Advisory opinion letter to Mr. Tobin This is a request for an Advis

December 20, 1973 Gentlemen:

This is a request for an advisory opinion pursuant to Sections 1.1- 1.4 of the Commission s Rules on behaif of Don Odessky, Inc., a California corporation located at 511 K. La Cienega Boulevard, Los Angeles California.

The Commission by letter of October 5, 1973, revoked an advisory opinion granted to Don Odessky Associates under date of April 6, 1970 and invited the petitioner to seek the issuance of a new advisory opinion if it was agreeable to modifying the method of operation outlined in its previous request in order to be in compliance with the Guides for Advertising A1lowances and Other :verchandising Payments and Services, as amended, particularly Guides 9 and 11. This application for an advisory opinion supplements previous information filed with the FTC and is for the purpose of informing the Commission as to a future course of action proposed so as to conform to the Guide s requirements. Don Odessky, Inc. functions much like an advertising agency rendering a service to suppliers in the promotion of

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merchandisc. The Odessky plan is a tripartite arrangement which essentially involves the display of suppliers' products in groccry stores. These displays, which include artistic advertising designs, function the samc as billboard advertising or ingenious advertising signs. Thc advcrtising displays arc usually erected at the end of an aisle groccry stores Olnd display the suppliers' products in various imaginative ways. Billboard companics usually put up large signs or displays on the roofs or other property of largc supermarkets. This sourcc of promotion and revenue is not available to small grocers. By transferring the same conccpt to the grocery store, as well as other retailers , on a much smaller scale, the program is available to most stores - both large and small. Grocers, especially the smaller and less organized, do not have the expertise or the facilities to design and produce the displays that are created by the petitioner. The Odessky company has the capahilities and does design displays and furnishes advertising matcrial to be used on such displays. The layout and drawings are composed hy petitioner and the work is done by the store employees. l:sually there arc six different variations of displays and the cost of each varies between fifty and onc hundred and twenty-five dollars including material and labor. The costs ncver exceed one hundred and twenty-five dollars.

The Odessky company contacts suppliers and offers its servicc and determines if they wish to enter into joint promotions with grocers and othcr retailers for the purpose of promoting the suppliers' products in stores. If the suppliers are agrceable, then all customers in a competing trade area are notified of the program and asked to participate. Rctailers arc notified orally and in writing by first class mail. Such notice includes a description of the plan as well as the alternative methods of promotions together with all relevant details. The notices also indicate that the displays are set up for one week. Additionally, a limit is placed on the numher of displays anyone supplier can contract for during the course of a year, in order to prevent one supplier from purchasing all available promotional space in thc store. During any calendar year, no single supplier can contract for more than ten displays in one store. Since each storc can usually set up five , this means that it is possible for a store to contract for as many as two hundred and sixty a year. Petitioner would maintain records showing the number of displays uscd by suppliers, the names and addresses of the customers, the time period involved together with the cost. Petitioner would also be responsible for obtaining statements showing performanee to ensure that retailers do not receive funds wherc no performance is involved.

ADVISORY OPINIONS 1435

The retailers have received payments on the basis of the number of persons coming through the storc and being exposed to the advertising displays. On the same theory that advertisers are interested in the circulation of newspapers carrying ads. The records disclose that large corporate chains have not fared as well as the smallcr chains. However it is clear that the Commission feels that the register count method of proportionalization is not a satisfactory basis for granting an advisory opinion. Thus, the futurc action proposed is that each retailer report to the petitioner the amount of purchases of the suppliers' product during the pcriod that the promotional display is cmployed. Generally, this can best be donc by basing the payments on the dollar volume of goods purchased. The amount of the payment to the customer would be based on a percentage of purchases with a relationship to the cost of the display. The costs have been calculated to be in six ranges from $50. to $125. 00. The precise costs are fixed likc mcchanic s repair costs books, based on averagc costs. This takes into consideration the procurement of merchandise; taking down previous display; building new displays, moving and pricing merchandise; and designing advertising material and the display itself. For those rctailcrs not wishing the display and dcsiring alternatives such as handbills, newspapcr advertising, bag stuffers and other means of promotions the payment would also be based on costs. Retailers would he required to make available for inspection purchase records in order to vcrify thc dollar volume of goods purchased during the pcriod. The Odes sky company will continue to keep records of cash registcr transactions in order to satisfy suppliers that advcrtising displays are being scen by customers entering the stores. The figures obtained from the retailers concerning purchases of the supplier s products wil also be pcriodically verified with the supplier and the latter will be kept informed to ensurc that payments made are consistent with the supplier s overall promotional program.

This promotional program recognizes the realities of the ever increasing use of service organizations such as petitioner to assist suppliers in implementing promotional services on proportionally equal terms. The Odessky company receives a commission from the supplier for its services in the same manner as advertising agencies. The Odessky company also warrants that the promotional services made availahle fit into thc supplier s program so that the payments made by the supplier are in accord with the Guides for Advertising Allowances and Other Merchandising Payments and Services, as amended August , 1972.

I4J6 FEDERAL TRADE COMl\lISSIO 1 DECISIONS

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It is respectful1y requested that this proposed course of action in response to the Commission s suggestion to modify the existing program, receive the consideration of the Commission and that a new

advisory opinion issue.
Respectful1y submitted
Isl Basil J. Mezincs

ADVISORY OPINIONS 1437

Magnuson-Moss Warranty Act prohibits a beding manufacturer from giving a longer warranty in connection with purchase of a matching mattress and foundation set than is given with the purchase of either the mattress or foundation separately. (File No. 763 7003, release March 11, 1976)

Opinion Letter

February 27, 1976 Dear :'r. Clark:

This is a response to your letter to the Commission requesting an advisory opinion on behalf of the National Association of Bedding Manufacturers. You ask whether Section 102(c) of the Magnuson-Moss Warranty Act, Public Law 93-637, 15 D. C. 92302(c), prohibits a bedding manufacturer from giving a longer warranty in connection with the purchase of a matching mattress and foundation set than is given with the purchase of either the mattress or foundation separately.

The relevant portion of Section 102(e) provides: No warrantor of a consumer product may condition his wrtwn or implied warranty of such product on the consumer s using, in connection with such product any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand , trade, or corporat€ name. The Commission has carefully considered the matters set forth your letter. It is the Commission s conclusion that Section 102(c) prohibits the practice you describe. Section 102(c) draws no distinction between extension of a product warranty cOilditioned upon subsequent purchase of a separate branded artjcle or servjce, and extension of a product warranty conditioned upon simultaneous purchase of a separate branded article or service. Both are forbidden by the plain words of the statute. A mattress and a box-spring are clearly two distinct products, frequcntly purchased separately by consumers. Their separateness cannot be overcome by charactertizing their combination as a "bedding set. " In the example you present, the warrantor s offer of extended warranty coverage on a mattress is conditioned upon purchase by the consumer of a separate article (a box-spring) identified by brand, trade, or corporate name. It is this use of a product warranty in such a way that it may induce purchase of a separate branded article which Section 102(c) prohibits.

By direction of the Commission.

1438 FEDERAL TRADE CO:lMISSION DECISIONS

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Lett€r of Request

July 18, 1975

Dear Mr. Tobin This is a request for an Advisory Opinion, pursuant to 16 C. R. 1.2 that Section 102(c) of the Magnuson-Moss Warranty-Federal Trade Commission Improvement Act does not prohibit the longstanding practice followed by many bedding manufacturers, which is to give a longer warranty in connection with the purchase of a matching mattress and foundation set than in connection with the purchase of either the mattress or foundation separately. The Federal Trade Commission should issue such an opinion for the following reasons: 1. The legislative history of Section 102(c) clearly indicates that it was intended to prohibit manufacturers, principally automobile manufacturers, from conditioning their warranty obligation on the consumer s continuing to use only authorized dealers and authorized parts for maintenance and repair. (H. Rep. No. 93-1107, p. 37.) Because automobiles and major appliances involve substantial investments and are susceptible to defects which may be expensive to repair, consumers have a strong interest in preserving the manufacturer s warranty obligation. Such conditions in the warranties on those products therefore, imposed substantial economic coercion on consumers and thereby restricted their freedom of choice in connection with substantial expenditures for parts and service after the original sale of the article. Thus, such conditions in a warranty were prohibited because they had the classic characteristics of a tie-in. This is not the case in the sale of a matched mattress - foundation since there is no such economic coercion involved and no requirement that the consumer make any further brand-name purchases after the date of the original purchase. 2. A warranty issued in connection "ith the sale of a matching mattress-foundation set is not conditionL ed J . . . on the consumer s using, in connection with such product, any article or service (other than article or servce provided without charge under the terms of the warranty) which is identified by brand, trade, or corprate name within the meaning of Section 102(c) of the Act since a matching mattress - foundation set is a separate consumer product within the meaning of Section 101(1) of the Act. The mere fact that the mattress and foundation may be purchased separately does not alter the fact that a matching mattress - foundation set is a separate consumer product. Clock-radios, radio-phonograph combinations, pen and pencil sets, golf club sets, and two- and three-piece suits are only some of the many examples of consumer products sold in combination as one ADVISORY OPINIONS 1439

product even though their respective components may be purchased and used separately.

3. There is no requirement in the Warranty Act that a manufacturer which eJects to give a written warranty must give the same warranty on all his products. On the contrary, one important premise of the Act is to preserve the individual manufacturer s freedom of selecting the type and duration of written warranty he wishes to give in connection with the sale of his various products and to rely on competitive pressures in the market p1ace to maximize warranty protection to the consumer. Thus, the ultimate goal of the Warranty Act is to encourage and increase effective competition among manufacturers in the giving of written warranties which the consumer can understand and count on.

4. Competition in the giving of warranties will be decreased rather than increased if Section 102(c) is interpreted to prohibit a manufacturer from giving longer written warranties in connection with the sale of sets or combinations of his products than he does in connection with the separate sale of the respective components. Such an interpretation of Section 102(c) would be no iess anti competitive and unjustified than would be adoption of a rule that a manufacturer may not charge a lower price in connection with the sale of a set or combination of his products than the sum of the sale prices at which he sells the respective components.

5. Purchasers of matching mattress - foundation sets wil be deprived of the benefits of the longer warranties which many manufacturers are wi1ing to offer as an inducement to purchase of the sets. The manufacturers which give such longer warranties are willing to do so only because they know from years of experience that product life is longer- and damage and/or consumer dissatisfaction is less likely-where a mattress is used in connection with a foundation that is specifically designed to provide the proper support for that particular mattress.

6. The waiver provisions of Section 102(c) do not provide a practicable alternative to the over 1 250 bedding manufacturers, many of whom are small businessmen who cannot afford to assemble the documentation necessary to come into the FTC and demonstrate that their particular mattresses and foundations will "function properly and last for the extended warranty period only if both are used together.

Your prompt attention to this matter wil be greatly appreciated by the many bedding manufacturers who are vitally concerned with this problem.

Sincerely,