting of representatives ofpharmacy firms after 1) any person makes any statement concerningone or more firms ' intentions or decisions with respect to enteringinto , refusing to enter into , threatening to refuse to enter intoparticipating in , threatening to withdraw from , or withdrawing fromany existing or proposed participation agreement and Empire fails toeject such person from the meeting, or 2) two persons make suchstatements;

C. For a period of ten (10) years after the date this order becomes

final, communicating to any pharmacist or pharmacy firm anyinformation concerning any other pharmacy firm s intention or

decision with respect to entering into , refusing to enter into

threatening to refuse to enter into, participating in , threatening towithdraw from, or withdrawing from any existing or proposed

participation agreement; andD. For a period of eight (8) years after the date this order becomes

final , providing comments or advice to any pharmacist or pharmacyfirm on the desirability or appropriateness of participating in anyexisting or proposed participation agreement. However , nothing inthis paragraph shall prohibit Empire from communicating purelyfactual information describing the terms and conditions of anyparticipation agreement or operations of any third-party payers.

PTOvided that nothing in this order shall be construed to preventEmpire from exercising rights permitted under the First Amendmentto the United States Constitution to petition any federal or state

158 FEDERAL TRADE CO:IMISSIO'i DECISIO'iS

Decision and Order 114 F.TC.

government executive agency or legislative body, concerning legisla-tion , rules , programs or procedures , or to participate in any federal orstate administrative or judicial proceeding.

II.

It is further ordered That Empire:

A. Publish this order and the accompanying complaint in an issue ofthe Empire newsletter or in any successor publication published nolater than sixty (60) days after the date this order becomes final , inthe same type size normally used for articles that are published in theEmpire Newsletter or successor publication;

B. For a period of five (5) years after the date this order becomesfinal , provide each new Empire member , at the time the member isaccepted into membership, with a copy of the Empire newsletter inwhich this order , and the accompanying complaint was published asrequired by paragraph IILA.

C. File a verified , written report with the Commission within ninety(90) days after the date this order becomes final , and annually

lhereafter for five (5) years on the anniversary of the date this orderbecomes final , and al such other times as the Commission may, bywritten notice to Empire , require , setting forth in detail the mannerand form in which it has complied and is complying with the order;

D. For a period of five (5) years after the date this order becomesfinal , maintain and make available to Commission staff for inspectionand copying upon reasonable notice , records adequate to describe indelail any action taken in connection wilh the activities covered byParts II and II of this order, including, but not 1imited to , all

documents generated hy Empire or that come into Empire s posses-

sion , custody, or control regardless of source , that embody, discuss orrefer to the terms or conditions of any participation agreement; and

E. :\otify the Commission at least thirty (30) days prior to anyproposed change in Empire such as assignment or sale resulting in theemergence of a successor corporation or association , change of namechange of address , dissolution , or any other change that may affectcompliance with this order.

Commissioner Azcuenaga dissenting and Commissioner Starek notparticipating.

160 FEDERAL TRAm; COMMISSION DECISIONS

Comp!aint 114 F.TC.

County Pharmaceutical Society, Schenectady County PharmaceuticalSociety, Troy Area Pharmaceutical Society, and the AdirondackPharmaceutical Society. In 1986 , CAPS was affiliated with thePharmaceutical Society of the State of New York , Inc. ("PSSNY"

PAR. 2. Respondent Alan Kadish ("Kadish") is an individualresiding at 24 Quincy Court, Goldens Bridge , New York and tbeowner of Kadish Pharmacy, an independent pharmacy located at 670N. Broadway, White Plains, "ew York. In 1986 , Kadish served aspresident of PSSNY.

PAK. 3. Respondent Kadish and members of respondent CAPS holdownership interests in pharmacy firms that, except to the extent thatcompetition has been restrained as alleged herein , have been and noware in competition with each other and with other pharmacy firms andother health care providers in the State of New York.

PAIL 4. Respondents ' general businesses or activities , and the actsand practices described below, are in or affect commerce , ascommerce" is defined in the Federal Trade Commission Act.PAR. 5. Respondent CAPS is and has been , at all times relevant to

this complaint , a corporation organized for the profit of its memberswithin the meaning of Section 4 of the Federal Trade Commission Actas amended, 15 C. C. 44.

PAR. 6. Customers often receive prescriptions through health

benefit programs under which a third-party payer compensates thepharmacy for the prescription according to a predetermined formula.The New York State Employees Prescription Program ("EmployeesPrescription Program ) is a prescription drug benefit plan madeavailable by the State of New York to its employees , its retirees

certain other persons , and their dependents. There were approximate-ly 500 000 beneficiaries covered by the Employees PrescriptionProgram in 1986. Since July 1 , 1986 , the Equitable Life AssuranceSociety of the United States has issued the Employees PrescriptionProgram , and PAID Prescriptions , Inc. , a wholly-owned subsidiary ofMedea Containment Services , Inc. , has administered it.

PAR. 7. Pharmacies are solicited to participate in the EmployeesPrescription Program. Pharmacies that participate in the EmployeePrescription Program accept as payment in full a reimbursement ofthe ingredient cost of the drug and a professional fee for dispensing

the drug. The Employees Prescription Program provides a formula fordetermining the reimbursement of the ingredient cost of drugs

dispensed.

CAPITAL AREA PHARMACEUTICAL SOCIJoY 161

159 Complaint

PAR. 8. Absent collusion between or among pharmacy firms , eachpharmacy firm would decide independently whether to participate inthe Employees Prescription Program , and the State of New Yorkwould enjoy the benefits of competition among pharmacy firms.

PAR. 9. In May 1986 , PAID Prescriptions , Inc. formally solicitedpharmacy participation in the Employees Prescription Program underterms to become effective on July I 1986. Among the proposed termswere changes in the reimbursement level for ingredient costs , an

increase in the professional fee , and the offer of additional reimburse-ment for the use of generic drugs. The proposed terms were intendedto reduce the price the State paid for the Employees PrescriptionProgram , and thus minimize costs , and yet to offer reimbursementhigh enough to attract a sufficient number of participating pharma-cies to ensure that Employees Prescription Program beneficiarieswould have adequate access to medication.

PAR. 10. In 1986 members of respondent CAPS held ownershipinterests in pharmacy firms that participated in many prescriptiondrug benefit plans offered by third-party payers, including theEmployees Prescription Program as it existed prior to July 1. Suchpharmacy firms would have suffered a significant loss of customershad their competitors pmticipated in the Employees PrescriptionProgram at a time when they were not participating.

PAIL 11. New York State informed PSSNY and respondent Kadishin his capacity as president of PSSNY of the proposed terms of theEmployees Prescription Program and PSS?\Y communicated thisinformation to its affiliated societies, including respondent CAPS.Respondent CAPS held meetings at which owners of pharmacy firmsinformed other owners of pharmacy firms that they would notpalticipate in the proposed Employees Prescription Program. Respon-dents communicated to pharmacists and pharmacy owners informa-tion regarding the intentions of pharmacy firms concerning participa-tion in the Employees Prescription Program. Respondent Kadishexhorted pharmacy owners to refuse to participate in the proposedEmployees Prescription Program. Thro1Jgh these exchanges of infor-mation and other acts , and through the activities of respondent CAPSand respondent Kadish, pharmacy-owing members of respondentCAPS , respondent Kadish and oLher owners of pharmacy firms agreedto refuse to participate in the Employees Prescription Program at theproposed reimbursement level , for the purpose of increasing the levelof reimbursement offered by the State of !\ew York under the

Employees Prescription Program.

162 FfDERAL TRADE COM IlSSIOK DECISIO:\S

Decision and Order 114 F.

PAR. 12. Respondents have restrained competition among pharmacyfirms by conspiring among themselves and with others , and respon-dent CAPS has restrained competition by acting as a combination ofits members , to increase the price paid to participating pharmaciesunder the Employees P,'escription Program and to deny to the Statethe benefits of competition.

PAR. 13. The combination or conspiracies and the acts and practicesdescribed above have unreasonably restrained and continue unreason-ably to restrain competition among pharmacists and pharmacies inNew York , and have injured consumers in the following ways , amongothers:


B. The State of New York was coerced into raising the prices paid topharmacies under the Employees Prescription Program; and

C. The State of New York has been and continues to be forced topay substantial additional sums for prescription drugs provided toEmployees Prescription Program beneficiaries, including approxi-mately seven million dollars for the eighteen-month period beginningon July 1 , 1986.

PAR. 14. The combination or conspiracies and the acts describedabove constitute unfair methods of competition in or affectingcommerce in violation of Section 5 of the Federal Trade CommissionAct. The combination or conspiracies, or the effects thereof, arecontinuing, will continue , or will recur in the absence of the reliefherein requested.

Commissioner Azcuenaga dissenting.

DECISION AKD ORDER

The Commission having heretofore issued its complaint chargingthe respondent Capital Area Pharmaceutical Society with a violationof Section 5 of the Federal Trade Commission Act , as amended , andthe respondent having been served witn a copy of that complaint

together with a notice of the contemplated relief; andThe respondent, its attorney, and counsel for the Commission

having thereafter executed an agreement containing a consent orderan admission by the respondent of all the jurisdictional facts set forthin the complaint , a statement that the signing of said agreement is forsettlement purposes only and does not constitute an admission by

CAPITAL AREA PHARMACEuTICAL SOCIETY 163


respondent that the law has been violated as alleged in such

complaint, and waivers and other provisions as required by theCommission s Rules; and

The Secretary of the Commission having thereafter withdrawn thismatter from adjudication in accordance with Section 3.25(c) of itsRules; and

The Commission having considered the matter and having there-upon accepted the executed consent agreement and placed suchagreement on the public record for a period of (60) days , now infurther conformity with the procedure prescribed in Section 3. 25(1') ofits rules , the Commission hereby makes the following jurisdictionalfindings and enters the following order:

1. Respondent Capital Area Pharmaceutical Society is a corporationorganized , existing, and doing business under and by virtue of thelaws of the State of New York , with its offce and principal place business at Pine West Plaza IV , Washington Avenue ExtensionAlbany, New York.

2. The Federal Trade Commission has jurisdiction of the subjectmatter of this proceeding and of the respondent , and the proceeding isin the public interest.

ORDER


A. CAPS" means the Capital Area Pharmaceutical Society and itsdirectors, committees , offcers , representatives , agents, employeessuccessors and assigns;

B. ThiTd-party payer means any person or entity that provides aprogram or plan pursuant to which such a person or entity agrees topay for prescriptions dispensed by pharmacies to individuals describedin such plan or program as eligible for such coverage (" CoveredPersons ), and includes, but is not limited to , health insurance

companies; prepaid hospital , medical , or other health service planssuch as Blue Cross and Blue Shield plans; health maintenanceorganizations; preferred provider organizations; prescription serviceadministrative organizations; and any of the above which contractwith the State of Xew York or other governmental units to provide

164 FEDERAL TRADE cmnnSSJON DECISIONS

Deeision and Order 114 F.

health benefits programs for government employees , retirees anddependents;

C. Pa1'ticipation ag1'eement" means any existing or proposedagreement, oral or written , in which a third-party payer agrees toreimburse a pharmacy for the dispensing of prescription drugs toCovered Persons , and the pharmacy agrees to accept such paymentfrom the third-party payer for such prescriptions dispensed during theterm of the agreement;

D. Pha1'macy linn means any partnership, sole proprietorship orcorporation , including all of its subsidiaries , affliates , divisions andjoint ventures , that owns , controls , or operates one or more pharma-cies , including the directors , officers , employees , and agents , of suchpartnership, sole proprietorship or corporation as well as the directorsofficers , employees , and agents of such partnership , sole proprietor-ship s or corporation s subsidiaries, affiliates, divisions and joint

ventures. The words " subsidiary

, "

affiliates " and "joint venture

refer to any firm in which there is partial (10% or more) or totalownership or control between corporations.

II.

It is o1'dend That CAPS , directly, indirectly, or through anycorporate or other device , in or in connection with its activities in oraffecting commerce , as " commerce " is defined in Section 4 of theFederal Trade Commission Act , shall fOlthwith cease and desist from:

A. Entering into , threatening or attempting to enter into , orga-

nizing, encouraging, continuing, cooperating in , or carrying out anyagreement between or among pharmacy firms , either express or

implied , to withdraw from , threaten to withdraw from , refuse to enterinto , or threaten to refuse to enter into , any participation agreement;

B. For a period of ten (10) years after the date this order becomes

final , organizing, sponsoring, or facilitating a meeting that CAPS

expects or reasonably should expect will facilitate communicationsconcerning one or more firms ' intentions or decisions with respect toentering into , refusing to enter into , threatening to refuse to enterinto , participating in , threatening to withdraw from, or withdrawingfrom any existing or proposed participation agreement, or fromcontinuing a meeting of representatives of pharmacy firms at which:1) CAPS fails to eject from the meeting a person who makes any suchcommunication; or 2) two persons make any such communications;

CAPIT AI, AREA PHAR,IACEGTICAL SOCIETY 165


C. For a period of ten (IO) years after the date this order becomes

final, communicating to any pharmacist or pharmacy firm anyinformation concerning any other pharmacy firm s intention or

decision with respect to entering into, refusing to enter into

threatening to refuse to enter into , participating in , threatening towithdraw from, or withdrawing from any existing or proposed

participation agreement;D. For a period of eight (8) years after the date this order becomes

final , providing comments or advice to any pharmacist or pharmacyfirm on the desirability or appropriateness of palticipating in anyexisting or proposed participation agreement. However, nothing inthis paragraph shall prohibit CAPS from communicating purelyfactual information describing the terms and conditions of anyparticipation agreement or operations of any third-party payers; and

PTov'ided that nothing in this order shall he construed to preventCAPS from exercising rights permitted under the First Amendment tothe enited States Constitution to petition any federal or stategovernment executive agency or legislative body, concerning legisla-tion , rules , programs or procedures , or to participate in any federal orstate administrative or judicial proceeding.

It ,:s fu'TtheT oTdeTed That CAPS:

A. Distribute by first-class mail a copy of this order and theaccompanying complaint to eacb of its members within thilty (30)days after the date this order becomes final;

B. Publish this order and the accompanying complaint in an issue ofthe CAPS newsletter or in any successor pub1ication pub1ished no latorthan sixty (60) days after the date this order becomes final , in thesame type size normally used for articles tbat are published in theCAPS e\Vsletter or successor publication;

C. For a period of five (5) years after tbe date this order becomesfinal , provide each new CAPS member with a copy of this order at. thetime the member is accepted into membership;

D. File a verified , written report with the Commission within ninety(90) days after the date this order becomes final, and annually

thereafter for five (5) years on the anniversary of the date this orderbecomes final , and at such other times as the Commission may, by

166 FEDERAL TRADE CmIMISSIO"! DECISIONS


written notice to CAPS , require , setting forth in detail the manner andform in which it has complied and is complying with the order;

E. For a period of five (5) years after the date this order becomesfinal , maintain and make available to Commission staff for inspectionand copying upon reasonable notice , records adequate to describe indetail any action taken in connection with the activities covered .

Parts II and II of this order , including, but not limited to, a1l

documents generated by CAPS or that come into CAP' s possessioncustody, or control regardless of source , that embody, discuss or referto the terms or conditions of any participation agreement; and

F. Notify the Commission at least thirty (30) days prior to anyproposed change in CAPS such as , assignment or sale resulting in theemergence of a successor corporation or association , change of namechange of address , dissolution , or any other change that may affectcompliance with this order.


168 FEDERAL TRADE CmnlISSIOK DECISIOKS



The Commission having considered the matter and having there-upon accepted the executed consent agreement and placed suchagreement on the public record for a period of (60) days , now -infurther conformity with the procedure prescribed in Section 3. 25(f) ofits rules , the Commission hereby makes the following jurisdictionalfindings and enters the following order:

1. Respondent Kadish resides at 24 Quincy Court , Goldens BridgeNew York. His office and principal place of business are at KadishPharmacy, 670 North Broadway, White Plains , New York.

2. The Federal Trade Commission has jurisdiction of the subjectmatter of this proceeding and of the respondent, and the proceeding isin the public interest.

ORDER


A. Mr. Kadish" means Alan Kadish , his representatives , agentsand employees;

B. Third-party payer means any person or entity that provides aprogram or plan pursuant to which such a person or entity agrees topay for prescriptions dispensed by pharmacies to individuals describedin such plan or program as eligible for such coverage (" CoveredPersons ), and includes, but is not limited to , health insurance

companies; prepaid hospital , medical , or other health service planssuch as Blue Cross and Blue Shield plans; health maintenanceorganizations; preferred provider organizations; prescription service

administrative organizations; and health benefits programs forgovernment employees , retirees and dependents;

C. Part'icipation agreement" means any existing or proposedagreement , oral or written , in which a third-party payer agrees toreimburse a pharmacy for the dispensing of prescription drugs toCovered Persons , and the pharmacy agrees to accept such paymentfrom the third-party payer for such prescriptions dispensed during theterm of the agreement;

170 FEDERAL TRADE COMMISSIO); DECISlO"iS


into , participating in , threatening to withdraw from , or withdrawingfrom any existing or proposed participation agreement; and

D. For a period of eight (8) years after the date this order becomesfinal , providing comments or advice to any pharmacist not employedby Mr. Kadish or :11'. Kadish' s employer or to any pharmacy firm notowned or controlled by Mr. Kadish or Mr. Kadish' s employer on tbedesirability or appropriateness of participating in any existing orproposed participation agreement. However, nothing in this para-graph shall prohibit Mr. Kadish from communicating purely factualinformation describing the terms and conditions of any participationagreement or operations of any third- party payers.

Provided that nothing in this order shall be construed to preventMr. Kadish from exercising rights permitted under the First Amend-ment to the United States Constitution to petition any federal or stategovernment executive agency or legislative body, concerning legisla-tion , rules , programs or procedures , or to participate in any federal orstate administrative or judicial proceeding.

It is jikrther ordered That Mr. Kadish:

A. Shall file a verified , written report with the Commission withinninety (90) days after the date this order becomes final , and annuallythereafter for five years on the anniversary of the date this order wasserved , and at such other times as the Commission may, by writtennotice to Mr. Kadish , require , setting forth in detail the manner andform in which he has complied and is complying with the order;

B. For a period of five (5) years after the date of service of thisorder , maintain and make available to Commission staff for inspectionand copying upon reasonable notice , records adequate to describe indetail any action taken in connection with the activities covered byPart II of the order , including hut not limited to, all documents

generated by Mr. Kadish or that come into his possession , custody, orcontrol regardless of source , that emhody, discuss or refer to the

terms or conditions of any participation agreement; andC. Notify the Commission within thilty (30) days of any change that

may affect compliance with the order.Commissioner Azcuenaga dissenting and Commissioner Starek not

participating.

MELVILLI- CORPORATIOC; 171

171 Complaint

IN THE MATTER OF

MELVILLE CORPORATJO;-

CONSENT ORDER, ETC. , 1:'' HEGARD TO ALLEGED VIOLATIO:\T OF

SEC. 5 OF THE FEDERAL TRADE COMyllSS!O" ACT

Docket 9227. Complru:nt, Apr. 1.98.9-Decis1 O/1 Feb. , 1.9.91

This consent order prohibits , among other things , the pharmacy chain :from entcl'inginto any agreement with other pharmacy firms to wilhdnnv from or to refuse toenter into any third-party payer prcscription drug participation agreement. Fortcn years , the chain is also prohibited from communicating :0 another pharmacyfirm the decision or intention to enter or to refuse to enter into such a

participation agreement, and for eight years , from advjsing a! y pharmacy firmun whether to enter into any participation agreement.

AppefLmnces

For the Commission: KaTen G. Bolwl and Michael D. McNeely.

For the respondent: BTuce D. Sokle)', MintzGlovsky Popeo Washington , D.

Lem , COhTl, F'errLs

COMPLAII'T

Pursuant to the provisions of the Federal Trade Commission Adand by virtue of the authority vested in it by said Ad, the Federal

Trade Commission , having reason to believe that the Chain PharmacyAssociation of New York State , Inc. ; :vlelville Corporation; Fay s DrugCompany, Inc. ; Kinney Drugs , Inc. ; Peterson Drug Company of :\orthChili , :\ew York Inc. Rite Aid Corporation; and James E. Krahulechave violated the provisions of said Ad, and it appearing to the

Commission that a proceeding by it in respect thereof wouJd be in thepublic interest, hereby issues its complaint stating its charges asfollows:

P ARACRAPH 1. Respondent Chain Pharmacy Association of !\ewYork State , Inc. ("Chain Association ) is a corporation organized

existing and doing business under and by virtue of the Jaws of theState of J\ew York , with its principal office located at 17 Elk StreetAlbany, ,"ew York.

PAR. 2. Respondent Chain Association is an association composed of

172 FEDF:RAL TRADE C01nlISSlOK DECISIONS

Complaint 114 F.

the following individual member firms: Brooks Drug, Inc. , 75 SabinSt. , Pawtucket, RI; Carl' s Drug Co. , Success Drive , Box 203 , RomeNY; CVS , One CVS Drive, Woonsocket, RI; Duane Reade, 4929

Thirtieth Place , Long Island City, NY; Fay s Drug Co. , 7245 HenryClay Blvd. , Liverpool , NY; Genovese Drug Stores, 80 Marcus Dr.Melvile , NY; Kinney Drugs , Inc. , 29 Main St. , Gouverneur , NY; TheKroger Co. , 1014 Vine St. , Cincinnati, OH; Peterson Drug Co. , 68

Main St. , P. O. Box 166 , Oakfield, .\Y; Revco D. , Inc., 1925

Enterprise Parkway, Twinsburg, OH; Rite Aid Corp. , P. O. Box 3165Harrisburg, PA; Supermarkets General Corp. , 301 Blair Rd. , Wood-

bridge , NJ; Super X Drugs Corp. , 1933 Victory Blvd. , Staten IslandNY; Walgreen Co. , 200 Wilmont Rd. , Deerfield , IL. Chain Associa-

tion s members are engaged in the business of the retail sale ofprescription drugs.

PAR. 3. Respondent Fay s Drug Company, Inc. ("Fay ) is a

corporation organized , existing and doing business under and byvirtue of the laws of the State of New York , with its principal officeslocated at 7245 Heny Clay Boulevard , Liverpool , New York. In 1986the retail sale of prescription drugs accounted for a significant portionof the sales of the 110 to 120 pharmacies that respondent Fayoperated in New York State.

PAR. 4. Respondent Kinney Drugs , Inc. (" Kinney ) is a corporationorganized , existing and doing business under and by virtue of the lawsof the State of New York , with its principal offices located at 29 MainStreet , Gouverneur , New York. The retail sale of prescription drugsaccounts for a significant portion of the sales of the approximately 23pharmacies that respondent Kinney operates in New York State.

PAn. 5. Respondent Melville Corporation (" Melville ) is a corpora-

tion organized , existing and doing business under and by virtue of thelaws of the State of Xew York , with its principal offices located at

3000 Westchester Ave. , Harrison , New York. CVS (a/k/a CVS

Pharmacies or Consumer Value Stores), with principal offces locatedat One CVS Drive , W oonsocket , Rhode Island , is a division of Melville.In 1986, the retail sale of prescription drugs accounted for asignificant portion of sales of the approximately 115 pharmacies thatrespondent Melville operated under the CVS name in New York State.

PAR. 6. Respondent Peterson Drug Company of .\orth Chili , NewYork , Inc. ("Peterson ) is a corporation organized , existing and doingbusiness under and by virtue of the laws of the State of New Yorkwith its principal offices located at 68 North Main Street , Oakfield

MELVILLE CORPORA nON 173

171 CompJaint

New York. The retail sale of prescription drugs accounts for asignificant portion of the sales of the approximately 18 pharmaciesthat respondent Peterson operates in New York State.PAR. 7. Respondent Rite Aid Corporation ("Rite Aid") is a

corporation organized , existing and doing business under and byvirtue of the laws of the State of Delaware , with its principal offices

located at Railroad Ave. and Trindle Road , Shiremanstown , Pennsyl-vania. In 1986 , the retail sale of prescription drugs accounted for asignificant portion of the sales of the approximately 260 pharmaciesthat respondent Rite Aid operated in New York State.PAR. 8. Respondent James E. Krahulec is an individual and was

employed by respondent Rite Aid as Vice-President , Government andTrade Relations in 1986 in respondent Rite Aid' s principal offices atRailroad Ave. and Trindle Road, Shiremanstown , Pennsylvania.

PAR. 9. Except to the extent that competition has been restrained as

alleged herein , members of respondent Chain Association have beenand now are in competition among themselves and with otherpharmacy firms and other health care providers in the state of NewYork.

PAR. IO. Respondents ' general businesses or activities , and the actsand practices described below, are in or affect commerce , ascommerce " is defined in the Federal Trade Commission Act, 15

C. 45.

PAR. 11. Respondent Chain Association is , and has been at all timesrelevant to this complaint , a corporation organized for the profit of itsmembers within the meaning of Section 4 of the Federal TradeCommission Act, as amended, 15 U. C. 44.

PAR. 12. Customers often receive prescriptions through healthbenefit programs under which a third-party payer compensates thepharmacy for the prescription according to a predetermined formula.The Kew York State Employees Prescription Program is a prescrip-tion drug benefit plan made available by the State of New York to itsemployees , its retirees , certain other persons , and their dependents.There were approximately 500 000 beneficiaries covered by theEmployees Prescription Program in 1986. Since July 1 , 1986 , TheEquitable Life Assurance Society of the l.nited States has insured theEmployees Prescription Program , and PAID Prescriptions, Inc. , a

wholly-owned subsidiary of :'Iedco Containment Services , Inc. , has

administered it.PAR. 13. Pharmacies arc solicited to participate in the Employees

174 FEIJBRAL TRADE COMMISSION DECISIONS

Complaint 114 F.

Prescription Program. Pharmacies that participate in the EmployeesPrescription Program accept as payment in full a reimbursement ofthe ingredient cost of the drug and a professional fee for dispensing

the drug. The Employees Prescription Program provides a formula fordetermining the reimbursement of the ingredient cost of drugs

dispensed.PAIL 14. Absent collusion between or among pharmacy firms , each

pharmacy firm would decide independently whether to participate inthe Employees Prescription Program, and the State of .\ew York

would enjoy the benefits of competition among pharmacy firms.PAR. 15. In May 1986 , PAID Prescriptions , Inc. formally solicited

pharmacy participation in the Employees Prescription Program underterms to become effective on July 1 , 1986. Among the proposed termswere changes in the reimbursement level for ingredient costs, an

increase in the professional fee , and the offer of additional reimburse-ment for the use of generic drugs. The proposed terms were intendedto reduce the price the State paid for the Employees PrescriptionProgram , and thus minimize costs , and yet to offer reimbursementhigh enough to attract a sufficient number of participating pharma-cies to ensure that Employees Prescription Program beneficiarieswould have adequate access to medication.

PAR. 16. In 1986 , respondents Melville , Fay , Kinney, Petersonand Rite Aid (" respondent pharmacy firms ) participated in manyprescription drug benefit plans offered by third-party payers , includ-ing the Employees Prescription Program as it existed prior to July 1.Each respondent pharmacy firm purchased prescription drugs at acost which on average was below the Employees PrescriptionProgram s proposed level of reimbursement for ingredient costs. Eachrespondent pharmacy firm would have suffered a significant loss ofcustomers had its competitors participated in the Employees Prescrip-tion Program at a time when it was not participating.

PAR. 17. Even before PAID formally solicited pharmacy participa-tion in the Employees Prescription Progra,m , New York State began toinform pharmacists ' associations of the proposed terms. In or beforeMarch 1986 , respondent Chain Association became aware of theproposed terms of the Employees Prescription Program, and , in

response, communicated to members that the extent to whichpharmacies pmticipated in the Employees Prescription Program couldaffect state officials' consideration of the reimbursement level.Respondent Chain Association held meetings at which some respon-

MELVILLE CORPORA 1'0:\ 175

171 Comp!aint

dent pharmacy firms informed other pharmacy firms that they wouldnot participate in the proposed Employees Prescription Program.Respondent pharmacy firms communicated information regardingtheir own intentions concerning participation in the EmployeesPrescription Program to other pharmacy firms. Respondent ChainAssociation and respondent Krahulec communicated , to Chain Associ-ation members and other pharmacy firms , information regarding theintentions of Chain Association members and other pharmacy firmsconcerning participation in the Employees Prescription Program.Through these exchanges of information and other acts , and throughthe activities of respondent Chain Association and respondentKrahulec , respondent pharmacy firms and other pharmacy firmsagreed to refuse to participate in the Employees Prescription Programat the proposed reimbursement level , for the purpose of increasing thelevel of reimbursement offered by the State of New York under theEmployees Prescription Program.

PAR. 18. Respondents have restrained competition among pharmacyfirms by conspiring among themselves and others , or by acting as acombination , to increase the price paid to participating pharmaciesunder the Employees Prescription Program and to deny to the Statethe benefits of competition.

PAR. 19. The combination of conspiracy and tbe acts and practicesdescribed above have unreasonably restrained and continue unreason-ably to restrain competition among pharmacists and pharmacies inNew York , and have injured consumer in the following ways , amongothers:


B. The State of New York was coerced into raising the prices paid topharmacies under tbe Employees Prescription Program; and

C. The State of New York has been and continues to be forced topay substantial additional sums for Rrescription drugs provided toEmployees Prescription Program beneficiaries , including approxi-

mately seven million dollars for the eighteen-month period beginningon July 1 , 1986.

PAR. 20. The combination or conspiracy and the acts described

above constitute unfair methods of competition in or affectingcommerce in violation of Section 5 of the Federal Trade CommissionAct. The combination or conspiracy, or the effects thereof, are

176 FF:DERAL TRADE COMMISSION DECISIONS

Statement 114 F.

continuing, will continue , or will recur in the absence of the reliefherein requested.

Commissioners Azcuenaga and :Iachol voted in the negative.

ST A TF:MEKT OF CO:l1!ISSIONER MARGOT E. "!ACHOL

The case as presented to the Commission was a very complex oneboth factually and legally. It alleged a conspiracy among the ChainPharmacy Association, a number of drugstore chains operating inKew York State , and an executive of one of the chains , to coerce theState into raising proposed prescription drug payments to pharmaciesunder its employee benefit program by threats of refusal to participatein that program.

Each of the pharmacies and pharmacy chains eligible to participatein the program , of course , was free to make its own decision onwhether to agree to do so or to threaten to withhold participation.Liability, under the law we administer, would attach only toconspiracy or collusion in reaching such decisions.

Further , the Hoerr/Pennington line of cases in the Supreme Courtteaches us that even commercial enterprises may not be heldaccountable under the antitrust laws for conspiring or colluding toexercise their right to petition governments , a right protected underthe First Amendment. Through this area of the law is itself complexit is clear that many of the activities in which the parties engaged inthis case were thus protected.

As to the activities alleged in this case which would not be protectedby Hoerr the information we received clearly contained no " smokinggun " evidence of conspiracy. We could find the necessary " reason tobelieve " that a violation had occurred only on the basis of circumstan-tial evidence. But , in the Matsushita/Monsanto line of Supreme

Court cases, we are taught that an inference of conspiracy must be

supported by at least some significant evidence of activity which waslogically consistent onJy with conspiracy. That is , if the activity ofeach member of an alleged conspiracy was wholly consistent with itspursuit of its unilateral self- interest , that inference must fail.

In my view , the inference in this case-on the information availableto support issuance of a complaint-fails for that reason. I helieve-again on this information-that it was in the independent interest ofeach chain pharmacy to thr aten to refuse to participate in the

program unless prices were raised . hecause , if the threat had failed to

MELVILLE CORPORATION 177


achieve a price increase , the pharmacy could then have reversed itselfand participated. The costs of such a strategy were very limited; thepotential gains were very large.

It seems clear that the parties to the alleged conspiracy exchangeda good deal of information. It seems very doubtful that it can beestablished that they conspired with respect to their decisions tothreaten non-participation , however , because they did not need to.Their conversations appear to me to have taken place in the context ofprotected lobbying activity; their actions seem to have been entirelyconsistent with their individual economic self- interest; and theresimply was not sufficient evidence from which I could find reason tobelieve in the existence of an unlawful conspiracy.

DEClSJOX AND ORDER

The Commission having heretofore issued its complaint chargingthe respondent Melville Corporation with a violation of Section 5 ofthe Federal Trade Commission Act , as amended , and the respondenthaving been served with a copy of that complaint , together with anotice of the contemplated relief; and

The respondent , its attorney, and counsel for the Commissionhaving thereafter executed an agreement containing a consent orderan admission by the respondent of all the jurisdictional facts set forthin the complaint , a statement that the signing of said agreement is forsettement purposes only and does not constitute an admission byrespondent that the law has been violated as alleged in such



The Commission having considered the matter and having there-upon accepted the executed consent agreement and placed suchagreement on the public record for a period of (60) days , now infurther conformity with the procedure prescribed in Section 3. 25(1') ofits rules , and Commission hereby makes the following jurisdictionalfindings and enters the following order;

1. Respondent Melville Corporation is a corporation organized

. Should r have' oCC"S:O:l to review \:1:;; TU\ttt' ' fo lowiTlg- '! proceeding be:'ore al1 aCl'1inislrati'ic law ;udgc , Iwill cf rOUlse l"COI 5irier tile : rl. 1 iSOUC5 ,J!'eser,terl so:('ly Oii the b1isis of ti f' arl)'ic' CP.7 :ve I"rcorri

178 FEDERAL TKADF: COMMISSION DECISIONS


existing and doing business under and by virtue of the laws of theState of i\ew York , with its office and principal place of business

located at One Theall Road , in the City of Rye , State of .\ew Yark.2. The Federal Trade Commission has jurisdiction of the subject

matter of this proceeding and of the respondent, and the proceeding isin the public interest.

ORDF:R

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

A. Melville means Melville Corporation , its directors , officers

agents, employees, divisions , subsidiaries , successors and assigns;B. ThiTd-paTty payeT means any person or entity that provides a

program or plan pursuant to which such a person or entity agrees topay for presc:riptions dispensed by pharmacies to individuals describedin such plan or program as eligible for such coverage (" CoveredPersons ), and includes, but is not limited to, health insurance

companies; prepaid hospital , medical , or other health service planssuch as Blue Cross and Blue Shield plans: health maintenanceorganizations: preferred provider organizalions: prescription serviceadministrative organizations; and health benefit programs for govern-ment employees , retirees and dependents;

C. PaTticipation ag1'cment" means any existing or proposedagreement, oral or written , in which a third-party payer agrees toreimburse a pharmacy for the dispensing of prescription drugs toCovered Persons , and the pharmacy agrees to accept such paymentfrom the third-party payer for such prescriptions dispensed during theterm of the agreement;

D. Pha?-macy firm means any partnership, sale proprietorship orcorporation , including all of its subsidiaries , affliates , divisions andjoint ventures , that owns , controls or operates one or more pharma-cies , including the directors , officers , employees , and agents of suchpaltnership, sole proprietorship or corporation as well as the directors

officers , employees , and agents of such paltnership , sole proprietor-ship s or corporation s subsidiaries , affiliates, divisions and joinL

ventures , but excludes any partnership, sole proprietorship or corpora-tion , including all of its subsidiaries , affliates , divisions and jointventures , which own , are owned by, control or are under common

MELVILLE CORPORA nON 179


control with Melville. The words " subsidiary

, "

affiiate , and "jointventure " refer to any firm in which there is partial (10% or more) ortotal ownership or control between corporations.

II.

It is ordered That Melville , directly, indirectly, or through anycorporate or other device, in or in connection with its pharmacyoperations and activities , including but not limited to those of its CVSdivision, in or affecting commerce, as " commerce" is defined inSection 4 of the Federal Trade Commission Act , shall forthwith ceaseand desist from:

A. Agreeing or combining, attempting to agree or combine , or

taking any action in furtherance of any agreement or combination

advocating an agreement, or organizing or cooperating with any

Pharmacy Firm(s) to (1) boycott , refuse to enter into , withdraw fromor not participate in , any Participation Agreement or (2) threaten toboycott , threaten to refuse to enter into , threaten to withdraw fromor threaten not to participate in , any participation agreement;

B. For a period of ten (10) years after the date this order becomesfinal , stating or communicating in any way to any pharmacy firm theintention or decision of Melville with respect to entering into , refusingto enter into , threatening to refuse to enter into, participating in

threatening to withdraw from , or withdrawing from any existing orproposed participation agreement into which Melville and the otherpharmacy firm have entered , could enter or are considering entering;

C. For a period of eight (8) years after the date this order becomesfinal , advising any pharmacy firm with respect to entering intorefusing to enter into , participating in, or withdrawing from any

existing or proposed participation agreement into which lelville andthe other pharmacy firm have entered , could enter or are consideringentering.

Provided that nothing in this order shall prevent lelville from:

(1) Exercising rights permitted under the First Amendment to theUnited States Constitution to petition any federal or state governmentexecutive agency or legislative body concerning legislation , rules orprocedures , or to participate in any federal or state administrative orjudicial proceeding;

(2) Subcontracting, preparing joint bids, or otherwise jointly

180 FEDERAL TRADE COMcdISSION DECISIONS


undeltaking with pharmacy firms to provide prescription drugservices under a paJticipation agreement if requested to do so inwriting by the third-party payer; or

(3) Communicating to the public truthful , nondeceptive statementsconcerning any existing or proposed participation agreement.

It is further ordered That :Y!elville:

A. Provide a copy of this order within thirty (30) days after the datethis order becomes final to each officer , director , employee pharmacistwho is employed in New York state, and each employee whoseresponsibilities include recommending or decidingwhclher to enterinto any participation agreement , and each employee who regularlyattends meetings on :\elville s behalf that include representatives of

other pharmacies; and

B. For a period of five (5) years after the date this order becomes

final , provide each new director and each employee who enters aposition described in paragraph A a copy of the order within ten (10)days of the date the employee or director assumes the new position.

IV.

It is fu)'thel' orde)'ed That Melville:

A. File a verified , written repOlt with the Commission within ninety(90) days after the date this order becomes final , and annually

thereafter for five (5) years on the anniversary of the date this orderbecomes final , and at such other times as the Commission may, bywritten notice lo Melville , require , setting forth in detail the mannerand form in which il has complied and is complying with this order;

B. For a period of five (5) years after the date this order becomes

final , maintain and make available to Commission staff for inspectionand copying upon reasonable notice all documents generated byMelville or that come into Melville s possession , custody, or control

regardless of SOUlce , that embody, discuss or refer to the decision orupon which :Ylclville relies in deciding whether to enter into anypaJticipation agreement in which Melville participates , has participat-

, or has considered palticipating; and

C. ?\otify the Commission at least thirty (30) days prior to anyproposed change in :Y!elvillc such as , assignment or sale resulting in

:-1ELVILLE CORPORATION 181


the emergence of a successor corporation or association , change ofname , change of address , dissolution , the creation , sale or dissolutionof a subsidiary, or any other change that may affect compliance withthis order.


182 FED!:RAL TRADE Cm!:IISSIC:\ DECISIO:\S


IN THE MATTER OF

RITE AID CORPORATION

CONSENT ORDER, ETC. , IN REGARD TO ALLEGED VIOLATION OF

SEC. 5 OF THE FEDEI(AL TIL'DE COMMISSION ACT

Docket 922'l. Complrrint , Apr. 1.9 198.9-Dec? sion, Feb. , 1991

This consent order prohibits , among other things , the pharmacy chain from enteringinto any agreement with other pharmacy firms to withdraw from or refuse toenter into any third-party payer prescription drug participation agreement. ForLen years , the chain is also prohibited from communicating to another pharmacyfirm the decision or intcntion to enter or to refuse to enter into such a

participation agreement , and for eight years , from advising any pharmacy firmon whether to enter into any participation agreement.

Appearances

For the Commission: KaTen G. Bokat and Michael D. McNeely.

For the respondent: WW,:am c. PelsteTMeagheT Flom "ow York , N.

Slcadden, A,' , Slate

DECISION AND ORDER

The Commission having heretofore issued its complaint chargingthe respondent Rite Aid Corporation with a violation of Section 5 ofthe Federal Trade Commission Act , as amended , and the respondenthaving boen served with a copy of that complaint , together with anotice of the contemplated relief; and

The respondent, its attorney, and counsel for the Commissionhaving thereafter executed an agreement containing a consent orderan admission by the respondent of all the jurisdictional facts set forthin the complaint , a statement that the signing of said agreement is forsettlement purposes only and does not constitute an admission by



The Secretary of the Commission having thereafter withdrawn thismatter from adjudication in accordance with Section 25(c) of itsRules; and

. CO ;l;Jla::,\ ;J1"C'V:OI;S:y pllb:lsl E'c'. \l :). FTC 171 (1991:1

184 FEDERAL TRADE COMMISSIO:- DECISIO:-S


corporation , including all of its subsidiaries , affiliates , divisions andjoint ventures , that owns , controls or operates one or more pharma-cies , including the directors , officers , employees , and agents of suchpartnership, sole proprietorship or corporation as well as the directorsoffcers , employees , and agents of such partnership , sale proprietor-ship s or corporation s subsidiaries , affiliates , divisions and joiniventures , but excludes any partnership, sole proprietorship or corpora-tion , including all of its subsidiaries, affiliates , divisions and joint

ventures , which own , are owned by, control or are under commoncontrol with Rite Aid. The words " subsidiary

, "

affliate , and "jointventure" refer to any firm in which there is partial (10% or more) ortotal ownership or control between corporations.

II.

It is ordered That Rite Aid , directly, indirectly, or through anycorporate or other device , in or in connection with its activities in oraffecting commerce , as " commerce " is defined in Section 4 of theFederal Trade Commission Act , shall forthwith cease and desist from:

A. Agreeing or combining, attempting to agree or combine , or

taking any action in furtherance of any agreement or combination

advocating an agreement, or organizing or cooperating with any

Pharmacy Firm(s) to (1) hoycott , refuse to enter into , withdraw fromor not participate in , any Participation Agreement or (2) threaten toboycott , threaten to refuse to enter into , threaten to withdraw fromor threaten not to participate in , any participation agreement;

B. For a period of ten (10) years after the date this order becomesfinal , stating or communicating in any way to any pharmacy firm theintention or decision of Rite Aid with respect to entering into , refusingto enter into , threatening to refuse to enter into , participating in

threatening to withdraw from , or withdrawing from any existing orproposed participation agreement into which Rite Aid and the otherpharmacy firm have entered , could enter or are considering entering;

C. For a period of eight (8) years after the date this order becomesfinal, advising any pharmacy firm with respect to entering intorefusing to enter into , participating in, or withdrawing from any

existing or proposed participation agreement into which Rite Aid andthe other pharmacy firm have entered , could enter or are consideringentering.

Provided that nothing in this order shall prevent Rite Aid from:

RITE AID CORPORATIO:- 185


(1) Exercising rights permitted under the First Amendment to theUnited States Constitution to petition any federal or state governmentexecutive agency or legislative body concerning legislation , rules orprocedures , or to participate in any federal or state administrative orjudicial proceeding;

(2) Subcontracting, preparing joint bids, or otherwise jojntlyundertaking with pharmacy firms to provide prescription drugservices under a participation agreement if requested to do so inwriting by the third-party payer;

(3) Communicating to the public truthful , nondeceptive statementsconcerning any existing or proposed participation agreement.

III.

It 1:S further ordered That Rite Aid:

A. Provide a copy of this order within thirty (30) days after the datethis order becomes final to each offcer, director , employee pharmacistwho is employed in New York state, and each employee whoseresponsibilities include recommending or deciding whether to ent.erinto any participat.ion agreement. , and each employee who regularlyattends meet.ings on Rite Aid' s behalf that include representat.ives of

other pharmacies; and

B. For a period of five (5) years after the date t.his order becomesfinal , provide each new director and each employee who enters aposition described in paragraph A a copy of t.he order within ten (10)days of the date the employee 01' director assumes the new position.

IV.

It is further ordered That Rite Aid:

A. File a verified , written report with the Commission within ninety(90) days after the date t.his order becomes final, and annuallythereafter for five (5) years on t.he anniversary of t.he dat.e this orderbecomes final , and at. such other times as the Commission may, bywritten notice to Rite Aid , require , setting forth in det.ail the mannerand form in which it has complied and is complying with this order;

B. For a period of five (5) years after the date this order becomesfinal , maintain and make available to Commission staff for inspectionand copying upon reasonable notice all documents generated by Rit.eAid or that come into Rite Aid' s possession, custody, or cont.rol

186 FEDERAL TRADE COMMISSION DECISIO:-S


regardless of source , that embody, discuss or refer to the decision orupon which Rite Aid relies in deciding whether to enter into anyparticipation agreement in which Rite Aid participates , has participat-

, or has considered participating; andC. Notify the Commission at least thirty (30) days prior to any

proposed change in Rite Aid such as , assignment or sale resulting ithe emergence of a successor corporation or association , change ofname , change of address , dissolution , the creation , sale or dissolution

of a subsidiary, or any other change that may affect compliance withthis order.


LEWIS GALOOB TOYS . I;\C. 187

187 Complaint

Ix THE MATTER OF

LEWIS GALOOB TOYS , I

COI\SE:-T ORDER, ETC. IN REGARD TO ALLEGED VIOLATJO:' OF

SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT

Docket C-332.1. Complaint , Feb. lY91-Dedsion, Feb. , 1991

This consent order prohibits , among other things, a San Francisco , Ca. , based toycompany (" Galoob") from making deceptive advertising claims for toys. Inaddition , Galoob is prohibited from making misrepresentations , as to whether itstoys must be purchased separately or the toys ' assembly requiremcnts , in the

label!ing, packaging, sale or distribution , as weil as the advertising, of its lays.

Appearances

For the Commission: Janet M. E1Ja11S and Joel C. Winston.

For the respondent: Felice Kent, HallFriedman New York

Dickler, Lawler, Kent &

CorV11' LAINT

The Federal Trade Commission , having reason to believe that LewisGaloob Toys , Inc.

, ("

Galoob"), hereinafter sometimes referred to asrespondent" has violated provisions of the Federal Trade Commis-

sion Act , and it appearing to the Commission that a proceeding by it inrespect thereof would be in the public int.erest, alleges:

PARAGRAPH 1. Galoob is a Delaware corporation with its principaloffice or place of business at 500 Forbes Boulevard , San FranciscoCalifornia.

PAR. 2. Galoob has advertised , offered for sale , sold , and distributedtoys , including Micro Machines (miniature vehicles), Micro Machinesplaysets (such as Aircraft Carrier , Air Cargo , and TranspOlt Chopper),Xpanders (such as the Xpanders Cbopper/ Assault Base), and BouncinKids (dolls that move).

PAR. 3. The acts or practices of respondent alleged in this complainthave been in or affecting commerce.

PAR. 4. Typical , but not necessarily all inclusive , of respondent'advertisements for Micro Machines , Micro 1achines pJayscts , Xpan-del's , and Bouncin ' Kids are set forth in Exhibits A through E attached

188 FEDERAL TRADE CO:.MISSION DECISIONS

Comp!aint 114 F.

hereto; typical, but not necessarily all inclusive, of respondent'packaging for Micro Machines playsets are set forth in Exhibits F , Gand H attached hereto.

PAR. 5. Through the use of the statements and depictions in ExhibitE and others in advertisements and promotional materials notspecifically set forth herein, respondent represented , directly or byimplication , that the Bouncin ' Kids Ballerina Kid stands on one footand twirls by herself without human assistance.

PAIL 6. In truth and in fact , the Bouncin ' Kids Ballerina Kid doesnot stand on one foot and twirl by herself without human assistance.Therefore , the representations set forth in paragraph five were falseand misleading.

PAIL 7. Through the use of the statements and depictions in ExhibitD and others in advertisements and promotional materials notspecifically set forth herein, respondent represented , directly or byimplication , that the Xpanders Chopper! Assault Base shoots a missileat a high rate of speed and that the missile travels a considerable

distance.PAR. 8. In truth and in fact , the Xpanders Chopper! Assault Base

does not shoot a missile at a high rate of speed and the missile does

not travel a considerable distance. Therefore , the representations setforth in paragraph seven were false and misleading.PAR. 9. Through the use of the statements and depictions in

Exhibits A , B , C , F, G , and H, and others in advertisements and

promotional material not specifically set forth herein, respondent

represented , directly or by implication, that the Micro Machines

playsets Transport Chopper, Aircraft Carrier, and Air Cargo as

packaged and sold include some or all of the Micro :llachines picturedin the advertisements and on the packages.

PAR. 10. In truth and in fact , the Micro Machines playsets TransportChopper, Aircraft Carrier, and Air Cargo are packaged and soldwithout any of the Micro Machines pictured in the advertisements oron the packages. Therefore , the representations set forth in paragraphnine were false and misleading.

PAR. 11. In its advertisements and promotional materials for theXpanders Chopper! Assault Base , including but not limited to Exhibit, respondent represented through depictions that the toy is fully

assembled and ready for use , but failed to disclose that significant

assembly is required prior to use. This fact would be material toconsumers in their purchase decisions. Respondent' s failure to disclose

LEWIS GALOOD TOYS, INC. 189

187 Complaint

this fact, in light of the depictions in the advertisements and

promotional materials, was a deceptive practice.PAR. 12. Through the use of the statements and depictions in

Exhihits A and D and others in advertisements and promotionalmaterials not specifically set fOlth herein, respondent represented

directly or by implication, that the rotors of the Micro MacI;ines

playset TranspOlt Chopper and the Xpanders Chopper! Assault Base

turn and move by themselves without human assistance.PAR. 13. In truth and in fact , the rotors of the Micro Machines

playset Transport Chopper and the Xpanders Chopper! Assault Base

do not turn and move by themselves without human assistance.Therefore , the representations set forth in paragraph twelve werefalse and misleading.

PAR. 14. The dissemination by respondent of the aforesaid false andmisleading representations as alleged in this complaint constituted

unfair or deceptive acts or practices in or affecting commerce inviolation of Section 5(a) of the Federal Trade Commission Act.

Commissioner Starck not palticipating.

190 FEDERAL TRADE COMMISSION DECISIONS

Complaint

EXHIBIT A

RADIO1VREPORTS

l Eo,' 42r 51"'''' "'.. Yo" , NY IOC17 12'21 309 -OC'

(SF I COPTER I MA,M; 0, 0 M"c i ne H"n here.

- ,c eH;ted bOL theMi ero M ch; nes ' Tr.n,Chop

OpEOlOq nd L 1 0,; n'J COO",a ' t.' ; C p' : 1 de..r

",o , drO real 'outio-moto"

114 F.

PRODUC

PROG

CALCOS ,M I (RO MACHI TRA SPCRT C OPPER

CHI P ' DALES'iESCUE RA CER5

loSEC

WPIX-H'

thH I' m gcing o '""cthdt choppee , n t e pa 1,.,o f r-, a nd. 100"

land. in your ha

~~~~ ~~~~ ~~~~ ~~~

perIro",Caloob.

ALSO AVAILABLE IN COLOR VIDEO-U" CA5Slm

9C-OJ"g:,

3123/90

!NEWYORKI " ,55P

~~~ ~~~~~~

grtpe' , ." th two to a 1 I y

terr ;ficdeck5,

Remember if ;tdoe,n'.XMic. oMachine, :SFX-HE_ ICOPTER) \t .nottl\ .l thi ngl ISFX our:

Wh'" '00. 0 -. "00"\ O"C'O"'" 10 0"""' '''' ox (,,,"' 01 Q'."ol ,"pp"." 0", ' (0""0 ' b" ",'DO'"b" 10' ,,,o..; 0' cm'"",",",..O. '"0" .e" ", ." .c 1(=.,, Oy o. ","" , . 1,1. 00" ..1,.."

" p.

.'DC'" O" ..Y ;' oy "C' b, ''D'''' ' "". .010 U' ub ,''v d. C""' ol.C O' e"' "o"

LEWIS GALOOB TOYS , INC. 191

187 Complaint

EXHIBIT B

To"nc , Silwrslcin , Rolter !nc" 101 Park Awnue

, )''

t'York . 1

""'

Y.lDli8 . Tel 1212) 557. 5570

",or P'OOLtct AI CA

XHIEI? E-

Copy cllenl GABmedii 'I size :15

002039XGL'IB40S

dale 3/16/88 )otJl'

,"p=

VIro AIJDIO

IDng sht of J. llscitta st.andinin front of Aicraft Caier.SUPER 1988 Les G.Ioob Tos , In.

'Ie Micro Xachin Ma hee.. . AicraftCaier th! Yoo ca t have t.t...

Alcraft c.ier bes smller andis redced to fit i. his ha. rut yc ca have this:

TH ND MI(x M/ Al CARFJERPlASE.The drartic.ly detailed, teificaltrim replica of the real thin,

Sht of Aicraft Caier w/airlaneson it..sUPER : Ve),icles Sold Sepaately.

that holds 25 Micro Machins.

CU of Aicraft Caiermovin w/airlan

Sht of IorKin hoi 't.

elevators With fabOJs fantastic featues:'l totaly terific elevators...

real w:dti hoist. ru..-ay

C'J of cago um. am t\ c. -- ar.. SOt of pI"

,.'.

$'uprn : Micro 1achins""'00

shin rovin 'm lI" MJOt I9 Al

PiAYSE. :r Giloo. , if it dcsn t say Micro

Macr. ines,

a; of J. H::scitw. it '5 not t. -e rea thin.

IIP1\1(-3


Complaint 114 F.

EXHIBIT C

Towne , Siiycnirin , Rotter !nc" 101 ?ark Al'oue , N-York . KY. 10178, Tel. (212) 557. 5570

::ibit

Copy client GAB product M!(XJ

mlll. TV sill Ca pla,15GA20J9XGLT-8425

Play.st

date 3/16/88 lob no.

AS

vrro !\IO/o5C itta:

J. I-schitta std.. din in front ofCago Plan.SUPE:: G' 1988 Lclos Galoob Toys, ID.

Cago Plar.e b?s srller and isredc:ced to fit il his hand.

m just th Micro Machine M: , b.tthis isn t just a plan!

It' s th pefecly preisestu dasly styled

of J. M. holcL S proect. Pciere Machi.'1 Cago Plan Playset.t."1t holds 15 Micro Machines, with

zir.gly mii milita featues:eLl of prodct c;:J i.TJg w/cu =migcut.Sr.:PE: : Ver,icles Sold Sepaately.

open and close nose...Rel v.rki."1 rars, elevator andcargo d:r.

CJ of J . M. flYin FroC~ctcfca.

in front Better get it before it e5 of!!

:-d. Shot of p-cx::Dxt cp:nin.SLl'D\: Micro i3chir.es

G31oob

Tt.e I\w Micro l-chine l1i CagoPl2.'1e Pla:,' set. Frro Gal00.

CU of J. /1schitt. s not. t. e real thin!

i i! I i 11

187

LEWIS GALOOB TOYS, INC.

Complaint

EXHIBIT D

RO"UCT

RCGR"'"J;:RS i LALJC:

ACo "'UcMiTLRTLtS

41 Eal 42nd S!T , N York , NY 10017(21)3Q9J40

Radio TV ReportsWPIX-

SU5FX: MEN SINer,.

: Campd Y cormand? Tirrto e'p

c:j,--

trOQr' " O gu

MAN: Ready to nd:

pd. at yOU" c ""a

ANNCR: T e PT A' au1 t Bo15FX) E'pands to d ,,; c teamtact i c ' wi h to r edQ'

193

C!20/99 J:'5"

-.:,

r -

*''i

EW YJ,

:; ,,,

ISFX- HELICOFHR) l.",Chop r. E p"ncs

5 F XI

1 fightHO

. ! - .')

'r o on cl,"o U 1: loa 'e

:',

'1"npo,, i 55 ' 1 e pO"I ar, a cd "" de t n se.

~~~

NNCR: Xpanoe". Ope

~~~

o"., tically to rcv d '0\dde,-, .r",ke fccc . So

GS;ct?' 1 cob

. I ' - fo

. ..

ALSO AVAILABLE IN COLOR VIDEO. APE CASSETTE. ..c,o '" 0"0'" 00. 'CO",,,, '

"""" '

" "'0 ''. 0'

"..' .' '""'

'0 0", ' ,.""e,", '",'""'0" ' 0' ",,',", o ''''e"'

.' ,"".

,", 0, 'O 0 .oo", '"'

"" ","" '

e, ' ", 'co ' '''''"''""',e,., 0"', " " e"' ,. .."0'""" 'c'o ,. '"0' "",

,",' ..,," ,"

HEN 5 I NC: Xp ndecs.

194 FEDERAL TRADE COMMISSIO:- DECISIONS

Complaint

EXHIBIT E

114 F.

:'';

l:: :.

RADIO1VREPORTS

b".,"dS,,,,,,,.Ycrk ';Y OOi7;2121300-

us I C I GIRL SINGS: c.,you;O 'rouetteso 5"eet

Somu::hride

un o take 0

ANNCR: Bo t: n ' Ki ds lo.e

,,; .

09 he i r BOL.oci Ponl ' cut Ic, . r; dA'-

- - " '. - ~~~

RLS SINC, R;c\ g Ponies

~~~

e ' ' m

~~~ ~~~

PRCDuC

OGRAM CHCSTB STERS

GnOCB BOUNCIN'

/4/90(NEW YQRq

9C-0395'

30 SEe.

3 :5b?

or ,w, no; up

; g

, r i goff your feet.

anC can YO" "ate l'kethisout,'ce.

T t\e q room t e i, ha i rhoo" Jpthe r..agoro , ancop or ; n.; d

--

Bcuc C;" ' Ki d"

''' ,. .

c,o 'ALSO AVAILABLE IN COLO.VIDIe-TAPE CASSnn

'COO"O' D', 'O\p

"""", ",

'"o''' C. O ''''Qn,oeO"".',-"pu ne,.' " '. O"O'

' '

OD'rA. c.d 'eo.ov b"", ..d".' ' ''b.

'.,",.-

Bcun ; nBouncin

Ki d, Ki d Cdn.

,.-.

BouncinBouncin

Ki d CdnKid, can

GIRLS: Giddy up, no..!

fcom G .oob.OUT:

(MUSiC

' jHI :ltJ;;

~~~~~

ttiSAt h

' b0 '" Ft')

in ;: i-, 0 - a .

...

t..

01 J i! '" 8P r:r; ; LfPt:

.. .

II

.. ,:

.A.:

.. ..

0:

::

gal 3!?i lr.

.. '\

IS, Iiir:1 J,;

187

111o . iil

iiI.'1"liB

LEWIS GALOOB TOYS. INC. 197

CompJaint

h '. i "'

ij ::I ,I

1 j

! '

C\

,..

iI.

~~~

f. b1,9 - r..

rr,,, \llIj! j!Lt

187

LEWIS GALQOB TOYS, 1KC.

Comp!aint

a........................d.........................i

...

.11811II"

...

..r.

........................... ...... ...... ....... ....

II.

...... ...... ...

...w

.. .....

...w

..

...n, ..B..B. II.&...II........n, B....II...a....

-------~~~

.....II...a.... ..il............... a 00 , .'111..........11...., ------

...

1.........II.....It ".1re ...'i1...........81............."

199

200 FEDERAL TRADE CmnllSSJOIi DECISIQKS

Comp!aint 114 F.

................................................... ... ... ... ... ... ... ...

..m '

... ... .............. ......................... ------

........I1.....r aIOO.....II........L

............... -----

.............B.

~~~... .......................

187

LEWIS GALOOB TOYS , I:-C.

Comp!aint

201

202 FEDERAL TRADE CmnIISSIOr. m:CISIOr.S

Comp!aint

.: .: .:

"0.

" :

O,

"""""""""

. ii' ,

!; .!,

S, ' " i i ':' 1" 1: 1 1\1 ;' ;'! i !". i!! 0 !

! ii' !. E .

'.

jl!!!j!!!:!i !i;i l!i!!li!!!!'! J!!1.. II.; .

, .

1'1 ,1 .

. ,

I' :

" ;'

I! t:

:: ,.. .. .. = ,

" i

..

i!i ii' ;;i:Ei!i .II 'il ' e

!'!! :"

., i "

;: !'!'!- !'!

;I!:.!-!- il. I!!,

. . ! '

!j, ii- !

Id'i CII!

'It I j , I

::

,,', ':11;'; I! ii!i! !I

' !!,

! Ii, " !:ii \ ! i!! i I, i ' i . ! i. \ 111 i,,!

:;

Ii

.. ..

'! f

: E " " i

.. .. .. :; .. .. :;

15 15

;; ..

i!W ll!i iP'!!-1\. !!.!I! ,"i,

:!! j' , "':; :;

.. n

114 F.

187

LEWIS GALOOB TOYS, IXG.

Complaint

205

206 FF:DERAL 'mADE COMMISSIO:- DECISIONS

Comp1aint 114 F.

LEWIS GALOOB TOYS , I:-C. 207

187 Complaint

208

Complaint

FmERAL TRADE COMMISSION DECISIONS

EXHIBIT H

114 F. T.

, .

'-i

LEWIS GALOOB TOYS, INC. 209

187 Complaint

.o

o 11Jo

-.

0'

,.,

D::: 1'1!1- I :JI

! "

i:d :!:i;i1

U . I :

,.""

i:::ii d::HI;!!!H!j!, :!L, ,

i ;, Ji :Lt.

: '

"",1'

. .

" , , " :. i

. - : :

: I. 1

;! fc;' !:,r !1 'h'

, . " :. --.' .

:; i i H

': -

I L i: i

/.'

5!tp;i:IHanHH' Jni Ui:

; ,

LH J : ;.i 'o;i,. 1, J ! I. , 'i i .

,. - : ! j . .

:t;E:;id;;h;;ji,, :L. :;!di,.

; ;

i :

' \o 7

::::..

I u

;5 '


CompJaint

'J'

;G'

!,' ''' - -------------_._-

...a....... ...5

~~~

3..'

...........

.... 8 .2

.......... g. ...-.

e 2 fi .. Q

....._..... .... ... . .

'/J

..

' I18.

:.

I.............1......"-."- .

'.-"""''''''''..''' , . ' , ' ,

CdOit.1..11128.

-- ....,.

I.....' ..S .....n.

......

....11.

...... ...........

..iI...I.....I -: ;I' !:r.'

.....

I......

'.. " ' . ."." .....

I............

.............

I............. ' ............11i::=::==:=::==::::=7r, C(; r

::::::=::::::=:=:::~~~

!I!!!!!I".".................

114 F.

LEWIS GALOOB TOYS , INC.

187 Complaint

...."......e

~~~~ - ,-

....."....l111

.''''

atil':..J

- --

- ..;o_...:aU.alll

.....

..I

\ - ': ..........,

a....

....., ........... ........... .........., ........... ......"..'

-ifT'

, " '''' " .................. ......... .....

.........".K ..............

:::::==:::::::=:

OOb)

................. ---.................. ~~~~.. ...'

W8P...

.". ........

213

214 FEDERAL TRADE C:O,!:IISSIO'i DECISIO'iS


DECISION A'iD ORDEE

The Federal Trade Commission having initiated an investigation ofcertain acts and practices of the respondent named in the captionhereof, and the respondent having been furnished thereafter with acopy of a draft of complaint which the Bureau of Consumer Protectionproposed to present to the Commission for its consideration and

which , if issued by the Commission , would charge respondent withviolation of the Federal Trade Commission Act; and

The respondent, its attorneys, and counsel for the Commissionhaving thereafter executed an agreement containing a consent orderan admission by the respondent of all the jurisdictional facts set forthin the aforesaid draft of complaint , a statement that the signing ofsaid agreement is for settement purposes only and does not constitutean admission by respondent that the law has been violated as allegedin such complaint , and waivers and other provisions as required by theCommission s Rules; and

The Commission having thereafter considered the matter andhaving determined that it had reason to believe that the respondenthas violated the said Act , and that complaint should issue stating itscharges in that respect , and having thereupon accepted the executedconsent agreement and placed such agreement on the public recordfor a period of sixty (60) days , now in further conformity with theprocedure prescribed in Section 2. 34 of its Rules, the Commissionhereby issues its complaint, makes the following jurisdictionalfindings and enters the following order:

1. Respondent Lewis Galoob Toys , Inc. is a corporation organizedexisting and doing business under and by virtue of the laws of theState of Delaware , with its office and principal place of business

located at 500 Forbes Boulevard , San Francisco , California.

2. The Federal Trade Commission has jurisdiction of the subjectmatter of this proceeding and of the respondent , and the proceeding is

in the public interest.

ORDER

For purposes of this order the required disclosure shall conform tothe following requirements: (a) in television advertisements , a legible

superscript in a manner to ensure clarity and prominence with asimultaneous voice-over recitation; except that any advertisement

LEWIS GALOOB TOYS . IKC. 215


which , in view of its content and placement, is directed to adults neednot contain a simultaneous voice-over recitation; (b) in printed

advertisements and promotional materials, a disclosure printed in a

typeface and color that are clear and prominent; (c) in radioadvertisements , a statement included in a manner to ensure clarityand prominence. Any disclosure required by this order shall blanguage understandable to children unless , in view of its content andplacement , the advertisement is directed to adults. For purposes ofthis order adults are defined as individuals age thirteen (13) and older.

It is ordered That respondent Lewis Galoob Toys, Inc. , acorporation, its successors and assigns, and its officers , agents

representatives and employees , directly or through any corporationsubsidiary, division or other device , in connection with the advertising,labelling, packaging, offering for sale , or distribution of any toy in oraffecting commerce , as "commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from depicting ordescribing in any advertisement or other promotional material two ormore non- identical toys that are not available for purchase together asa set , unless respondent clearly and prominently discloses that thetoys must be purchased separately.

11.

It is further ordered That respondent Lewis Galoob Toys , Inc. , a

corporation, its suecessors and assigns , and its officers , agents

representatives and employees , directly or through any corporationsubsidiary, division or other device , in connection with the advertising,labelling, packaging, offering for sale , or distribution of any toy thatrequires significant assembly prior to use in or affecting commerce , as

commerce" is defined in the Federal Trade Commission Act, doforthwith cease and desist from depicting or otherwise representing

such toy as fully assembled unless respondent clearly and prominentlydiscloses on the packaging that the toy must be assembled before it isready for use.

It ,:.0 further ordered That respondent L€wis Galoob Toys, Inc. , a



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

representatives and employees , directly or through any corporationsubsidiary, division or other device , in connection with the advertising,labelling, packaging, offering for sale , sale or distribution of any toyin or affecting commerce , as "commerce" is defined in the FederalTrade Commission Act , do forthwith cease and desist from misrepre-senting, directly or indirectly, that any such product can move by itselfwithout human assistance , or any other movement capability, or theneed for assembly; provided, however that nothing in this order shallbe deemed to preclude the use of stop- action photography in televisioncommercials so long as the advertisement as a whole represents thetoy in a non-deceptive manner, such as but not limited to , by means ofa clear and prominent depiction of hands-on play showing the methodof operation of the toy.

IV.

It isfurther ordered That respondent Lewis Galoob Toys , Inc. , andits successors and assigns, shall , for three (3) years after the date ofthe last dissemination of the representation to which they pertain

maintain and upon request make available to the Federal TradeCommission for inspection and copying:

A. All materials that were relied upon in disseminating anyrepresentation covered by this order;

B. All film footage used in connection with any advertisement thatcontains any representation covered by this order; and

C. Any toy as well as the packaging for any toy involved in any

representation covered by this order.

It is further ordered That respondent Lewis Galoob Toys , Inc.

shall distribute a copy of this order to each of its operating divisions

to each of its managerial employees , and to each of its officersagents , representatives or employees engaged in the preparation orplacement of advertising or other materials covered by this order andshall secure from each such person a signed statement acknowledgingreceipt of this order.

LEWIS GALOOB TOYS . IXC. 217

187 Dccision and Order

VI.

It is further ordered That rcspondent Lcwis Galoob Toys , Inc. shallnotify the Commission at least thirty (30) days prior to any proposedchange such as the dissolution , assignment or sale resulting in theemergence of a successor corporation , the creation or dissolution ofsubsidiaries or any othcr change in the corporation which may affectcompliance obligations arising out of this order.

VII.

It is further ordered That respondent Lewis Galoob Toys, Inc.

shall , within sixty (60) days after service upon it of this order and atsuch other times as the Commission may require , file with theCommission a report , in writing, setting fOlth in detail the manner andform in which it has complied with the requirements of this order.

Commissioner Starck not palticipating.

218 FEDERAL TRADE COMMISSIOX DECISIONS

Complaint 114 F.

IN THE MATTER OF

TOWNE , SILVERSTEIN , ROTTER, INC.

CONSENT ORDER, ETC. I:- HEGARD TO ALLEGED VIOLATION OF

SEC. 5 OF THE FEDERAL TRADE COMMISSIOK ACT

Docket 3325. Complaint, Feb. 1991-Decision, Feb. , 1991

This consent order prohibits , among other things , a New York City based advertiserfrom making deceptive advertising claims for toys.

Appearances

For the Commission: Janet M. Evans and Joel C. Winston.

For the respondent: Felix Kent , Hall, Dickler, Lawler, Kent &Friedman New York , N.

COMPLAINT

The Federal Trade Commission, having reason to believe thatTowne , Silverstein , Rotter, Inc.

, ("

TSR") hereinafter sometimesreferred to as " respondent" has violated provisions of the FederalTrade Commission Act , and it appearing to the Commission that aproceeding by it in respect thereof would be in the public interestalleges:

PARAGRAPH 1. TSR is a New York corporation with its principaloffice or place of business at 411 Lafayette Street , Kew York , NewYork.

PAR. 2. TSR is now , and for some time past has been the advertisingagency of Lewis Galoob Toys , Inc. (" Galoob" ). TSR has prepared andplaced for publication , advertising material to promote the sale ofGaloob toys , including Micro Machines (miniature vehicles), MicroMachines playsets (such as Transport Chopper , Aircraft Carrier andAir Cargo), Xpanders (such as the Xpanders Chopper/Assault Base),and Bouncin' Kids (dolls that move).

PAR. 3. The acts or practices of respondent alleged in this complainthave been in or affecting commerce.

PAR. 4. Typical , but not necessarily all inclusive, of respondent'advertisements for Micro Machines , Micro Machines playsets , Xpan-

TOW:\E. SILVERSTEIN . ROTTER INC. 219

218 Complaint

ders , and Bouncin ' Kids are set forth in Exhibits A through E attachedhereto.

PAR. 5. Through the use of the statements and depictions in ExhibitE and others in advertisements not specifically set forth hereinrespondent represented , directly or by implication , that the BouncinKids Ballerina Kid stands on one foot and twirls by herself withouthuman assistance.

PAR. 6. In truth and in fact , the Bouncin ' Kids Ballerina Kid doesnot stand on one foot and twirl by herself without human assistance.Therefore , the representations set forth in paragraph five were falseand misleading.

PAR. 7. Through the use of the statements and depictions in ExhibitD and others in advertisements not specifically set forth hereinrespondent represented , directly or by implication , that the XpandersChopper/Assault Base shoots a missile at a high rate of speed andthat the missile travels a considerable distance.

PAR. 8. In truth and in fact , the Xpanders Chopper/Assault Basedoes not shoot a missile at a high rate of speed and the missile does

not travel a considerable distance. Therefore . the representations setforth in paragraph seven were false and misleading.PAR. 9. Through the use of the statements and depictions in

Exhibits A , B , and C , and others in advertisements not specifically setforth herein , respondent represented , directly or by implication , thatthe Micro Machines playsets Transport Chopper , Aircraft Carrier , andAir Cargo as packaged and sold include some or all of the MicroMachines pictured in the advertisements.

PAR. 10. In truth and in fact , the Ylicro Machines playsets TransportChopper, Aircraft Carrier, and Air Cargo are packaged and soldwithout any of the Micro :.lachines pictured in the advertisements oron the packages. Therefore , the representations set forth in paragraphnine were false and misleading.

PAR. 11. In its advertisements for the Xpanders Chopper/AssaultBase , including but not limited to ExhiBit D , respondent representedthrough depictions that the toy is fully assembled and ready for usebut failed to disclose that significant assembly is required prior to use.This fact would be material to consumers in their purchase decisions.Respondent' s failure to disclose this fact, in light of the depictions inthe advertisements and promotional materials , was a deceptivepractice.PAR. 12. Through the use of the statements and depictions in

220 FEDERAL TRADE CO:l !lSSION DECISIONS

Complaint 114 F.

Exhibits A and D and others in advertisements not specifically setforth herein , respondent represented , directly or by implication , thatthe rotors of the Micro Machines playset Transport Chopper and theXpanders Chopper! Assault Base turn and move by themselveswithout human assistance.

PAR. 13. In truth and in fact, the rotors of the Micro :vachinesplayset Transport Chopper and the Xpanders Chopper! Assault Base

do not turn and move by themselves without human assistance.Therefore , the representations set forth in paragraph twelve werefalse and misleading.

PAR. 14. The dissemination by respondent of the aforesaid false andmisleading representations as alleged in this complaint constituted

unfair or deceptive acts or practices in or affecting commerce inviolation of Section 5(a) of the Federal Trade Commission Act.

Commissioner Starek not participating.

218

TOWNE , SILVERSTEI:- , ROTTER, INC.

CompJaint

BXHIBIT A

221

t .

lSSEC.RADIOTVREPORTS41 Eo.. d S1"' ' .... Yod. r 10017 12121 JO'- I

15FX-HElICOPTER) flN:; cro , .ch; oe .n her..r: 50 exc; ted .bou

; "CO M"Ch; nc, ' Tc. .pcrtChopper

n; ng .nd c:osi ng dC""'a fdnt_st' cpu ll do..e.

"'P, - r, ' r ot. i ngmotors.

PROOL;CT

?RCGRAM

CALCOB I CRG MACHI NESSPORT CHOPPE"

CHIP ' NDALE5RESCUE RANGERS

"'PIX-TV

"','

t I'm gol n9 to lanetC\ t ch r In palmof my "r. d. o"J

L.nd. ; your h.ndchoppe,,,.n! The MjcroMoehi n T,. poct Chopperfrom C., cob

ALSO AVAILABLE IN COLOR VIDEO.TAPf CASSITTf

9Q-G3"9.

3/:J/90

: NEW YOR ,,; SSP

.- . .-.-. -"-'; ;

o t

~~~~ ~~~

6rtChopp"r

, ,"

h two tcta 11 tecr1ficdecks

",ber ;f it doe5n

HEll PTER 7tMered' th;ng! (5FXQUTi

;;::. ::' ~~~~~

;:b

~~~

. o

~~~~~~~~~~ ~~~ :.' ~~~

;:;CZ",n" "'oled O' " o,I,d


Complaint 114 F.

EXHIBIT B

To.. 1' . Sil rs!cin, Roller Jr.. , 101 Park AKnue. f\'rw\brk , N. r )Oli8, Tel (212) 557. 5570

Krcr

prod ,1 AI CA

XHIBIT R-

Copy Client GrBmedii 'I sizi :15

QU2039XGLT-8405

dale 3/16/88 lob no

10P=VIil AIIO

IDog sht of J. fuscitta in front of Aicraft Caier.SUPER 1988 Les Galcc Tos, In.

'Ie Micro X3d1in M3 hee.. . AicraftCa ier thJ Yoo ca ' t ha \I th t. .

Airaft eaier s S'ller andis redced to fit in his ha. rot )' ca have this:

TH NE MIcr M. A. CAPUUSE' .'! dramticaly detailed, t.ificaltrim replica of the real thin,

Sht of Aicraft Caier w/airlanson it.SUPER : vehicles Sold Sepaately.

t.'lt holds 25 Micro M3chins.

CJ of Aicraft Caier elevatorsITVin ../airl

With fab::s fantastic featues:'l totaly terific elevators...

Sht of I.rkin ho real l.=kbg hoist, I'\.:ay

OJ of Cago an t'. CL-g ar.lT. Sht of propo,.SUER : Micro H3.hi.s

Gdlco

shin ITvin TH lI; MICX WI AI CAPLAYSE. :T Galco. .F., if it eosn t say MicroI1chines

C'J of J. bscitt.. it' s not t: € rea t.1-in.

1\.

TOWNE . SILVERSTEIN , ROTTER, INC. 223

218 Complaint

EXHIBIT C

Townc. Sil lcin. Roller Inc.. 101 P'rk AI-n!X', Nc'rrk , NY 10178, 'I!. (2i2J 557. 5570

::ibit C

Copy cllenl GAB prod"cl MIcr Ca pla Pla.yset 0,15Gr2039XGr.:r"'S425

medii 'I Sill

dale 3/16/88 job no.

AS

VIro

Ioscitta :

J. z.scitta st.din in front Caqa plan.SUPER 198B Lewis Galoo Tos, I1.

m just th-Micro fochine !o , rotthis isn t just a plan!

Cago Plan s 5m11er and isredced to fit in his had.

It' s th ne, pefecly precisestupedosly styled

CU of J. M. holdi."1g pro:ct. Micro Machin Cago Plane Playset...tht holds 15 Micro l1chines , withamzingly mii milita featues:

OJ of prodct o i1 w/ca out.SL'PE: : Vehicles Sold Sepaately.

OJ of J . M. flyin proCct in frontof ca.'7a.

ope and close nose...l "-r-k.in raIs, elevator and

cargo cbr.

Better get it before it taes off!

d. Sht of procct opein.SL'P : Micro I-.:chines

Galoob

The New Micro Machine Mii CagoPla."1e Pla:,' set. Fr Galc:.

OJ of J. I'schitta s not the real thin!

il\1inri2

224 FEDERAL TRADE COMMISSIO)I DECISIO:-S

Complaint

EXHIBIT D

41 Ea1 42 d Stn:CI. Nev York, NY. 10017(212)309140

Radio TV Reports PROGRAM

U5 I C/5 1J KEN SING.1poMer..

, Comp ny COrT,,nd? Timeto e nc.

u. .P'tcoops ond guns.

'0. MAN: Re.cytoexPdnd?

'''OOUCT XPA DFR5!CALOL

TEENACEMU':ANTNINJATU'''LES

WPIX- T'i

114 F.

'J. .;-'L89-,2S2C,0 SEC.10120/89

(NEW YORK:

:) :

6PM

Exhibi t 0

15FXI

--

:.p.nc.tyourco"1.nd.

S.yfighters,

- . ' ..-..;.

I).

!+tJr

..

;/ir .fi

#:"

MmCR, The DT Asuult Boot,(SFX) Expondsto.n,irteo'"toctlcfor""..,thtor-pedo5

into.n....ultodse.. it"mdnp""er ,,issilepo,,erlondandoiro"fense.

!-.f

-"'" --.. - - ...- -,.: -

ANNCR, Xp.ndee.. Open.utomot1c.l:yto ceve.1 yourhi dd tri ke ' crc . Sol d

&'

OUT?' I ccb.

(SFX-I1ELICOPTER) The(hopper. E

Wh '. R.O,oT\. ".""". 0' '00"'0" '0 ..,"" 'h. '''' .'''' DO "..", "00"'" 0, d " ""001 O. ..,oco"O" '0' '''''''C' om,,,.O"'

"'"''''

''' O, .O o v A.oo'" '"' m" D. .,"" '0"" '"0" .,."" ,v'oo,", """ ""'" "0, ""0'00,..0 '0'00' CwO"~,"~ ",mo""..,.d O' "n,.,",

, "=:

HEN 5 i NG: r,.

ALSO AVAilABLE IN COLO VIDEO.TAPE CASSETTE

218

TOWNE . SILVERSTEIN , ROTTER, IKC.

Complaint

EXHIBIT E

225

EX:,':. .tn:

RADIOTVREPORTS41 Eo,,42 dSp'ee'NewYQI. . "iY 100;7,:2121309- 1400

U5IC) GIRL SINGS: CM; ,ocette .0 sweet

Somucnfun to t"kearide

ANNCR; 5Dun i n ' Ki d, 10vet""; ng the; r Bov ci r.

;"s out for a pi Oe.

. . . . ,,:--: -

':.1'

-.. , ... .. .. '!. -

C I RL5 5 I NC, Ri di g PO";""

;;. ~~~ ~~~

PRODUCT

PROGRAM CHOSTBU5TERS

CALOOBBOUNCIN' KIDS4/4/90

(NEW YORK)

O'OJ9S\

30 SEe.

3: S6P,

cr ,,,,n.ffyO.Jr

p hi gh r; ghtfeet,

' '. , '

BDunci,, ' Ki dBounci n ' K, d. '"

r -

Boundn ' Kid. canBoun,;n ' Kids can

CIRLS, Gid(!yup, no,,

FromCaloob. (MUSICOUT)

d O" you , .He 1; k"th"outS1(Je.

.. "'~~~

:' onenopon'n"de.

\..,.... -""". , . ,? '

e.K"c.Bouncir, ' Kid,can!

ALSO AVAilABLE IN COLOR VIDEO- TAPE CASSnn

::;, ~~~

;:o

~~~~~~~~~~ ,':' ~~~

:;:o

=::

"e" b, "0"00' '" "" po", e '0' m "D.., 0' O,"''''D"" c . . . G'e'

. .

O. "0'

"'

'ep' OC'"OG. , I" 0' Pcb",I. d.moo\" pd c. r.

' ,.

,CO



DECISION A:-D ORDER

The Federal Trade Commission having initiated an investigation ofcertain acts and practices of the respondent named in the captionhereof, and the respondent having been furnished thereafter with acopy of a draft of complaint which the Bureau of Consumer Protectionproposed to present to the Commission for its consideration and

which , if issued by the Commission , would charge respondents withviolation of the Federal Trade Commission Act; and

The respondent, its attorneys, and counsel for the Commissionhaving thereafter executed an agreement containing a consent orderan admission by the respondent of all the jurisdictional facts set forthin the aforesaid draft of complaint , a statement that the signing ofsaid agreement is for settlement purposes only and does not constitutean admission by respondent that the law has been violated as allegedin such complaint, and waivers and other provisions as required by theCommissions ' Rules; and

The Commission having thereafter considered the matter andhaving determined that it had reason to believe that the respondenthas violated the said Act , and that complaint should issue stating itscharges in that respect, and having thereupon accepted the executedconsent agreement and placed such agreement on the public recordfor a period of sixty (60) days , now in further conformity with theprocedure prescribed in Section 2. 34 of its Rules, the Commissionhereby issues its complaint, makes the following jurisdictionalfindings and enters the following order:

1. Respondent Towne , Silverstein , Rotter, Inc. is a corporation

organized , existing and doing busincss under and by virtue of the lawsof the State of New York , with its office and principal place of

business located at 411 Lafayette Street, "'ew York, ",ew York.2. The Federal Trade Commission has jurisdiction of the subject

matter of this proceeding and of the respondent , and the proceeding isin the public interest.

ORDER

For purposes of this order the required disclosures shall conform tothe following requirements: (a) in television advertisements , a legiblesuperscript in a manner to ensurc clarity and prominence with asimultaneous voice-over recitation; except that any advertisement

TOWNE . SILVERSTEIN , ROTTF:R I:-C. 227


which , in view of its content and placement, is directed to adults neednot contain a simultaneous voice-over recitation; (b) in printed

advertisements and promotional materials , a disclosure printed in a

typeface and color that are clear and prominent; (c) in radioadvertisements , a statement included in a manner to ensure clarityand prominence. Any disclosure required by this order shall be language understandable to children unless , in view of its content andplacement, the advertisement is directed to adults. For purposes ofthis order adults are defined as individuals age thirteen (13) and older.

It is ordered That respondent Towne , Silverstein , Rotter, Inc. , acorporation, its successors and assigns, and its officers, agentsrepresentatives and employees , directly or through any corporationsubsidiary, division or other device , in connection with the advertisingof any toy in or affecting commerce , as " commerce " is defined in theFederal Trade Commission Act, do forthwith cease and desist fromdepicting or describing two or more non- identical toys that are notavailable for purchase together as a set , unless respondent clearly andprominently discloses that the toys must be purchased separately.

II.

It is further ordered That respondent Towne , Silverstein , RotterInc. , a corporation , its successors and assigns , and its officers , agentsrepresentatives and employees , directly or through any corporationsubsidiary, division or other device , in connection with the advertisingof any toy manufactured or sold in or affecting commerce , as

commerce " is defined in the Federal Trade Commission Act by LewisGaloob Toys , Inc. , or its successors or assigns, that requiressignificant assembly prior to use , do forthwith cease and desist fromdepicting or otherwise representing such toy as fully assembled unlessrespondent has a reasonable basis to believe that there is a clear andprominent disclosure on the packaging that the toy must be assembledbefore it is ready for use.

It is further oTdeTed That respondent TowneInc. , a corporation , its successors and assigns

Silverstein , Rotterand their officers



agents, representatives and employees , directly or through anycorporation , subsidiary, division or other device , in connection with theadvertising of any toy in or affecting commerce , as "commerce " is

defined in the Federal Trade Commission Act , do forthwith cease anddesist from misrepresenting, directly or indirectly, that any suchproduct moves by itself without human assistance or any othermovement capability; provided, however that nothing in this ordershall be deemed to preclude the use of stop-action photography intelevision advertisements so long as the advertisement as a wholerepresents the toy in a nondeceptive manner, such as , but not limited, by means of a clear and prominent depiction of hands-on play

showing the method of operation of the toy.

IV.

It is jiO"ther ordered That respondent Towne , Silverstein , RotterInc. , and its successors and assigns , shall , for three (3) years after thedate of the last dissemination of the representation to which they

pertain , maintain and upon request make available to the FederalTrade Commission for inspection and copying:

A. All materials that were relied upon in disseminating anyrepresentation covered by this order;

B. All film footage used in connection with any advertisement thatcontains any representation covered by this order; and

C. Any toy as well as the packaging for any toy involved In anyrepresentation covered by this order.

It is further ordered That respondent Towne , Silverstein , RotterInc. , shall distribute a copy of this order to each of its operatingdivisions, to each of its managerial employees , and to each of itsoffcers , agents , representatives or employees engaged in the prepara-tion or placement of advertising or other materials covered by thisorder and shall secure from each such person a signed statementacknowledging receipt of this order.

VI.

It is fi'rther orde1'd That respondent Towne , Silverstein , Rotter

TOIVNE , SILVERSTEIN, ROTTER. INC. 229


Inc. , shall notify the Commission at least thirty (30) days prior to anyproposed change such as the dissolution , assignment or sale resultingin the emergence of a successor corporation, the creation ordissolution of subsidiaries or any other change in the corporationwhich may affect compliance obligations arising out of this order.

VII.

It is further ordered That respondent Towne, Silverstein , RotterInc. , shall , within sixty (60) days after service upon it of this order andat such other times as the Commission may require, fie with theCommission a report , in writing, setting forth in detail the manner andform in which it has complied with the requirements of this order.


230 FEDERAL TRADE COMMISSIOK DECISIOKS

Complaint 114 F.

IN THE MATTER OF

RICHARD CREW

CONSENT ORDER, ETC. , IN REGARD TO ALLEGED VIOLATIOX OF

SECS. 5 AND 12 OF THE FEDERAL TRADE COMMISSIOK ACT

Docket C-3326. Cmnplaint, Mm' 4, 1991-Dec1:sion, Mar. 4, 1.991

This consent order prohibits , among other things , the advertiser and distributor of theDiet Patch from making unsubstantiated efficacy claims for any product orservice and from misrepresenting that a paid advertisement is an independent

program. In addition , the order prohibits the respondent from disseminating orbroadcasting "The Michael Reagan Show,

Appearances

For the Commission: Tracy S. Thorleifson.

For the respondent: Pro se.

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Actand by virtue of the authority vested in it by said Act , the FederalTrade Commission , having reason to believe that Richard Crew, an

individual , hereinafter sometimes referred to as respondent, hasviolated the provisions of said Act , and it appearing to the Commissionthat a proceeding by it in respect thereof would be in the publicinterest, hereby issues its complaint stating its charges in that respectas follows:

PARAGRAPH 1. Respondent Richard Crew is an individual residing at7968 Via Costa, Scottsdale , Arizona. Individually or in concert withothers , he advertised , marketed and sold a weight- loss product, the

EuroTrym Diet Patch " primarily by means of a 30-minute televisionadvertisement made to simulate a regujar television talk show.

PAR. 2. Respondent engaged in the advertising, offering for salesale and distribution of a food , drug, device, or cosmetic , the

EuroTrym Diet Patch , a product found in commerce. The EuroTrymDiet Patch comes within the classification of "drug," as that term isdefined in Section 15(c) of the FTC Act, 15 U. C. 55(c).

PAR. 3. The acts and practices of respondent alleged in this

RICHARD CREW 231

230 Complaint

complaint have been or are in or affecting commerce , as " commerceis defined in Section 4 of the FTC Act, 15 U. C. 44.

PAR. 4. Since at least 1988 , individually or in concert with othersrespondent promoted the sale of and sold numerous packages of theEuroTrym Diet Patch to consumers in various areas of the UnitedStates. A one-month supply of the EuroTrym Diet Patch sold for$49. , plus shipping and handling costs of $4. 00. Sales or the

EuroTrym Diet Patch totalled approximately $4 833 000. To promotethe sale of the EuroTrym Diet Patch , respondent appeared in a 30-minute television commercial identified as "The Michael ReaganShow " which was broadcast on network, independent and cabletelevision stations throughout the United States.PAR. 5. By and through the "Michael Reagan Show" and other

statements and depictions, respondent represented , directly or byimplication , that:

(a) Use of the EuroTrym Diet Patch prevents feelings of hunger.(b) Use of the EuroTrym Diet Patch enables users to lose

substantial amounts of weight.(c) Use of the EuroTrym Diet Patch enables users to lose weight in

a large majority of cases.

(d) Competent and reliable tests or studies establish that theEuroTrym Diet Patch promotes weight loss.

PAR. 6. In truth and in fact:

(a) Use of the EuroTrym Diet Patch does not prevent feelings ofhunger.

(b) Use of the EuroTrym Diet Patch does not enable users to losesubstantial amounts of weight.

(c) Use of the EuroTrym Diet Patch does not enable users to loseweight in a large majority of cases.

(d) No competent and reliable test or study establishes that theEuroTrym Diet Patch promotes weight loss.

Therefore , each of the representations set forth in paragraph 5 wasand is false , misleading or deceptive.

PAR. 7. Through the use of the statements and representations setforth in paragraph 5 and others not specifically set forth hereinrespondent represented , directly or by implication, that he possessed

and relied upon a reasonable hasis for each of the representations setforth in paragraph 5 at the time such representations were made.

PAR. 8. In truth and in fact , respondent did not possess and rely

232 FEDERAL TRADE CO:\:\ISSION DECISIONS

Comp!aint 114 F.

upon a reasonable basis for making each of the representations setforth in paragraph 5 at the time such representations were made.Therefore , the representation set forth in paragraph 7 was and isfalse , misleading or deceptive.

PAR. 9. By and through "The Michael Reagan Show " respondent

represented, directly or by implication , that "The Michael ReaganShow" was an independent consumer program that discusses variety of topics , including products like the EuroTrym Diet Patch.

PAR. 10. In truth and in fact

, "

The Michael Reagan Show" was notan independent consumer program or anything other than paidcommercial advertising. Therefore, the representation set forth inparagraph 9 was and is false , misleading or deceptive.

PAR. 11. By and through "The Michael Reagan Show" and other

statements and depictions , respondent , in numerous instances , repre-sented, directly or by implication, that endorsements appearing in

advertisements for the EuroTrym Diet Patch:

(a) Reflect the honest opinions , findings, beliefs , or experience ofthe endorser;

(b) Reflect the typical or ordinary experiences of members of thepublic who have used these products; and

(c) Were obtained from individuals or other entities who , at the timeof providing their endorsements , were independent from all of theindividuals and entities marketing the product.

PAR. 12. In truth and in fact, in numerous instances, theendorsements appearing in advertisements for the EuroTrym DietPatch;

(a) Do not reflect the honest opinions, findings , beliefs , orexperience of the endorser;

(b) Do not reflect the typical or ordinary experience of members ofthe public who have used these products; and

(c) Were obtained from individuals or other entities who , at the timeof providing their endorsements , were not independent from all of theindividuals and entities marketing the product.

Therefore , each of the representations set forth in paragraph 11 wasand is false , misleading and deceptive.

PAR. 13. Respondent' s dissemination of the false and misleadingrepresentations as alleged in this complaint constitutes unfair or

deceptive acts or practices in or affecting commerce in violation ofSections 5(a) and 12 of the FTC Act.

RICHARD CREW 233


PAR. 14. Respondent's unfair or deceptive acts or practices as

alleged in this complaint have caused substantial injury to consumers.Commissioner Starek not participating.

DECISION A:-D ORDER

The Federal Trade Commission having initiated an investigatron ofcertain acts and practices of the respondent named in the captionhereof, and the respondent having been furnished thereafter with acopy of a draft of complaint which the Seatte Regional Officeproposed to present to the Commission for its consideration and


The respondent and counsel for the Commission having thereafterexecuted an agreement containing a consent order , an admission bythe respondent of all the jurisdictional facts set forth in the aforesaiddraft of complaint, a statement that the signing of said agreement isfor settlement purposes only and does not constitute an admission byrespondent that the law has been violated as alleged in such


The Commission having thereafter considered the matter andhaving determined that it had reason to believe that the respondenthas violated the said Act , and that complaint should issue stating itscharges in that respect , and having thereupon accepted the executedconsent agreement and placed such agreement on the public recordfor a period of sixty (60) days , now in further conformity with theprocedure prescribed in Section 2. 34 of its Rules, the Commissionhereby issues its complaint, makes the following jurisdictionalfindings and enters the following order:

1. Richard Crew resides at 7968 Via Costa, Scottsdale , Arizona.2. The Federal Trade Commission has jurisdiction of the subject


ORDER

It is ordered That respondent, an individual, and respondent'



agents, representatives and employees , directly or through anypartnership, corporation, subsidiary, division or other device , in

connection with the advertising, packaging, labeling, promotion

offering for sale , sale or distribution of any product or service in oraffecting commerce , as " commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from sellng, broad-casting or otherwise disseminating, or assisting others to seli

broadcast or otherwise disseminate , in part or in whole the 3D-minutetelevision advertisement for the EuroTrym Diet Patch described in thecomplaint and sometimes known as "The Michael Reagan Show.

II.

It is further ordered That respondent , an individual, and respon-dent' s agents , representatives and employees , directly or through anypartnership, corporation, subsidiary, division or other device, do

forthwith cease and desist from:

A. Representing, directly or by implication , in connection with theadvertising, packaging, labeling, promotion , offering for sale , sale ordistribution of the EuroTrym Diet Patch or any other substantiallysimilar weight control or weight reduction product or service in oraffecting commerce , as " commerce " is defined in the Federal TradeCommission Act, that:

(1) Use of such product or service prevents feelings of hunger;(2) Use of such product or service enables users to lose substantial

amounts of weight;(3) Use of such product or service enables users to lose weight in a

large majority of cases; or(4) Any competent and reliable test or study establishes that such

product or service promotes weight loss.

For purposes of this Part II a "substantially similar weight controlor weight reduction product" shall be defined as any product that isadvertised to cause or aid weight loss through acupressure , acupathyor homeopathy that uses a bandaid or patch to apply a solution to theskin or that purportedly contains as its active ingredient calcarea

carbonica.B. Representing, directly or by implication , in connection with the

advertising, packaging, labeling, promotion , offering for sale , sale or

RICHARD CREW 235


distribution of any other product or service in or affecting commerceas "commerce " is defined in the Federal Trade Commission Act , that:

(1) Use of the product or service prevents or reduces feelings of

hunger;(2) Use of the product or service enables users to lose substantial

amounts of weight;(3) Use of the product or service enables users to lose weight in a

substantial number of cases; or(4) Any competent and reliable test or study establishes that use of

the product or service promotes weight loss

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

representation, respondent possesses and relies upon a reasonablebasis consisting of competent and reliable scientific evidence thatsubstantiates the representation. Competent and reliable scientificevidence shall mean for purposes of this order any test, analysisresearch , study, surveyor other evidence that has been conducted andevaluated in an objective manner by persons qualified to do so , usingprocedures generally accepted in the profession or science to yieldaccurate and reliable results.

C. Failing to disclose clearly and prominently in any advertisementfor any weight control or weight reduction product or service in oraffecting commerce , as "commerce " is defined in the Federal TradeCommission Act , that dieting and/or exercise is required in order tolose weight; provided, however that this disclosure shall not be

required if respondent possesses and relies upon competent andreliable scientific evidence demonstrating that the product or servicein question is effective without dieting and/or exercise.

It is further ordered That respondent, an individual , and respon-dent' s agents , representatives and employees , directly or through anypartnership, corporation , subsidiary, division or other device , in


offering for sale , sale , or distribution of any product or service in oraffecting commerce , as " commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from:

A. Making any representation , directly or by implication , regardingthe performance, benefits , efficacy or safety of any food , drug or


Decision and Order Jl4 F.

device , as those terms are defined in Section 15 of the Federal TradeCommission Act, 15 U. C. 55 , unless at the time of making therepresentation respondent possesses and relies upon competent andreliable scientific evidence that substantiates the representation.

B. Making any representation , directly or by implication , regardingthe performance , benefits , efficacy or safety of any product or service(other than a product or service covered under Subpart III.A), unlessat the time of making the representation respondent possesses and

relies upon a reasonable basis for each such representation.

IV.

It is further ordered That respondent, an individual , and respon-dent' s agents , representatives and employees , directly or through anypartnership, corporation, subsidiary, division or other device, in


offering for sale , sale or distribution of any product or service in oraffecting commerce , as " commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from:

A. Csing, publishing, or referring to any endorsement (as " endorse-ment" is defined in 16 CFR 255(b)), unless respondent has goodreason to believe that at the time of such use , publication or referencethe endorsement reflects the honest opinions , findings, beliefs or

experience of the endorser and contains no representation that wouldbe false or unsubstantiated if made directly by respondent.

B. Failing to disclose , clearly and prominently, a material connec-tion , where one exists , between an endorser of any product or serviceand respondent. For purposes of this Part IV , a material connec-

tion shall mean any relationship between an endorser or any productor service and any individual or other entity advertising, promoting,offering for sale , selling or distributing such product or service , whichrelationship might materially affect the weight or credibility of theendorsement and which relationship would not reasonably be expectedby consumers.

C. Representing, directly or by implication , that any endorsement ofthe product or service represents the typical or ordinary experience ofmembers of the public who use the product or service , unless the

representation is true.

RI CHARD CREW 237


It is further ordered That respondent , an individual , and respon-dent' s agents , representatives and employees , directly or through anypartnership, corporation , subsidiary, division or other device , in


offering for sale , sale , or distribution of any product or service .in oraffecting commerce , as " commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from creating,producing, selling or disseminating;

A. Any commercial or other advertisement for any such product orservice that misrepresents , directly or by implication, that it is an

independent program and not a paid advertisement;B. Any commercial or other advertisement for any such product or

service fifteen (15) minutes in length or longer or intended to fill abroadcasting or cablecasting time slot of fifteen (15) minutes in lengthor longer that does not display visually, in a clear and prominentmanner , within the first thirty (30) seconds of the commercial andimmediately before each presentation of ordering instructions for theproduct or service , the following disclosure:

THE PROGRAM YOC ARE WATCHI:-G IS A PAID ADVERTISEMENT FOR(THE PRODCCT OR SERVICE)."

VI.

It is further ordered That , within fifteen (15) days after the datethis order becomes final, respondent shall submit a truthful swornstatement , in the form shown in Exhibit A to this order that shallreaffirm and attest to the truth, accuracy, and completeness of

respondent' s financial statements and the related documents ("Finan-cial Statement") that were dated July 17 , 1990, and previouslysubmitted to the Commission.

VII.

It is further ordered That this order is expressly premised uponrespondent's financial condition as represented in the sworn FinancialStatement referenced above , which contains material information

upon which the Commission relied in negotiating and agreeing to the

238 FEDERAL TRADE COMMISSIO:- DECISIOXS


lack of a redress payment in this order. If the Commission determinesthat respondent failed to file the truthful sworn statement required byPart VI of this order, or failed to disclose any asset, materially

misrepresented the value of any asset , or made any other materialmisrepresentation or omission in his Financial Statement , the Com-mission may reopen the proceeding and take such action as theCommission deems appropriate. Proceedings instituted under thisparagraph are in addition to and not in lieu of any other remedies asmay be provided by law , including any proceedings the Commissionmay initiate to enforce this order.

VII

It is further ordered That respondent shall , for a period of five (5)years from the date of entry of this order , notify the Commissionwithin thirty (30) days of the discontinuance of his present business oremployment and of his affiiation with any new business or employ-ment. Each notice of affiliation with any new business or employmentshall include the respondent's new business address and telephonenumber, current home address , and a statement describing the natureof the business or employment and his duties and responsibilities. Theexpiration of the notice provision of this Part VII shall not affect anyother obligation arising under this order.

IX.

It is further ordered That for three (3) years from the date that thepractices to which they pertain are last employed , respondent shallmaintain and upon reasonable request make available to the FederalTrade Commission, at a place designated by Commission staff forinspection and copying:

A. All advertisements and promotional materials subject to thisorder;

B. All materials relied on as substantiation for any representationcovered by this order;

C. All test reports, studies or other materials in respondent'

possession or control at any time that contradict , qualify or call intoquestion any representation of respondent covered by this order or thebasis on which respondent relied for such c1aim or representation; andD. All other materials and records that relate to respondent'

compliance with this order.

RICHARD CREW 239


This part IX shall expire five (5) years after the date of entry of thisorder.

It is further ordered That respondent shall , within sixty (60) daysafter service of this order, and at such other times as the Federal

Trade Commission may require , file with the Commission a report , inwriting, setting forth in detail the manner and form in which he hascomplied with this order.


EXHIBIT A

Declaration of Richard Crew

, Richard Crew , do hereby affirm and attest that the financialstatements and related documents dated July 17, 1990 , that Isubmitted to the Federal Trade Commission, copies of which are

attached hereto , were truthful , accurate and complete. I understandthat should the Commission determine that I failed to disclose anyasset , materially misrepresented the value of any asset , or made anyother material misrepresentations , the Commission may reopen thisproceeding, initiate an enforcement proceeding against me , or takeother appropriate action.

I declare under penalty of perjury that the foregoing is true and

correct. Executed on

Richard Crew


Complaint 114 F.

IN THE MATTER OF

ROBERT FRANCIS

CONSENT ORDER, ETC. , IN REGARD TO ALLEGED VIOLATION OF

SECS. 5 AND 12 OF THE FEDERAL TRADE COMMISSION ACT

Docket C-3327. Complaint, Mar. 4, 1991-Decision Mar. 4, 1991

This consent order prohibits , among other things, the advertiser and distributor of theDiet Patch from making unsubstantiated efficacy claims for any product orservice and from misrepresenting that a paid advertisement is an independent

program. In addition , the order prohibits the respondent from disseminating orbroadcasting "The Michael Reagan Show

Appearances

For the Commission: Tracy S. Thorleifson.

For the respondent: Pro se.

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Actand by virtue of the authority vested in it by said Act , the FederalTrade Commission , having reason to believe that Robert Francis , anindividual , hereinafter sometimes referred to as respondent, hasviolated the provisions of said Act , and it appearing to the Commissionthat a proceeding by it in respect thereof would be in the publicinterest, hereby issues its complaint stating its charges in that respectas follows:

PARAGRAPH 1. Respondent Robert Francis is an individual residingat 4975 Viceroy Street, Apartment #204, Cape Coral, Florida.Individually or in concert with others , he advertised , marketed andsold a weight- loss product , the "EuroTrym Diet Patch " primarily by

means of a 3D-minute television advertisement made to simulate aregular television talk show.

PAR. 2. Respondent , individually or in concert with others , engagedin the advertising, offering for sale , sale and distribution of a fooddrug, device , or cosmetic , the EuroTrym Diet Patch , a product foundin commerce. The EuroTrym Diet Patch comes within the classifica-

ROBERT FRANCIS 241

240 Complaint

tion of "drug, " as that term is defined in Section 15(c) of the FTC Act15 U. C. 55(c).

PAR. 3. The acts and practices of respondent alleged in thiscomplaint have been or are in or affecting commerce , as "commerceis defined in Section 4 of the FTC Act, 15 U. C. 44.

PAR. 4. Since at least 1988 , individually or in concert with othersrespondent promoted the sale of and sold numerous packages of theEuroTrym Diet Patch to consumers in various areas of the UnitedStates. A one-month supply of the EuroTrym Diet Patch sold for$49. , plus shipping and handling costs of $4.00. Sales of the

EuroTrym Diet Patch totalled approximately $4 833 000. The Euro-Trym Diet Patch was advertised on a 30-minute television commercialidentified as "The Michael Reagan Show " which was broadcast onnetwork , independent and cable television stations throughout theUnited States.PAR. 5. By and through the "Michael Reagan Show" and other

statements and depictions , respondent, individually or in concert withothers, represented , directly or by implication , that:

(a) Use of the EuroTrym Diet Patch prevents feelings of hunger.(b) Use of the EuroTrym Diet Patch enables users to lose

substantial amounts of weight.(c) Use of the EuroTrym Diet Patch enables users to lose weight in

a large majority of cases.

(d) Competent and reliable tests or studies establish that theEuroTrym Diet Patch promotes weight loss.

PAR. 6. In truth and in fact:

(a) Use of the EuroTrym Diet Patch does not prevent feelings ofhunger.

(b) Use of the EuroTrym Diet Patch does not enable users to losesubstantial amounts of weight.

(c) Use of the EuroTrym Diet Patch does not enable users to loseweight in a large majority of cases.

(d) No competent and reliable test or study establishes that theEuroTrym Diet Patch promotes weight loss.

Therefore , each of the representations set forth in paragraph 5 wasand is false, misleading or deceptive.

PAR. 7. Through the use of the statements and representations setforth in paragraph 5 and others not specifically set forth hereinrespondent , individually or in concert with others, represented


Complaint 114 F.

directly or by implication, that he possessed and relied upon areasonable basis for each of the representations set forth in paragraph5 at the time such representations were made.

PAR. 8. In truth and in fact , respondent did not possess and relyupon a reasonable basis for making each of the representations setforth in paragraph 5 at the time such representations were made.Therefore , the representation set forth in paragraph 7 was and isfalse , misleading or deceptive.

PAR. 9. By and through "The Michael Reagan Show " respondent

individually or in concert with others, represented, directly or byimplication , that "The Michael Reagan Show" was an independent

consumer program that discusses a variety of topics, including

products like the EuroTrym Diet Patch.PAR. 10. In truth and in fact

, "

The Michael Reagan Show" was not

an independent consumer program or anything other than paidcommercial advertising. Therefore , the representation set forth in

paragraph 9 was and is false, misleading or deceptive.

PAR. 11. By and through "The Michael Reagan Show " and other

statements and depictions , respondent , individually or in concert withothers , in numerous instances represented , directly or by implicationthat endorsements appearing in advertisements for the EuroTrymDiet Patch:

(a) Reflect the honest opinions , findings, beliefs , or experience ofthe endorser;

(b) Reflect the typical or ordinary experience of members of thepublic who have used these products; and

(c) Were obtained from individuals or other entities who at the timeof providing their endorsements , were independent from all of theindividuals and entities marketing the product.

PAR. 12. In truth and in fact, in numerous instances, theendorsements appearing in advertisements for the EuroTrym DietPatch:

(a) Do not reflect the honest opiniDns , findings, beliefs, orexperience of the endorser;

(b) Do not reflect the typical or ordinary experience of members ofthe public who have used these products; and

(c) Were obtained from individuals or other entities who , at the timeof providing their endorsements , were not independent from all of theindividuals and entities marketing the product.

ROBERT FRANCIS 243


Therefore , each of the representations set forth in paragraph 11 wasand is false , misleading and deceptive.

PAR. 13. Respondent' s dissemination of the false and misleadingrepresentations as alleged in this complaint constitutes unfair or

deceptive acts or practices in or affecting commerce in violation ofSections 5(a) and 12 of the FTC Act.PAR. 14. Respondent's unfair or deceptive acts or practices as

alleged in this complaint have caused substantial injury to consumers.Commissioner Starek not participating.

DECISION AND ORDER

The Federal Trade Commission having initiated an investigation ofcertain acts and practices of the respondent named in the captionhereof, and the respondent having been furnished thereafter with acopy of a draft of complaint which the Seattle Regional Officeproposed to present to the Commission for its consideration and


The respondent and counsel for the Commission having thereafterexecuted an agreement containing a consent order , an admission bythe respondent of all the jurisdictional facts set forth in the aforesaiddraft of complaint, a statement that the signing of said agreement isfor settlement purposes only and does not constitute an admission by



The Commission having thereafter considered the matter andhaving determined that it had reason to believe that the respondenthas violated the said Act , and that complaint should issue stating itscharges in that respect , and having thereupon accepted the executedconsent agreement and placed such agreement on the public recordfor a period of sixty (60) days, now in further conformity with the

procedure prescribed in Section 2. 3ct of its Rules, the Commissionhereby issues its complaint, makes the following jurisdictionalfindings and enters the following order:

1. Robert Francis resides at 4975 Viceroy Street , Apartment #204Cape Coral, Florida.

2. The Federal Trade Commission has jurisdiction of the subject

244 FEDERAL TRADE COMMISSIOK DECISIONS



ORDER

It is ordered That respondent, an individual, and respondent'

agents, representatives and employees , directly or through anypartnership, corporation, subsidiary, division or other device , in


offering for sale , sale or distribution of any product or service in oraffecting commerce , as "commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from selling, broad-casting or otherwise disseminating, or assisting others to sellbroadcast or otherwise disseminate , in part or in whole the 3D-minutetelevision advertisement for the EuroTrym Diet Patch described in thecomplaint and sometimes known as "The Michael Reagan Show.

II.

It is further ordered That respondent , an individual, and respon-dent' s agents , representatives and employees , directly or through anypartnership, corporation , subsidiary, division or other device, do

forthwith cease and desist from:

A. Representing, directly or by implication , in connection with theadvertising, packaging, labeling, promotion , offering for sale , sale ordistribution of the EuroTrym Diet Patch or any other substantiallysimilar weight control or weight reduction product or service in oraffecting commerce , as "commerce " is defined in the Federal TradeCommission Act, that:

(1) Use of such product or service prevents feelings of hunger;(2) Use of such product or service enables users to lose substantial

amounts of weight;(3) Use of such product or service enables users to lose weight in a

large majority of cases; or(4) Any competent and reliable test or study establishes that such

product or service promotes weight loss.

For purposes of this Part II a "substantially similar weight control

ROBERT FRANCIS 245


or weight reduction product" shall be defined as any product that isadvertised to cause or aid weight loss through acupressure , acupathyor homeopathy that uses a band aid or patch to apply a solution to theskin or that purportedly contains as its active ingredient calcarea

carbonica.B. Representing, directly or by implication , in connection wit" the

advertising, packaging, labeling, promotion , offering for sale , sale ordistribution of any other product or service in or affecting commerceas "commerce " is defined in the Federal Trade Commission Act , that:

(1) Use of the product or service prevents or reduces feelings ofhunger;

(2) Use of the product or service enables users to lose substantialamounts of weight;

(3) Use of the product or service enables users to lose weight in asubstantial number of cases; or

(4) Any competent and reliable test or study establishes that use ofthe product or service promotes weight loss

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

representation, respondent possesses and relies upon a reasonable

basis consisting of competent and reliable scientific evidence thatsubstantiates the representation. Competent and reliable scientificevidence shall mean for purposes of this order any test, analysisresearch , study, surveyor other evidence that has been conducted andevaluated in an objective manner by persons qualified to do so , usingprocedures generally accepted in the profession or science to yieldaccurate and reliable results.

C. Failing to disclose clearly and prominently in any advertisementfor any weight control or weight reduction product or service in oraffecting commerce , as "commerce" is defined in the Federal TradeCommission Act, that dieting and/or exercise is required in order tolose weight; provided, however that this disclosure shall not be

required if respondent possesses and relies upon competent andreliable scientific evidence demonstrating that the product or servicein question is effective without dieting and/or exercise.

It is further ordered That respondent , an individual , and respon-dent' s agents , representatives and employees , directly or through any

246 FEDERAL TRADE Cm!MISSION DECISIONS


partnership, corporation, subsidiary, division or other device, in


offering for sale , sale , or distribution of any product or service in oraffecting commerce , as "commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from:

A. Making any representation , directly or by implication , regardingthe performance, benefits , efficacy or safety of any food , drug ordevice , as those terms are defined in Section 15 of the Federal TradeCommission Act, 15 U. C. 55 , unless at the time of making therepresentation respondent possesses and relies upon competent andreliable scientific evidence that substantiates the representation.

B. Making any representation , directly or by implication , regardingthe performance , benefits , efficacy or safety of any product or service(other than a product or service covered under Subpart !II.A), unlessat the time of making the representation respondent possesses and

relies upon a reasonable basis for each such representation.

IV.

It is further ordered That respondent , an individual, and respon-dent' s agents , representatives and employees , directly or through anypartnership, corporation, subsidiary, division or other device , in


offering for sale , sale or distribution of any product or service in oraffecting commerce , as " commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from:

A. Using, publishing, or referring to any endorsement (as "endorse-ment" is defined in 16 CFR 255(b)), unless respondent has goodreason to believe that at the time of such use , publication or referencethe endorsement reflects the honest opinions, findings, beliefs or

experience of the endorser and contains no representation that wouldbe false or unsubstantiated if made dirfctly by respondent.

B. Failing to disclose , clearly and prominently, a material connec-tion , where one exists , between an endorser of any product or serviceand respondent. For purposes of this Part IV , a material connec-

tion shall mean any relationship between an endorser of any productor service and any individual or other entity advertising, promoting,offering for sale , selling or distributing such product or service , whichrelationship might materially affect the weight or credibility of the

ROBERT FRANCIS 247


endorsement and which relationship would not reasonahly be expectedby consumers.

C. Representing, directly or by implication , that any endorsement ofthe product or service represents the typical or ordinary experience ofmembers of the public who use the product or service, unless the

representation is true.

It is further ordered That respondent , an individual , and respon-dent' s agents , representatives and employees , directly or through anypartnership, corporation, subsidiary, division or other device, in


offering for sale, sale , or distribution of any product or service in oraffecting commerce , as " commerce " is defined in the Federal TradeCommission Act, do forthwith cease and desist from creating,producing, selling or disseminating:

A. Any commercial or other advertisement for any such product orservice that misrepresents , directly or by implication, that it is an

independent program and not a paid advertisement;B. Any commercial or other advertisement for any such product or

service fifteen (15) minutes in length or longer or intended to fil abroadcasting or cablecasting time slot of fifteen (15) minutes in lengthor longer that does not display visually, in a clear and prominentmanner , within the first thirty (30) seconds of the commercial andimmediately before each presentation of ordering instructions for theproduct or service , the following disclosure:

THE PROGRAM YOC ARE WATCHING IS A PAID ADVERTISEMENT FOR(THE PRODUCT OR SERVICEj."

VI.

It is further ordered That , within fifteen (15) days after the datethis order becomes final, respondent shall submit a truthful swornstatement, in the form shown in Exhibit A to this order that shallreaffirm and attest to the truth, accuracy, and completeness of

respondent' s financial statements and the related documents (" Finan-cial Statement") that were dated June 26 , 1990 , and previouslysubmitted to the Commission.



VII.

It is further ordered That this order is expressly premised uponrespondent' s financial condition as represented in the sworn FinancialStatement referenced above, which contains material information

upon which the Commission relied in negotiating and agreeing to thelack of a redress payment in this order. If the Commission determinesthat respondent failed to file the truthful sworn statement required byPart VI of this order, or failed to disclose any asset, materiallymisrepresented the value of any asset, or made any other materialmisrepresentation or omission in his Financial Statement, the Com-mission may reopen the proceeding and take such action as theCommission deems appropriate. Proceedings instituted under thisparagraph are in addition to and not in lieu of any other remedies asmay be provided by law , including any proceedings the Commissionmay initiate to enforce this order.

VII

It is further ordered That respondent shall , for a period of five (5)years from the date of entry of this order , notify the Commissionwithin thirty (30) days of the discontinuance of his present business oremployment and of his affiliation with any new business or employ-ment. Each notice of affiiation with any new business or employmentshall include the respondent's new business address and telephone

number, current home address , and a statement describing the natureof the business or employment and his duties and responsibilities. Theexpiration of the notice provision of this Part VII shall not affect anyother obligation arising under this order.

IX.

It is fU7'ther ordered That for three (3) years from the date that thepractices to which they pertain are last employed , respondent shallmaintain and upon reasonable request make available to the FederalTrade Commission, at a place designated by Commission staff forinspection and copying:

A. All advertisements and promotional materials subject to thisorder;

B. All materials relied on as substantiation for any representationcovered by this order;

ROBERT FRANCIS 249


C. All test reports, studies or other materials in respondent'

possession or control at any time that contradict, qualify or call intoquestion any representation of respondent covered by this order or thebasis on which respondent relied for such claim or representation; and

D. All other materials and records that relate to respondent'

compliance with this order.

This Part IX shall expire five (5) years after the date of entry of thisorder.

It is further ordered That respondent shall , within sixty (60) daysafter service of this order, and at such other times as the Federal

Trade Commission may require , file with the Commission a report , inwriting, setting forth in detail the manner and form in which he hascomplied with this order.


EXHIBIT A

Declaration of Robert Francis

, Robert Francis , do hereby affirm and attest that the financialstatements and related documents dated June 26 , 1990 , that Isubmitted to the Federal Trade Commission, copies of which are

attached hereto , were truthful , accurate and complete. I understandthat should the Commission determine that I failed to disclose anyasset , materially misrepresented the value of any asset, or made anyother material misrepresentations , the Commission may reopen thisproceeding, initiate an enforcement proceeding against me , or takeother appropriate action.

I declare under penalty of perjury that the foregoing is true and

correct. Executed on

Robert Francis

) is a...Empire Newsletter or successor publication; B. For a period of five (5) years after the...

Documents

Transcript of ) is a...Empire Newsletter or successor publication; B. For a period of five (5) years after the...