Walter Kidde & Company, Inc

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IN THE MATTER OF WALTER KIDDE & COMPANY, INC.

CONSE ORDER , ETC. , IN REGARD TO ALLEGED VIOLATIO:\ OF SEe. 7 OF THE CLA YTDN ACT Docket 8957. Complaint, Mar. 20, 1974-Decisio, June, 1976 Consent order requiring a C1ifwn, N. , multirnarkct manufacturer, among other things to divest itself, within two years, of two of its door lockset product lines obtained through the acquisition of Arrow Lok Corpration. Further, the order requires respondent to license two other product lines and imposes a tenwyear ban on acquisitions by respondent in the lockset manufacturing industry without prior F. C. approval.

Appearances For the Commission: Atfred J. Ferrogari, Harold Brandt and Sandra Gray,were For the respondent: S. IAt-uck and K. Newman, Donoan, Leisure Newton lrvinc New York City.

COMPLAI:-T The Federal Trade Commission, having reason to believe that respondent Walter Kidde & Company, Inc., a corporation, has violated Section 7 of the Clayton Act, as amended (15 D. C. 18) and that a proceeding in respect thereof would be in the public interest issues its complaint pursuant to Section 11 of the Clayton Act (15 D. C. 22) stating its charges as follows:

1. DEFII',"TIONS PARAGRAPH 1. For the purpose of this complaint, the following definitions shall apply:

a. Door Jocksets are:

(1) mortise locks and latches (A. !. series 1000) (2) preas sembled type locks and latches (A. !. series 2000) (3) integral locks and latches (A. !. series 3000) (4) bored locks and latches (A. !. series 4000) (5) all other mortise, preassembled, integral and bored door locks and latches with functions not included in A. !. series 1000, 2000, 3000 or 4000 including any such proprietary door locks and latches (6) all entrance handle locks with thumb piece with bored type lock mechanism (7) series 3 - mortise Jocks and latch sets; series 8 - cylinder French door locks and locksets; series 121 - cylinder entrance door locks and 215-969 LT - 77 - 89 Complaint 87 F.

locksets; and series 123 - cylinder entrance door locks and locksets all of which are set forth in Federal Specification FF- OO- 106(b) (8) bored and mortise dead locks and latches. b. A. I. Standard A 156. 1972 refers to American ational Standards Institute standard for locks and lock trim; B.H. Standard 601 refers to Builders Hardware :Ianufacturers Association standard for locks and lock trim and Federal Specification FF- OO- 106(b) refers to specifications for builders hardware; locks and door trim promulgated for Federal government uses. Ii. RESPONDENT PAR. 2. Walter Kidde & Company, Inc. (hereinafter Kidde) is a Delaware corporation with its principal office and place of business located at 9 Brighton Road, Clifton, !\ew Jersey. PAR. 3. Kidde is a multimarket manufacturing and service corporation manufacturing and selling such products as safety, security and protection equipment and devices and a wide variety of consumer commercial and industrial products. For the year ending 1972, it had sales of $832.4 milion, net profit of $32.4 million and total assets of $661.8 million. On the basis of Kidde s 1972 financial statements, the May 15 , 1973 Fm-tune Directory listed Kidde as the 169th largest industrial corporation in the l:united States based on total sales. PAR. 4. At an times relevant herein, Kidde sold and shipped, and is now selling and shipping, products in interstate commerce throughout the United States. Hence Kidde was at the time of the acquisition challenged herein, and is now, engaged in commerce as "commerce " is defined in the Clayton Act.

III. ARROW LOCK CORPORATION PAR. 5. Prior to October 4, 1971 Arrow Lock Corporation (hereinafter Arrow) was a corporation organized and existing under the laws of the State of New York with its principal office and place of business located at 4900 Glenwood Ave., Brooklyn, !\ew York. PAR. 6. At the time of its acquisition, Arrow was an important manufacturer and sener of door locksets, as defined herein, door lock assemblies and other hardware.

PAR. 7. For the calendar year ending 1970, Arrow had total sales of 750 000 and total assets of more than $2 minion. PAR. 8. At all times relevant herein Arrow sold and shipped products in interstate commerce and was engaged in "commerce" within the meaning of the Clayton Act WALTER KIDDE & CO., INC. 1403 I40I Decision and Order IV. ACQCISITION PAR. 9. Pursuant to an agreement of merger and plan of reorganization dated August 2, 1971 , Kidde on October 4, 1971 acquired substantially al1 of the propcrty, assets and business of Arrow in exchange for 122 928 shares of the company s common stock. V. TRADE AND COMMERCE PAR. 10. Builders hardware represents a portion of al1 building construction costs with door Jocksets, as defined herein, a major item of builders hardware.

PAR. 11. In 1970, the four largest manufacturers of door locksets, as defined herein, accounted for 72 percent of the industry s total sales. PAR. 12. In 1970, Kidde accounted for 6.3 percent of the domestic sales of door lock sets whiJc Arrow accounted for 2.9 percent. In that year, of the approximately 19 door lock set manufacturers in the United States, Kidde ranked 5th and Arrow ranked 8th. In 1972, Kidde was the 4th largest door Jockset manufacturer in the United States. PAR. 13. The door lock set market has become increasingly concentrated. In 1969, the top four firms accounted for 72 percent of the market and by 1972, their share had increased to 75 percent. VI. THE EFFECTS OF THE ACQurSITIOI- PAR. 14. The effect of the acquisition by Kidde of Arrow may be substantially to lessen competition, or to tend to create a monopoly throughout the United States by eliminating actual competition between Kidde and Arrow in the manufacture and sale of door locksets as defined herein.

VII. VIOLATIOl' CHARGED PAR. 15. The acquisition of Arrow hy Kidde on October 4, 1971 constitutes a violation of Section 7 of the Clayton Act as amended (15 C. 18).

DITISIOJ' A?'' D ORDER The Federal Trade Commission having heretofore issued its complaint charging the respondent named in the caption hereof with violation of Section 7 of the Clayton Act, as amended, 15 U. C. and the respondent having been served with a copy of the complaint; and The Commission having withdrawn the matter from adjudication for Dccision and Order 87 F. the purpose of considering settement by the entry of a consent order; and The respondent and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondent of aJ1 the jurisdictional facts set forth in the complaint a statement that the signing of said agrcemcnt is for settement purposes only and does not constitute an admission by respondent that the law has been violated as set forth in such complaint, and waivers and other provisions as required by thc Commission s Rules; and The Commission having considered the agreement and having provisionally accepted same, and the agreement containing consent order having thereupon been placed on the public record for a period of sixty (60) days, now in further conformity with the procedure prescribed in Section 2.34 of its Rules, the Commission hereby makes the foJ1owing jurisdictional findings, and enters the foJ1owing order: 1. Respondent Walter Kidde and Company, Inc. is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware with its principal office and place of business located at 9 Brighton Road, Clifton, New Jersey. 2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of respondent, and the proceeding is in the public interest.

ORDER It is ordered That as used herein:

A. The term "Kidde" means respondent Walter Kidde & Co. , Inc., a corporation organized and existing under the laws of the State of Delaware with principal offices at 9 Brighton Road, Clifton, New Jersey, aJ1 predecessors thereof and successors thereto. B. The term "Arrow" means the Arrow Lock Corporation, a wholly-owned suhsidiary of Kidde, with offices at 4900 Glenwood Ave. Brooklyn, New York.

C. The term " Sargent" means Sargent & Company, a division of Kidde, with offices at IOn Sargent Dr., New Haven, Connecticut. D. The term "door locksets" means those products described in Paragraph 1a(1) through (8) of the complaint herein. E. (1) "5 Line" means the door lock set product jinc heretofore sold by Sargent under the trade name "5 Line.

(2) "Arrow mortise 10ckset" means thc mortise door lockset product line heretofore sold by Arrow.

WALTER IPDDE & CO., INC. 1405 1401 Decision and Sider (3) "Integralock" means the door lockset product line sold by Sargent under the registered trademark "Integralock." (4) "Keso product line" means the security cylinders and keys sold by Sargent under the registered trademark "Keso. It is ordered That, subject to the prior approval of the Federal Trade Commission, respondent Kidde, a corporation, through its officers directors, agents, representatives, employees, successors and assigns shall as soon as possible and in any event no later than two (2) years from the date this order becomes final, divest itself of the 5-Line and the Arrow mortise lockset by divesting absolutely and in good faith all right, title and interest to and in all equipment, tools, parts, tooling, blueprints, drawings, assembly plans and instructions which are itemized or described in Schedule "A'" hereto and are referred to hereinafter as "the divested property." Said divestiture shall be made to an acquirer able to use the divested property in the manufacture and sale of door Jock sets in the United States. In addition, Kidde, shall offer for sale to any such acquirer of the divested property such inventories of the 5-Line and the Arrow mortise lockset as may be negotiated by and between the parties to any transaction entered into pursuant hereto. Provided, however that nothing contained herein shall be deemed or construed to limit in any way the right of Kidde Sargent or Arrow to engage in the manufacture, assembly, distribution and/or sale of any product, subject only to the provisions of Section V hereof regarding prohibitions on future acquisitions. It is further ardered That, upon the written request of the acquirer of the divested property, Kidde shall furnish such technological information and make availablc for a reasonable period of time such personnel and technical assistance as may be reasonably necessary to enable such acquirer to relocate and use the divested property in the production of door locksets. For each such person furnished Kidde may charge an amount not to cxceed the reasonable traveling and living expenses and the actual cost to Kidde for the time involved. It is further ordered That, pending divestiture, Kidde shall not except in the ordinary course of business, make any changes, or permit . Bccau of the substantial oost of printing Schedule " A" of the order, only two copies were made and are available for review at the Office. of the SeretaT)'ifnecessary Decision and Order 87 F. any deterioration in the divested property so as to frustrate or impair the requirements of this order.

It is furthe,. ardeTed That Kidde shall cease and desist for a period of ten (10) years beginning on the date this order becomes final from acquiring, or acquiring and holding, directly or indirectly, without prior approval of the Federal Trade Commission, any part of the assets, stock, share capital, or other actual or potential equity or right of participation in the earnings of any concern, corporate or noncorporate, which is engaged in the manufacture and sale of door locksets in the United States, or from entering into any agreement or understanding with such a concern whereby Kidde acquires control over the business activities thereof; provided, however That the provisions of this Section V shall not apply to any acquisition or holding of, or other transaction whereby Kidde acquires or holds control over, a concern (or part thereof) which is not engaged in the manufacture and sale of door lock sets in the United States. It is further ardered that:

A. For a period of five (5) years following the effective date of this order, insofar as it now has or may acquire the power to do Kidde shall grant, on a reasonable royalty basis, to any person making written request therefor: (a) a nonexclusive right to use such knowhow, trademarks, goodwi1 and other rights as Kidde may have in connection with the manufacture and sale within the United States of the Integralock; and/or (b) a nonexclusive sublicense to manufacture have manufactured, use and sell in the United States, the Keso product line, as well as any other of Kidde s rights in and to the Keso product line which it now has or may acquire and which it may legal11y be entitled to license or sublicense.

E. For purposes of this Section VI, a reasonable royalty is defined as a rate (a) in the case of the Integralock, not to exceed two percent (2%) of sales; and (b) in the case of the Keso product line, not to exceed the greater of: (i) five percent (5%) of sales; or (ii) a per unit rate fifty cents ($.50) plus the equivalent in United States currency of . Swiss franc.

C. Each license or sublicense granted pursuant to this paragraph shall include, if desired by the licensee or sublicensee, a11 of Kidde rights in and to the registered trademarks "Integralock" (T.M. Reg. o. 861 953) and "Keso " (T.M. Reg. 1\0. 784 400) and U. S. Patents Nos. WALTER KIDDE & CO., IKC. 1407 1401 Decision and Order 303 677 and DES 206 397 as well as any and all future patents, patent applications and know-how issued, filed or acquired by Kidde which relate to the Keso product line or the Integralock. D. Nothing contained herein shall be deemed to prevent Kidde from refusing to grant a license or sublicense to any person for bona fide business reasons indicating that such pcrson cannot or will not fulfill the duties, obligations and responsibilities of a licensee or sublicensee, including but not limited to the following reasons: (a) lack of financial responsibility or credit worthiness; (b) inability to agree upon reasonable terms and conditions of a license or sublicensc agreement; (c) failure to meet any qualification imposed by law or govcrnmental regulation or specification; or (d) information indicating that the grant of a license or sublicense to such person would impair Kidde s goodwill or the confidentiality of its business secrets. Provided however that any such refusal sball be made in writing, stating the reasons therefor and provided further Kidde shall notify the Federal Trade Commission in writing within ten (10) days of any such refusal stating the reasons therefor.

E. Upon the request of any licensee or sublicensee, Kidde shall furnish to said licensee or sublicensee necessary technical information and know-how and make available such supervisory personnel and technical assistance as may reasonably be necessary to establish production of thc Integralock and/or the Keso product line on a going basis. For a period of two (2) years following the date of each license or sublicense agreement, upon the request of each licensee or sublicensee Kidde shall make available at a place designated by the licensee or sublicensee, a person or persons technically qualified in the manufacture of the Integralock and/or the Keso product line for t.he purpose of furnishing to the licensee or sublicensee such manufacturing, engineerrcasonably being and technical assistance and know-how as may required for the manufacture of the Integralock and/or Keso product line which Kidde has and/or may acquire and which it may at that time lawfully disclose. For each such person or persons furnished Kidde may charge an amount not to exceed his reasonable travel and living expenses and the actual cost to Kidde for the time involved. Kidde F. If, during thc term of thc license or sublicense agreement, develops or receives any new technical information pertaining to the manufacture of thc Keso product line and/or the Integralock, Kidde shall promptly and fully make available to each licensee or sublicensee such technical information.

G. The duration of any license or sublicense granted pursuant to thc terms of this order, shall, at the option of the licensee or sublicensee, be for a duration of not less than fifteen (15) years 1408 FEDERAL TRADE COMMISSION DECISIOKS Decision and Order 87 F. provided, however that provision may be made for the termination of said license or sublicense agreements by either party on 90 days notice to the other if the other party shall be in default or breach of any material provision of said license or sublicense agreement and such default or breach shall not have been cured within such 90 day period. Except as provided herein the rights granted to any licensee or sublicensee shall not be terminated or abated. VII It is further ardered That nothing in this order shall be deemed to prevent any licensee or sublicensee or applicant for a license or sublicense, from attacking in any proceeding or controversy, the validity, scope, or enforceability of any patent nor shall this order be construed as imputing any validity, enforceability or value to any such patent.

VII It is furthe,. ordered That Kidde shall not voluntarily dispose or permit the disposition of any patents, trademarks or rights thereunder or voluntarily perform or fail to perform any act so as to deprive it of the power to grant or cause to be granted the licenses or sublicenses required by this order. However, the obligations set forth in this order with respect to the granting of licenses or sublicenses shall be subject to Kidde s continued right to license or sublicense said products and said obligations shall automatically abate if, and to the same extent that Kidde s right to license or sublicense should be terminated or become impaired during the period hereof; prol!ided, howe1Jer that Kidde shall notify the Federal Trade Commission in v,Titing immediately upon knowledge that any such termination or impairment will occur or has occurred setting forth the circumstances and reasons therefor.

It is further ardered That Kidde shall, within six (6) months after the effective date of this order, and every six (6) months thereafter until Kidde has fully complied with the provisions of this order, submit in writing to the Federal Trade Commission a verified report setting forth in detail the manner and form in which Kidde is endeavoring to comply or has complied with this order. All compliance reports shall include among other things that may from time to time be required, a summary of contacts, offers, contracts or negotiations with anyone for WALTER KIDDE & CO., INC. 1409 1401 Decision and Order the divested property, and the identity of an such persons and copies of an written communications to and from such persons. It is further ardered That respondent Kidde notify the Federal Trade Commission at least thirty (30) days prior to any proposed change in the corporate respondent, or any subsidiary thereof, which may affect compliance obligations arising out of this order, such as dissolution, assignment or sale resulting in the emergence of a successor corporation or the creation or dissolution of subsidiaries. 1410 FEDERAL TRADE COMMISSION DECISI01\S 87 F.

ADVISORY OPINIONS Tripartite Promotional Plan (See Digest No. 103, 70 F. C. 1886; revoked Sept. 1973, 83 F. C. 1839. File No. 673 7012 release February 6, 1976.

Opinion hotter January 29, 1976 Dear :vr. Bellan:

This is in response to your request for a new advisory opinion. By notice dated October 5, 1973 the Commission revoked the October 27 1966 advisory opinion, captioned above, to Merchants Broadcasting Systems, Inc. The firm, as you have advised, is now known as Super- Marketing Services.

The Commission, in its notice of revocation, advised that if you wished to modify the method of operation outlined in your previous request to be in compliance with the Commission s Guides (a copy of which was enclosed with the notice), it would consider issuance of a new advisory opinion.

Your original request for advice from the Commission dates from a period before the Supreme Court' s decision in the matter of Federal Trade Commission v. Fred Meyer, Inc., et aI. 390 U.S. 341 (1968), and before promulgation by the Commission in 1969 of Guides responsive to the Court's opinion and decision in that case. The Guides, accordingly, deal with some additionally defined aspects of the law of subsections (d) and (e) of Section 2 of the Clayton Act, as amended, including thirdparty performance of seller s obligations, viz., performance of such obligations by promoters of tripartite promotional assistance plans. You have informed the Commission that your tripartite promotional plan has been modified to eliminate the earlier requirement that the retail seller of any products promoted under the program must "* * * provid(eJ shelf space at least equal to that given competing products selling in the same volume.

Withdrawal of this requirement could uperate to resolve the problem of possible primary line competitive foreclosure inherent in the lease or purchase of retailers ' shelf space, either directly or by means of socalled promotional allowances. On the basis of this factor alone however, the Commission is unable to determine whether your plan complies with the Commission s Guides, as amended August 4 . 1972. Among the ceveral open issues presented are (1) whether, in conjunction with Guide 13 (third party performance of seller obligations), the plan satisfies Guide 8, dealing with means of ADVISORY OPI;\IOKS 1411 notification and, in particular, notification to indirectly supplied retail customers; (2) whether the program satisfics Guide 9 relative to its availability to and useability, in a practical business sense, by a11 competing customers on proportionally equal terms; and (3) whether the plan satisfies Guide 11, concerning customer performance and overpayments. The Commission notes that payments under the subject program apparently are in consideration, in substantial part, for services of a non-merchandising or non-promotional character. Moreover, the extent and nature of any required performance of specific advertising or merchandising services by competing retail customers are not spelled out. In these circumstances the Commission cannot determine whether payments and services under the program are or are not available to and accorded a11 competing customers on proportionally equal terms. Accordingly, your request for a new opinion is denied.

By direction of the Commission.

utter of Request October 16 , 1973 Dear Mr. Tobin:

It has come to my attention that a portion of the advice given in this matter is not in accord 'With the Commissions view of the Jaw as expressed in the " GUIDES FOR ADVERTISING ALLOWANCES A.'JD OTHER ERCHA DIsrr-G PAYME?\TS AND SERVICES " as amended, specifically, item (1) providing sheif space at least equal to that given competing products selling in the same volume.

1 warrant that this portion of "The Plan" is not and has not been implemented as long ago as August of 1969 as evidenced by its absence in our "letter of offering" enclosed.

Based on this modification of "the Plan " I respectfully request the issuance of a new advisory opinion.

Should a new advisory opinion be forthcoming, I would appreciate it being made out to OUf new corporate name, Super-Marketing Services. Respectfully, /s/ Rudy Be11an President Enclosure to Letter of Request Gentlemen:

SePER-MARKETING SERVICES is offering a program to all retail grocery 87 F.

and drug stores in this area whereby cash payments and/or background music can be earned in consideration for promotional services rendered to suppliers.

SMS as the promoter of its promotional assistance plan would like each supplier and each retailer to understand that even though SMS is employed as an intermediary, the supplier should still recognize his responsibility to take reasonable steps to see that each of the supplier customers who compete with one another in reselling his products is offered the opportunity to participate in the SMS promotional assistance plan on proportionally equal terms. Retail stores wishing to participate may elect to do so under either Plan "A" or Plan " . Plan "A" and its alternative, Plan "B" are briefly described below:

PLAN "

1. SMS is making available a promotion and merchandising service to be sold to suppliers whose products are normally handled by retail grocery and drug stores. In order that the merchandising service be both valuable and salable to suppliers, each participating retail store MUST agree to perform the following promotional services for SMSpromoted products:

aJ Stock SMS-promoted products in adequate quantities on shelf and in the warehouse;

b J Regularly provide periodic "off-shelf" displays for each SMSpromoted supplier;

c J Allow SMS rcpresentatives to place mutually agreed upon point-of-sale" material;

dJ Allow SMS representatives to enter stores at regular intervals for the purpose of rendering store-level reports to the suppliers. 2. SMS will provide a background music suitable for the store sales area. If no loud speaker system exists, SMS will provide the speakers, amplifier and microphone necessary to broadcast the SMS background music. The sound system may also be used for pahring purposes. Stores will be charged a one-time installation charge for installing the sound equipment and a monthly charge for the background music service.

3. In exchange for the promotional services performed by the store for participating suppliers, SMS will compensate the store in an amount equal to 2% of the store s net purchases of SMS-promoted products. The store will be credited the 2% payment whether the store ADVISORY OPINIONS 1413 purchases the SMS-promoted products directly from the supplier or through a wholesaler. Payments earned wi1 be subject to a maximum per store per supplier.

PLAN "

1. SMS is making availab1c a promotion and merchandising service to bc sold to suppliers whose products are normally handled by retail grocery and drug stores. In order that the merchandising service be both valuable and salable to suppliers, each participating retail store MUST agree to perform the following promotional services for SMSpromoted products:

A) Stock SMS-promoted products in adequate quantities on the shelf and in the warehouse;

b) Regularly provide periodic "off-shelf" displays for each SMS promoted supplier;

c) Allow SMS representatives to place mutual1ly agreed upon point-of-sale material;

d) Allow SMS representatives to enter stores at regular intervals for the purpose of rendering store-level reports to the suppliers. 2. In exchange for the promotional services performed by the store for participating suppliers, SMS wi1 compensate the store in an amount equal to 2% of the store s net purchases of SMS-promoted products. The store wil be credited the 2% payment whether the store purchases the SMS-promoted products directly from the supplier or through a wholesaler. Payment earned wil be subject to a maximum per store per supplier.

We have listed on the reverse side a list of manufacturers and promoted products currently under contract and participating in the SMS service in your area. It should be recognized that the list of participating suppliers is subject to change due to cancellations and SMS would like to point out that the above methods are used and suggested for use to comply with Section 2(d) or (e) of the Clayton Act and! or Section 5 of the Federal Trade Commission Act. The above description of the SMS Program, and its alternative, briefly outlines its purpose and function. SMS invites your participation. If you are interested in either Plan "A" or Plan " , please write or call for full details.

Very truly yours SUPER-MARKETING SERVICES 1\ orman L. Wanetick )\ 1414 FEDERAL TRADE COMMISSION DECISIOKS 87 F.

SUPER-MARKETING SERVICES SPO)/SORS PRODUCT SPONSOR AMSCO SPONGES AMERlCA.'" SPOI"GE & CHAMOIS CO. AUNT JANE PICKLES AUN lAAr. Dry. BORDEN CO. AVSHS PRODUCTS JAMS AUSTIN CO. BANQUET FROZES FOODS BANQI.;ET CA."-NI"'G CO. BEECH NUT BABY foods BEECH NU LIFESAVERS , J!\C. BERIO OLIVE OIL FlLLIPO BERIO OLIVE OIL CO. BERTOLLI OLIVE OIL BERTOLLI TRAING CORP. BREAST O-CHJCKE!'; TL WESTGATE CALIFORllA PRODUCTS CO. BRYLCREAM BEECHA.\. PRODL'CTS CO. CATS PRIDE CAT urrER BANQUET CA. G CO. COCA COLA COCA COLA eOMPA COMSTOCK PIE FILLP.GS COMSTOCK DIV. BORDEN CO. CONTINENTAL BAKlNG CQ, BRAL;.' BAKERY DIY. DAD S DOG FOOD DAD S PRODUCTS CO. DAILY REFRIGERATED JUICES DAILY JUICE CO. DIAMOND CRYSTAL SALT DIAMOND CRYSTAL SALT CO. EASY MONDAY CLEANI;'' G PRODUCTS BLUF MAGIC CO. FIRCH BAKl:\'G CO. PRIATE LABEL BAKERY PRODUCTS FISHER & CHEFS DELIGHT FISHER CHEESE CO. FLAVOR HOUSE 1'lJS FLA YOR HOUSE NU CO. FRESHLIKE VFGETABLES LASEN & CO. GEORGIA PACIFIC PAPER PRODUC-- GEORGIA PACIFIC CO. GRASS (MRS. ) SOUPS GRASS NOODLE CO. GULF BELLE SHRIMPS SOUTHLA."'D CAA'/''ING CO. GULFSPRA Y r""SECTICIDES GULF OIL CORP. HERB OX Bt:ILLION ceBES PL"RE FOODS CO. HQRMEL MEAT PRODUCTS GEO. A. HOR.\iel & CO. HYGRAE DAIRY CO. PRlV A l'E G\BEL BU1R JOV DOG FOOD BEST FEEDS CO. KAL KAN DOG FOODS KA KA'" FOODS KING COFFEE FILTERS KING COFFEE FJLTERS CO. KING COLE vegetables DRAER-Klor COLE CO. KLEEN Kl1TY CAT LITTER PRIDE OF Y ALLEY , INC. LOTTA COLA & REGENT BEVERAGES REGENT BOTILING CO. ORDIC SEA foods LIVE FISH CO. PFIEFFER SALAD DRESSINGS PFEJFFER FOODS PURITY CHEESE PURITY CHEESE CO. RAGU SPAGHETTI SACCES RAGU PACKNG CO. RlCIiS FROZEN FOODS RICH PRODCCTS CO. RICE A RO:-' POREA SALES CO. STERLISG SALT ISTERNATIONAL SALT CO. SUE BEE HOSEY SOUlx HO EY ASSN. SWIFT CA)''NED MEATS SWlFT & CO. TETLEY TEA Tell.EY DIY. BEECH NU WILSOl\ CA. D MEATS WILSON & CO. ADVISORY OPE,rONS 1415 Tripartite Promotional Assistance Program (See 79 F. C. 1040 for opinion letter; revoked Sept. 11, 1973, 83 F. C. 1839. File No. 7137027, release February 6, 1976.

Opinion utter January 29 , 1976 Dear Mr. Kintner:

This is in response to your request that the Commission reconsider its October 5, 1973 revocation of the advisory opinion issued to MARPOS on September 3, 1971, and that that advisory opinion be reinstated. The Commission has given very careful consideration to your request. At issue, essentially, is whether the tripartite promotional assistance plan offered by MARPOS , which provides payments to participating retailers on the basis of the number of cash register transactions realized by such stores, assures payments and services on proportionally equal terms to aji competing customers as required by the applicable provisions of Section 2 of the Clayton Act, as amended by the Robinson-Patman Act.

The Commission s 1973 revocation of the MARPOS program resulted from a rcexamination of that program in light of the Commission Guides, as amended August 4, 1972. The payment plan, as this rcexamination disclosed, permits substantially unequal payments to competing retail customers, if and when there are substantial differences among and between such customers relative to size or aggregate product sales and, hence, established customer patronagc. , as a matter of example, competing retailers " and "B" are assumed to be participants under the subject program and thc annual number of cash register transactions recording aggregate product sales by store " " reflects a lcvel ten times higher than that of store " store "A" may receive ten times the compensation available to store "B" in providing the identical facility or service. Store " because its overall product sales are less, is denied a proportionally equal payment under the program, even if its resales of the promoted product arc comparable. The lower payments that store "B" is elii,riblc to rcceivc, thus, bear no relationship to the quantities of the promoted products it may handle; no relationship to the amount of advertising space it provides (or to the extent of mechanical display facilities involved); and no relationship to the direct or indirect costs attributable to any or aji such facilities. Such a payment plan clearly gives large buyers a discriminatory preference over smaller ones. A maximum payment limitation of $1500 for 500 000 or more cash register transactions together with a minimum payment of $12. , does not 87 F.

serve to neutralize the disproportionality of this payment plan, as so analyzed.

The Commission has noted your particular reference, in conjunction with the subject request, to Advisory Opinion No. 88. You are advised that Advisory Opinion No, 88. File No. 663 7022, was withdrawn by the Commission June 29 1972, press release dated July 7 1972. The Commission has concluded that the advisory opinion issued to MARros on September 3 , 1971, revoked by notice of October 5, 1973 should not be reinstated.

By direction of the Commission.

Lctwr of Request February 5, 1974 Dear Mr. Tobin:

In your letter of October 5 , 1973, you have advised us that the Federal Trade Commission has revoked the Advisory Opinion issued to our client MARros Network, Inc. , on September 3 1971. For the reasons set forth in detail below, we respectfully request a reinstatement of thc MARros Advisory Opinion, which was the result of extensive agency staff review, and expressly "approved (by the Federal Trade Commission J . . . on the condition that proportionalization of payments be based upon the number of cash register transactions at each participating retail outlet.. . ln good faith reliance on the Trade Commission s advice, MARPOS Network, Inc. has expended hundreds of thousands of dollars to develop and implement a highly innovative promotional arrangement and to encourage supplier and retail outlet participation. The Commission s summary revocation of the MARPOS Advisory Opinion not required by the public interest; misconstrues the MARros program and consequent Icgal application; and arbitrarily and scverely penalizes MARros ),et work, Inc. for the company s substantial investment in and management commitment toward ,the program in reliance on the Commission s approval Backg-round Stawment Essentially, the MARPOS third party promotional program offers payments based upon actual cash register transactions to participating retail outlets in return for leased space for variations of mobile as well as stationary advertising displays of participating suppliers' products. It is our understanding that the Trade Commission s revocation of the Advisory Opinion issued on September 3 1971, to MARros Network Inc. was predicated on agency-perceived noncompliance of the MARros ADVISORY OPINIONS 1417 program with "Guides 9 and/or 11" of the Commission Guirks for Advertising Allowances and Other Merchandising Payments and Servues as amended August 4, 1972.

In a press announcement issued on October 25, 1973, by the Commission concerning the revocation of 12 advisory opinions (including "ARPOS), the agency observed that "in many instances advisory opinions, which were revoked today approved compensation schemes based upon, for example, gross sales or customer count as determined by cash register transaction. " Such an approach was viewed as inconsistent with the Guides' admonition against allowances that had litte or no relationship to the cost or approximate cost of thc services performed.

In discussions held with the Commission s staff on December 17 1973, we were advised it was assumed that retailer-participants in the MARPOS program would receive payments grossly in excess of the cost of the services being performed by these retailers, in view of the method of proportionality employed by the program. Discu8si,on Basis for Proportwnality As the Commission s file in this matter will reflect, our initial submission to the agency on behalf of MARPOS posited a program under which payments were related to the gross dollar sales volume of each participating retail location. The company thereafter recast its proposed program as a result of a Commission request that MARPOS reconsider the method of payment. Thus, in our June 21 1971, letter to the Commission, we resubmitted the MARPOS program on the basis of two alternative methods of proportionalization- cash register transactions or actual annual dollar gross volume at each participating retail outlet.

MARPOS' proposal of the cash register transactions payment method was fully responsive to the Commission s request and proved to be a fairer and more accurate method of measuring the service being provided by participating retail outlets.

The utilization of the number of actual cash register transactions as the basis for proportionality within thg rrximum payment limit established by the "ARPOS program precludes the very problem of excess payments which appears to be the concern of the Commission staff. "ARPOS has imposed a maximum on the number of cash register transactions for which it will compensate participants in the program. Consequently, large retail chains, whose cash register transactions per Jocation easily exceed the maximum, do not receive excessive 87 F. T.

payments. In addition, smaller retail outlets, although smaller in size and in annual gross volume of sales, are placed on a more equal footing with their larger competitors since the smaller stores typically experience more cash register transactions in proportion to their annual dollar volume of sales.

Reasonablerwss of Payrrnts The MARPOS program does not result in excess payments to participating retail outlets. Each participating retail outlet is reimbursed for the leasing of ceiling space on a uniform percentage of the number of cash register transactions-3/10 of 1 cent for each cash register transaction for featuring 45 advertising signs of participating suppliers. The maximum annual payment of $1500 for 500 000 or more cash register transactions converts into a participating supplier payment of $33 per si6rn per location. The participating retailer is thus receiving 7 cents per thousand transactions per sign per location per year. Thus, the basis for proportionality results in payments which certainly are not excessive under any standard. 1 As Guide 7 makes clear: ":-0 single way to proportionalize is prescribed by law. Any method that treats competing customers on proportionally equal terms may be used. See Vanity Fair Paper Mills 1. c. v. FTC 311 F.2d 480 , 486 (2d Cir. 1962), cert. denied 372 U. S. 910 (1963). lJtiJizing number of cash register transactions per location as the basis for payment, within the minimum-maximum limits established by "ARPOS, is fair and non-discriminatory vis-a- vis participating retail outlets. Indeed, the use of a more conventional method of proportionalization- a precentage of retailer purchases of products from participating suppliers- would not operate in favor of t smaller retailer participants as does the MARPOS method. The number of cash register transactions does bear a relationship to the purchases of suppliers' products. In Advisory Opinion No. 88 FTC Advisory Opinion Digests 81 (1969), the Commission noted: Insofar as using the number of consumers exposed to the commercials as the standard for measuring payments to retaiJcrs, the Commission feJt that this method accords with the value of the service to the supplier and in the long run will probably correspond fairly closely to the amount of purchases of the supplier s product. One reason for this is that suppliers probably will not join the plan or stay with it if they are making payments to simes without any corresponding increase in their volume of sales by those sWres. Therefore, under these circumstances the Commission felt it was reasonable to permit proportionaJization to be based on the estimat€d number of customers, particularly where, as in this ca.';;e, the mea.'\ure for estimating the number of customers is weighted in favor of the small stores. (Id. at 83 84. , We have summarize the maximum payment unit figure. diRCUMW above in an appendix to their letwr. .. .. ..

ADVISORY OPINIONS 1419 Significantly, the Commission has never withdrawn this statement approving number of cash register transactions as a reasonable method of proportionalizing. Certainly, the revised GuUks contain no suggestion whatsoevcr that cash rcgister transactions would be an unacceptable basis.

No member of the Commission s staff has ever suggested that the MARPOS program is discriminatory or that it results in any adverse effect upon competition. Yet the Commission Guides clearly indicate that the question of excess payments falls within the purview of Section 2(a) of the Robinson-Patman Act:

A seller who pays a customer for services that are not rendered, or who overpays for services which have been rendered, may thereby violate Section 2(a) of the Clayton Act, as amended. Guws at p. 3. R. H. Macy Co. v. FTCThis is consistent with the court s analysis in 326 F.2d 445, 449 (2d Cir. 1964). Recognizing that Section 5 of the Federal Trade Commission Act would apply to a third-party promoter it is inconceivable that any Section 5 liability would attach to an intermediary for implementing a program that is non-discriminatory and is without any possible adverse effect on competition. We point out that a supplier discount program which provided a percentage of the retail purchasers' cash register transactions similar to the "ARPOS method would not violate Section 2(a), since such a discount would bc non-discriminatory and could have no adverse effect upon competition. This is especially so were the discount equivalent to the "ARPOS annual payment of 7 cents per sign per one thousand cash register transactions per retail location. Such a payment, when viewed within the conceptual framework of Section 2(a) as would necessarily be the case were cxcess payments alleged, could not have an adverse competitive effect.

Cost- Val."" Cont.roversy Amended Guide 9, in a footnote, cautions that "allowances that have little or no relationship to cost or approximate cost of the service provided by the retai1cr may be considered in violation of rScctions 2(a) or (e) of the Robinson-Patman Actj. * * *" Guide 11, as revised, states that the seller should not overpay his customer for promotional services rendered. Guide 11 continues: When customers may have different but closely related cost in furnishing services that arc difficult to dewrmine the seller may furnish tv each customer the same payment if it has a reasonable relationship to the cost of providing the service or is not grossly in excess thereof. 87 F.

These recent amendments should not be applied in Procrustean fashion to tripartite promotional allowance programs. Under such programs, it is the third party promoter who underwrites the cost of formulating a promotional medium to advertise a participating supplier s product. The costs and risks of the promoter continue once the program is operational. In many tripartite arrangements, a participating customer incurs no costs. If the Commission, in its revocation action, takes the position that a demonstration of customer-participant cost be made, then effectively the many space rental tripartite programs which represent little or no cost to the participating customer-or which do not lend themselves to cost analysis-are declared by the agency to be unlawful per se. We do not believe that the Trade Commission intended such a result in amending Guides 9 and II.

The MARPOS program involves the lease and novel utijization of retail grocery outlet ceiling space. Thc "cost" of the ceiling space provided by the participating retailer is not determinable in the same sense as shelf or floor space. As a consequence, the reasonableness of program payments in terms of retailer facilities provided can only be measured by consideration of the value of the ceiling space as an advertising medium. Employed as an advertising medium, this space carries a measurable value (space "cost") to thc retail participant in the program in the same way as ajj other advertising media. Thus, one speaks of the value of an advertising medium-and consequently the cost to an advertiser to employ the medium- in terms of television viewer or radio listener exposure or newspaper or magazine circulation. This is a significant consideration for the ceiling rental payment basis utilizcd by MARPOS: number of cash register transactions at each participating store location. Viewed in these terms, the MARPOS program "cost" or "value" as an advertising medium compares most favorably with the program payment to participating retail outlets. In Lever Brothers Co. 40 F. C. 494, 512 (1953), the Commission stated:

The law does not prohibit a seller from paying for servces of various types. In some cases it might be his duty to do so in order to meet the test of availability. Nor does the law require a seller to pay at the same rate, p€r unit of product sold, for types of serve€s which are of unequal cost or value. The practical result of such a rule would be to restrict the payments some type of service that every single customer could furnish. It would adopt uniformity as it." goal rather than proportionality. Payments must be made in goo faith for services or facilities actually rendered and there should be a fair and reasonable relation between the amount of the payment and the type of service rendered. While Section 2(d) requires that payments shah be made avajJable on proportionally , ADVISORY OPINIONS 1421 equal terms to al1 competing customers, no standards arc laid down in the law for accomplishing this result. Indeed no standard could be Jaid down which would insure exact proportionality with the mathematical accuracy of a slide rule. Although the Commission admonished against excessive promotional payments, it recognized that payments could be based on the value of the service to the supplier as well as bear a reasonable relationship to the cost or value of the services rendered by retailer-participants. See Giant Food, Inc. 58 F. C. 977, 1010 (1961). This is consistent with the flexible view of Congress toward proportional equality as reflected in the legislative history of the Robinson-Patman Act. The legislative history of the Robinson-Patman Act is clear and unambiguous with respect to the issue of value and cost. Thus, it was emphasized that a promotional allowance "becomes unjust when the service is not rendered * * * or when, if rendered, the payment is grossly in excess of its value. . . ." S. Rep. No. 1502, 74th Cong., 2d Sess. 7 (1936). Value to the seller was a recognized factor in determining proportionality. S. Rep. No. 1502, 74th Cong., 2d Sess. 8 (1936). In short proportionally equal terms" was viewed as a flexible standard permitting consideration of the value of the service to the seller as well as fair treatment to competing retailers: The phrase "proportionally equal terms" is designed to prevent the limitation of such allowances to single customers on the ground that they alone can furnish the servce or facilities or other consideration in the quantities specified. Whre a competitn can furnish th€m in /,ss quntity, but of the same relative value, he seems entitl-d, and this cUtuse is designed (Q accord him, the right (Q a simil.r allowance commensrate with those facilities. To illustrat.: "Were, as was revaled in the hearings earlier referred this report, a manufacturer grants a particular chain distributor an advertising allowance of a stated amount per month per sture in which the former s goods are sold, a competing customer with a smaller number of stores, but equally able to furnish the same service per store and undr conitiom of the same value (Q the selwr would be entitled to a similar allowance on that basis. H. Rep. No. 227, 74th Cong., 2d Sess. 16 (1936) (Emphasis added.

The Senate and House debates reinforce the conclusion that proportionally equal terms" was not intended to be wedded to costs as applied to promotional allowance provisions. Thus, Congressman Utterback, in explaining the promotional sections, noted: The bill also prohibits the seller from furnishing services or facilities to the purchaser in connection with the processing, handling or sale of the commodities concerned unless they are accorded to all purchasers on proportionally equal terms. Again the last phrase has reference to the several purchasers' equipment and ability to satisfy the terms upon which the offer is made, or the services, or facilities furnished to any other purchaser. There are many ways in which advertising, sales, and other services and facilities may 2 The court s analysis inCo!mial Simes, 1m:. FTC, 450 F.2d 733 . 743744 (5th Cir. 1971), c.niinn the appruach adopted uy the Commission in U1ifrBros 87 F.

be either furnished or paid for by the seller upon terms that will at once satisfy the requirements of the Bill concerning equitable treatment of all customers, and at the same time satisfy the legitimate business needs of both the seller and the purchaser. 80 Congo Rec. 9418 (1936). See 80 Congo Rec. 9416 (1936). Thus, in enacting the Robinson-Patman Act, Congress did not intend to impose an inelastic standard of proportional equality. There is no sound rationale for concluding that "no cost" tripartitc promotional programs arc legal1ly impcrmissible, where a1l participating customers are being treated fairly and there is no likelihood of any anti-competitive effect.

Economy; Impact of Summarlj Revocation The stigma of the Federal Trade Commission s withdrawal of the MARPOS Advisory Opinion effectively forecloses the company from pursuing the underlying program any further. This negative economic impact on MARPOS is as undeserved as it is severe. More specifically, at the time that MARPOS was advised of the revocation, the company had expended or eommittcd for more than one milion dollars in developing and promoting its program, as follows:

Development of original prototyp machine and subsequent 12 test machines used to test the equipment in Kansas City, Dallas and Tampa, in addition to costs of preparation of ads and Nielsen tests to measure effectiveness of this media. $385 25S Design, engineering and manufacture of new machine by Bayer Manufacturing Co. in Los Angeles, and t€st of this chine in a Los Angeles supermarket.

Salaries of personnel engaged specifically for :Marpos, consisting of engineers and personnel to sign up supermarket chains and salesmen to solidt advertisers.

Sales expenses, including preparation of promotional mat€rials to solicit supermarkets and advertisers, advertising and travel expenses. 175 941 051 194 Clearly, the summary revocation of thc Advisory Opinion has resulted in irreparable harm to MARPOS. Thc Commission s arbitrary and precipitous action was not required by thc public interest, and nothing in the Robinson-Patman Act, its legislative history or Section 5 ADVISORY OPIXIONS 142 of the Federal Trade Commission Act warrants the conclusion ostensihly underpinning the agency s revocation. Indeed, if there is an element of cost to be considered here, assuredly it is the cost of a promotional program which was carefully drawn by MAPOS and undertaken in good faith reliance on Federal Trade Commission approval of the plan.

Request far Reinst,atement MAPOS requests that the Commission reconsider its revocation action, and that the "AROS Advisory Opinion, as set forth in the agency s letter of September 3 , 1971, be reinstated. Respectfully submitted ARENT, FOX, KI;\TNER PLOTKIN & KAHN By Isl Earl W. Kintner By Isl Lawrcnce F. Henneberger By Isl Salvatore A. Romano Appendix w Lever of Request MARPOS PROGRAM PAY1ENT ANALYSIS FOR PARTICIPATING RET AlLERS RECEIVlr-G \1I\1VM PAYMENT R = Participating Retailer SI Supplierl Advertiser Participant (Note: the analysis below is based upon maximum payment to an R 500 per year.

1. R receives an advertising space rental payment of 3/10 of 1 cent per cash register transaction, with a maximum payment (ceiling) of 500 (500 000 ar rore transactions) and a minimum payment (floor) of $12.50 (regardless of minimum number-approximately 417transactions).

2. In the maximum payment situation, MARPOS reserves 7 signs for public service mcssages (non-product). R reserves 8 signs for own product/service and perhaps public service promotions.

SI A advertising is featured on 45 signs.

3. At $1 500 per year SI A (through MARPOS) is leasing advcrtising space costing SI A $33. 33 per sign per location ($1 500 divided by 45 signs).

4. On the basis of cash register transactions, R is receiving 87 F.

approximately 7 cents per thousand transactions per sign per year per location ($33.33 divided by 500) from each Sf A. Memo to the Filt January 9 , 1974 Re: MARPOS Network-Advisory Opinion File No. 713 7027 On December 14, 1973, Cal Collier, Tom Tucker, Gene Higgins and I met with Earl Kintner, Larry Henncbcrger and Sal Romano of the Arent, Fox law firm, which represents MARPOS. They had asked for the meeting in order to discuss the Commission s letter rescinding the advisory opinion.

Mr. Kintner mentioned the firm has about $1 000 000 invested in its operation and that as a result of the letter of rescission, enrolled suppliers have decided not to participatc any longer. As a consequence MARPOS stands to lose its investment. Mr. Kintner said he felt they had been treated unfairly because MARPOS had no advance notice that the Commission was considering rescission.

Mr. Kintner also mentioned payments by MARPOS to rcsellers are based on customer count, in accord with the advisory opinion, at a rate of two-thirds of a cent per customer to a maximum payment of $1500 per location per year and a minimum of $12.50 a year. For example $1500 is obtained by MARPOS from payments of about $33 by each of 45 participating suppliers to large resellers' outlets. MARPOS retains the difference between the payments by the suppliers (which are much in excess of $1500 or $33 per supplier per year) and the sums paid to the resellers. Thus, thc maximum amount paid per location to a reseller by MARPOS is $33, with the balance of payments made by suppliers being held as compensation to MAROS for its services. In the course of the conference, it was brought out that information apparently is available as to any relationship between what a participating supplier might pay to his customers by using a conventional basis of calculating promotional assistance (e. percentage of the volume of purchases of the promoted product in a certain period) as compared with the $33 payments to the largest retailers per year per location which the supplier pays under the MARPOS plan.

provisions Mr. Kintner emphasized that the "floor" and "ceiling" ($12.50 and $1500.00) of the plan were inserted to insure that small resellers received something and that large resellers did not receive excessive payments. He said that proportionalization based on customer count tended to favor smaller resellers. He did not agree that ADVISORY OPINIONS 142 the fact that larger volume resellers usually sell a wider variety of goods unrelated to products normally sold in supermarkets, thereby increasing customer count, would counteract the smaller average dollar purchase figure common to smaller resellers, which would tend to increase tlwir customer count. Mr. Kintner also mentioned that he believed that "cost" to provide promotional assistance rather than the cost or value" to the advertiser was the better position for the Commission to take in measuring the reasonableness of payments for promotional assistance (see footnote 2 to Guide 9). Gene Higgins made the point that his concern stemmed from the fact that larger resellers appeared to be receiving far more than any costs they incurred in allowing installation of the MAOS system. Mr. Kintner and his colleagues conceded that such costs would be minimal (e. cost of electricity), because AROS' personnel install, maintain and repair the mechanism.

Mr. Collier pointed out that the Commission had receded from the cost or value" position in measuring whether a promotional assistance payment was proper in favor of "cost" because predicating such payments on "value " to the supplier would make it possible to pay excessive amounts to some resellers on the basis that advertising in their outlets was of greater worth to the suppliers than it would be in other resellers' outlets. He commented that if resellers purchased or leased the equipment there clearly would be "cost" to which the payments could be related but that with an intermediary in the picture, it was difficult to determine what "costs " if any, the resell1ers would have in using the systems.

Dufresne said he believed the thrust of the only theoretically viable charge the FTC might make in litigation against MARPOS would be a Section 5 count on the theory that large resellers were being unfairly favored by virtue of the fact that ARPOS was "collecting" funds from suppliers and paying large sums to some resellers and much smaller sums to other resellers. He diseounted the possibility that an R-P action would lie because no supplier pays more than $33 per year per location for his participation in the plan plus the fact that the payments which may be made have a "floor" and a "ceiling" and are proportionalized on the basis of customer count.

Mr. Kintner indicated he would submit a request to the Commission for an advisory opinion pursuant to the invitation contained in the Jetter of rescission.

Isl Joseph P. Dufresne 216-969 O- LT - 77 - 90 87 F.

Tripartite Promotional Assistance Plan (See Digest No. 418, 77 C. 1709; revoked Sept. 11, 1973, 83 F. C. 1839, File No. 703 7083. File No. 763 7002, release February 6 1976. Opinion LettJ!r January 29, 1976 Dear :vr. Odessky:

This is in response to your request for an advisory opinion concerning a revised tripartite promotional assistance plan on behalf of Don Odessky, Inc.

It is the Commission s understanding that the revised Odessky plan cssentially involves artistically designed aisle-end merchandising displays featuring products of participating suppliers, erected in retail outlets in appropriately varying sizes so as to be useable in a practical business sense by all such outlets, both large and small. These aisle-end displays are featured for one week periods and are in addition to, and are independent of, the extent of shelf space otherwise devoted to the sale of the promoted products.

Payments under the plan to participating retailers are based on a percentage of purchases and are limited to the cost of the displays. The cost has been calculated in six ranges, from $50 to $125 for the most elaborate of the displays. Such costs, of course, are subject to change. Determination of the above costs takes into consideration the construction, labor, sign painting, material and the cost of dismantling at the end of the week. For those retailers not wishing the aisle-end display, but desiring alternatives such as handbills, newspaper advertising, bag stuffers and other means of promotions, proportional payments will similarly be based on costs. All participating customers of the same supplier are paid at an identical rate (based on the dollar quantity of goods purchased) but in no event will such payment exceed the cost of the display or other promotion. Payments are made by the Odessky firm from moneys paid to it out of the available promotional assistance program funds of participating suppliers.

All customers of participating suppliers in a competing trade area are notified of the program and asked to participate. Retailers are notified orally and in writing by first class mail. Kotice includes a description of the plan and alternative methods of promotion together with all relevant details.

The Odessky company is responsible for insuring that all customers are advised of the availability of the program and for determining costs of the promotion utilized. It additionally sees to it that the ADVISORY OPINIONS 142 services the supplier is paj ng for arc furnished, by chccking the stores the displays or other promotions utilizcd, and also by making certain that no overpayments are involved.

Under the plan, no supplier may contract for more than six of the onc-week displays in anyone calendar year. The maximum payment to a retailer by a single supplier would thus be $750 per store (assuming, for illustration, the maximum tentative cost figure of $125 referenced above). Payments would be less if the cost involved were for smaller and thus less expensive, displays or if a supplier did not choose to promote his product six times during the annual period. Based on its understanding of the revised plan as outlined above, the Commission has concluded that it wil not initiate action if the plan is implemented in the manner described.

You are advised that the Commission has carefully considered that aspect of the subject plan relating to the lease through Odessky of display or shelf space. The Commission notes that, strictly speaking, the lease of shelf space, as such, is not involved, although the merchandise display devices, as described, appear clearly to provide a product merchandising facility as well as a product display. The plan however, provides restrictions on the frequency with which a supplier may participate (i. only six times in one year for a week at a time) and limits payments to retail stores to the actual cost to erect displays theor Inprovidelimitingalternativeal10wanceservices.payments to the cost of displays, Commission expects that no unnecessary costs to construct or reconstruct displays will be occasioned. Rather, the Commission expects that, in its intermediary function, Odes sky, Inc. , will see to it that any excess payments will be returned to the supplier involved, if payments in fact exceed the approximate cost necessary to erect displays.

To assure that the plan is implemented so as to provide allowances to all competing purchasers on proportionally equal terms, Don Odessky, Inc. , should report to the Commission, after the plan has been in operation for one year, the full extent of retailer and supplier participation, including time periods and products involved, and the total allowances paid to each participating retailer by each supplier under the plan.

By direction of the Commission.

Third Supplem€ntal utter Relative to Request March 4, 1974 Dear Mr. Dufresne:

87 F.

This wi1 supplement my submissions of December 20, 1973, January 7 and February 5, 1974, seeking an advisory opinion on behalf of Don Odessky, Inc. I want to thank you for arranging the meeting with Messrs. Tucker and Higgins and the following attempts to clarify some of the questions raised.

As our first letter of December 20 , 1973 , indicates, Don Odessky, Inc., is a service company whose primary function is to assist small canners and packers, as well as other suppliers, in the promotion of their products. The Odessky Company contacts the retailer customers explains the various promotions available, insures proof of performance and is responsible for disbursing funds from the supplier to the customer. In all respects, Don Odessky, Inc. , acts as an agent for suppliers in insuring that promotional funds are, in fact, used for promoting suppliers goods rather than being pocketed as a "cash discount."

Various promotional vehicles arc available, such as newspaper advertising, flyers, !JOint-of-sale material, handbills, promotional contests and artistic displays. Since the artistic displays have raised most of the questions during our discussion, some further explanation appears in order, but we hope it is clear that the customer can select any number of promotions and is not limited to these displays. Further if he does choose an alternative to the basic plan, the customer is reimbursed for a total of 100% of the costs of the alternative chosen. Our original letter described these displays as similar to billboards or signs that are erected in windows or on walls to advertise merchandise. The payment for these displays should not be equated with the purchase of shelf space, because the displays are not like shelf space in that they are primarily designed to promote the product, and the fact that merchandise can be picked up by the customer is incidental. The product promoted in these displays is available on the shelves and the fact that it is available on the displays is ancillary and subordinate to the primary purpose of such displays, which is to promote the product. Under no circumstances will payment be made for shelf space. The advertising displays must follow certain basic designs, which in some cases involve "Disney" type drawing of animals, animated cartoons and other eye-catching devices. The displays exhibit the merchandise and in most instances the consumer can purchase the merchandise from the display. These displays should not be confused with so-called permanent ends where merchandise like soft drinks and potato chips stand permanently. The Odes sky displays are a form of bill boarding or displaying of a product for a one-week period. The costs of these displays have been accurately fi!,rured by having a member of Retail Clerks L'union No. 77 in Los Angeles build various ADVISORY OPINIONS 142 designs using strict cost procedures. The costs involve the construction labor, sign painting, material and the cost of dismantling at the end of the week. The size of the display contributes the greatest factor in determining costs. In examining the cost in the smallest display which is required for a payment of $50.00 to the retailer, it has been determined that the labor involved amounts to $41.25. To this figure must be added the cost of art work and material which accounts for the balance of $8.75. In examining the costs of the most expensive displays using the same methods, it has been determined that labor costs amounted to $91.91. The difference between that sum and $125.00 is accounted for by the cost of sign painting and material. In some cases the cost of painting exceeds the amount budgeted in the larger displays because their desi,,"" involve much artistic work if the product is to be promoted successfully; however, no payments exceed $125. which is the cost to produce the most elaborate of the displays. With regard to the question raised at the meeting as to what happens if a customer does not earn enough under a supplier s program to pay for a display, he is offered alternatives previously referred to so that the money earned is expended for promotion. The Odessky Company does work with suppliers and fits the Odessky program into the supplier s overall program. The supplier is informed of the requirements of the Robinson-Patman P. ct and if the supplier decides to offer promotional assistance, the Odessky Company advises the supplier of his duty to have a plan for providing the assistance, to inform customers of the plan, to insure that it is proportional and available to all competing- customers, and to check to see that the services are furnished.

The means of proportionalization that the Odessky firm suggests is that the payments be based on the dollar volume of purchases of the promoted product or on the quantity of the goods so purchased during a specified period. This is the means which Guide 7 "Proportionally Equal Terms" of the Commission s Guides for Advertising Allowances indicates is the best method to calculate tho payments or allowances to be made by suppliers in providing promotional assistance. As a rule most packers and canners pay an allowance of four percent on purchases for advertising and promotions. The Odessky Company, however, docs not set or determine the precise allowance that wil paid and there is no uniform rate.

If the supplier agrees to participate in the Odessky plan he is biled by the Odes sky Company for his costs in providing the promotional assistance and the Odessky Company thereafter makes the necessary payments to the customers and furnishes detailed reports to the suppliers so that there is a proper accounting as to the promotional 1430 FEDERAL TRADE COMMISSIOK DECISIONS 87 F.

funds received by each customer. This is a service to the supplier because he can be certain, as called for by Commission Guide Chccking Customer s Use of Payments " that he is receiving performance for the funds expended, and hc receives a detailed accounting so that thc proper deduction can be made from the retailer s promotional account.

In conclusion, we believe that this program insures that small suppliers will have an opportunity to promote and display their products in grocery stores. The fact that no supplier can purchase more , pro-than 6 displays a year for a one-week duration is reasonable competitive and guarantecs that the Odessky plan will not prevent other suppliers who do not participate in the Odessky plan from having the opportunity to advertise their goods and to display their products in retailers' places of business. The plan has been carefully designed to assure that a reasonable and proper balance is maintained between instore display space which is available to suppliers who participate in the Odessky plan in providing promotional assistance to the retailers and other non-participating suppliers who wish to provide in-store promotional assistance to thc retailers, but do not choose to do so using the Odessky Company plan.

With kind regards, I am Sincerely yours /s/ Basil J. Mezines Second Sl1pplemRntal Lelt€r Relative to Requ€st February 5, 1974 Dear :vr. Dufresne:

Odes sky, Inc., for This is in further reference to the request of Don an advisory opinion pursuant to Sections 1. 1.4 of the Commission Rules and procedures. This request for an opinion was filed by my letter dated December 20, 1973, and by supplemental letter of January , I have had several, 1974. Since these two letters were filed conferenccs with you which seem to indicate that further clarification is necessary.

When the Commission announced that it had revoked 12 Advisory Opinions dealing with promotional allowances, it stated that the action was taken because the prevjous opinions approved compensation schemes based upon, for example, bJTOSS sales or customer counts as determined by cash register transactions. In addition, the Commission referred to footnote 2 in Example 1 of Guide 9 which states "Also the purchase of display or shelf space, whether directly or by means of so- ADVISORY OPINIONS 1431 called allowances, may be considered an ' unfair method of competition in violation of Section 5 of the Federal Trade Commission Act." The request for an Advisory Opinion indicates clearly that thc Don Odessky company wii base an payments made for the services furnished on the prccisc donar volume of goods purchased during a specified period. In short, the company is in comp1etc agreement with the Commission that the customer count method or gross receipts method of proportionaiization is not a proper basis for assuring that payments made arc on proportion any equal terms. Basing the payments on a percentage of the donar volume of purchases assurcs that such payments are proportional and fair to an customers who compete in the resale of the sencr s product. Guide 5 states that window and floor displays are included in the hst of services or facilities eovercd by the Act where the sener pays the buyer for furnishing them. Of course, if a customer seeks to buy an unreasonable amount of floor space, this could result in a restraint on trade which is obviously the reason why the Commission cautioned promoters in footnote 2 to be careful that the purchase of display or shelf space does not result in "an unfair method of competition " in violation of Section 5 of the Federal Trade Commission Act. This footnote was designed to cover situations whereby a sener has, or may, monopolize shelf or display space in grocery stores to the detriment of competitors. The request filed on behalf of Don Odessky, Inc., dated December 20, 1973, provides, on page 2, a limit on the number of displays anyone supplier can contract for during the course of a year in order to prevent one supplier from purchasing an available promotional space in the store. Specificany, the letter of request states that "during any calendar year, no single supplier can contract for more than 10 displays in one store. Since each store can usuany set up 5 displays, at the end of each ais1c, this means that it is possible for a store to contract for at least 260 a year." It was beheved that if a supplier could contract for a maximum of 10 displays out of a possible 260, there was no likelihood that any restraint of trade would take place. Since discussing this matter with you and Mr. Odes sky, I have come to the conclusion that the maximum number of displays that can be purchased should be reduced to 6. Thus, the maximum number of displays a supplier can contract for during one week represents a little over 2% of the space avai1abJc in a grocery store during the course of the year.

I strongly believe that limiting the maximum number of displays to 6 for a one-week period wii guarantee that there wii be no monopolization of the display space and there is not even the remotest possibility that any restraint of trade win take place. Moreover, the 87 F.

Odessky company will certify that all competing suppliers wil be provided with display space in order to insure that no supplier of the no supplier wil begrocers receives a competitive advantage. Thus, foreclosed from promotional display space in a store. We also believe that the method of payment based upon the precise cost of the displays or on costs that are figured on the basis of designing and constructing one display will also insure that payments made are not in excess of the actual or approximate cost of providing the promotional service. Under the Odessky plan proof of a performance is guaranteed since it is their responsibility to inspect the displays for suppliers in order to be certain that they are erected for the stated period and the design of the display is in accord with the agreement that has been reached with the customer. When the FTC revoked these Advisory Opinions it offered the parties an opportunity to modify their methods of operations so that the Commission could consider the issuance of a new Advisory Opinion. Mr. Odessky has followed this strong suggestion from the Commission believes theand has modified his program to comply with what he makeCommission has requested. If we are incorrect in our assumption, any other modifications that you feel necessary. We would appreciate the advice of the staff so that we can submit a program to the Commission that meets its requirements in complying with the Guides. With kind regards, I am Sincerely yours /5/ Basil J. Mezines First Supplemental Lever Relati.ue to Request January 7 , 1974 Dear Mr. Dufresne:

January 3, 1974 , concerning the Thank you for your letter of for an advisory application of Mr. Don Odessky of Don Odessky, Inc., opinion.

We stated in our letter that "the amount of the payment would be based on a percentage of purchases with a relationship to the cost of thc display" so that it would be clear that no overpayments would be permitted. All customers would be paid at thc same rate and this would be done by basing the payments on the dollar quantity of goods purchased during a specified period. Specifically, a supplier would give each competing customer an allowance of four (4%) percent on the dollar volume of purchases to promote his product. A1l customers of the same supplier would be paid an identical rate but in no cvent to exceed the cost of the display or other promotion. The amount earned could be ADVISORY OPINIONS 143 used for displays, newspaper advertising, handbils and stuffers. Whatever the means of promotion selected, the payments made would be calculatcd by actual or approximate costs and would never be more than the cost of the promotion utilized.

The Odes sky company, as a service organization, would he responsible for insuring that a1l customers were advised of the availability of the program, and fixing the costs of the promotion utilized so that some customers did not receive payments in amounts greater than the costs of the promotion and thus obtain a price advantage. There would always be a ceiling on payments. The Odessky company would see to it that the services the supplier is paying for arc furnished by checking the stores, the displays and other promotions utilized and also by making certain that no overpayments are involved. By utilizing the services of a third party to monitor the program, performance can be verified and the obligations of thc Robinson-Patman Act wil be satisfied.

Again, thank you for your interest and if you need any additional information, please give me a call.

Sincerely yours /s/ Basil J. Mezines LetWT of Request 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 Allowances 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 87 F.

merchandisc. The Odessky plan is a tripartite arrangement which essentially involves the display of suppliers' products in grocery stores. These displays, which include artistic advertising designs, function the same as billboard advertising or ingenious advertising signs. Thc advertising displays arc usually erected at the end of an aisle grocery 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 large 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 capabilities and does design displays and furnishes advertising material 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 never exceed one hundred and twenty-five dollars.

The Odessky company contacts suppliers and offers its service and determines if they wish to enter into joint promotions with grocers and other 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. Retailers 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 store 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 used 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 performance to ensure that retailers do not receive funds where no performance is involved.

ADVISORY OPINIONS 1435 The retailers have received payments on the basis of the number of persons coming through the store 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 smaller 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 future action proposed is that each retailer report to the petitioner the amount of purchases of the suppliers' product during the period that the promotional display is employed. Generally, this can best be done 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 like 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, newspaper 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 period. The Odes sky company will continue to keep records of cash registcr transactions in order to satisfy suppliers that advertising 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 ensure 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 available 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 87 F.

It is respectfully 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.

Respectfully 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 corporate€ 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 87 F.

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 conditions 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 corporate 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 elects 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 place 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 less 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 wiling 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, Isl Roger A. Clark Counsel for the National Association of Bedding Manufacturers ADVISORY OPINIONS 1441 Proposal to collect certin information from dealer customers for use in scheduling manufacture of popular styles of shoes would not violate modified order to cease and desist. (Docket 7606 Brown Shoe Company, Inc., release March 19, 1976) Opinion Letter March 10, 1976 Dear Mr. Taylor:

The Commission has considered the request in your letters January 7, and February 13 1976, for advice as to whether your client Brown Group, Inc., may engage in a proposed course of action without violating the modified cease and desist order issued by the Commission in the above-captioned matter on August 3, 1966. Your letter states that your client is the successor to Brown Shoe Company. (See 70 TC 491 for modified order.

From your letter, it appears that Brown proposes to collect certain information from its dealer customers for use by it in scheduling its manufacture of popular styles of shoes. Dealer customers wi1 be asked to report, on a voluntary basis, their sales of Brown brand shoes, by brand and stock number, for the first four to six weeks of each selling season. You state that the intended result of this program is to improve Brown s ability to respond to reorders for popular types of shoes by its dealer customers.

On thc basis of the facts submitted, you are advised that the Commission is of the opinion that the operation of the proposed dealer reporting program, on a voluntary basis, would not violate the modified order issued in this matter.

By direction of thc Commission.

Supplemental Letter Relative tLJ Req?J1!st February 13 , 1976 Dear Mr. Johnson:

In connection with our letter request of January 7 , 1976, for an advisory opinion of the Commission on the proposed early dealer sales reporting program for Brown brand shoes dcscribcd in that letter, Mr. Gravatt of your office has indicated that you wanted to know whether or not the annual IRD store profitahility survey was still being prcparcd for Brown by the Russell Allen Company of ew York. The Company has informed me that the last such survey prepared for Brown by the Russell Allen Company was based upon 1969 annual 2)(;-%90- 1.': - 77 - 91 1442 FEDERAL TRADE COMMISSIO!\ DECISIO"S 87 F.

store statistics and was prepared and distributed in 1970, and that no similar report has since been prepared by or for Brown. As indicated in our previous letter, the Company continues to request and obtain necessary credit information from its dealer customers for use by its Credit Department and monthly gTOSS sales figures (which are voluntarily reported by approximately one-fourth of the IRD outlets) on the same basis as previously described to the Commission in the Company s compliance reports. I hope this is the information you require and that we may obtain a favorable ruling on our request in the near future. Very truly yours /s/ Edwin S. Taylor utlt/ of Request January 7, 1976 Dear Mr. Gereke:

This firm represents Brown Group, Inc. (formerly Brown Shoe Company, Inc.) which, as you may recall, is operating under a Modified Order to Cease and Desist issued by the Commission on August 3, 1966 in connection with Brown s Independent Retailers Division ("IRD" program (FTC Docket :'0. 7606). A copy of the Order is enclosed. In connection with its manufacture and sale of in-stock branded Jines of shoes, i. , hranded shoes that are stocked by Brown for reorder by its dealer customers during the selling season, Brown would Jike to ask its dealer customers to report their sales of Brown brand shoes, by brand and stock number, for the first four to six weeks of each selling season. Such a report would be entirely voluntary on the dealers' part and would only pertain to Brown brand shoes. Sales of competitors shoes would not be reported. The request for this sales information and the reports themselves would be handled by Brown s Research Department, and the individual reports and any information contained in them would not be available to Brown IRD division or to any of its branded lines selling divisions, although summaries of such information would be published to such divisions for their information and guidance but without disclosing particular information as to any individual dealer customer.

These reports of early sales would be tabulated by computer and would provide Brown with an early indication as to the particular styles of Brown brand shoes that \were and \were not selling well in each rehrion of the country. This, in turn, would enable Brown to modify its manufacturing schedules for in-stock shoes to increase-; production of popular styles in each brand and cut back on apparently ADVISORY OPI;'IONS 1M3 unpopular styles. The intended result is the maintenance by Brown of hetter balanced seasonal stocks of Brown brand shoes and improved ability on Brown s part to respond to reorders for such in-stock shoes by its dealer customers.

In a letter to you dated September 26, 1967, Brown advised that it was eliminating the receipt of monthly or other periodic business summaries or reports from IRD dealers, except to the extent that such information was necessary for credit reasons, or was requested in the form of monthly !o'TOSS sales figures, the results of which are summarized by Brown and published to IRD dealers monthly in order to advise such dealers of current business trends in independent retailer shoe stores across the country. This action was taken voluntarily by Brown in order to resolve a controversy which had developed between the Commission and Brown, during the initial compliance report period, over the continued receipt by Brown from IRD dealers of periodic business reports containing sales and other business information. (See July 26 , 1967, letter from Joseph W. Shea Secretary to Brown Shoe Company, Inc.) There is no language in the Commission s Order which expressly prohibits the receipt of such reports.

The purpose of this letter is to inquire whether, in the opinion of the Commission, the early sales reporting program described above, which involves only Brown brand shoes and not the shoes of competitors would violate the Commission s Order of August 3 , 1966. We respectfully submit that these early sales reports from Brown s dealer customers would not have either thc purpose or effect of violating thc Order and that they should be permitted.

If the Commission should require any additional information in order to make its determination won t you please let me know. The Company wishes to put the above program into opcration in connection with the Spring 1976 selling season. This means that the letters to Brown s dealer customers should go out hy February 1, 1976. Anything you or other members of your staff can do to expedite our request for an opinion from the Commission will be appreciated. Very truly yours BRYAN, CAVE, McPHEETERS & McROBERTS /s/ Edwin S. Taylor ;

144 FEDERAL TRADE CO:\MISSION DECISIONS 87 F.

Conflct between State law and Trade Regulation Rule on Cooling- Off Period for Door-to-Door Sales. (File No. 763 7005, release May 20, 1976) Opinion LetlR?' May 4, 1976 Dear :vr. Offen:

This is in response to your inquiry as to the effect of the Commission s Trade Rcgulation Rule Concerning a Cooling- Off Period For Door-to-Door Sales on notice language required by States which have adopted the Uniform Consumer Credit Code (liCCC). Melville W. A related Commission opinion was issued to :vr. Feldman on May 20, 1975.

In question (1) you asked:

Is the Uniform Consumer Credit Code (lJCCC) notice of cancellation form inconsistent with the FTC notice forms? Under the Rule, a summary notice of the right to cancel must be the form stated in part (a) ofgiven in the contract in "substantially" the Rule, and the Notice of Cancellation form must also bc provided. These notices must be given in contracts used in transactions in affecting commerce. Provisions of State law which also require that certain notice language be given are preempted by the Commission Rule to the extent that they are directly inconsistent with it. As stated in thc advisory opinion issued to Mr. Feldman, notice language required by State law which misrcpresents in any manner the buyer right to cancel conferred by the Commission s Rule is directly inconsistent with the Rule and therefore preempted. The Rule does not, however, preempt a) consistent State requirements, including those which f,rrant buyers greater protection than is conferred by the Rule, or b) private rights of action based on such consistent State requirements conferred by state cooling-off laws. The UCCC form of notice reads as follows:

RCYER' S RIGHT TO CA1'CEL If this agreement was solicited at your residence and you do not want the goods or services, you may cancel this agreement by mailing a notice to the seller. The notice must . Iv your lett€r,you refer to "notice of cancellation forms " while in this a.vi ory opinion the Commissioll refers instead to the " form of notice" required by the Rule or by SLate law- inc€ he Rule rcquire. both II umm!lry notice in the ontrac and an attached " '.iccof Canc€lIation" form , , ADVISORY OPINIONS 144 say that you do not want the goods or services and must be mailed before midnight of the third business day after you sign this agreement. The notice must be mailed to: (insert name and mailing address of seller) If you cancel, the seHer may keep all or part of your down payment. The Commission believes that the specific provisions of the UCCC form of notice misinform buyers as to their rights under the Rule and conflict with it as follows:

If this agreement was solu;ited at your residence The Rule s summary notice contains no parallel provision, but the coverage of the Rule is broader than that of the Code; generally, the Rule covers sales made by means of personal solicitation at a place other than the place of business of the seller. This Code notice language would misinform buyers as to the scope of their right to cancel under the Rule and is therefore in conflict with the Rule.

'I A 1nd YQ1, do not want the goods ar servu;es This provision implies that the buyer must state a specific reason for cancelling the transaction, a condition not required by the Rule. The Rule s Statement of Basis and Purpose notes that the words " for any reason" were eliminated from the final version of the Rule since such a requirement would tend to constrain the exercise of a buyer s right to cancel. This and related UCCC notice language would misinform buyers as to cancellation requirements of the Rule and are in conflict with the Rulc. Tou may cancel this agrewnwnt by rrmiling a notu;e to the seller. This provision also misinforms the buyer of his rights, because under the Rule a buyer may cancel by delivering a copy of the cancellation form provided (or any other written notice) or by sending a telegram-in addition to mailing a notice to the seller. These methods of cancelling are specifically mentioned in the Rule s Notice of Cancellation form. In the Commission s view, this and other language to the same effect in the UCCC notice conflicts with the Rule.

If you cancel, the seller may keep all ar part of your down payment. "

This is directly inconsistent with the parts of the Rule which 1446 FEDERAL TRADE COMMISSIOK DECISIONS 87 F.

provide, and which inform the consumer, that hc may cancel without any penalty or obligation. " In addition, the Rule spceifically provides that portions of State laws which permit the imposition of a cancellation fee are "among those which will be considered directly inconsistent."

As a result, all provisions of the body of the UCCC form of notice are preempted by the requirements of the Commission s Rule. If a State should so require, a seller may include in his contracts the State notice in addition to the Commission s summary notice, so long as all State language which is inconsistent with the Rule is stricken in transactions covered by the Rule. The Commission emphasizes that its application of the preemptive effect of the Rule is limited to the UCCC example presented. Kotice language appearing in other State legislation which is consistent with the Rule is not preempted by the Rule. Inconsistent UCCC notice language may be stricken either by being lined through, or, if satisfactory to the State in question, by being eliminated from contracts covered by the Rule. In appropriate situations a composite notice, if it satisfics the requirements of State law, can also he given. The Commission would not object to a composite which in a manner consistent with the Rule notifies thc buyer of all of thc information contained in its summary notice, including the reference to the attached Kotice of Cancellation form. Such a composite must also comply with the Rule s summary notice requirements as to placement and size of type in the notice. In the interest of uniformity, the Commission encourages UCCC States to dcterminc that the Rule s summary notice would satisfy their State notice requirements. The Commission also recommends (where l,'Teater State rights to consumers are not contemplated) that States amcnd their cooling-off statutes either to provide that the Commission s form of notice may be given in lieu of the State notice or to provide that it become the mandatory State language. In question (2), you asked:

Do the Commission s righi of cancellation forms provide as much as or more protection than the forms required in state statutes following the language and requirements of the UCCC? Because the UCCC provisions misinform buyers of rights l,'Tanted by the Rule, it is the Commission s view that all portions of thc body of the UCCC notice arc preempted. To the extent that language required by the UCCC notice misinforms buyers of rights granted by the Rule, the UCCC form of notice provides less protection than that provided by the Rule.

In question (3), you asked:

ADVISORY OPINIONS 1447 If the answer to question two is yes, may companies a..',sume that use of the FTC notice will be deemed to exempt companies involved in interstate commerce from state statutory requirements as to the form of notice required by the UCCC'? Since as stated in answer to question 1 , the Commission s Rule preempts the body of the notice requirement contained in state statutes following the UCCC, companies involved in transactions in or affecting commerce in those States must comply with the Rule provision, and if they include the State s notice the body of it must be lined through.

In question (4), you asked:

If the answer to question two is not yes:

a. Must a company prepare a composite notice combining the appropriate provisions of both the state law and the FTC rule; or b. Will the FTC prepare a model composite of the state law and federal rule which the industry must follow; or c. Do the states have the authority to prepare the composite which the industry must follow? The Commission s answer to question tWG also responds to question 4. For guidance in other situations, the Commission notes that a seller" within the scope of the Rule is not required to prepare a composite, although a composite notice is onc way in which both Commission and State requirements might be satisfied. A model composite has not been prepared because of the differences in the notice requirements of the various States and because language acceptable to States which also meets the requirements of the Commission s Rule wil be acceptable for Commission purposes as well. The Commission is willing to accept a composite notice prepared by a State which meets the criteria indicated above. In questions (5) and (6), you asked:

5. In the event that a state with an existing cooling-off statute refuses to recognize the preemptive effect of the FTC' s trade regulation rule, will a company, despite good faith efforts to reconcile the differences between the federal rule and state statute, be prosecuted under the Commission s rule for printing forms in compliance with the state law rather than the FTC rule if such state law is inconsistent with the Rule 6. If the answer to question five is yes, will the remedies sought include providing consumers \l/itll the opportunity to rescind sales contracts and to re ive restitution In the absence of a specific factual situation, the Commission cannot define a course of action it might pursue. In general, companies which violate the Rule are subject to Commission action, including administrative proceedings and proceedings instituted under Sections 205 and .. . .

144 FEDERAL TRADE CO)!MISSION DECISIONS 87 F.

206 of the :\agnuson-Moss Warranty- Federal Trade Commission Improvement Act, when appropriate and in the public interest. In question (7), you asked:

May DSA advise its member companies that the change in the fourth paragraph lof the Rule s Notice of Cancellation) was merely a technic.l correction that the prior version L enacted by the State of Texas J is not stronger than the final version, and that Texas provision docs not preempt the rule: The Commission s notice of change in the Rule, 38 F.R. 30104 (Nov. 1 1973), stated that the change was "merely ' . . editorial and' . . not intended to create, alter, or revoke any substantive rights or duties provided by the original language of the rule. The Commission, therefore, finds that the Texas provision is consistent with the current provision in the Rule, and that either it or the eurrent provision in the Rule will be aceeptable to the Commission as to sellers subject to the Rule. This editorial change was made to clarify the buyer s obligations, however, and the Commission therefore recommends that States incorporate the eurrent language in the Rule in any required notice of cancellation forms. In questions (8) and (9), you referred to an analysis of the conflict between the Oklahoma cooling-off statute (an adaptation of the UCCC), and the Commission s Rule. The analysis was prepared by James A. :\cCaffrey, Deputy Administrator of the Oklahoma Department of Consumer Affairs. In this connection, you asked: 8. May DSA inform its members that the FTC accepts the interpretation contained in Mr. McCaffrey s analysis 9, May DSA advise our member companies that this composit. form is approved by the FTC for use in Oklahoma? The Commission observes that Mr. McCaffrey, in his proposed contract notice composite, has provided an example of state required language which, though apparently in conflict with the Rule, could be presented so as to avoid conflict with its requirements. Rather than deleting " at your residence" from the UCCC notice, he has added the disjunctive "or at a place other than the place of business of the seller. This language, taken from the definitional section of the Rule, serves to explain types of transactions covered without necessitating the striking of state language.

However, in Mr. :\cCaffrey s proposed composite form of contract notice, buyers would be misinformed that a need exists to provide sellers with a reason for cancellation in transactions subject to the Commission s Rule and that "mailing" constitutes the only pcrmissible ADVISORY OPINIONS 1449 means of cancellation. The Commission, therefore, is unable to approve Mr. McCaffrey s proposed composite contract notice. Since the UCCC docs not require a Notice of Cancellation form, the need under Oklahoma law for any such composite is not apparent. However, should State law make provision for a composite form which was consistent with the requirements of the Commission s Rule, thc Commission would view such a notice as acceptable. The Commission would of course take the same view should consistent State notice requircments also reference rights according buycrs greater protection than those conferred by the Rule.

By direction of the Commission.

Carespondence Relating to Requst November 6, 1975 Dcar Mr. Chairman:

This is in response to your inquiry of October 28, 1975 relating to the petition filed by the Direct Selling Association concerning the Commission s "cooling-off" rule for door-to-door sales and also a request by the Association for an advisory opinion. The Direct Selling Association s petition of July 26, 1974 was considered by the Commission in March, 1975. Thc petition was for amendment of thc Cooling-Off Rule to provide an cxemption from the Rule s notice rcquirements for those sellers which give clear and conspicuous notice of an unconditional money-back ,6TUarantee. By letter dated March 20, 1975, a copy of which is enclosed, the Commission notified the Direct Selling Association of its determination that the petition did not warrant commcncement of a proceeding to amend the Rulc.

The rcquest for an advisory opinion from the Direct Selling Association and other generally related questions concerning the preemptive effect of the Commission s Cooling-Off Rule, are collectivcly under study by the staff. The Commission considered the first of such requests in May of this year. It issued an advisory opinion to Mr. Melville W. Feldman relating to the preemptive effect of the Commission s Rule on May 20, 1975 f85 F. C. 1215J. I am advised that the several additional questions raised by the Direct Selling Association will be presented to the Commission in the near future. As I am surc you appreciate, questions involving preemption raise difficult and complex issues.

Your continued interest in the work of the Commission is greatly apprcciated. I hope that you will not hesitate to call on me if I can bc of further assistance.

1450 FEDERAL TRADE COMMISSIOK DECISIOKS 87 F.

Sincerely, Isl Lewis A. Engman Chairman October 28 , 1975 Dear Chairman Engman:

On January 30, 1975 I wrote to you concerning the failure of the Commission to respond to the petition filed by the Direct Selling Association on July 26, 1974 with regard to the trade regulation rule providing a cooling off period for door-to-door sales. I understand that as of this date the Direct Se1Jing Association has still not received a grant of its request or a denial. As you know, the Committee has before it in S. 642 a provision which would require the Commission to respond within 120 days after the submission of a petition. It is just this kind of situation which inclines us to act affirmatively on a time limit proposal.

I would appreciate hearing from you on the Commission s response to either the petition or the request for an advisory opinion filed by the Direct Selling Association in this matter. Sincerely yours Isl WARREN G. MAGNUSON Chairman January 30, 1975 Dear Mr. Chairman:

More than six months ago the Direct Se1Jing Association petitioned the Federal Trade Commission to amend the trade regulation rule providing a cooling-off period for door-to-door sales. I am not aware of whether or not the petition has any merit, since I have not even reviewed it. However, I am concerned that in the six-month period the only response which the Direct Selling Association has received was a somewhat pro forma response from the Commission Secretary indicating that the petition was being reviewed. It would appear since many firms are awaiting the Commission decision that matters of this sort should be expedited or at least a timetahle provided to petitioners so that they could make plans accordingly. I hope that you will keep me informed of the progress of the Commission in considering this petition. ADVISORY OPINIONS 1451 Sincerely yours Isl WARREN G. MAGNUSON Chairman January 27, 1976 Dear Neil:

I regret the delay in processing your rcquest for an advisory opinion regarding preemption and thc Commission s trade regulation rule governing door-to-door sales. As you know, preemption involves some very diffcult questions, and these questions are under consideration by the staff. I hope that the Commission wil be able to advise you in the near future.

Sincerely yours Isl Robert J. Lewis General Counsel January 15 , 1976 Dear Bob:

Thanks for your thoughtfullctter. It was especially appreciated since it does, at times, get lonely out here in the cold. By the way, do you have any idea about when I'm going to get a response to my preemption advisory opinion request? (Copy enclosed along with two letters to the Commission from Senator Magnuson.) I think a response might help to clarify the issue for all concerned. Again, thanks for your note.

Sinccrely, Neil H Offen Senior Vice President and Legal Counsel January 14, 1975 Dear Mr. Collier:

On June 6, 1974, this organization filed a request for an Advisory Opinion with the Commission (copy enclosed). To date, we have not received a response to our request. May I please have a status report so that I can advise the scores of corporations awaiting the Commission assistance.

Thank you.

Very truly yours 1452 FEDERAL TRADE CO MISSION DECISIONS 87 F.

Isl Neil H. Offen Vice President and Legal Counsel September 23, 1974 Dear Mr. Offen:

This will acknowledge your letter of September 19 seeking information as to the status of the Direct Selling Association s request for an advisory opinion.

The opinion in question is in process of preparation and you will be notified of the Commission s disposition of it as soon as possible. Very truly yours Isl Charles A. Tobin Secretary September 19 , 1974 Dear Secretary Tobin:

On June 6, 1974, the Direct Selling Association (DSA) filed a request for an advisory opinion relating to the preemptive effect of the Commission s Trade Regulation Rule Providing a Cooling-Off Period for Door-to-Door Sales (16 CFR 429.1). On July 26 1974, DSA filed a petition to amend the above-cited rule to provide alternative notice compliance for companies providing a money-back guarantee. To date DSA has not received a response to either our advisory opinion request or to our petition to amend the rule.

Since the rule is in effect, the need for Commission response immediate. DSA therefore requests that the Commission inform us as to when we may expect to receive the advisory opinion requested and the reaction of the Commission to our petition to amend the rule. Very truly yours Isl ;\eil H. Offen Vice President and Legal Counsel Supplement to Letter of Request June 7 , 1974 Dear Secretary Tobin:

ADVISORY OPINIONS 145 This letter is to supplement the request of the Direct Sening Association for an Advisory Opinion concerning the Commission cooling-off trade regulation rule (16 CFR 429.1). In question seven DSA mistakenly attrihuted statements by a representative of the Texas state consumer credit agency to that of the office of the Texas Attorney General. Please note this correction. Please also note that a representative of the Texas Attorney General has publicly stated that if called to testify in an action brought in Texas against a company using thc FTC rule notice of cancenation form, he would conclude that the rule is not in compliance with Texas law. Thank you for your consideration.

Very truly yours /s/ W. Alan Luce Attorney and Director/State and Local Affairs utter of Request June 6 , 1974 Dear Secretary Tobin:

This letter is submitted on behalf of the Direct Selling Association (DSA) to request an Advisory Opinion on specific matters relating to the Commission s trade regulation rule entitled "Cooling-Off Period For Door-To-Door Sales" (16 CFR 429.1). DSA is the national trade association representing the leading manufacturers, distributors and retailers of products sold in the home.

staff that the state ofDSA has been informed by Commission Oklahoma has raised questions concerning the preemptive effect of the rule on their respective cooling-off statute and the right to interpret and compare provisions contained therein. Prior to this time the industry had assumed that a state law with weaker " j.notice of Cancenation" provisions was totany preempted as to such notice provisions by the trade regulation rulc The validity of this assumption is now in question.

Specificany, Mr. .lmes A. McCaffrey, deputy administrator of the Oklahoma Department of Consumer Affairs, stated in a memorandum entitled "Analysis of The l;uniform Consumer Credit Code Buyer Right To Cancel and The Federal Trade Commission Rule on Door-TotheDoor Sales" which is in the possession of Commission staff, following:

87 F.

Questions have arisen as to the appropriate. procdure to be followed by sellers in Oklahoma subject to the jurisdiction of the code and the rule. The rule will not be construed to annul or exempt any seller from complying with the code, except to the extent the code is directly inconsistent with the rule. Further, if any provisions of the coe are more restrictive than the rule, then those code provisions must he followed. Accordingly, sellers subject to the code and the rule must accord the consumer the great€r of the benefjt.s provided by the code or the rule. Therefore until such time as the Oklahoma legislature should amend the code with respect to home sales, all seller-creditors must comply with those provisions of the code which are not directly inconsistent with the rule. Such compliance cannot be achieved by a seller if the complete buyer s right to cancel provided in the coe is given along y,'ith the complete notice of cancellation provided in the rule. It is suggested that one "compositc" notice be given to a buyer; one which provides the most favorable benefits to the consumer and is not directly inconsistent with the rule. (Complete statement enclosed.

DSA has also been informed that various comments and questions reflecting varying positions and interpretations have been received by the FTC staff from state government representatives, including those from Colorado, Connecticut, Indiana, Kentucky, Minnesota, Texas and Wisconsin. Due to the clement of uncertainty as to what notice of cancellation forms are acceptab1c to whom and where, thc negotiation of commercial paper in the direct selling area has become more difficult and, reportedly in some instances, unavailable. It should also be noted that there exists a serious paper shortage making it difficult to easily obtain or print forms that comply with the FTC rule and/or state statutory reqoirements, thereby complicating bona fide compliance attempts. Accordingly, since DSA intends to provide up to date guidance to its members in preparing notice of cancellation forms, the following questions are submitted to the Commission for your advice and guidance:

1. Is the Uniform Consumer Credit Code (LCCC) notice of cancellation form inconsistent with the FTC notice forms 2. Do the Commission s right of cancellation forms provide much as or more protection than the forms required in state statutes following the language and requirements of the UCCC? 3. If the ans\ver to question two is yes, may companies assume that usc of the FTC notices will be dccmed to exempt companies involved in interstate commerce from state statutory requirements as to the form of notice required by the UCCC? 4. If the answer to question two is not yes; a. Must a company prepare a composite notice combining the appropriate provisions of both the state law and the FTC rule; ADVISORY OPINIONS 1455 b. Will the FTC prepare a model composite of the state law and federal rule which the industry must follow; or c. Do the states have the authority to prepare the composite from which the industry must follow 5. In the event that a state with an existing cooling-off statute refuses to recognize the preemptive effect of the FTC's trade regulation rule, wi1 a company, despite good faith efforts to reconcile the differences between the federal rule and the state statute, be prosecuted under the Commission s rule for printing forms in compliance with the state law rather than the FTC rule if such state law is inconsistent with the rule 6. If the answer to question five is yes, will the remedies sought include providing consumers with the opportunity to rescind sales contracts and to receive restitution? The following questions relate to areas generally covered above hut are directed at other specific dilemmas facing this association and its members for which DSA needs the Commission s guidance: 7. Please note the reported position of the office of the Attorney General of Texas which in a communication to the Commission staff contends that Texas law (which tracked the rule s notice language prior to the Commission s November 1 , 1973, change of paragraph four of the " notice of Cancellation ) is stronger than the final FTC language and must therefore be used in Texas in place of the rule language. May DSA advise its member companies that the change in the fourth paragraph was merely a technical correction, that the prior version is not stronger than the final version, and that Texas provision does not preempt the rule 8. Attached is the entire analysis by Mr. McCaffrey, previously alluded to above, in which the state of Oklahoma contends that certain portions of its code provide more protection to Oklahoma consumers than the Federal rule, May DSA inform its members contained in Mr. that the FTC accepts the interpretation McCaffrey s analysis 9. Also contained in the analysis is a composite notice of cancellation form submitted to the Commission by Oklahoma. May DSA advise our member companies that this composite form is approved by the FTC for use in Oklahoma Since we intend to advise our companies as to the matters touched upon above as quickly as possible, DSA respectfully requests that the Commission issue an Advisory Opinion as soon as possible to help minimize potential legal and economic liabilities that DSA and other 87 F.

direct selling industry companies may face, as well as to help insure that consumers are provided the substantive protections sought by the rule and various state laws. Thank you.

Respectfully submitted Isl Neil H. Offen Vice President and Legal Counsel Enclosure w Letter of ReqUfst STATE OF OKLAHOMA DEPARTMENT OF CONSUMER AFFAIRS 3033 North Walnut Avenue Oklahoma City, Oklahoma 73105 April 17, 1974 In re: Federal Trade Commission Rule on Door to Door Sales. This wi1 acknowledge receipt of your letter of March 22, 1974 concerning the above rule.

We have received and studied a copy of the Federal Trwl Commission Trwl Regulatwn Inclwling A S!.IRment of Its Basis and Purpose with regard to its impact on the Uniform Consumer Credit Code, hereinafter referred to as "Code . A brief study of such FTC publication reveals irreconcilable conflicts with certain provisions of the Code. Such conflicts have been discussed at length with Ms. Anne Fortney, Attorney, Bureau of Consumer Protection in Washington. Her responsibility is to coordinate resolutions, if any, between state law and the Regulation.

A ttaehed hereto is the analysis made by the Department concerning the Code "Buyer s Right to Cancel" and the FTC Rule. We have furnished the FTC with the same analysis with a request for their observations. If we receive indications of substantial difficulties from the view of the staffers of the FTC, we wi1 notify you as soon as possible. Further, we intend to send this same analysis to each member of industry requesting our interpretation of the FTC Rule. Sincerely, Isl James A. McCaffrey, Deputy Administrator ADVISORY OPl:OIO:OS 1457 ANALYSIS OF THE UNIFORM CONSUMER CREDIT CODE BUYER' RIGHT TO CANCEL AND THE FEDERAL TRADE COMMISSION RULE ON DOOR TO DOOR SALES Prepared by James A. McCaffrey, Deputy Administrator of the Oklahoma Department of Consumer Affairs Observations in general:

The Oklahoma Consumer Credit Code, hereinafter referred to as Code, cited as Title 14A O. S. 50l through 2-505, provides for a "Buyer s Right to Cancel" to be given in a home solicitation sale of a consumer credit sale.' The Federal Trade Commission has promulgated a trade regulation rule concerning a "Cooling-Off Period for Door-To-Door Sales, hereinafter referred to as the Rule 3 Questions have arisen as to the appropriate procedure to be followed by sellers 1 in Oklahoma subject to the jurisdiction 5 of the Code and the Rule. The Rule will not be construed to annul or exempt any seller from complying with the Code, except to the extent the Code is directly inconsistent with the Rule.6 Further, if any provisions of the Code are moe restrictive than the Rule, then those Code provisions must be followed"' Accordingly, selle,. subject to the Code and the Rule must accord thc consumer the greater of the benefits provided by the Code or the Rule. Therefore, until such time as the Oklahoma Legislature should amend the Code with respect to home sales, all seller-creditors must comply with those provisions of the Code which are not directly inconsistent with the Rule. Such compliance cannot be achieved hy a seller if the complete Buyer s Right to Cancel provided in the Code is given along with the complete notice of cancellation provided in the Rule. It is suggested that one composite" notice be given to the buyer; one which provides the most favorable benefits to the consumer and is not directly inconsistent with the Rule. Any state law will be considered to be directly inconsistent with the Rule if such law does not accord the buyer, with respect to the particular transaction, a right to cancel 8 at least as similar as the Rule, or which allows for the imposition of any fee or penalty upon cancellation" or which does not require the seller to give the customer a separate 10 form, written 11 and oral!2 of a "notice of cancellation" as least similar to the form and manner required in the Rule.

II. Observations as to Form:

429. 1(a) and (b) of the Rule set forth the various forms of the 216- 969 O- LT - 77 - 1458 FEDERAL TRADE CO MISSION DECISIONS 87 F.

required summary notice and notice of cancellation. It provides: In connection with any door-ta-door sale, it constitutes an unfair and deceptive act or practice for any seller to:

(a) Fai! furnish the buyer with a fully completed receipt or copy of any contract 15 which is in the same pertaining to such sale at the time of its execution language 16 Spanish, as that principally used in the oral sales presentation and which shows the data of the transaction and contains the name and address of the seller, and in immediate proximity to the space reserved in the contract for the signature of the buyer 17 or on the front page of the receipt if a contract is not used and in bold face type of a minimum size of 10 points 18 a statement in substantially the following form:

YOU, THE BUYER, MAY CA:\CEL THIS TRANSACTIO:- AT ANY TIME PRIOR TO MIDNIGHT OF THE THIRD BUSINESS DAY AFTER THE DATE OF THIS TRANSACTIO:-. SEE THE ATTACHED NOTICE OF CANCELLA- TION FORM FOR A:- EXPLA:-ATION OF THIS RIGHT. (b) Fail furnish each buyer, at the time he signs the door-tooor sales contract or otherwise agrees to buy consumer goods or services from the seller, a completed form in duplicate 20 captioned "NOTICE OF CANCELLATION " which shall be 21 and which shall contain attached to the contract or receipt and easily detachable in ten point bold face type the following information and statement in the same language Spanish, as that used in the contract: NOTICE OF CANCELLATION (enter dat.e of tmnsactiA) (DatR) YOU MAY CANCEL THIS TRANSACTION , WITHOUT ANY PENALTY OR OBLIGATION , WITHIN:- THREE BUSINESS DA YS FROM THE ABOVE DATE. IF YOU CANCEL, ANY PROPERTY TRADED IN , AKY PAYMENTS MADE BY YOU U:\DER THE CONTRACT OR SALE, AND ANY NEGOTIABLE INSTRUMENT" EXECUTED BY YOe WILL BE RETURNED WITHIN 10 BUSI ESS DAYS FOLLOWING RECEIPT BY THE SELLER OF YOUR CANCELLATION :\NOTICE " A:-D ANY SECURITY INTEREST ARISING OUT OF THE TRA:\SACTIO:- WILL BE CANCELED. IF YOU CAKCEL, YOU :.est MAKE AVAILABLE TO THE SELLER AT YOeR RESIDENCE, IN SUBSTANTIALLY AS GOOD CONDITION AS WHEN RECEIVED " ANY GOODS DELIVERED TO YOe U:\DER THIS CONTRACT OR SALE; OR YOU MAY IF YOU WISH , CO PLY WITH THE I:\STReC- TIONS OF THE SELLER REGARDING THE RETeRN SHIPMENT OF THE GOODS AT THE SELLER' S EXPE:\SE AND RISK.

IF YOU DO MAKE THE GOODS AVAILABLE TO THE SELLER AND THE SELLER DOES KOT PICK THEM CP WITHIN:\ 20 DAYS" OF THE DATE OF YOUR NOTICE OF CANCELLATION:\ , YOU MAY RETAIN OR DISPOSE OF THE GOODS WITH OCT ANY FURTHER OBLIGA TIO:\. IF YOU FAIL TO ADVISORY OPINIONS 1459 MAKE THE GOODS A V AILABLE TO THE SELLER, OR IF YOU AGREE TO RETUR THE GOODS TO THE SELLER AND FAIL TO DO SO, THEN YOU REMAIN LIABLE FOR PERFORMANCE OF ALL OBLIGATIOKS UNDER THE CONTRACT.

TO CANCEL THIS TRA:\SACTION, MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CA:\CELLATION KOTICE OR ANY OTHER WRIT- TEN NOTICF:, OR SF: D A TF:LEGRAM, TO (Name of &lwr), AT (Address of seller s place of business) NOT LATER THAN MIDNIGHT OF (datej I HEREBY CA CF:L THIS TRA:\SACTION.

(Datej (Buyer s S"igrw.ture)"

II. Obscrvations as to substantive differences: Other provisions of the Rule provide:

(c) Fail, before furnishing copies of the " Notice Cancellation " to the buyer, to compJew both copies by enwring the name of the seHer, the address of the seller place of business, the date of the transaction :n and the date, not earlier than the third business day following the date of the tram,action, by which the buyer may give notice of cancellation.

(d) Include in any door-to-door contract or receipt any confession of judgement or any waiver of any of the rights to which the buyer is entitled 30 under this Rule including specifically his right to cancel the sale in accordance with the provisions of this Rule.

(e) Fail t.o inform each buyer orally, at the time he signs t.he contract or purchases the goods or services, of his right t.o cancel. (f) Misrepresent in any manner the buyer s right to cancel.32 (g) Failor refuse to honor any valid notice of cancellation by a buyer and within 10 business days after the receipt of such notice, to (i) refund all payments made under the contract or sale; (ii) return any goods or property traded in, in substantially as good condition as when received by the seller; 33 (iii) cancel and return any negotiable instrument executed by the buyer in connection with the contract or sale 34 and take any action necessary or appropriate to terminate promptly any security interest created in the transaction. 3:\ (h) Negotiate, transfer, sell, or assign any note or other evidence of indebtedness to a finance company or other third party prior to midnight of the fifth business day following the day the contract was signed or the goods or services were purchased. 'IH (i) Fail, within 10 business days of receipt of the buyer s notice of cancellation, to notify him whether the seller intends to repasses or to abandon any shipped or delivered goods.

1460 FEDERAL TRADE COMMISSIO); DECISIONS 87 F.

(NOTE I: DefinitUm. For the purpses of this Rule the following definitions shah apply:

(a) Do-to-Do Sale - A sale, 1ea.;;e, or rental of consumer goods or servces with a purchase price of $2,15, or more, whether under single or multiple contracts, in which the seHer or his representative personally solicits the sale including those in response to or following an invitation by the buyer, and the buyer s agreement or offer to purchase is made at a place other than the place of business of the sel!cr. The tenn "door-tooor sale" does not include a transaction: (1) made pursuant to prior negotiations in the course of a visit by the buyer to a retail business establishment having a fixed permanent loction where the goods are exhibit€d or the services are offered for sale on a continuing ba.-'_is; 42 or (2) in which the consumer is accorded the right of recision by the provisions of the Consumer Credit Protection Act (15 V. C. U635) or regulations issued pursuant thereto; 43 or (3) in which the buyer has initiated the contract and the goods or servces are needed tv meet a bona fide immediate personal emergency of the buyer, and the buyer furnishes the seHer with a separate dated and signed personal statement in the buyer handwrting describing the situation requiring immediate remedy and expressly acknowledging and waiving the right to cancel the sale within three business days; 44 or (4) conducted and consummated entirely by mail or telephone; and without any other contact between the buyer and the seller or its representative prior tv delivery of the goods or perfonnance of the services; 45 or (5) in which the buyer has initiated the contact and specifically requested the seller to visit his home for the purpse of repairing or performing maintenance upon the buyer personal property. If in the course of such a visit, the seller sells the buyer the right to receive additional services or goods other than replacement parco; necessarily used performing the maintenance or in making the repairs, the sale of those additional goods or services would not fall within this exclusion; 46 (6) pertaining to the sale or rental of real property,47 to the sale of insurance or the saJe of securities or commodities by a broker-dealer registered with the Securities and Exchange Commission.

(b) Co-mer Gos or &'les - Goods or services purchased, lea.o;ed, or rented primarily for personal family, or household purpses, including courses of instruction or training regardless of the purpse for which they are taken. (c) Selwr -. Any person, partnership, corpration, or association engaged in the door-todoor sale of consumer goods or services. (d) Pl.e of Busness - - The main or permanent branch office or locJ address of a seller.

(e) Purchase ?ria - The total price paid or to be paid for the consumer goods or services, including all interest and service charges (f) Busness Day - Any calendar day except Sunday, or the following business holidays; New Year s Day, \Vashington s Birthday, Memorial Day, Independence ADVISORY OPINIONS 1461 Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and Chrstmas Day.)54 IV. Suggestion as to form:

Based upon the previous analysis and the recognition of the substantive differences between the Code and the RuJc, we suggest that the following forms may be considered to be compatible with the Code, the Rule and the appropriate "more favorable" provisions:

A. In immediate proxmity to the space reserved in the contract for the signature of the buyers and in boldface type of at least 10 points, the following:

BUYER' S RIGHT TO CANCEL IF THIS AGREEMENT WAS SOLICITED AT YOUR RESIDENCE OR AT A PLACE OTHER THAN THE PLACE OF BUSINESS OF THE SELLER AND YOU DO NOT WANT THE GOODS OR SERVICES , YO!:, THE BUYER MAY CANCEL THIS TRANSACTION BY MAILING A NOTICE TO THF: SELLER AT ANY TIME PRIOR TO MID:-IGHT OF THE THIRD BUSINESS DAY AFTER YO!: SIGN THIS TRANSACTION. THE NOTICE MUST BF: MAILED TO: (name and adress oftlw sells) SEE THE ATTACHED NOTICE OF CANCELLATION FORM FOR AN EXPLANA- TION OF THIS RIGHT.

B. Attached to the contract, easily detachable and in boldface type of at least 10 points, the following: NOTICE OF CANCELLATION (Enwr date of trans tio) (Date) YOU MAY CANCEL THIS TRANSACTION WITHOUT ANY PENALTY OR OBLIGATIOK, WITHIN THREE B!:SINESS DAYS FROM THE DATE YO!: SIGNED THIS AGREEMENT.

IF YOU CANCEL, ANY PROPERTY TRADED I , A Y PAYME TS MADE BY YO!: UNDER THE CO TRACT OR SALE, AND ANY INSTRUMENT EVIDENCING THE OBLIGATION EXECUTED BY YOU WILL BE RET!:RNED WITHIN 10 BUSINESS DAYS AFTER THE CA CELLATION, AND ANY SECURITY INTER- EST ARISING OUT OF THE TRA SACTION WILL BE CANCELED. IF YOU CANCEL, YOU MUST MAKE AVAILABLE TO THE SELLER AT YOUR RESIDE CE ANY GOODS DELIVERED TO YO!: UNDER THIS CONTRACT OR SALES; HOWEVER, YOU MUST TAKE REASONABLE CARE OF THE GOODS IN YOUR POSSESSION BEFORE CANCELLATION AND FOR A REASONABLE TIME THEREAFTER; OR YOU MAY IF YO!: WISH , COMPLY WITH THE I STRUC- 1462 FEDERAL TRADE CO MISSION DECISIONS 87 F.

TIONS OF THE SELLER REGARDING THE RETURN SHIPMENT OF THE GOODS A T THE SELLER' S EXPENSE AND RISK.

IF YOU DO MAKE THE GOODS AVAILABLETO THE SELLER AND THE SELLER DOES NOT PICK UP THE GOODS WITHIN 20 DAYS OF THE DATE OF YOUR NOTICE OF CANCBLLATION, YO!; MAY RETAIN OR DISPOSE OF THE GOODS WITHOUT ANY FURTHER OBLIGATION. IF YOU FAIL TO AKE THE GOODS AVAILABLE TO THE SBLLER, OR IF YOU AGREE TO RETURN THE GOODS TO THE SELLER AND FAIL TO DO SO, THEN YOU REMAIN LIABLE FOR ALL OBLIGATIONS UNDER THB CONTRACT.

TO CANCEL THIS TRANSACTION , MAIL OR DELIVER A SIGNED AND DATED COPY OF THIS CANCELLATION NOTICE OR ANY OTHER WRITTEN NOTICE OR SEND A TELEGRAM TO (N A E OF SELLER) (ADDRESS OF SELLER'S PLACE OF BUSINESS) NOT LATER THAN MIDNIGHT OF (DATE) I HEREBY CANCEL THIS TRANSACTION.

(DATE) (BUYER' S SIGNATURE) ADVISORY OPINWJ-S 1463 Trade Regulation Rule Concerning Mail Order Merchandise recognizes that delivery time is not entirely within the control of sellers and therefore mandates performance in terms of shipping time. (File No. 763 7006, release June 15, 1976) Opinion Letter :vay 24, 1976 Dear :vessrs. Daly and Bauer:

This is in response to your recent letter expressing concern that delivery delays beyond the control of your organization s members may have unfortunate consequences in light of the Commission s recently promulgated trade regulation rule concerning mail order merchandise. The trade regulation rule recognizes that delivery time is not entirely within the control of sellers and therefore mandates performance in terms of shipping time. Therefore, postponement of enforcement of the rule is not warranted since a seller will be in compliance with the rule if merchandise is shipped as required. The fact that a parcel encounters unanticipated delays in delivery will not constitute a violation of the rule if a seller indeed ships as required. The Commission is aware that complaint letters generally report a nondelivery or late delivery. The individual consumer is not usually in a position to know when a package 1S shipped. It should be noted however, that a large portion of the complaint letters received report not only a failure to deliver or late delivery, but an inability to obtain an appropriate response from the seller involved. In conclusion, the Commission recognizes that delays beyond the control of the shipper may result in complaints alleging apparent noncompliance with the trade regulation rule. Preenforccment investigation, however, would reveal whether these complaints reflect a violation of the rule or merely malfunctions of the delivery system. By direction of the Commission.

Letter of Request April 9 , 1976 Dear Chairman Collier:

As you are no doubt aware, rather disturbing problems have come to the Nation s attention in recent weeks concerning problems with the destruction of mail order parcels by machinery in some of the U.SP.S various new Bulk Mail Centers around the country. Even now it is 1464 FEDERAL TRADE COMMISSIO:- DECISIONS 87 F.

impossible to determine how widespread the problem is, but Congress is examining the matter. Enclosed is the 12 page Report of the Subcommittee on Postal Facilities, Yan and Labor Management of the Committee on Post Office and Civil Service of the House of Representatives indicating what their initial investigation has shown. As the trade association representing some 1600 mail order companies across the country we are always concerned when any number of parcels-no matter how small a percentage they may representnot reach the consumer. This worry takes on new proportions in light of your recently promulgated Trade Regulation Rule on the delayed delivery of mail order merchandise. We urge the Commission to consider, for the present, suspending the enforcement of the rule until the United States Postal Service corrects this problem which we are sure they will do in a reasonable amount of time. If a suspension is not possible, we would then urge the Commission to consider that an unknown proportion of any complaints they may now be receiving on dclayed delivery could be attributed to parcels being damaged in the bulk mail center and thus not being forwarded to the consumer. We would assume the Commission would seek to determine how significant a factor this was before proceeding to move against any company on the basis of delayed delivery complaints. Please inform us of your intentions in this regard. Very truly yours Isl John Jay Daly Senior Vice President Isl Gary L. Bauer Ass t Dir. - Gov t Affairs , ADVISORY OPINIONS 1465 Clarification of definition of "business arrangement" in Trade Regulation Rule Concerning Preservation of Consumers Claims and Defense. (File No. 763 7007, release June 18, 1976) Opnwn Letter May 28, 1976 Dear Mr. Pohanka:

This is in response to your letter of May 21, 1976 requesting an Advisory Opinion.

In your letter you asked the Commission to clarify whether the ongoing procedure between a seller and lender in order to perfect a lien constitutes a " business arrangement" for purposes of the Trade Regulation Rule Preservation of Consumers' Claims and Defenses. The Commission, in requiring the notice in certain direct loans, was intending to reach those relationships where the seller is arranging credit, through either an established pattern of referrals or an affiliation.

The perfection of a security interest is a pro forma procedure performed by a seller whether he arranges credit for the consumer or the consumer arranges credit for himself. When a seller is helping a creditor perfect his security interest, whether by a recording of the lien on the title or any other method, this activity alone does not constitute arranging credit.

The Commission does not regard such activity, absent an established pattern of referrals or some other affiliation with the creditor, to be a business arrangement" or form of creditor affiliation within the meaning of the Rule. Nor would the extent or frequency of such activity, standing alone, bring the conduct within the definition of purchase money loan " under the Rule.

By direction of the Commission.

Letter of Request May 21 , 1976 Dear Mr. Tobin:

This is a request for a formal advisory opinion concerning the applicability of the Trade Regulation Rule concerning Preservation of Consumers Claims and Defenses, effective May 14, 1976. This opinion is despcrately needed by automobile dealers located throughout the United States, particularly in the State of Texas because that state has a little "FTC Statue" which imposes heavy fines on dealers and imposes civil liability for violations of FTC Rules. In 87 F.

other words, a Staff Opinion will not suffice and a formal opinion of the Commission is necessary.

The single question posed in this request is as follows: Under the Certificate of Title Act in Texas, the seller of a motor vehicle is required to transfer the certificate of title to the purchaser. If the financing of the purchase of the vehicle involves a security interest, the lender, in order to perfect his lien, must record that lien on the certificate of title. It is not a legal duty of the seller or the purchaser to secure the recordation of the lien. By mutual understanding between dealers and lenders, it is a customary and almost universal practice that the dealer communicates with the creditor and secures drafting information . This information always includes a request by the creditor that the dealer make application for certificate of title note the creditor s lien thereon, and draft on the creditor for the purchase price. This voluntary cooperation between seller and creditor inures to the mutual benefit of seller and creditor in that it enables the seller to receive his purchase money in an expeditious manner and provides the creditor with the security of his lien. This is an ongoing procedure which may be repeated many times during the course of a single day between onc dealer and one creditor who have no other business connection.

Based on the above fact pattern, we request an advisory opinion as to whether such procedure is a "business arrangement" or any type of affiliation" within the meaning of the Rule. Sincerely yours Isl John J. Pohanka President ADVISORY OPINIONS 1467 Eligibility of former students for partial tuition refunds. (Docket No. 8953, 86 F. C. 860, release July 9, 1976) Opinion Letter June 21 , 1976 Gentlemen:

This is to advise you that the Commission has given consideration to your submission under cover of your letter of April 26, 1976 , of questionnaires which you have sent out pursuant to the order in the above referenced matter and the determinations you have made with respect thereto regarding eligibility for tuition refund as prescribed by said order. In accordance with said order you have submitted said questionnaires for review by the Commission and an advisory opinion as prescribed in Section 3.61(d) of the Commission s Rule of Practice. Except as noted below, thc Commission has determined that your submission represents compliance with the applicable order provisions regarding eligibility of former Lear Siegler students for partial tuition refunds.

One questionnaire (Appendix 1) was determined by you to be not payable because, under item 7, the former student listed as his reason for not seeking a job in the computer field, the unavailability of jobs in the state where he lived. The Commission is of the opinion that this represents a legitimate excuse for not seeking cmp10ymcnt because it is related to job demand as specifically provided in Part III, paragraph 5( d)(2) of thc Commission s order. Accordingly the Commission is of the opinion that said student's claim for partial tuition should be honored. Three questionnaires (Appendices 2-4) were determined to be not payable because the former students failed to provide the information requested under item 4, the month and year in which they entered thc school. Such information is contained in the computer printout which was furnished by you pursuant to Part III, paragraph 1 of the order under the cover of letter from your counsel dated October 31, 1975. Information contained in said printout indicates that the entry dates for both of the students represented by the two questionnaires were within the eligibility period prescribed in the order. Accordingly, the Commission is of the opinion that the two students should be included in the refund for the amount of the tuition which they have indicated they paid.

Although the order does not specifically provide for an advisory opinion pertaining to the amount of money which is to form the basis for computing pro rata refunds, thc Commission has found scvcral qucstionnaires in which it feels that your determination of the amount 87 F.

of tuition paid by the student was in error. In four of the questionnaires (Appendices 5 through 8) the Commission has noted that monies indicated as downpayments were not included as tuition paid by the student. Since the order does not specifically exclude down payments from the amount which is refundable, the Commission is of the opinion that such money should be included in the basis for making the refund computation.

Finally in four additional questionnaires, (Appendices 9-12) the Commission has noted that obvious errors were made by the students in responding to item no. 15. By reviewing the entire questionnaire rather than focusing on item 15, it becomes clear that the amount of money entered thereunder was in fact a loan rather than a gift and therefore should be included in the basis used for computing tuition refunds.

It is the opinion of the Commission, based upon the information furnished that with the twelve exceptions noted hereinabove, your eligibility determinations under Part III, paragraph 5 of the Commission s order represent compliance with that provision to the extent that your obligations under other order provisions have been fulfi1ed. This opinion is not intended to apply to any other duties or obligations imposed upon you by the order other than your responsibility under Part III to make initial determinations as to who constitutes eligible class members for purposes of the required tuition refunds. The Commission has also reviewed the cases of three individuals whose responses to the questionnaires were received too late to be considered with the others. In all three cases, the names and addresses were known prior to December 29, 1975 , but due to oversights of various parties, these individuals did not receive questionnaires in a timely manner. (1) Gary Bise s name and full address was on the list of persons eligible to receive questionnaires, but he did not receive one; (2) Craig O'Neal's name and address was left off said list due to clerical error on the part of Commission staff; and (3) Richard H. Fuller, Sr.'s name and partial address was on the list of persons eligible to receive a questionnaire, but he did not receive one. Gary Else s questionnaire (Appendix 13) and an affidavit of telephone interviews of Craig O'Neal and Richard H. Fuller, Sr. (Appendix 14) have been reviewed, and the Commission considers Bise, O':\eal and Fuller to be eligible for a partial tuition refund on the basis of the information each has provided.

ADVISORY OPINIONS 1469 The student questionnaires are being returned to you under separate cover. * By direction of the Commission.

Letter of Reg.uest April 26, 1976 Dear Mr. Gross:

We have today forwarded, under separate cover, all Appendix D questionnaires we have received as of the above date under Part III of the above-captioned order. We hereby request advice as to whether our determination of who is an eligible class member complies with the terms of the Order provision.

Those questionnaires of persons who we believe to be eligible are designated by a red check in the upper right-hand corner of the cover page. The amount of entitlemcnt is noted and circled in red on page 5. In several cases, the amount of tuition claimed was in excess of the maximum tuition ever r d and was accordingly reduced and noted.

A red slash was placed through the question which made each member ineligible.

We wm expect your advice and the return of all Appendix questionnaires before June 24, 1976. We would appreciate rccciving your advice as much in advance of June 24 as possible since it now appears that the thirty-day period for calculating refund, writing chccks and writing notification letters is inadequate, particularly if thc eligibility list is as shabby as the initial listing was. Should further substantiating documentation be desircd for any of our determinations, please contact us. To document each and every determination would be extremely burdensome and produce little benefit for the costs incurred.

Sincerely, /s/ J. V. German, Manager Regulatory Agency Relations . Not reprodlloo herein for rea on9 of economy, but available for puhlic inspection at Public Reference Branch RDQT1 130 of the Federal Trade Commission Building, Wllhingtn, D.