Litton Industries, Inc

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IN THE MATTER OF LITTON INDUSTRIES, INC.

FINAl ORDER , OPINION , ETC. , IN REGARD TO ALI.EGED VIOLATION OF SEe. 5 OF THE FEDERAL TRADE COMMISSION ACT Dockel /)12J Complaint Jan. 11 9/fJ-Final Order. Jan. , 1.981 This order requires, among other things, a Beverly Hills, Calif. firm, engaged in the manufacture, sale, distribution and advertising of variolls products, to cease making any unsubstantiated representations regarding the performance characteristics, or benefit of any microwave oven; or its superiority over competing products. Further, the company must cease failing to maintain, for three years, accurate records of all materials, test reports, studies and surveys relating to any such representation. Additionally, the order prohibits the company from misrepresenting the purpose, content, reliability or conclusions of a test or survey; and advertising the results of any such survey, unless respondents in the survey arc representative of the group referred to in the ads.

Appearances For the Commission: Robert L. Barton, Jr., Ronald E. Bogard, Carol Jennings and Julie K. Niemasik. For the respondent: J Wallace Adair, Howrey Simon, Washington, D.

COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Litton Industries, Inc., a corporation (hereafter "Respondent" or "Litton ), has violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH 1. Litton Industries, Inc. is a corporation, organized existing and doing business under and by virtue of the laws of the Complaint !)7 F.Te. State of Delaware, with its executive offce and principal place of business located at ,J60 North Crescent Drive, Beverly Hills, California. Litton s Microwave Cooking Products Division is located at 1405 Xenium Lane North, Minneapolis, Minnesota. PAR. 2. Litton is now, and for some time in the past has been engaged in the manufacture, distribution, advertising, and sale of various products including microwave ovens. PAR. iJ. Respondent Litton causes the said products, when sold, to be transported from its place of business in various States of the United States to purchasers located in various other States of the United States and in the District of Columbia. Respondent Litton maintains, and at all times mentioned herein has maintained, a course of trade in said products in and affecting commerce. The volume of business in such commerce has been and is substantial. PAR. 4. In the course and conduct of said business, Litton has disseminated and caused the dissemination of advertisements for microwave ovens manufactured by Litton, by various means in or affecting commerce, including magazines and (2)newspapers distributed by the mail across state lines, for the purpose of inducing and which were likely to induce, directly or indirectly, the purchaseand of said microwave ovens.

PAR. 5. Typical and illustrative of the advertisements so disseminated or caused to be disseminated by Litton are the advertisements attached as Exhibits A, B, C and D, designated as the "initial consumer microwave independent technician survey advertisement " the "revised consumer microwave independent technician survey advertisement " the "initial commercial microwave independent technkian survey advertisement," and the "revised commercial microwave independent technician survey advertisement," respectively.

PAR. 6. In Exhibit A, the "initial consumer microwave indepen- " printed in the Wall Street dent technician survey advertisement Journal, October 25 and December lij, 1976, and elsewhere, and in Exhibit B, the revised. consumer microwave independent technician survey advertisement " printed in HFD Retailing Home Furnishings, August 22, 1977, and in other advertisements substantially similar thereto, Litton has represented, directly or by implication, that: 1. The majority of independent microwave oven service technicians would recommend Litton to a friend. 2. The majority of independent microwave oven service techni cians are of the opinion that Litton microwave ovens are the easiest to repair of all n1icrowave oven brands.

....,,.... ...

Complaint :1. The majority of independent microwave oven service technicians are of the opinion that Litton microwave ovens are superior in quality to all other microwave oven brands. 4. The majority of independent microwave oven service technicians are of the opinion that Litton microwave ovens require the fewest repairs of aJl microwave oven brands. 5. The majority of independent microwave oven service technicians have Litton microwave ovens in their homes. 6. Hepresentations 1-5 were proved by a survey independently conducted by Custom Hesearch Inc., in June 1976. PAR. 7. In Exhibit C, the "initial commercial microwave independent technician survey advertisement " printed in Hospitality (Restaurant), November 1976, and elsewhere, and in Exhibit D, the revised commercial microwave independent technician survey advertisement " printed in Restaurant Business, September 1977 and elsewhere, and in other advertisements substantially similar thereto, Litton has represented, directly or by implication, that: (3) 1. The majority of independent microwave oven service technicians would recommend Litton to their customers. 2. The majority of independent microwave oven service technicians are of the opinion that Litton commercial microwave ovens are superior in quality to all other microwave oven brands. 3. The majority of independent microwave oven service technicians arc of the opinion that LiUon commercial microwave ovens are the easiest to repair on location of all microwave oven brands. 4. The majority of independent microwave oven service technicians are of the opinion that Litton commercial microwave ovens require the fewest repairs of all microwave oven brands. 5. The majority of independent microwave oven service technicians are of the opinion that Litton commercial microwave ovens are the least costly to maintain in operation over time of all microwave oven brands.

6. Representations 1-5 were proved by an April 1976 survey independently conducted by Custom Research, Inc. In addition, in Exhibit C, Litton has represented, directly or by implication, that Litton is the best commercial microwave oven buy and that this representation was proved by the above-referenced survey.

PAR. 8. In Exhibits A and B, and in other advertisements substantially similar thereto, Litton has represented, directly or by implication, that:

FIODERAL TRADE COMMISSION DECISIONS Compaint 97 F T.C 1. Litton microwave ovens are supenor in quality to all other microwave oven brands.

2. Litton microwave ovens arc the easiest to repair of all microwave oven brands.

Litton microwave ovens require the fewest repairs of all microwave oven brands.

PAR. 9. In Exhibits C and D, and in other advertisements substantially similar thereto, Litton has represented, directly or by implication, that, 1. Litton commercial microwave ovens are superior in quality to an other microwave oven brands. (1) 2. Litton commercial microwave ovens arc the easiest to repair on location of all microwave oven brands. 3. Litton commerdal micro'vave ovens require the fewest repairs of all microwave oven brands.

4. Litton commercial microwave ovens are the least costly to maintain in operation over time of all microwave oven brands. PAR. 10. In truth and in fact, the April and June 1!J7fj technician surveys conducted for Litton by Custom Research, Inc. , do not prove the representations listed in Paragraphs Six and Seven, for reasons including but not limited to the following: (a) The survey respondents were drawn exclusively from the list of Litton authorized microwave oven service agents. As such the sample surveyed was not representative of the population of independent microwave oven service technicians and the surveys were biased.

(b) The surveys failed to establish that the survey respondents possessed sufficient expertise with either (1) microwave ovens or (2) competitive brands of microwave ovens to qualify as respondents for a microwave oven comparative brand survey. (c) In some paired comparisons, the results lacked statistical significance because the base number was too smail (d) The surveys conducted for Litton by Custom Research, Inc. were not in fact independent surveys. The surveys were designed and analyzed by Litton employees. The roie of Custom Research was limited to placing the telephone calls, from a Jist of names supplied by Litton, and conducting the interviews, from a questionnaire supplied by Litton.

For the above reasons, representation G in Paragraphs Six and Complaint Seven is false. Therefore, representation 6, contained in Exhibits A, , C and D, was, and is, deceptive and unfair. PAR. 11. In Exhibits A , B, C and D, and other advertisements substantially similar thereto, Litton has represented, directly or by implication, that it had a reasonable basis of support for the representations contained in t.hose advertisements, at the time those representations were made. In truth and in fact, for the reasons enumerated in Paragraph Ten, Litton had no reasonable basis of support for the representations listed in Paragraphs Six, Seven Eight and Nine, at the time those representations were made. Therefore, the representations listed in Paragraphs Six, Seven, Eight and Nine were, and are, deceptive and unfair. (5) PAR. 12. In the course and conduct ofthe aforesaid business, and at all times mentioned herein, Litton has been and is now in substantial competition in commerce with corporations, firms, and individuals engaged in the sale and distribution of microwave ovens of the same general kind and nature as those sold by Litton. PAR. J 3. The use by Litton of the aforesaid unfair and deceptive statements, representations and practices has had, and now has, the capacity and tendency to mislead members of the consuming public into the purchase of substantial quantities of microwave ovens manufactured by Litton.

PAR. 14. The aforesaid acts and practices of Litton, as herein alleged, were, and are, all to the prejudice and injury of the public and of respondent's competitors and constituted, and now constitute unfair and deceptive acts or practices in or affecting commerce and unfair methods of competition in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act. . ,. : ,!. ;.,, : ,,: , , ,,,,,,,,::, .. ,,: ,.::;,.,\, , ,;, . ,\ ,,, , ,., \. ,,, .(,,, . , .,,..;;%, ,,(,.,_, /j .. n:DEHAL TRADE COMMISSION DECISIONS Compluint !J7 F, 1,, L, , , r . \.I I" iL 11 - "\:\0':0; C(' '" "nl htl Y'.' JhT' '" \\l' .(- 11 (Q1,!l lJ-.1l!l. .i/ ,l . 01 the i r:dCjw.ndcn! 1:,)'::1, w,, C' ov('n ",l rvice' 1 vci :,ic:;\n:; 5\1r\:\ ' Y c(' C():Jr;,cnd Lft');l, .1.' 11 br"n fC. I.-', ".- ,., o ''' f' l . """o I""".. r:' !h"

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j:T 1J ! 0 FEDERAL TRADE COMMISSION DECISIO:-S Initial Dccision J7 T.C INITIAL DECISION BY JOHN J. MATIHAS ADMINISTRATIVE LAW JUDGE JCNE fi, 1980 PRELIMINARY STATEMENT The original Coni plaint in this matter was filed on February 1 1979, and charged Litton Industries, Inc. , a large conglomerate manufacturer and seller of various high technology products for industrial, commercial, and governmental use, with using "unfair and deceptive statements" (Complaint, Paragraph Thirteen) in advertisements for the sale of microwave ovens produced by its Litton Microwave Cooking Products CLMCP") Division in violation of Section 5 of the Federal Trade Commission Act, 15 U. G 45. The Complaint was amended on Aprillfi, 1979 to include as a respondent Litton Systems, Inc. (a wholly-owned subsidiary of Litton Industries Inc.). Litton Microwave Cooking Products was, during the time covered by the (2JComplaint, a division of Litton Systems, Inc. rather than a direct division of LiUon Industries, Inc. The gravamen of the charges against respondents is that certain advertisements published by respondents and their dealers purported to show that independent microwave oven service technicians preferred Litton ovens in certain respects and that such preferences were revealed by surveys concluded of such independent technicians whereas, in truth and in fact, the advertisements were "deceptive because the underlying surveys did not provide a "reasonable basis for the claims made.

In 197(), LMCP devised two surveys of microwave oven service agencies named on its own two lists of authorized service agenciesthe commercial list of those authorized to service Litton s commercial ovens and the consumer list of those authorized to service its consumer ovens. The surveys were then conducted for it by independent research organization. Originally, the surveys were intended for internal use only. Advertisements based thereon had not been planned. After having tabulated the results of the surveys for these internal purposes, executives of Litton decided to incorporate the results into advertising (Tr. 2023, 2035). The survey results were then published in two separate advertising campaigns, utilizing primarily newspapers, magazines and trade journals during 1976 and 1977. Appendices A, B, and D, are examples of advertisements Litton published in the first campaign.

Upon objections by Federal Trade Commission staff members to some of its claims, Litton revised the advertisements in 1977 to more LITTON INDUSTRIES, INC. , ET AL.

Initial Decision fully describe the nature of their survey (See Appendices C, and E), but subsequently discontinued the survey campaign upon further objections by staff members of the Federal Trade Commission. In addition to advertising placed directly by Litton, retailers and distributors also engaged in newspaper radio advertising of the survey results. Some of this advertising was paid for, in whole or in part, by Litton (the "cooperative advertising program ). Appendices F through K are examples of advertisements placed by retailers and distributors. Appendices H through K were part of the cooperative program.

The principal issues presented for trial were: (I) Did LMCP disseminate and cause to be disseminated challenged advertisements in commerce? (2) What representations did LMCP in fact make? (3) Did LMCP have a reasonable basis for making such claims" (3) (4) Were the advertisements false and misleading in any respect? (5) Should the parent corporation Litton Industries, Inc. be held responsible for the acts of the LMCP division of its subsidiary Litton Systems, Inc.

(6) What is the proper scope of the order, if any, to be issued? The hearing on the case-in-chief commenced on September 17 1979 and was concluded on October 5. After additional discovery hy complaint counsel, respondents' defense case was presented between November 5 and November 21 , 1979. Rebuttal and surrebuttal hearings were held on January 21 and 22, 1980. The record was closed on March 7 , 1BSO. In total, nine witnesses testified on behalf of complaint counsel and 258 Commission exhibits were introduced into evidence. An additional nine witnesses testified on behalf of the respondents and 37 respondent exhibits were introduced into evidence. The hearings consumed a total of 27 trial days and 4633 pages oftranscript.

This initial decision is based upon the entire record including proposed findings of fact and conclusions of law and supporting memoranda filed by the parties, as well as their replies. I have also taken into account my observation of the witnesses who appeared before me and their demeanor. Proposed findings not herein adopted, either in the form submitted or in substance, are rejected either as not supported by the evidence or as involving immaterial matters.

The findings of fact include references to supporting evidentiary items in the record. Such references are intended to serve as guides to the testimony and exhibits supporting the findings of fact. They do Initial Dccision 97 F T. not necessarily represent complete summaries of the evidence supporting each finding. The following abbreviations have been used:

Tr. - Transcript, preceded by the name of witness and followed by the page number.

- Complaint Counsel's Exhibit, followed by its number and the referenced page(s).

- Respondents' Exhibit followed by its number and the referenced pagers).

CPF - Complaint Counsel's Proposed Findings. (4) CPFM - Memorandum in Support of Complaint Counsel' s Proposed Findings.

RPF - Respondents' Proposed Findings.

CRB - Complaint Counsel's Reply Brief.

RRB - Respondents' Reply Brief.

LMCP - Litton Microwave Cooking Products, a division of Litton Systems, Inc.

Litton - As used herein refers to LMCP.

FINDINGS OF FACT I. THE RESPONDENTS 1. Litton Industries, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of Delaware, with its executive office and principal place of business located at 860 North Crescent Drive, Beverly Bills, California (Ans. Par. One). Litton Systems, Inc. , is a wholly-owned subsidiary of Litton Industries. Its executive office and principal place of business is located at the same address as Litton Industries, Inc. (Ans. Par. One, Adm. 7/5/79, No. ,328). Litton Microwave Cooking Products is a division of Litton Systems. (Respondent' s Memorandum in Opposition to Complaint Counsel' s Motion for Partial Summary Decision April 6, 1979, pp. 4 and 8.

2. Litton Industries, Inc. , is a large, conglomerate corporation with numerous diversifjed products and a worldwide operation. (Ditton Industrows, Inc. 85 F.1'. C. 333, 887.) In 1969 it was ranked as the 39th largest industrial corporation in the United States, with nearly half of its growth attributable to over 100 acquisitions made since 1958, and had sales totalling $1.9 bilion (85 F. C. at 837--8 378). ,J. Respondent Litton Systems through its Litton MJcrowave Cooking Products Division is now, and for some time in the past has Initial Decision been, engaged in the manufacture, distribution, advertising, and sale of various products including microwave ovens (Ans. Par. Two). 1. Respondent Litton Systems, through LMCP, causes the said products, when sold, to be transported from their place of business in various States of the United States to purchasers located in various other States of the United States and in the District of Columbia. Said respondent maintains, and at all (5)times mentioned herein has maintained, a course of trade in said products in and affecting commerce. The volume of business in such commerce has been and is substantial (Ans. Par. Three).

5. In the course and conduct of said business, Respondent Litton Systems, through LMCP, has disseminated and caused the dissemination of advertisements for microwave ovens manufactured by Litton, by various means in or affecting commerce, including mag-azines and newspapers distributed by the mail across state lines, for the purpose of inducing and which were likely to induceand directly or indirectly, the purchase of said microwave ovens (Anr. Par. Four).

fJ. In the course and conduct of the aforesaid business, and at all times mentioned herein, respondent Litton Systems, through its Litton Microwave Cooking Products Division has been and is now in substantial competition in commerce with corporations, firms, and individual s engaged in the sale and distribution of microwave ovens of the same general kind and nature as those sold by Litton (Ans. Par. Twelve).

II. THE ADVERTISE:'ENTS A:\D THE REPRESE TATIONS A. The Advertisements Were Widely Disseminated. 7. The complaint in the present case was issued by the Commission with regard to a series of advertisements for Litton microwave ovens, based upon the results of two surveys of the opinions of purportedly independent consumer and commercial microwave oven service technicians. The national advertisements based upon these surveys appear in the record as CX 1 , 2 , 3, 4 and 6. These ads were disseminated in two separate campaigns, one occurring from October 1976 through February 1977 and the second from August through October ofi977 (CX 8; Interr No. 61).

R. During the fjrst campaign, ads for consumer microwave ovens (CX I and 2) were disseminated in the Wall Street ,Journal, Better Homes and Gardens, J.lewsweek, Sunset, and Time magazine, as well as in 27 different newspapers in cities across the country, including Atlanta, Boston, Chicago, Cleveland, Dallas, Detroit, Ft. Worth FEDERAL TRADE COM MISS JON DECISIONS initial Decision !J7 FTC Houston, Ft. Lauderdale, Jacksonville, Miami, Orlando, Los Angeles Minneapolis, New York, Newark (New Jersey), San Francisco, San Jose, Santa Ana, St. Paul, St. Petersburg, and Tampa (CX 8 and 9; Interr. No. fit; Ans. Par. Six). The consumer ad also was disseminated in two consumer trade magazines (CX 8 and 9). Ads for commercial microwave ovens (CX 4) were disseminated in eight trade publications directed toward the restaurant business, fast food (6Joutlets, and institutions such as hospitals (CX 8; CX 12; Interr. No. Gl; Ans. Par. Seven).

9. During the second ad campaign, in 1977, an ad for consumer microwave ovens (CX :J) was disseminated in HFD Retailing Horne Furnishings (CX 8; Ans. Par. Six). Ads for commercial microwave ovens (CX 6) were published in five trade magazines, primarily directed toward the restaurant business (CX 8; CX 13; Ans. Par. Seven).

10. In addition to the national advertisements based on the service technician surveys, there were at least .1 09 local advertisements (log print and 3 radio), based on the Litton surveys and placed by Litton microwave oven dealers (CX 14- 25, 27- , 54-71, n- , 82- , and 86- 128; summarized in CX 132). The advertising copy (referred to by Litton as advertising "slicks ) upon which these local ads were based was disseminated by LMCP to its dealers and distributors in 197G and 1977, with the suggestion that the dealers insert their own names and place the ads in the local media (Adm. 9/13/79, Nos. 261 and 2G2; Interr. No. 52; CX 289). At least 41 of these local ads were paid for in part or in total by Litton under its cooperative advertising program (CX 132; CX 148 O-R). These local advertisements were run between September 1976 and February 1978 in newspapers and advertising circulars, as well as on some 2G states acrossradio stations, in cities and communities in at least the country (CX 132). Many of the local advertisements which were published in late 1977 were still based on the original Litton advertisement copy (CX 48, 59, 101- 104 , 108, 112, 11:3) and some of these were paid for, in part, by LMCP (CX 132). I L CX 2iJ9D is a table entitled "Survey Among Independent Service Agents" indicating that the Litton survey of service agencles revealed a preference for Litton in certain respects over named competitive brands. This table was provided to district and regional managers and distributors ! at an annual sales meeting in Lake Geneva at some time prior to August 2, 1976 (CX 2391\. This table was reproduced exactly in a local advertisement published in the , LMCI' tr;b\lted ih ","(' )1S r.hruughout most of I h1' lJnitl'd Slat.es tf1rollgh, I 'I"kppndent dist, ibuto,.s who "Id, in turn, t.tJ the indiv,du;lI rdailers within t.l1"i,' arc;!" (I. lolua,rl1:1n. 1'1' :(il;!). 71) LITTON INDUSTRIES. INC. 1: 1 ,.

Initial Decision Williamsport Sun Gazette on September 21 1976 (CX 128; Niemasik Tr. 1035-44). This (7Jreveals that the information distributed at the Lake Geneva meeting was passed on to retailers through the Litton sales network 12. A nine-page report of the results of the commercial technician survey, entitled "A Study of the Attitudes of Independent Commercial Microwave Oven Service Technicians Toward Brands of Commercial Microwave Ovens" was distributed by Litton at the National Restaurant Association Show in 1976 (CX 270; Tr. 1079). 13. Through the means described in Findings 10 through 12 above; the dissemination of advertising "slicks" to dealers and distributors, information supplied to district and regional managers and distributors at the Lake Geneva meeting, the dissemination of the report of the commercial oven survey at the National Restaurant Association Show, and Litton s participation in the cooperative advertising program; Litton provided the instrumentality to its distributors and dealers to make the representations referred to below.

14. CX 152, a four-page report of the consumer technician survey results, entitled "Consumer Service Agency Survey," is one version of a document intended to be used as a mailing piece to be sent to those persons requesting "complete survey results" as invited in the consumer survey advertisements (CX 308K- L; CX 2 and 3). CX 178 a four-page report of the results of the commercial technician survey, entitled "Commercial Service Agency Survey, " also was prepared as a mailing piece to be sent to persons requesting complete results " as invited in the commercial survey advertisements (Adm. 7/5/79, No. 137; CX ;J08R; CX 4 and 6). B. The Consumer Oven Advertisements 15. In CX 1 (Appendix A), the headline reads: "Quality is No. I at Litton'" The sub- head of this ad states: "76% of the independent microwave oven service technicians surveyed* recommend Litton. In the body ofthe ad, under a caption asserting that "Litton leads all brands, " there is a chart containing percentage preference figures obtained from the survey of technicians servicing consumer microwave ovens. Litton is favored over all other brands on every point of comparison, and in most of the 20 comparisons the preference figure for Litton is greater than 50%. In the final column, showing the average preference for Litton over all competitors, the preference figure for Litton exceeds 50% in all categories. In the text of the ad. Litton highlights two of the statistics from the chart: "Amonl Initial Decision )I F.T. independent technicians servicing Litton and competitive microwave ovens, an average of 76% of those lSJsurveyed said they would recommend Litton to a friend. And an average of 63% identified Litton brand ovens as having the best quality. 16. CX 2 (Appendix B), an ad which contains a picture of Dan R Cavalier, President of the Marketing and Sales Division of LMCP, is substantially the same as CX I. CX 3 is a revised version of CX I and 2 which adds the following clarification of the survey to the text of the ad: "Survey respondents were 234 technicians who work for independent service agencies authorized to service Litton microwave ovens, and who serviced at least one other microwave brand." But otherwise CX 8 (Appendix C) makes the same general representations as CX 1 and 2. The statistics in the last column of the chart in CX 3 (indicating the preference for Litton over all other brands) differ slightly from those in ex 1 and 2. However, the preference shown for Litton is still greater than 50% in each category of companson.

17. CX and 2 represent that the results of the survey are projectable to the population of independent microwave oven service technicians who service Litton and competitive brands of microwave ovens. Through the use of the term "surveyed" the ads represent that the opinions of technicians surveyed are representative of those of the general population of independent microwave oven service technicians who service Litton and competitive brands. Thus representations 5, as alleged in Paragraph Six of the complaint are plain from the face of CX 1 and 2. The ads convey that the majority of such independent microwave oven service technicians would recommend Litton, have Litton ovens in their homes, and are of the opinion that Litton ovens are superior in quality, easiest to repair, and have the fewest repairs when compared with other brands.

18. The claim that the survey results are projectable to a greater population of independent service technicians also is apparent in the numerous local advertisements based on the Litton surveys and placed by Litton microwave oven dealers (CX 14-25, 27- , 54- 7:)- , 82- , and 86-128). In some cases, the representation of Jrojectability is even more blatant in the local than in the national Ids. For example, in ex 54 and 12G, radio spot advertisements, paid or in part by Litton (CX 182), the copy reads: "73 percent of the chnitians who service microwave ovens recommend Litton ovens ler all other microwave ovens" (Emphasis added). Litton, in each of lease two instances, paid a major portion of the cost of these omotions (CX 1132B and D; Appendices J and K). , Initial Decision 19. In many of the local advertisements derived from the Litton surveys, the term "independent microwave oven service technicians is used without definition or explanation. Some (9Jlocal ads merely used the headline 76% of the independent microwave oven service technicians surveyed* recommend Ijtton " without any accompanying textual material or disclosure that only technicians who serviced Litton and one other brand were eligible respondents (CX 39, 41 , 57). Some ads merely incorporated the chart showing the preference figures for Litton over other brands, with no accompanying explanation (CX 97 and 115). CX 40 shows the headline and the chart, but has no textual material One series of local ads claims the following: A survey of 2X;; independent service agents has just been completed. The findings picked LITTON for best quality, fewer repairs, easiest to repair, lower cost for servicing. All this adds up to the best microwave on the market today (CX 67 , 69, 76, 7H, SR, 90 9."i, and 9G) Litton participated in the cost for two of such advertisements, CX and 96 (CX 132C). The copy for two radio advertisements simply refers to "technicians who service microwave ovens Are you still skeptical about buying a microwave oven? Or maybe you re just unconvinced about which brand to buy? Well, when it comes to microwave ovens, one name is leading all the rest. That' s right! It' s Litton! 73 percent of the technicians who service microwave ovens recommend Litton ovens over all other microwave ovens (CX 54 and 126).

And another radio ad talks about "a recent survey of independent microwave service technicians " with no explanation or definition of terms (CX 127). These local advertisements represent that all independent service technicians were surveyed, not merely those technicians working for agencies which service Litton and at least one other competing brand.

20. The final representation alleged in Paragraph Six of the complaint is that such representations of preferences by independent microwave service technicians were proved by a survey conducted by Custom Research, Inc. Again the advertisements speak for themselves. CX I , 2 and 3 rely upon the Litton survey of consumer microwave service agencies to support the claim that certain percentages of service technicians prefer Litton ovens in the stated respects. Thus, Litton uses the survey as proof of such claims. (10) 21. Therefore, in CX 1 (Appendix A), the initial consumer microwave independent technician survey advertisement, printed in the Wall Street ,Journal, October 25 and December 13, 1976, and elsewhere, and in other advertisements substantially similar thereto Initial Decision 97 F. (Ans. Par. Six) Litton has represented, directly or by implication that:

1. The majority of independent microwave oven service technicians servicing Litton and competitive microwave ovens would recommend Litton to a friend.

2. The majority of such independent microwave oven service technidans are of the opinion that Litton microwave ovens are the easiest to repair of all microwave oven brands. 3. The majority of such independent microwave oven service technicians are of the opinion that Litton microwave ovens are superior in quality to all other microwave oven brands. 4. The majority of such independent microwave oved service technicians are of the opinion that Litton microwave ovens require the fewest repairs of all microwave oven brands. 5. The majority of such independent microwave oven service technicians have Litton microwave ovens in their homes. 6. Representations 1 5 were proved by a survey conducted by Custom Research, Inc., in June 1976.

22. The revised consumer microwave independent technician survey advertisement (CX 3-Appendix C) printed in HFD Retailing Home Furnishings, August 22, 1979, and elsewhere (Ans. Par. Six), made the same representations, except the universe of technicians to which such preference claims were applied was more limited. The revised ad included only service technicians who worked for indepen dent service agencies authorized to service Litton microwave ovens and who serviced at least one other microwave oven brand. The revised advertisement still referred to a survey, however, so it represented that the 2:34 technicians "surveyed" were representative of a broader group of technicians who fit this definition-technicians working for Litton authorized independent agencies who serviced at least one other brand.

23. In CX 1, 2 and 3, and in other advertisements substantially similar thereto, Litton has represented, directly or by implication that: (11) 1. Litton microwave ovens are supenor in quahty to all other microwave oven brands.

2. Litton microwave ovens are the easiest to repair of an microwave oven brands.

3. Litton microwave ovens require the fewest repairs of all microwave oven brands.

LITTON INDUSTRIES. INC , 1'1 ",.

initial Decision 24. The explicit representations of ex 1 (Exhibit A of the complaint), ex 2 and ex 3 (Exhibit B of the complaint) are that independent microwave oven service technicir:ns believe these three assertions to be true. The person reading the ad receives the impression that because service technicians prefer Litton ovens, in the manner indicated, Litton-ovens must in fact be superior to other brands. The superior quality, ease of repair, and infrequency of repair of Litton microwave ovens are the implicit representations of these ads (CX 1 2 and:n 25. In one ofthe local radio advertisements based upon the Litton service technician survey (but for which there is no record evidence that Litton contributed to its cost, ex 132D), the implicit claims of ex 1, 2 and 3 were made explicit, with the direct assertion that the technician is an expert who knows much more about microwave ovens than the consumer and whose advice therefore should be heeded, If you re shopping for a microwave oven, you re going to be asking a lot of questions. Because there are a lot of different brands and features to consider. To help you make your decision wisely, here are some j"acid to consider. In a recent survey of independent microwave service technicians, 7fj per cent said Litton would be lhe microwave brand the.'. d recommend to a friend. That s :1 out of 4 who d recommend iUo/L And when asked which microwave oven requires the fewesl repairs.--and is ea..ient to repair, the great majority said Ditton. And quality? Again most technicians said J./ttl. And naturaUy, far more technicians said that Litto was the brand that they had in their own homes. Chances are, you don t know as much about microwave ovens as a service technician, He s an expert, and therefore his opinion and recommendations worth listening- to, And 3 out of 4 recommend Litto! (CX 127). (12) This advertisement simply states the message which Litton intended the reader to glean from ex 1 , 2 and 3 independent service technicians know best, and they prefer Litton. C. The Commercial Oven Advertisements 26. In CX 4 (Appendix D-Exhibit e attached to the complaint), the headline reads: "Litton is the best commercial microwave oven buy." The suh-head read" "80% of the independent microwave oven service technicians surveyed recommend Litton to their customers. The textual material below the sub-head relate" When technicians servicing Litton and competitive brands were asked in an independent survey which microwave oven they d recommend to prospective customers, 80% said 'Litton' An overwhelming preference over major competitive brands like Amana and Sharp These experienced servicemen prefer Litton over other brands for many reasons. ;:u FEDERAL TRADE COMMISSION DECISIONS Initial Decision 97 F, To the right of the text is a chart containing the percentage figures derived from the commercial technician survey. In a11 cases the preference for Litton exceeds 50%. The concluding paragraph of the text states: "Take the advice of your independent microwave serviceman, Litton is the best commercial microwave oven you can buy.

27. As with ex I , 2 and 3, the representations alleged in the complaint are clear from the face of ex 4: that the majority of certain independent microwave oven service technicians would recommend Litton ovens and hold the opinion that Litton commercial microwave ovens are superior in quality, easiest to repair on location, require the fewest repairs, and are the least costly to maintain in operation over time when compared with other commercial microwave brands. Litton represents that the Custom Research commercial technician survey is evidence of the technicians' preference. Through use of the term "surveyed" the ad represents that the technicians surveyed are representative of the population of independent commercial microwave oven service technicians who service Litton and competitive brands (eX 4).

28. ex 6 (Appendix E-Exhibit D of the complaint) is a slightly altered version of ex 4. Its headline states: "79% of (l:!Jmicrowave service technicians surveyed say Litton is the best quality commercial microwave oven." And the sub-head reads: "80% would recommend Litton to their customers." In the text of ex 6, it is disclosed that the "(sJurvey respondents were 211 technicians who work for jndependent service agencies authorized to service Litton commercial microwave ovens, and who service at least one other brand. " But otherwise, ex 6 makes the same general representations as ex 4. ). Therefore, in ex 4, the initial commercial microwave independent technician survey advertisement, printed in Hospitality (Restaurant), November 1976, and elsewhere, and in other advertisements substantially similar therdo, Litton has represented, directly or by implication, that:

1. The majority of independent microwave oven service technicians servicing Litton and competitive microwave ovens would recommend Litton to their customers.

2. The majority of such independent microwave oven service technicians are of the opinion that Litton commercial microwave ovens are superior in quality to all other microwave oven brands. 3. The majority of such independent microwave oven service technicians are of the opinion that Litton commercial microwave LITTON INDUSTIUr:S. INC. r;T AL Initial Decision ovens are the easiest to repair on location of all microwave oven brands.

4. The majority of such independent microwave oven service technicians are of the opinion that Litton commercial microwave ovens require the fewest repairs of all microwave oven brands. 5. The majority of such independent microwave oven service technicians are of the opinion that Litton commercial microwave ovens are the least costly to maintain in operation over time of all microwave oven brands.

In addition, in ex 4, Litton bas represented, directly or by implication, that Litton is the best commercial microwave oven buy and that this representation was proved by the ahove-referenced survey.

30. The revised commercial microwave independent technician survey advertisement (CX 6) printed in Restaurant Business, September l!J77, and elsewhere (Ans. Para. Seven) made the same representations, except the universe of technicians to whom such (14)preference claims were applied was more limited. It included only service technicians who worked for independent service agen cies authorized to service Litton and who serviced at least one other brand. Since the advertisement still referred to a survey, it repre sented that the 211 technicians surveyed were representative of a broader group of technicians who fit this description-technicians working for Litton authorized agencies who serviced at least one other brand.

8 I. In ex 4 and ex 6, and in other advertisements sllbstantialJy similar thereto, Litton has represented, directly or by implication that:

1. Litton commercial microwave ovens are superior in quality to all other microwave oven brands.

2. Litton commercial microwave ovens are the easiest to repair on Jocation of all microwave oven brands. 3. Litton commercial microwave ovens require the fewest repairs of all microwave oven brands.

4. Litton commercial microwave ovens are the least costly to maintain in operation over time of all microwave oven brands. 82. The explicit representations, that independent microwave service technicians believe these propositions to be true, are also , Tfw n'v;q.d COlnnlerc;al "d diJTCl"pd ill '-I. It:""t or'" "U,.,- reSpl'ct from ex.: in that it pli1lin"tp,j the explicit slatf'nwnt th.,t " Litton i the lw"t co""m,rci,,1 micl'ow"v,' oven huy " This is. (Jr C()lJr '" sl;1I the gener:)1 nw s"r-e COlJvl'y"d by the langunge olthi "dvertisenwnt (CX Ii) FEDERAL TRADE COMMlSSlON DECISIONS Initial Decision 97 FT.C. implicit representations that the assertions are in fact true. Consum ers of commercial microwave ovens will derive from the ads an overall impression of superiority of the Litton brand (CX 4 and G). D. The Local Advertisements 33. All or some of the claims alleged in Paragraphs Six and Eight of the complaint are contained in each of the local advertisements based on the Litton surveys (CX 14-2.0, 27-.01, 54- , 73- , 82and 8G-128). Some local ads incorporated (15Jthe representations of the national ads in their entirety (e. , CX 14). Others incorporated only selected claims (e. , CX 39 and (7). Litton paid all or a portion of the cost for a number of the latter ads, even though they did not contain the full text of its national advertisements (e.g., CX 39 , 54 GO- GG, 95-96, log, 115, 120- 122, and 12G). E. Representation of Reasonable Basis 34. In each of the advertisements discussed above LMCP made the representation, directly or by implication, that it had a reasonable basis of support for the claims made in those advertisements, as of the time those representations were made. The over-all tenor of each of these advertisements is that the Litton surveys provided a reasonable basis for such claims (e. , CX 1- , and fj). F. Representation That Surveys Were Independently Conducted 35. The complaint charges and complaint counsel urge that respondents have also represented in the above mentioned advertisements that the survey which supported their preference claims were independently" conducted by Custom Research, Inc. (Complaint Pars. Six and Seven). Complaint counsel argue that since LMCP' marketing staff was largely responsible for the planning and design of the surveys (Finding 41, below), that such a representation is false. 86. In one of its advertisements, ex 4-the original commercial , Litton claimed that the statistics stated therein were based on an Independent survey by Custom Research, Inc." In all other ads it was simply noted that the survey was conducted for Litton by Custom Research, Inc. In either case I find that the reader was not likely to believe that the Litton surveys were totally independent. It is diffcult to perceive how any reader of the advertisements in question could possibly believe that the surveys were conceived designed and conducted without any input by Litton, in view of their narrow focus. Further, the contact part of the surveys which might Initial Decision be thought of as the "conduct" of the surveys--was, in fact conducted independently by Custom Research, Inc. (CX 115B, 218A- B).

37. Complaint counsel's own experts cast some doubt upon their position. Tn defining an "independent" survey they were not able to pin it down to a single definition, but (16)instead, referred to a continuum from totally independent to totally dependent. While their testimony would place the Litton surveys at the lower end of this continuum, they would concede some degree of independence was present in the Litton surveys (Miller, Tr. 586-90; Sudman, Tr. 1717 -20).

III. LACK 01: REASONABLE BASIS A. The Litton Surveys 38. The advertisements in question were based on two surveys conducted in 1976 for LMCP by Custom Research, Inc. (CRI), a market research firm located in Minneapolis, Minnesota. The latter firm screened the survey respondents and conducted the telephone interviews (CX 115B). The data from the surveys was keypunched verified and tabulated by another company, Maple Plain Company, Maple Plain, Minnesota (CX 145B).

39. The first of these surveys was taken of commercial microwave service agencies. It was conducted in two parts, with the first and basic portion of the survey being taken during the period April 28 1976 to May 4, 1976. A follow-up survey was then made of these same commercial service agencies during the period September I , 1976 to September 8, 1976, at which time the agencies were asked which brands of microwave ovens they serviced (CX 179B, 308- P). The latter information was required because during the interim period LMCP had decided to advertise the results of the survey (George, Tr. 2023; Houserman, Tr. 2786, 3401-02; CX 308A, O-P). 40. The second survey was taken of consumer microwave oven service agencies' It was conducted during the period June 22 , 1976 to June 25, 1976. It was modeled after the commercial survey, with the exception that it included questions designed to elicit the identity of brands serviced along with the preferential questions asked in the commercial survey (CX 150, 184, 308A and J, 145B, 152A and 305B). 41. The survey questionnaires were, in each case, primarily the work-product of LMCP's marketing staff (CX 145B, 248, 305A, (17) Commercial microwClVl Ovens are those used commcrcially by such enterprises as vending machine companiesanuresl,lUrants , Consumer microwave ovens (Ire those primarily sold for use in the home Initial Decision H7 F.

and 308E-J). Such surveys were not conducted with advertising in mind. At their inception they were devised for internal use only. After seeing the results, LMCP' s marketing personnel decided to use them in advertisements (George, Tr. 2025- , 2032- 13, 2034-35; Houserman, Tr. 2784-85; CX 177).

42. Such surveys were designed to elicit opinions as to certain quality preferences from independent microwave oven service agen cies (CX 1.52 , 177 , 178, 162 and 163). Respondent's definition of an independent microwave oven service agency, " as used in the surveys, is one which services ODe or more brands of microwave ovens and other appliances, but does not sell microwave ovens or other appliances, and is not owned or controlled by a manufacturer (Houserman, Tr. 2787, 2790- , 2930-34; CX 1- , 6). This definition is in accord with the industry definition of the term (Jadwin, Tr. 885- 94; Seitz, Tr. 2335-37; Omstead, 2519-20; Winters, Tr. 2(60). It is also a logical one. The service technicians who testified in this proceeding indicated uniformly that they depended primarily on referrals from retailers for their business and that they would be unable to get such referrals if they were competing with those retailers for sales (Seitz Tr. 2; ;)7; Omstead, Tr. 2520; Winters, Tr. 2686, 2660, 2748). 43. LMCP's marketing staff, in preparation for the surveys obtained copies of the Litton authorized service agency lists (for both commercial and consumer ovens) from Mr. Hauserman, the compas national field service manager (Houserman, Tr. 2785; CX 162 and 163). In addition, LMCP had in its possession the service agency lists of two of their competitors, Sharp and Magic Chef. Such lists were placed inside ovens sold by those manufacturers and had been obtained by LMCP prior to the conduct of the surveys (CX 175, 176; RRB, p. 110). The Sharp list (CX 175) was originally prepared in 1975 and was still being packed in Sharp ovens in 1976 (Jadwin, Tr. 885- , 888-94). The Magic Chef list (CX 176) was published in approximately August of 1973 and had been superseded by other lists prior to 1976 (Wooden, Tr. 998-1000, 1003-07). 44. LMCP was aware that its own service agency lists (CX 162 and 163) did not contain the names of all agencies which serviced its microwave ovens. Such lists only contained the names of agencies which were authorized to do in-warranty wOlkon Litton ovens. Due to the essential similarity of microwave ovens, agencies which serviced other brands of ovens could and would be repairing Litton ovens as well (Seitz, Tr. 2347-55). The LMCP marketing staff thus turned again to Mr. Hauserman for an estimate of the number of such service agencies that might exist. Mr. Hauserman estimated that there would be approximately 100 of such agencies (Houserman , p.

Initial Decision Tr. 2790 3028; (18JResponse of 7/,';79 to Requests for Admissions , Admission No. 25; RRB, pp. 12 and 64). To be on the safe side the marketing staff considered that there might be as many as 200 (CX 177; CX 152A and 178A) 45. The Litton surveys were designed and conducted as a census of the agencies on the two Litton lists, e., the commercial and consumer lists. An attempt was made to contact each and everyone of those agencies (CX 209; Zeisel, Tr. 4148-49). No attempt was made to contact any of the additional 100 agencies that were estimated to be then servicing Litton ovens but who were not on the lists of authorized agencies (CX 148B-C).

46. In the conduct of this "census" it was decided to weigh only the opinions of personnel at agencies which serviced two or more brands of microwave ovens, with one of those brands being Litton (CX 148B). It was also decided that the interviewer must speak to a qualifled technician at each agency. To be qualifled the technician must have serviced Litton and one or more other brands of microwave ovens and have been engaged in such business for at least one year at the time of the survey (CX 150, 184 , and 185). 47. The technicians interviewed at the agencies to be covered in the "census" were intended to be representative of all independent microwave service technicians in the United States who serviced two or more brands of microwave ovens (one of which was Litton) (CX 152A 178A , 6, 308Z006-Z007).

48. CRI attempted to contact each agency on each list, in the two surveys. In connection with the commercial survey, 211 interviews were completed; that is, a qualified technician was contacted who answered the questions presented by the interviewer. In addition 60/0 of the agencies on the list were no longer servicing commercial ovens, were no longer in business, or the number was disconnected 19% did not qualify (19J(serviced only one brand), and 5% would qualify but would not participate. At 38% of the agencies a qualified technician could not be reached after repeated calls (CX 178A). the consumer survey, 234 interviews were completed (a qualified technician was reached who would answer the questions). In this case, 16% of the agencies on the list did not qualify for interviewing A Crn ,, i urvey in which ,m att IJpt is made to clJnlact ,,11 members of" LlJiv!,, e and mCll ure them cnncnninf( the required characteri tics or "pinions (:\iller, Tr. 4ifi KK: H."Hhwalb. Tr. :Jlh7 K ): Zeisel . Tr- 4HH-4D) A universe (or population) is II colledi"n "f all units that are to be eligible lor inclu ion in IIurvey "nd to which the results 01' the study lire intended toeneralibe "d (Sudman, Tr. !(I;:!: Miller, Tr, 47 7.j; Roshwalb, Tr- ::1(;:10- :'1) , Complaint cDuns,,1 "ttempted to prove thllt there were an in ufficieJ)t number (jf call-backs (repeat calls) to flgcncip.s whichc:ould not be reached, Or lit which a quulil'ed tec:hnici,lT could not be reac:hed, Their urguments w"re primarily ba ed on ex 1!i:1. however. complaint counsel were unable to sh(jw that this document wrls probative On this point (Tr. :J!i!12. ,!:!k! and :jK:J) Thus. the only eviden"" "frf':ord indicate that ""repeated calls "Ild " up tn six calls'. were illlde tosuch "gencie, (CX l!i2A. 17'1A and :JOKB) :!45-554 0-82- :2fj FEDERAL TRADE COMMISSION DECISIONS Initial Decision D7 FTC.

(serviced only one brand, had less than one year s experience, or only serviced commercial ovens), and 30/0 qualified but would not participate. At 34% of the agencies a qualified technician could not be reached after repeated calls (CX 152A).

4!J. The data was then keypunched, verified and tahulated by Maple Plain Company (CX 14513) to obtain the statistics later cited in respondents' advertisements.

50. In addition to its knowledge that each of these surveys omitted approximately 100 service agencies which serviced Litton ovens and at least one other brand, Litton knew or should have known that the lists of service agencies utilized included a number of servicing-dealers. Mr. Houserman, who supplied the lists to the LMCP marketing department, was well aware that at least two exceptions were made to the rule that the said lists of authorized service agencies (CX 162 and l6in listed service-only agencies. The exceptions were: that servicing dealers were sometimes listed in boon dock" areas where an independent servicer could not be found to service Litton ovens; and secondly, some servicing-dealers insisted on being included on the list as a pre-condition of their purchase of Litton ovens for resale (Houserman, Tr. 2863- , 2872- , 3103, 3125-26). Moreover, Litton was placed on further notice of this fact by "verbatim" comments which were placed on a number of the completed questionnaires, indicating that the agencies in such instances also sold microwave ovens at retail (For example, see l50-Z016-Z0l9, l50-ZI36-ZI39, l50-Z553, 150-Z572-Z575, 150-Z688- Z69l, and 185-Z003-Z005). (20) 51. Litton was also aware that the questionnaire used in the survey was designed only to obtain the opinions of a qualified technician at each agency. No attempt was made to randomize the selection of such technicians, or to determine whether the opinion of the contacted technician was representative of all the technicians employed by his or her agency (CX 150, 184 and 185; Zeisel, Tr. 4145). B. Substantial Defects In The Litton Suroeys 52. Contrary to the definition of the universe in the Litton surveys, the Litton lists used for such surveys included servicingdealers as well as independent service agencies (Finding 50 supra). The number of servicing-dealers included in those lists may well have been substantial. As previously noted there were two major exceptions to the exclusivity of CX 162 and 163 (the Litton lists): (1) Servicing- dealers are put on the list in boon dock" areas where no one else can be found to service Litton ovens; and (2) Servicing- , H" "H- Initial Decision dealers who insist on being placed on the lists as a pre-condition to purchasing Litton ovens for resale were sometimes included (Houserman, Tr. 2863- , 2872- , :n03, 3125-26). Complaint counsel subpoenaed LMCP's records to determine if there were any direct sales by Litton to agencies on CX 162 and 16:, during fiscal year 1976. Those records revealed such sales to 20 agencies on the consumer list (CX 162) and I" on the commercial list (CX 163; Tr. :3069-74) Moreover, on cross-examination Mr. Houserman admitted that four other agencies on the two lists were known to have purchased ovens from Litton for resale (Tr. 3104- , 3127). This raised the number of admitted servicing-dealers to 24 on the consumer list and 19 on t.he commercial list. Further, respondents' earlier answers to interrogatories had established that four more agencies on the consumer lict and five more on the commercial list were servicing-dealers in 1976; thus raising the totals to 28 and 24, respectively! (21) 53. The testimony of Mr. Houserman, however, indicates that these numbers may be only the tip of an iceberg. He admitted that Litton s records would only cover sales to agencies in markets where Litton sold directly to the retailer (Tr. 3111-12). Thus, in the greater part of the country, where LMCP sells through distributors, only the distributors records would show whether agencies on the lists for Mr. Hausermanthose markets purchased ovens for resale in 197fj.R also generally exhibited a lack of knowledge as to the scope of the business activities of agencies on the lists who were not in direct buying market areas (Tr. 3043- , 3045-50). Nor did he check to determine the number of servicing-dealers on the lists prior to their use as a basis for the market surveys in question (Tr. 3067). 54. The only logical inference that can be drawn from these facts is that Mr. Hauserman s two exclusions to the general rule (Finding ,,0 and 52 supra) applied to the 54 distributor markets as well as the direct selling markets. In fact, some of the answers to the survey questionnaires themselves indicate that this is so. Although the survey questionnaires did not elicit such information, some of the , C()mplaiot counoel also introduced evidencehowi"g sales of Magic Chefappliflnces to certain of the agpncies Dn Litton list6 (Wooden, Tr. 4"G2 - 82) Although portions 01- this evidellce ilre 01' doubtful sub t"ntiality, showing ew ifany sales ol'appliances . some of the "Ies revealed thereill indicate the ugencies making such pUfchilses mu have h""o d"alers (Wooden, Tr -1!i;)2- ,:L !i74. 4:,"1", 1j,,"I(i. '!:,77 , 4;,"lK j;,7 , 4:'iKO 'JKl) ,-"d the overall imp"ct 01' such evide'"," rri1lI orces other eviden"" 01' record indic"tiol-\ that many ,,1 - the listed agen"i,'s were . in fact ,'rvieing- dealerr;

, j,itt"ns distribution syst.em 1'0,- con ume" ovens cOlJsisted 01' three cmegorips in l n(j, Throughout most 01' the oation it. "old through ,,4 pnJdLlct distributors, who d.."lt with the individual retliler ami also set up the servic,' network in such a,-eas, It also had cer!.1in din,d market '-f""" where it acted as the distributor itselfold and directly to the deal..r organizations. The e were "venll large rndropolit"n !lr.."s (:-ew York City, Detroit Cleveland, Chicago, Dallns/Fort Worth, San Fnlnci co Hay area !!nd L(js Angeles), the Stile 01' Florida and the State 01' Mil1ne ota Addit.ionally, it ,,1"0 made din' ct sale to " category or pu,-chc1sers wllpd National Accolint The I"tter consistf.d 01' direct sales to premium h"uses, such a, Am"ricall Exp, ess credit card di tribl1tion . Gulf Oil credit c"rd department, ete (HOlJsn,mln, Tr, n(i 1 71) FEDERAL THAm; COMMISSION DECISIONS Initial Decision !)7 F.T.C interviewees volunteered information showing they were dealers. (See for example, ex 150-Z016-019, 150-Z136-ZI39, j,iO-Z553, 150- Z572-Z575, 150-Z688-Z691 , and 185-Z003-Z005) (22) 55. Under the circumstances, the weight of the evidence herein indicates that the admitted servicing-dealers included on the Litton lists, which were from the direct buying areas only, must be ilustrative of similar experiences throughout all the marketing areas serviced through Litton s ,54 distributors. 56. Thus, the evidence shows that the number of servicingdealers included on CX 162 and 163 may be quite substantial. The necessary corollary is that a substantial nuraber of the respondents to Litton s surveys may also be servicing-dealers. 57. Respondents' own experts have shown that the answers of a servicing-dealer would tend to be biased in favor of a brand which it sells, and that such agencies should not be included in the survey for that reason (Zeisel, Tr. 4110; Roshwalb, 'Ir. 3587- 88; RX 72W-ZI8). In fact, Mr. Roshwalb conceded that he would be concerned if 10 to 150/0 or more of the Litton survey respondents were actually servicing-dealers (Roshwalb, Tr. 3587-88; See also, Miller, 'Ir. 561- 700-01).

58. Under these circumstances the two Litton surveys upon which the advertising herein were based must be considered fatally defective. Once Litton was on notice that their lists of service agencies were not pure; that is, that they contained servicing-dealers as well as service-only agencies, steps should have been taken to determine the extent of that problem. Having failed to do so, the surveys could not be considered a reasonable basis for the claims made in the advertisements.

59. 'Ihe Litton surveys were also defective in that they did not elicit the opinions of the " 100" other agencies which serviced Litton microwave ovens, but were not on the two Litton service agency lists. " The universe for the surveys was (23)defined by Litton itself as all independent service agencies servicing two or more brands of microwave ovens (one of them being Litton) (CX 1- , 6, 152 , 178). Moreover, as noted above, respondents intended to make a "census which necessitated an attempt to contact each and every member of Reo oTlj"nts h"v" urfi,'d in their H.reply Sriel - U1"1. there wLlld be no ervicing-dealers in the diotribulur ;He;JS "nd (ite to ever,-I ,-re" of the record for support (RRB. PI', 44- 4;;: Proposed Finding ;,!)) I h"ve reviewed the cil"tion f:iven "nd they do not support respondents' "o iti()n, :vore"ver. II", r clJrd evidellce, a cited above, convincingly destroys such positi"n The lac! is that the rewrd sh()w that ome agel1cies in the distribl1tor areas were servicing-de"ler "l1d th..t there were undoubtedly more "hat were not identified by name on the rewrd. '" It 5should be noted that rpspond"nl cI"im that" portion of ex 7 which W;J not receivl'd in evidence would h"v" pro\"'11 th"numberof lich unidentiljed other "gencies to h..ve been slightly less than !lll;ab"l1t 77, However, I',r rea O'Hi el Dut below, where 1 discuss re pondents' exceptions to sevl'r"loj' my rulings, the rejecled portion of that "xhibit could not have rI,liably rldcrm;ned the number 01' sllch other "gel1cie The ul1ly substantial evidence on th;" point i rh" evidence above in Firldil1!,. Initial Decision the chosen universe. Yet Litton chose to completely ignore one-sixth of its defined universe from the very inception of these surveys (CX 148B-D).

60. Further in view of the fact that Litton s service lists contained a substantial number of agencies which were not properly members of the universe, such as, servicing-dealers, agencies which did not service Litton and one other brand and agencies which were no longer in business, the problem is exacerbated (CX 152 , 178). In other words, these "100" agencies probably amounted to more than one-sixth of the intended universe.

61. Respondents' primary defense against this obvious defect is that they were unable to identify any of these unlisted agencies and were thus forced to rely solely on their own lists (CX 148B-C). This is not entirely true.

62. Respondents had in their possession, prior to the surveys, service agency lists of two of their competitors. It is claimed that they could not use s'lch lists, however, because they were both several years old (CX 148C). " While this was (24Jtrue of the Magic Chef list, the Sharp list had only been published in 1975 and was still being packed in ovens sold in 1976 (See Finding 43 supra). Moreover even the 1978 list probably listed a substantial number of service agencies which were still in business, since it was only three years old (even if they may have no longer been authorized Magic Chef repair agencies). Litton cannot now prove that these lists might not have provided an adequate basis for "sampling"" the additional 100" agencies, since Litton did not even try to make such a test (CX 148B-D). In the absence of such proof I must assume that it was possible to get some indication of the preferences of the additional 100" agencies by questioning agencies listed on these two lists who were not on the Litton lists.

63. This defect is even more serious when it is realized that the additional " 100" servicers who serviced Litton and at least one other brand were not authorized Litton servicers. Although I don t agree with complaint counsel that authorization is a substantial biasing factor in and of itself (see discussion below), it is clear to me that familiarity with a particular brand would influence an agency In t.their proposed II"dings ilnd lJriefs respondents cite to other alleged defects with these lists, based prim"rily nn ot.her liss 01' service iIgencies supposedly serving these two companies which complaint counsel introduced as a basis I'or their Chilton Survey. diRcllssed bdow. Since I find the Chilton Survey and its underlying limb defective. as is discllssed below, such arguments are not p..rsuiIsi\'e. Moreu\'p,-. then, is nO evidence that Litton was "ware uf- ""y ddl,cts in such lists. with the possible exception of age. at the time they werp det\'rm;ning what universe tosurvl'Y ICX lim- " Sampling can bp ri"lim,d as taking a sample from f1 universe for the purpose of drawing inferences alj(ut that universe. A sample is ,.j subset 01' the universe drawn I rom the universe in such a ",a ruler that it in some way rpprespnts t.he population (univer.';1') I'rom which it was taken (Miller . Tr .1((;. 47H- FEDERAL TRADE COMMISSIO"l DECISIONS Initial Decision 97 F.Topinion as to the relative quality of various brands. Some of the verbatim comments recorded on certain of the questionnaires from the Litton surveys indicate that where an interviewee s experience with a particular brand is limited, the tcchnician is not likely to select that brand in a preference poll (CX 150-Z196-Z199, 150-Z416- Z419 , 150-Z420-Z42:1 , 150--Z544-547 , 150-Z640-64:J , 150-Z752-Z755 150-Z792-Z795, 150-Z796-Z799 , 150-Z820-Z823 , 150-Z844-Z847 , 150- Z884-887, 185M-0, 185-Z085-Z087, 185-Z223-Z225, 185-Z22G-Z228; see also, CX 239B). The record reveals that the unauthorized servicers of Litton Ovens were not likely to service a great number of Litton ovens (Hauserman, Tr. 2844-50). Accordingly, it can be expected that their answers to the preference questions in these surveys might have differed substantially from those on the Litton authorized lists (CX 239B).

G4. In the light of these facts, respondents did not have a reasonable basis for advertising that their surveys revealed (25) certain preferences for Litton among independent service agencies which serviced Litton and one or more other brands of microwave ovens, since a substantial portion of such universe was not included in the surveys.

G5. This is especially so where, as here, the attempt was to conduct a census, rather than a mere sampling. Respondents arguments concerning the United States Census and its imperfections (RRB, pp. 99-100) do not detract from this point. It is clear that in the United States Census an attempt is made to contact every person in the universe. Moreover, the United States Census is not used as the basis for advertised claims and users of its results are well aware of its shortcomings, 66. To the extent the Litton surveys were used as the basis for claims of preferences among a universe of microwave oven service technicians, they were also defective. This is so because the surveys were only made of agencies, not technicians (Miller, Tr. 526-27). As noted previously, CRI made an attempt to contact one technician at each agency on the Litton lists. It was their practice to speak to either an experienced technician or the manager at each agency contacted (CX 150A, 185A). There was no attempt to obtain the opinion of more than one technician at anyone agency (CX 150 185). Further, there was no effort made to determine if the technicians being interviewed were even representative of the technicians within each agency, let alone whether their views were Tlw ('vidence I' reveals that ume ul. the ",, ncies un th" LiUlJT1 li"t. employed as ",,,ny U ten UI' eleven t(' chlli(ian (! !ous(,rman, Tr. J; Seitz. Tr 2411) Initia! Decision representative of all independent technicians who serviced Litton and one or more other brands (CX 150, 1RO). 67. A survey conducted by respondents' experts for tbe purposes of this litigation (RX 72-Z19..Z27) reveals the seriousness of this defect with relationship to advertised claims that the Litton survey was made of technicians. This survey was made to determine the In theeffect of random selection of technicians within each agcncy. 14 course of this (26Jlatter survey the technician randomly selected was frequently the first and only technician spoken to. However, in 42 instances the survey required eliciting a preference as to best quality from two technicians (See RX 72-Z24-Z27; ex 361). In 22 out of those 42 instances the second technician s preference differed from the first technician s (CX 361). This is substantial evidence that the opinion of a single technician at an agency employing a number of such technicians is not representative of aji technicians within that agency and that the procedure followed by Litton in its surveys could not be expected to indicate the preferences of the universe selected therein-independent microwave oven service technicians who serviced two or more brands (one ofthem Litton). 6R. Therefore, Litton did not have a reasonable basis for advertis. ing that its surveys revealed certain preferences among such independent service technicians.

69. The evidence of record also indicates that the surveys failed to establish that the respondents thereto possessed sufficient expel" tise with the various brands they claimed to service to qualify as respondents for a microwave oven comparative brand survey. The primary evidence of this defect is supplied by verbatim responses of the interviewees entered on the questionnaires. Such information was certainly known by Litton prior to the publication of the advertisements and militate against respondents arguments that they had a reasonable basis for the claims made in such advertisements.

70. For example, the verbatim comment on CX 150-Z199 indi. cates this interviewee had insufficient experience with Amana to make a preferential comparison between an Amana oven and a Litton oven. This respondent stated, "I really don t know that much about servicing of Amana . . . ." This interviewee listed Amana Litton and others as the brands serviced, so he would have been included in the preferential chart rating Litton as compared to H Thi study was milde in resp"" to the position or complaint counsel ..nd the;" !experts that the Litton su, veyscould not even be considered to I", a survey of the serVLC" "genc;es, since u random selection basi Wis not lJSP,j to select the technici..n inte, viewed ,-,I '.ilch ag"ncy. ThLJ . it Wa gued that the technician intervipwt,d rnir;hl not bl' reprl'sP1ltativl' or the entire af,ency- Statisticallype"kinf;. Uw random selection procedure Wis posited a giving- a bllt",. chiln"e thill. th" technicihn elecled for the interview w()uld be "'prf'sent"tiv,' , FEm:RAL TRADE COMMISSION DECISIONS Initial Decision $)7 F.T.C. Amana (CX 150-Z197). Under most of the preference questions he listed Litton as the preferred brand (although he did have an Amana in his home). This interviewee s answers are of doubtful validity because he did not have enough l27Jexperience servicing Amana (Miller, Tr. 532-33; Sudman, Tr. lG97 -98)'" 71. On CX 150-Z417 , the interviewee again indicated that experience played a great part in his statement of preferences. This respondent had listed Amana, Magic Chef, Panasonic, Sears (Kenmore), Sharp and Wards (Signature), as well as Litton as the brands serviced, so his responses would have been computed as showing preferences between these brands (CX 150-Z117). Yet in connection with the very first preference question, in which he indicated a preference for Amana, he stated I'm more familiar with it lAmanaJ." He went on to select Amana as the brand preferred in each of the preference questions (CX 150-Z417-Z419-he did indicate he had a Magic Chef, as well as an Amana in his home). Again, the comparative experience in servicing the various brands was pointed out as a critical factor in the preferences of the interviewer. Again, a red flag" was raised for Litton to see that some inquiry should have been made into the experience of the interviewed technician with the various brands being compared. Since familiarity was an important factor with this respondent, it should have been determined whether his experience with the other brands was sufficient to make his ratings meaningful (Miller, Tr. 53:J-:J1). 72. CX 150-Z421 also illustrates this problem, when in rating Litton and GE as the "easiest to repair " this respondent volunteered that it "depends on how many of a brand you work on. " CX 150- Z544-547, similarly shows the importance of comparative experience. In connection with the various questions asked of this respondent he made such remarks as, "because we served more Litton than any other because I can service it" (after answering that he would recommend Litton to a friend), and "Don t have enough experience on other brands besides Litton" (CX 150-Z545- Z547). Other comments indicating experience was a factor which should have been probed further in the Litton surveys are found at CX 150-ZG03 , Z640, Z755, Z794, l28JZ797, Z84:" Z887; CX 185B, E, 0, , V, Z8G, Z224, and Z227. Since these were all volunteered remarks there being no questions in the survey designed to qualify a respondent by experience, I am led to the same conclusion as that Ie. HpsplJndents' arl-urnent that this verbatim curnment w"s in n' 8p"f1 e 1.0" !jue'Ot.jonn()t lJ ed irl lh" Lilton adverti ement" (Rith. f' L ,:O is r""lly be.,i,j" the point. The fact is this interviewee indic::ted a lack ofexperierL e in e)miri"g Amann ovens. This cert"inly nHits un'" doubt on hi rating or LittoTl as "easiest tll repair," requiring the kw,, t r"f",i, " and "best quality, for ex"mple. Such an "n wer h"Lljd h"ve raised" "" fl-d flag" in Litton mind,, to the need rorl'urtf\t,r qualil'iation of tht intervieweesllrveyil1 quethe tilJnn"ire ...

(J, 11\JL".t;'j AL 3:1 Initial Decision reached by complaint counsel's experts. That is, that the intervicwees were not properly qualified as to experience and the survey is, consequently, unreliable (Miler, Tr. 548, 582- 47; Sudman, Tr. 1697- 1701 1708-04).

73. LMCP was also aware that its surveys were not originally designed for the purpose of advertising. Surveys which are to be the suhject of advertisements should be conducted under stricter stan, dards than those which are for internal company use only (Zeisel, Tr. 4257 -62). Litton, therefore, should have carefully re,evaluated the surveys and the methodology followed therein, prior to using the results in advertisements. It is clear, in light of the previous findings that such a critical re-evaluation was not made in this case (See Miller, Tr. 5 92).

74. Moreover, the complaint herein charges and I have so found above (Findings 21 , and 29) that the Litton advertisements repre, sented that certain preference claims were proven by the two Litton surveys. (See Complaint, Pars. Six (6) and Seven (7)). In view of the above hndings that Litton lacked a reasonable basis for making such preference claims, it must also be found tben that the representation that such claims were proven by the surveys is false and misleading. C. Rejection of Certain of Complaint Counsel' s Criticisms of Surveys 75. In addition to the above defects, which I find to be substan, tial, complaint counsel urge that there are other defects in Litton surveys. In the main, I find that these other alleged defects are inconsequential, have not been proven to be corisequential, are subsumed in the principal defects noted above, or are simply not defects at all In view of my basic findings, there is no need to discuss each and everyone of these alleged defects. However, I will dispose of a few of the principal ones cited by complaint counsel (29) 76. Among such alleged defects, complaint counsel take issue with respondents' definition of the universe for this study. They urge that the proper universe includes all independent service agencies, whether they service Litton ovens or not 17 and including servicing dealers. Much of their evidence and the testimony of their experts is based on this theory-that servicing,dealers are part of the universe. Such position fles in the face of the evidence of record which shows This problem is, oj' cour ". compoundHrl by the fact i.hdl the inte, vi",we" ill t!,e Littol1 surveys were ,,11 from 3W' ncie on Lillon s lislso!'uLjthori,_edservie,. agl'n1:ies " As noted in Finding HI, sriI'm, some of the jldvnti "rnents wn be read as implying lnllt the survey results were "'pn'sl'uta!;ve of all indepenrJpnt sen' lernllici"ns. However, for the purpose or theHe IIndings. I am consprvatively using the universe which Litton apparently intended using in its su, veys- it1dpend"nt service tecnf1ici"Ils wn" Sl'rviced lwo or more hr;lnds (one al" them hf'ing Litton) :;4 FEDERAL TRADE COMMISSION DECISIONS Initial Decision !J7 F, that Litton adopted a narrower universe in its studies and that such narrower universe conformed to industry definitions and logic (See Finding 42 supra). Complaint counsel's position is based on two factors: (I) Their reading of the advertisements as implying such to be the fact through use of terminology such as "independent microwave Dven service technicians surveyed " and (2) Because the lists which Litton used in its surveys included servicing-dealers. As for the first, it is not so obvious that the public perception of the term independent service technicians" would include servicing-dealers. The expert testimony of record in this case would indicate that it would not. Dr. Ward testified that the public perception of "independent" would be that such technicians were free from any "biasing influence" (Tr. 3979). It is probable that association with a retail store would be considered a "biasing influence, Technicians so employed would be expected to be loyal to the brands which their employers handled (RX 72W-ZI9). Insofar as the inclusion of dealers on the Litton lists is concerned, this is a basic defect with the Litton surveys, as noted above, but it does not warrant broadening the universe to include all such servicing-dealers. This is particularly true where the weight of the evidence indicates the proper universe to be the narrower one, as in this case.

77. A second alleged defect urged by complaint counsel is termed the "bias of non-response. " Based primarily on (30)Litton submissions to the Commission during the investigation of this matter complaint counsel argue that the response rate to the commercial survey was 420/0 and the response rate to the consumer survey was 47% (CPF 165 et seq.). These response rates were obtained by simply dividing the number of "completed calls" (where a qualifled technician was reached who would answer all of the questions) into 500 (the number of agencies on each list). Complaint counsel argue that such admissions by respondents are binding and cannot be rebutted (CPF 167).

78. The latter argument is pure nonsense. If respondents mistakenly admitted black was white in response to a Commission investigative demand it would not make it so. The fact is that the term response rate can be used in a number of different ways. Respondents, in answering complaint counsel's investigative demands obviously thought they were being asked how many technicians responded to the survey who were qualified and wiling to " The . b;,,, ai' I1ljl1- eSpolls,," refers to lrc possibility that th" noll- respondents to a survey (those who are miss,''! for Sells' reURord mi hl dilrcr in their an wers from th"se who did I.espond (Mill",-, Tr G74--7:J), Tests to det('rmill xten or such po iblc bias b mme necessary ill I. I-w opinion uf' complaint coumeJ's experts, when there is ,! I"w rbpOIr1' ride. sinn' the PQ5 ihilil)' uf' bi"s in Ihl' l\rvey i5 thenubSlanticd (Millel, T,. ,,72- . ;;77- : Sudm"l\. TI- 1711;) LITTON INDUSTRIES, INC., ET AL ;35 Initial Decision answer the preference questions (CX 308-Z006-Z007). The testimony of two of complaint counsel' s own experts indicates that this may not be the proper way to determine response rate if one is trying to determine whether there may be a "bias of non-response . That testimony and the testimony of respondents' experts shows that certain other data must be considered in determining response rate from a statistical point of view (Miler, Tr. 668-90; Fink, Tr. 1440- 41 1452- , 14G5-73; Roshwalb, Tr. 3378- , 3381-83; Zeisel, Tr. 4139). For example, agencies contacted which were not qualified to answer the questions (did not repair microwave ovens, serviced only one brand of ovens, had not repaired such ovens for at least one year etc.) were obviously responses, even if they did not properly belong in the universe being surveyed. It is certainly inaccurate to classify such agencies as non respondents. (31) 79. The only evidence of record which attempted to clarify this confusion in terms, as to actually what was the non-response rate in a statistical sense, was the testimony of respondents' experts. Mr. Rosbwalb and Dr. Zeisel computed what they considered to be thc proper response rate of the Litton surveys to be 63% for the consumer survey and 65% for the commercial study (Roshwalb, Tr. 3878- , 3381-83; Zeisel, Tr. 4189). The testimony of complaint counsel's own expert, Dr. Miller on cross-examination, confirms the propriety of their logic (Tr. 6G8-90).

80. The testimony of Dr. Zeisel further indicates that these latter response rates were within the normal range of responses to surveys of this kind and, therefore, would not raise the spectre of a possible bias of non-response " (Zeisel, Tr. 4139-40). There being no reliable evidence of record to the contrary, this opinion must be credited. Therefore, the rate of response to the two Litton surveys is found to be not abnormally low and does not present a substantial probability of bias.

81. Complaint counsel also argue that the Litton surveys were biased because they were based solely on LMCP's own lists of authorized service agents. It is their position that such "autborized agents" were likely to be biased in favor of the brands for which they were authorized (CPF 137 et seq.). While there is some validity to this position (See Finding G3 supra), the basic problem it poses is subsumed by tbe defect I found above, that Litton failed to sample in some way the " 100" additional agencies that were repairing Litton ovens but were not on the authorized lists. Thus, I do not find this F()r inst,\ljcc, ill the C0I111l1crcial."un' ey em contacled !J::\agencies which serviced only one bmnd (CX :JO!\H) Thp inlervj"w WiJS completed for this sUn'cy s purpo""s onc(' that fact was ,'stDblish,'d :3G FEDERAL TRADE COMMISSION DECISIONS Initial Decision !1 Fthe interview of authorized technicians only, to be a separate, substantial defect in the Litton studies. '" (32) D. The Chilton Survey 82. As part of their case-in-chief, complaint counsel introduced a survey designed to show that the universe of independent microwave service agencies was vastly larger than the 600 or 700 agencies claimed by respondents. This survey was conducted for complaint counsel by Chilton Research Services, a survey research firm located in Radnor, Pennsylvania (Fink, Tr. 1345- , 1352-53). 83. The basic materials for the Chilton survey were provided by the Commission staff, e., a list of agendes and the questionnaire. Chilton Research Services (Chilton) then conducted the interviews tabulated the results and made certain findings (Fink, Tr. 1352-55). A report was then submitted to the Commission staff transmitting those findings (CX 280A-Z180; Fink, Tr. 1352-53). 84. The sampling frame for the Chilton survey consisted of about 699 agencies. The list of names, as provided by Commission staff is in evidence as CX 278. Dr. Fink, who was in charge of this survey at Chilton, was informed by Commission staff that this list included agendes which were likely to have repaired appliances, including microwave ovens, in 1976. He also understood that the list might be as much as three years old (Fink, Tr. 1355-56). 85. Chilton then followed a simple random sampling technique in setting up and conducting telephone interviews. It was expected that the sampling would produce about 500 interviews. The purpose was to determine a percentage of agencies which were servicing multiple brands of microwave ovens in 1976, with one of them being Litton. That percentage would then be projected to the universe (the list of 699 agencies) to obtain an estimate of the approximate number of those agencies within the total universe (Fink, Tr. 135G- , 1:J62-G3; CX 280A-Z180).

86. The Chilton survey resulted in liberal and conservative estimates, both of which would indicate that Litton had greatly underestimated the number of independent service agencies which were not on the Litton Jists, but which would have been servicing Litton and at Jeast one other brand of microwave oven in 1976 (CX 280A-Z180).

87. The Chilton survey results are not reliable and probative for '" Moreover, the hias of rllJthur;zlitiOI1 would be impossible tu completely esc"r in the Litton serv"y - To the t.ent the univer e is iim;ted to agencies sl'rvicing two Or more hnmds or owns (olle of thpm Litton!. it will of necessity b,. comprised miiinly of a encj"o Cluthorized to se,.vice Litton oV!' - Thus. it makes no senae to divid(' tho' qUl's!.onnl "uthorizationfromlhebasicp,.ublemthatt.heunlisted (unauthorized)" ll)O.. were not surveyed. Initial Decision a number of reasons. The principal one is that the list which comprised the universe for the survey was made up in great part of servicing-dealers (Niemasik, Tr. 1312-13; RX 72B-S). As noted in Findings 12 and 76 supra, such servicing-dealers are not properly a part of the universe in the Litton surveys. The substantial extent of inclusion of such servicing-dealers in the Chilton survey taints its results and makes its conclusions irrelevant to this proceeding (RX 72B-S). (3:J) 88. Among other reasons why the Chilton survey is defective is the lack of consistency and reliability in the universe upon which it was based. The exhibits underlying CX 27R (the universe for the study) were vastly different in make-up and the time periods for which they were applicable (Niemasik, Tr. 1244-56; Jadwin, Tr. 837- , 925-27; Wooden, Tr. 944- , 991- , 998- 1010; Carmen, Tr. 1142- 48). The GE list, for example, was a computer listing of service agencies franchised to service all GE appliances in 1978 (Carmen, Tr. 1158)." From this list Commission staff allegedly eliminated most servicing dealers in preparing CX 278. This was done because of the great number of agencies listed on the GE computer listing (Niemasik, Tr. 1301-03). The Sharp and Magic Chef lists were both prepared by these companies for complaint counsel's use in this case and were not records kept in the ordinary course of business (Jadwin, Tr. 837-45; Wooden, Tr. 944-47). Both included servicingdealers (Jadwin, Tr. 837-49; Wooden, Tr. 950-51). The Sharp list was made from a computer run listing all Sharp service agents. The computer run was prepared in February 1977 and represented Sharp s service network in December 1976 (Jadwin, Tr. 834- , 858- 60). The Magic Chef list was compiled from that company s service contract file as of June 30, 1976 (Wooden, Tr. 946-47). Both Sharp and Magic Chef had published I ists of service agencies which were packed into their microwave ovens when sold to the public. In each instance such published lists varied substantially from the lists prepared for complaint counsel for use in this case (CX 175, 243, 245 53- , 56; Wooden, Tr. 1009-10). In addition, it was noted in the cross-examination of Mr. Jadwin that there were very substantial differences between the Sharp published list for 1976 and a later Sharp list published in 1977 (Jadwin, Tr. 910-21). This indicates a substantial change in Sharp s service network was taking place in 1976- 1977 (See also, Jadwin, Tr. 928-29). It was also shown that GE' service network was vastly different from those of Sharp and Magic Chef. GE's service network in 1976 was primarily composed of its " This Ijst.was not compiled by GE but by Wahlstrom & Company which hMldles GE's yellow page advertising fol' aii product servic"H (C"rmen, Tr. 11:Jl 42) , , Initial Decision m F.TC.

own GE factory service operations. At that time it had 115 to 120 factory service locations. Only in the areas outside the boundaries of these locations did it franchise other servicing agencies (Carmen, Tr. 1109-12). These were among the facts I considered when I stated upon accepting CX 278 (the (34)Chilton universe) into evidence, that this exhibit does not show who was servicing microwave ovens in 1976, nor that the agencies listed might have qualified for the Litton surveys. CX 278 was received solely because it provided the universe for the Chilton survey (Tr. J 339-41), and the Chilton survey is subject to any infirmities that may be inherent in such list. 89. Moreover, the cross-examination of Dr. Miller, one of complaint counsel's experts, casts further doubt upon the validity of CX 278 as a proper universe for the Chilton survey. Using a hypothetical approach, Dr. Miller was questioned concerning the disposition totals in a survey entitled "Color Television Services Technician Survey Conducted by ABC Corporation" (RX 75)-the disposition totals therein were virtually identical to those in the Chilton survey (RX 75; CX 280-Z(03). Dr. Miller testified that the number of unlisted, wrong numbers and non-working number agencies on RX 5 was much too high and ereated a " red flag" in his mind suggesting that the underlying list in the survey was defective (Tr. 687-88). He indicated that if you have a good list to begin with the number of non-working or wrong numbers should be quite small. He added that when his company got a bad list, it did not accept it. It went out and got a better frame for the sample (Tr. 688-90). These remarks necessarily reflect on CX 278 as well, since RX 75 and the Chilton survey results are practically identical. This gives additional substance to the problems raised above concerning the three lists underlying CX 278.

90. In spite of such disparities revealed on the record, complaint counsel have submitted no substantial evidence to support the validity of the universe used in the Chilton survey, that is, to show that CX 278 was of such a character that projections could be made to it based on the results of the Chilton survey. The testimony of complaint counsel' s own experts indicates that there should be a certain consistency to (35Ja universe or population of a survey, so that the results of that survey might be generalized to the total population (Miller, Tr. 471-75; Sudman, Tr. 1666; Fink, Tr. 1432-36; The statern""t th;Jt. ex7K dol's not h"w who Was se,.viing micron;Jv" ovens in the Spring of lH7(;. tlOr that oranv ol. tI", listed agen(ie might. h"ve qu"lified ror tht, Litton SlHVl.YS applies equllily "s well . o!.courSl'. to the undc, lying lists-- ex :c'1:1IG and th,- GE C01lput"r run. In addition. ex l (; list of Am""a vice "gcllcies) sufTnsl roll1thesamedE'l acts--inthatitincludeds,'rvi(ing-denJefsartd,twasnotprOV1' llt1wtthe"genciest.herein s"rv,cl'd micrvw;"',, (wens;n the Spring of \!l7fj. nor that the listed "ge!\cies wlJuld have qualified for Uw Liu.on urveys(M"or". Tr. 1K: ,(1) . , .

"L_'J' Initial Decision See also, Roshwalb, Tr. :J630-31 ). Yet, Dr. Fink who conducted the Chilton survey was not able to vouch for the quality of the universe used in that survey. When asked whether he had a list that would give him a universe from which he could get usable responses, Dr. Fink specifically denied any responsibility for the quality of CX 278. In fact he testified, Well, we merely were charged with the responsibility for taking t.he list that was given us, regardless of what its source was, and identifying agencies on there that sefviced Litton and one other brand. . professionally we were not asked to comment on the quality oft.he list Of what it represented err. J4: Complaint counsel have offered no other expert to testify as to the quality of CX 278, nor the propriety of its use as a universe for the Chilton survey; despite my comments concerning some obvious problems with CX 278 when it was received in evidence (Tr. 1339-41). There is simply no reliable evidence of record that CX 278 was as was represented to Dr. Fink-a list containing the names of agencies that were "likely" to have repaired microwave ovens in 1976 (Fink, Tr. 1856). Without such a showing the Chilton survey could not be given much weight, even if it were not tainted by the inclusion of servicingdealers.

91. Another problem with the Chilton survey is its failure to establish that all of the interviewees had repaired microwave ovens for at least one year prior to 1976 (CX 2801l-J). Since this was one of the qualifying factors in the Litton surveys (Finding 46 supra), the omission of this question prevents any determination that all of the tabulated Chilton interviewees would have been eligible for the Litton universe, even if there were no other faults with such survey. 92. Under all of these circumstances the Chilton surveys must be considered irrelevant and lacking in probative value. IV. CAPACITY TO MISLEAD MEMBERS OF THE CONSUMING PUHLIC 9:1. The advertisements at issue herein received substantial dissemination to the public (Findings 7- supra). They were (36Jof a type which could be expected to have a substantial impact on consumer buying decisions. They called to the consumer s attention the purported expertise of a class of professionals-independent service technicians- -who could be expected to have a peculiar insight into the comparative quality of Litton ovens and the leading competitive ovens. Moreover, such advertisements indicated that the preferences of these experts was established as the result of a survey. While there may be some consumer skepticism regarding surveys conducted for commercial establishments (Sudman, Tr. 4519-20), the , \ , :j!) FEDERAL TRADE COMMISSION m;CISIONS Initial Dccision 97 F. term "survey" strongly implies that the characteristics of the sample taken can be used for drawing inferences about the characteristics of the entire universe (Miller, Tr. 470). In other words, the technicians contacted in the "survey" are representative of a broader base of independent service technicians who service microwave ovens. Even with a certain amount of reader skepticism, such a representation can be expected to have an impact on some readers of the advertisements and to cause them to purchase a substantial quantity of Litton microwave ovens.

v. VIOLATIONS 94. Having found, (1) that respondents made certain representations in advertisements which received substantial dissemination, in commerce (Findings 7 through :,8); (2) that Litton s surveys did not provide a reasonable basis for such (37)representations as claimed in such advertisements (Findings 02 through 74); (8) that the further representation in such advertisements to the effect that certain preferential claims were proven by the Litton surveys was false and misleading (Finding 71); (4) that such representations had the capacity and tendency to mislead members of the purchasing public into the purchase of substantial quantities of microwave ovens manufactured by LMCP (Finding 98); and (0) that Litton was and is in substantial competition in commerce with other firms engaged in the sale and distribution of microwave ovens similar to those produced by Litton (Finding 6); it necessarily follows that I find that there have been violations of Section 0 of the Federal Trade Commission Act, as charged in the Complaint. 90. In so finding, it should be noted that two of the substantial defects in Litton s surveys which are found hereinabove were not among the four specified defects set forth in Paragraph Ten of the complaint (Findings 58 and 66-68; Complaint Para. Ten). However Paragraph Ten clearly is not limited to the specific defects enumerated therein. In fact, it charges that the Litton surveys do not prove certain representations of the Litton ads " for reasons including but not limited to the " four specified problems (Emphasis added). Moreover, the issues were broadened during pretrial proceedings to A carcful readi"g or Dr, Ward's testimuny I"or respundents shows that he carefully avoids stilti"g catcgurically that CO"SlJmers do not " project " the re ulls 01" a "survey " to a larger group(Tr, iij), Rather, the t"nDr"lhisoverall testimony is that th" readershipufthe Litto" advertisemenb wo uldbean " up-scale" clientele which wuuld be p"rticularly irnmu"e tu the blandishment., ofuch ads (Tr' ,,) !t;s obvious that Litton did not believe this to be thecasp DrsLLch advertiseIIents "ever would have been published, Further, lam not able to give full credit to such t"stimuny i" view of t.h,' ,,,,ture of' the representalions j" Littull s ..ds, Even Dr, Ward noted that tl",se "dverti emel1t5 provided 1' - mono' inf'ur' matioJJ ab()ut the nature of thl' study dom' tha" is pruvided in much consunwl' ..dvertisillg (Ward, :!!H:J), Such "dditiu",,1 illl'ormntion could b" "xppcted t.u have" great.er impact on the reader th""" bold a ertion that. Uthn,e (JUt. uffive doctors " I''''rnmend (Ward, Tr, :1!X:1) LlTTUN INULJSTH.lI';S , INC.. ET AL.

Initial Decision spell out a number of additional defects complaint counsel would raise under the broad language of Paragraph Ten (Statement of Issues, filed June 27 , 1979)." The record of tbe pretrial proceedings and the subsequent trial herein make it evident that the issues of whether servicing-dealers were properly a part of the universe for Litton s surveys and whether the surveys were made of agencies rather than technicians, as represented in the ads, were squarely before me and fully tried.

96. In fact, aside from the Statement of Tssues, the question of the inclusion of servicing-dealers in the Litton surveys was raised in pretrial in complaint counsel's Request (38Jfor Admissions and Interrogatories of respondents (Hesponse to Hequest for Admissions, filed July 5, 1979, pp. 33-34; Answers to Interrogatories, filed Sep. 10 1979, No. 59), and a substantial portion of respondents' evidence in the case-in-defense was directed to the question of whether servicingdealers were properly a part of the universe for the studies (e. Seitz, Tr. 2335-37; Omstead, Tr. 2519-20; Winters, 'Tr. 2660; Houserman, Tr. 2787, 27()0- , 2930-34; Roshwalb, Tr. 3587-88; Zeisel, Tr. 4110; RX 72A-ZI8).

97. Respondents also successfully blocked complaint counsel' attempts to ascertain the exact number of dealers included on Litton s authorized service agency lists. Complaint counsel's application for subpoenas duces tecum directed to Litton s 54 distributors was denied on the ground that complaint counsel had already carried their burden of showing that respondents' lists may have included a substantial number of dealers (thus indicating that respondents did not have a reasonable basis in their surveys for the advertisement claims). (Application for 54 subpoenas, dated November 28, 1979; Order Ruling on Respondents' Opposition . , Dec. 6 1979.) In view of the pretrial notice that the purity of the Litton lists was being questioned and the fact that respondents blocked the one attempt to establish the exact number of dealers on those lists, it is clear that respondents chose to leave the record in the state it is now found. Therefore, my findings of these defects and a consequent violation based partly thereon are within the framework of the complaint, the notice to respondents and in conformance with the evidence of record.

,. The State",ent ol' lsSLJeS questioned th,' propriety ol'Litton s " sumple of independent technicinns"" ltd urged that if' a pr'opers"mple had be"n drawn the results would have been dil'erent (Issue II. r. p. ' 'J, It als() qLJP li(med Litton s I'failure to s"mpl propprly from within the "univerw "j" independent ll'chnic;all'''' '" opl'used to Litton ,;;mply conlading each ar-wncy (! ue II.A. . p. OJ;.'e a/soWard, Tr- :17i'7) '1, H.e pondents proved quit.eei"l'ectivelyth"tservicing-- deall' rsdid not belollg;1l th,' universc' , knowing I ull WE'll that their own li,t contained s",viciJlg-de,ders. They ea,, t 11",,(' it buth way the Chilto" Survey can ll", wrong- I",cause it incllJjes ervici1Jg-de,lIPr and the LiUon Llrvey ti II be ..il ht. :14,)- :,,,,1 O- , pp. , p.

Initial Decision Hi FTC VI. RESPONDENTS' EXCEPTIONS TO THREE OF MY RULINGS 98. Respondents allege there was substantial error on my part in three of my rulings concerning discovery and the admissibility of evidence. First, respondents allege that I erroneously denied them discovery of certain coding information in connection with two surveys which complaint counsel then intended offering in evidence;e the Chilon Survey and the Bee (39)Angell Survey (not offered), thus denying them of substantial evidence crucial to their case on defense (RPF, pp. 76 et seq. , n. 9). Secondly, it is stated that I erroneously rejected RX R6, on the ground that it had not been noticed as a respondent exhibit, even though it had previously been noted as one of complaint counsel's proposed exhibits and despite the fact it was to be used in cross-examination of a witness called by complaint counsel (RPF, p. 41 nA). Finally, respondents take exception to my exclusion of Wave 1 of nx 72 on the ground that complaint counsel had not been provided with underlying documentation in violation of pretrial orders. In the latter argument it is urged that I was inconsistent in that I did not exclude several of complaint counsel' exhibits despite the fact respondents did not get access to underlying documentation. None of these exceptions have any merit. 99. The denial of access to the codes for the Chilton and Bee Angell surveys was based on a balancing of the public interest in preserving the reliability of survey data through the protection against disclosure of confidential survey data, as compared to the needs of respondents. (Order of ,June 19, 1979 ) Subsequent events at the hearing herein proved such ruling correct. Respondents had no trouble proving that the interviewees in the Chilton Survey included a substantial number of servicing-dealers (Finding 87 supra). In fact, complaint counsel readily admit to that fact. Nor, did respondents have any difficulty proving other substantial defects in the Chilton study (Findings 8R through 91 supra). The Bee Angell study was not even offered in evidence, so there could be no prejudice in this regard. (40) 100. Respondents also imply, however, that the denial of such M,,,eUVl' r. rC p"l1rl",nb rail lO note the wC'-lth "I. underlying delt.a t.hey did have in connecti"" wit.h the Chilt.on .,tud)'. which enabled t.h"", to ",,,k,, such al1 elTcdive Mtnck on th"t "Urwy. Tfwy were p, ovid"eJ with t.h(. ollowi".:: Th!' sur\i"V rl' ports pills "ny ,. ,.."t" or claril'icelt.io" hpt.t; nil tabubt.ion; "II questiOIlJlnin.s, I'ully intact xn.pt I'or th" ,"od,' numbers which would id""lil .\ t.he nal1" 01' 1.", i"tpr\iiew"e in ",,,h inst"nc,. ; li ts co"t.aining t.1". "nnws ,md andI'C""s oj' "II agcncie in the. uniw, sl': the .'ia"'ph, drawn by l'hilt'm. wit.h id,'ntilicution 01' (III 1g"nci(' whl) were "dually il1t!'rviewed, the n,"'1ls or Ihe tell' phone inlPrvipwer and super'visorI'or t.h,' survey. 1 I". i,l!' entity, bnckgrlJund "!ld ti' aiJling or tf1l rl' p()n ibk ,'se",-chers 01' Chilt.on; ,,"el all doclunl,nts which Dr. Fink st"t('d "'''n' under, lying material I'or tl", sur\'ey. IOI' de)' 01' , )UI1(' I!I. llil :1. In the case uf' t.he last it,,"'s, it. "'"sdi"cover"d 011 nois- ex"",inalion Ih,11 ther" might huv,. hl' !'ll so",,, "dditiolwl h.md- "'Tin..n note "Jld p:'per Chilto,, , Iills wh; ch I),' Vink h,,,\ )JO( coil ide"l'r! backup pnIJ S ,\nd whi"h he did not turn ovu- to COlllplf\int "uns..1 h,. di" :o ur(' tv 1'" I"""iPnl' !Jr. I"i"k "'ns o, npn,d to sp,n-ch his 1 ,1", and t.,I,-n un' " an" such m;lkri, tI, tu !,"nd(' nl-' iT, . I, Initial Decision code for the Chilton survey in some way prevented them from proving the exact size of the group of unauthorized agencies who would have qualified for the Litton survey, but were not on the Litton lists (the missing " 100") (RPF, n. , p. 77). However, in view of the problems found herein with the universe for the Chilton survey, aU of which defects have been strenuously urged by respondents, I find that such study could not have provided a basis for a more exact determination of the size of the additional group of agencies which were not included in the Litton surveys. In fact, aside from the defects found in the Chilton survey and its underlying lists of service agencies, it must be noted that such survey was not based on service lists from aU of Litton s competitors. It is to be assumed that if service agencies authorized for all of the numerous other competitive brands were available, there would be additional agencies revealed which might belong in the Litton universe. 101. The exception to my rejection of RX 86 is equally as erroneous. Respondents' argument in footnote 1 of page 41 of their Proposed Findings omits certain salient facts, including the main basis for my ruling. The witness being questioned in this instance was Mr. Wiliam Wallace George, the president of LMCP at the time the chaUengcd advertisements were run (Tr. 1941). He was called as complaint counsel' s witness, but his questioning on direct was quite limited in scope dealing with the involvement of Litton industries Inc. , in the day-to-day affairs of LMCP (Tr. 1941-2021). On "crossexamination" respondents' counsel went well beyond the scope of the direct questions; over complaint counsel's objections. 1 overruled complaint counsel's objections and permitted such questioning with the express notice to respondent's counsel that, where he did so, he was making the witness his own (Tr. 2024-2;'). Mr. Adair at the point of questioning involved in respondents' present exception, was clearly exercising his permission to put in some of his defense during complaint counsel' s case and was, in fact, engaged in the direct examination of Mr. George (4IJ(Tr. 2085-88) who had also been noted as one of respondents' witnesses on its defense (Respondents Witness List.) The document in question was an internal communication between Litton officials concerning the then on-going dealings with the Federal Trade Commission staff It contained a number of obviously self-serving statements and was not a document noted by respondents on their proposed exhibit lists (Tr. 2085-88). It was rejected primarily because it was a self-serving statement with no substantial probative value and, secondarily, because it was being offered on the direct examination of one of respondents' noticed witnesses, without having been noted on the exhibit list in accordance Initial Decision 97 F. with the pretrial orders controlling the conduct of this hearing (Tr. 2088). Such ruling was correct and proper. 102. The third ruling in issue similarly involved a direct and deliberate violation of a legitimate pretrial order and was correct and proper. It is important to notice that respondents do not deny violating pretrial orders to disclose underlying records and documentation for Wave 1 of RX 72. Rather, it is their contention that my ruling was erroneous because it was inconsistent, in that I allegedly had allowed in other exhibits offered by complaint counsel without requiring the underlying documents to be turned over to respondents (RPF 96-98; RRB, pp. 127-28). The latter allegation is simply false. Respondents refer to the records underlying CX 241. 243 and 245lists of service agencies (including servicing-dealers) allegedly authorized to service Amana, Magic Chef and Sharp ovens, respectively. In the first place, to the extent any such underlying documents existed i.e.. Amana, Magic Chef andthey were in the hands of third parties Sharp, rather than complaint counsel Therefore, the question was not one of holding respondent to a higher standard of conduct under pretrial orders than was applied to complaint counsel And secondly, all of such underlying documents were either available to respondents through pretrial discovery, or non-existent. In the case of CX 241, the document itself was an original business record, but there were notations made on such document based on other records. Those notations had not been placed on CX 241 for purposes of this litigation, but for Amana s own purposes, some years prior to the hearing herein. The records on which such notations were based ' subpoena duces tecumwere destroyed prior to the date respondents was served upon Amana in this proceeding (Moore, Tr. 1844-51). There were no longer any underlying documents to be discovered. CX 241 was, therefore, allowed into evidence noting this fact, among others, as detracting from the weight that could be given to such exhibit (Tr. 1850-51). In the case of CX 243 and 245, respondents were granted subpoenas duces tecum which contained specifications directed toward obtaining documentation underlying these two (42) exhibits; both of which had been prepared by competitors of Litton at complaint counsel' s request for use in this litigation (Specifications 3 and 4 of Magic Chef subpoena; Specifications 3-5 of the Sharp subpoena). If respondents did not obtain access to such documents under these subpoenas I must assume it was their own fault. No application was made to me seeking enforcement of these provisions ofthe subpoenas.

103. Accordingly, respondents' argument that I was inconsistent in this regard in requiring respondents to adhere to pretrial orders , .... ..

Initial Decision requiting disclosuye while not requiring similar disclosuretorespon:. dents, is simply false. Moreover, respondents' failure to comply with such legitimate order was particularly egregious, Respondents witness, Mr. Houserman had compiled a summary list of certain data from LMCP's records between the date of his deposition' complaint counsel and his testimony at trial The underlying records were not available in the courtroom and complaint counsel had nbt been made aware of the summa.ry or the documents from which it was compiled. Complaint counsel then were given no access to the underlying records and were not in .a position to cross-examine bfRXconcerning such summary data (Tr. 2874-96). When Wave 1 was later offered in evidence based on such summary data (the Houserman summary was nbt itself offered in evidence) I had no choice but to enforce the pretrial orders of Judge Howder (my predecessor in this case) and myself There is certainly no similarity between this action and my receiptin evidence of CX241, 243 and 245 under the circumstances outlined above. VII. . DISCUSSION A. Proof in Ad Substantiation Cases This is a fairly standard "ad substantiation" case, As such, there is a well-established body of case law governing the burdens of proof and elements. of a violation herein. As the Commission stated in Pfizer, Inc" 81 F. C, 23, 62 (1972), "it is an unfair practice in violation of the Federal Trade Commission Act to make an affrmativeproduct claim without a reasonable basis for making that claim (Emphasis added). This same conduct has also been found by the Commission to be a deceptive practice within the meaning of Section 5 in later cases such as, National Dynamics Corporation, 82 F. 488, 549-50 (1973), affirmed, 492 F.2d 1333 (2d Cir., 1974), cert. denied, 419U.s 993 (1974). See also, Firestone Tire and Rubber Co. 81 F. c. 398, 449 , 452 (1972) and Crown Central Petroleum Corp. , 84 C. 1493 (1974). (43) The burden of proof and the issues involved in such cases are best spelled out in the National Dynamics case, supra. There the Commission stated We have held that the test applied to determine the adequacy of substantiation is whether or not it (the substantiation for the advertised claims) provides respondents with a reasonable basis for believing their claims are true. The issues thus raised under this test appropriately involved a consideration of the reasonableness of the advertiser s action and his good faith" (at 553). As to the type of substantiation required under the "reasonable j!,..

Initial Decision 97 F,T.C. basis" issue, the Commission has stated that" the type of substantiation required to satisfy the reasonable basis standard would depend on the facts of each case. Crown Central Petroleum Corp., supra, at 154S.

In light of these basic principles it was complaint counsel' s burden to prove that at the time Litton caused the advertisements in question to be published, it knew or should have known that its substantiation was defective and did not provide a reasonable basis for such advertisements." My findings above show that complaint counsel met that burden. In fact, the experience in marketing and market research of LMCP' s marketing staff (George, Tr. 2030-31; Wilkie, Tr. 3722-27) which was responsible for the formulation of the Litton surveys (CX 145B, 24S, 305A, and 30SE-J) emphasizes this fact.

These experienced personnel knew or should have known that the substantiation for their advertisement claims was defective where: 1. They intended to survey technicians who were free of any biasing influence through relationship to a manufacturer or a dealer, but they were on notice that the lists used as a (44Juniverse for their surveys were tainted by the inclusion of servicing-dealers; 2. They knew that one-sixth, or more, of their defined universe was not included in the survey and that this group of authorized agencies might differ in preferences from Litton s authorized agencies;

iJ. They knew they had surveyed agencies, not technicians, but their advertisements referred to a survey of technicians; and 4. They knew that a number of the technicians interviewed had volunteered remarks indicating they did not have adequate experience, with some brands mentioned, in order to allow them to make preferential comparisons; and that such remarks might be symptomatic of a much broader group of the interviewees, since the surveys asked no questions which would qualify respondents as to their relative familiarity with different brands mentioned (See n. 2S). Each of these facts should have been suffcient to cause grave " In this regard, J',spondents have illtmduced in evidence studies s prepared by its experts lor use in thi liti :ati')I "nrl otl"" dat,, white!' wpre not in their POSS('55;OIl at the lime th ,ub were published(e, RX 10 and 72). /1 is compl;,in( cuunsel' pDsitiun that f;uch delt", to the extent they ilttempt to prove the validity of the Litton ul' veys, ale irrl'levnnt bec;lusesuch information could not have pmvided a reasur\"blebasis for Litton s claims at the time of publicalinll (CRn. pp. 21 et seq, j, The cam' law cited abovl' WDuid "appear to sLipport this po ition Hm),' ,,",r', in tlw ewnl \ldt d"t,l had pnJven that the Littont.lJdie Wl'rP error- !'n e and valid. it certl1iny would ha\' e had a bt.aring on the public interest! in bringing-this proceeding and the iSHuanceof;JD urdcrhprein , LMCJ' PEerson"el were well l1Wure that I'amilinrity with a pmticular br;;md W')l!d wt,ilih hedvily 011 the prd1.' l1LCS or (fw individual technicians poll,"!. In an inten111 Litton mcrJJomndum, one LMCP official noted. the a slll1lti"ri being lhelt ita ted1fic;"n service,; a p"rticular br' imd he is mOHt likely to prefer' it .. (CX :!!B) , , LTTTON INDUSTRIES, INC, ET AL.

Initial Decision doubts in the minds of LMCP's offcials as to the reasonableness of their basit: for the advertising claims. Furthermore, such doubts should have been reinforced by the fact that the surveys were not originally intended or designed to serve as the basis for advertisements. They were initially intended only for internal use at LMCP. With this fact in mind, the Litton officials should have taken a very careful look at the surveys and their results before putting them to a use for which they were not intended. This fact alone would put Litton on notice of the defects in their studies; if the obvious defects listed above did not come to their attention previously. Such facts specifically negate both the "reasonableness of the advertiser s action" and its "good faith". Therefore, the burden of proof spelled out in National Dynamics has been met. (45) B. The Meaning of the Advertisements My findings above, concerning the representations made in the Litton advertisements, are essentially the same as the representations set forth in Paragraphs Six through Nine of the complaint." My support therefor is the plain wording of the advertisements and the fact that such interpretation is a reasonable one. Such interpretation is one which a substantial number of readers, whether sophisticated or not, were likely to have made when they read the Litton advertisements. The law is quite clear that under such circumstances there was no need for any further empirical evidence as to what the ads represented to the public Giant Foods, Inc., 61 FTC. 326, 347 , n.2 (1962). The appropriate test is whether the interpretation of the ads set forth in the complaint and found herein is a reasonable one National Dynamics Corporation, supra, 82 F. at 548, and that test has been met.

Respondents' expert, Dr. Ward, characterized the audience for the Litton advertisements as "sophisticated" upscale well-educated" and "wealthy" (Ward, Tr. 3972- , 3988-90). Hespondents have offered no proof that the readers of Better Homes and Gardens, Newsweek, Sunset and Time maga7.ines and the major newspapers published in the cities named in Finding 8 fit such description. Moreover, even a "sophisticated" reader would not be so well versed in electronics that he would place no value on the preferences of a body of experts (service technicians) in making a purchase decision ". Thf' only difl"rerLces between my findirlgs and the ch;Jrges of the complaint arc that I did not find th.,t respondents misrepresented the surveys as being " independently " cOrLductPd by Custom R,'se"rch . Inc. (Findings r,- :17) and I did riot agree with complaint counsel's definition or "' independent mic)"owilve own se, vice technicians," In connection with this latter dilference, I further limiled the representations to independent microw,"ve Oven servic" technicians who serviced Litto" und competitive micnJwave ovens; although, in doing so, I out..d th;Jt some "tthe 10"") ;j(lvertisements made a broude" r presentation (Findings 21, 2fJ. IH and 1\1) Initial Decision ;)7 F. on such a complex appliance as a microwave oven. Dr. Ward' testimony concerning reader interpretation of the ads was not based on empirical evidence of consumer perception, but only on his own generalized experience as an academic working in the field of marketing behavior (Ward, Tr. 3959-70). Under the circumstances is of litte probative value in the face of the plain wording of the advertisements. Crown Central Petroleum 81 FTC. 1493, (16J1524 1540 (1971); Firestone Tire and Rubber Co., 81 F. G 398, 154 (1972). Furthermore, a sophisticated readersbip, as posited by Dr. Ward would be more likely to be appreciative of survey methodology. Such readership would be even more aware that the results of a survey can be generalized to a broader universe of service technicians than the group actually questioned in the survey. See Bristol-Myers Co., 46 G 162 , 173 (1949). They are likely, therefore, to be more affected by the representations of the advertisements than a less knowledgeable readership.

However, it must also be noted that respondents' advertising was not limited to the readership of the magazines mentioned above, the Wall Street ,Journal, a few trade publications and a number of leading newspapers in major cities (Findings 8 and 9). As noted in Finding 10, above, advertisements containing all, or part, of the textual material disseminated by Litton to its distributors and dealers appeared in at least 109 local advertisements (106 print and 3 radio) in 26 states across the country. This was in addition to Litton own national advertising campaign. Litton assisted in the payment of all or part of the cost of at least 41 of such advertisements (the cooperative advertising program), including many which did not contain the full text ofthe Litton "slicks" and which were, therefore, even more deceptive than the national advertisements (Findings 18 and 19 supra). But, whether Litton cooperated in the payment for such advertisements or not, it certainly provided the instrumentality to each of these advertisers through which misrepresentations were made to the public (Findings 10 through 13 supra). It is well established that one who puts into the hands of others tbe means by which such others may deceive the public is equally as responsible for (47Jthe resulting deception. Federal Trade Commission v. Winstead Hosiery, 258 U. S. 483, 494 (1922); Regina Corp. v. Federal Trade Commission, 322 F.2d 765-768 (3rd Cir. , 1963); Waltham Watch Co. Rf'spo"dent have misslated my rulings conc"rning the OIrJmisi()n ul llch "dverti8ement8 (RRE. pp. 14 et selJ. ). My rulings "t Tr, : ;,H and :nH-7!1 mak., it qLlit. clear that I w"o receivinl; advertisements not paid for by Littun and which only contoJined a pari. of the mClteriaIsupplied by Litton in its "slicks . on the basis thilt Litton crealed the instrumentality which was the basis 1'01' the various advertisements and in this way fmrticip"ted in the diosemitwtioll of Sllch inli,rmalion through news media, the vilrious l1r.W II"d;" indi"ated Un thu e p"rticular exhibits" (Tr :J,,)\) Consistent with this. I rej""trd SOnw "d..t',-tis"mpnt5 which lCunt;jined no d"ta cuncerning the Litton sU'-vey (Tr. :j(; . (i , LITTON INDUSTRIES, INC. , ET AL.

Initial Decision Federal Trade Commission, B18 F. 2d 28, 32 (7th Cir. , 1963), cerl. denied, 375 U. S. 944 (1963); C Howard Hunt Pen Co. v. Federal Trade Commission, 197 F.2d 27: , 281 C:Jrd Cir., 1944). Litton is, therefore responsible for the representations made in all of the local advertisements, as well as those in its own national advertising program. It can hardly claim any special upscale" readership for such local publications.

Under such circumstances the representations alleged in the complaint and found herein, and Litton s responsibility therefore have been established by the weight of the evidence. VIII. THE ORDER A. Necessity for an Order Having found a violation it is necessary to consider whether an order should issue and, if so, what its provisions should be. Although respondents showed a certain amount of cooperation with Commission staff in halting the advertisements and revising the copy thereof, their cooperation was far from perfect. The first advertisement was placed in October 1976 and complaint counsel contacted respondents shortly thereafter, in November 1976 (Tr. 3945). Respondents started curtailing their advertising in December of 1976, but published an additional commercial oven advertisement in January 1977 and an additional consumer microwave oven ad in February 1977. A revised consumer ad (CX B) was placed in August 1977 and revised commercial oven ads (CX G) were published during the period August through October 1977 (Tr. 3946). " In the meantime, local advertisements placed by Litton oven dealers were being run during the period September 1976 through February 1978 and Litton continued to cooperate in the cost and dissemination of many of these ads (Finding 10).

Litton s violations herein were certainly not inadvertent. My findings hereinabove show that its misrepresentations were (48) made despite clear indications that it did not have a reasonable basis to make such claims (Findings 52 through 74). Through the rulings in cases such as National Dynamics, Pfizer, and Crown Central Petroleum, supra it was on notice that it must have such a reasonable basis if it were to make advertising claims of this sort. Further, it only ceased running such advertisements after being contacted by the Commission staff and, even then, its cooperation was somewhat less than perfect. Under the circumstances, it is clear Although tfwre was SOme iDJl'ruvempnt in the revised advertisements. they corttilJued to include a number ofmi61eading represent;)ti()rls(F'indiog Uand;j() g, Initial Decision 97 F. that an appropriate order should be issued in this case. Cora, Inc., et aI. 63 F.T.G 1164 , 1201 (1963).

The only questions remaining are: what provisions should be included in the order; should Litton Industries be included in the order; and what products should the order cover B. The PrafJisions of the Order Complaint counsel propose an order which is very particularized and far-reaching in its requirements. It, among other things, would require respondents to have in their possession "competent and reliable scientific surveys or tests and/or other competent and reliable evidence" before making representations such as those in the advertisements involved herein. (Par. I of Proposed Order, CPF p. 95.) Other provisions of the proposed order go into great detail in the manner in which future tests or surveys must be conducted and the qualifications of those who may conduct them (CPF, pp. 95-97). Complaint counsel have offered no expert testimony or other evidence as to the necessity for, or propriety of, such provisions, despite the fact that respondents' expert, Dr. William K Wilkie, has offered some formidable testimony in opposition to most of these requirements.

Dr. Wilkie has pointed out a great number of ambiguities and problems with the order as proposed by complaint counsel His testimony indicates that many of the provisions of such order would likely inhibit a great deal of legitimate comparison advertising (Tr. 3714- 3721- 3728, 37:J4, 3737- , 3740, 3743). Complaint counsel have not adequately rebutted such testimony. Most of complaint counsel' s order provisions appear to be based on the theory that there are clearly defined and generally accepted procedures and practices in the market research field, which must be followed if a market survey is to have any validity. The evidence however, does not support this position. Respondents' experts have testified that there is no single, unified body of generally accepted procedures in the (49Jmarket research field (e. Wilkie, Tr. 3728- 29). Complaint counsel' s experts have not contradicted this position. In fact, Dr. Sudman indicated that he was not familiar with the general practices in a large segment of market research-that done for private organizations ('I'r. 4517- 18). In short, I find no record support for the many innovative order provisions proposed by complaint counsel Where a proposed order goes so far afield of prior orders in adjudicated cases, some evidence expert testimony or other, should be offered to support the need and , p.

Initial Decision propriety of such provisions, but this was not done in this case. I am left with a record which does not reveal a need for order provisions other than the customary order to cease and desist from the practices found to be violative of the act. Moreover, there is some evidence that the other provisions proposed by complaint counsel may be anti-competitive, in that they may inhibit legitimate comparison advertising. Consequently, the order attached hereto does not contain such provisions.

I do find, however, that written records, especially written interviewer instructions in connection with any future market surveys, would be very helpful in compliance procedures relating to the order entered below. Having been found in violation of Section 5 of the Federal Trade Commission Act, it is incumbent upon Litton to be prepared to demonstrate the reliability of any product comparison claims which it might make in future advertisements. Such record keeping need not be as broad, however, as that proposed by complaint counsel in Paragraph Six of their proposed order (CPF 97). The expense of making comparison shopping c!,"ms should not be made so great that even legitimate advertising of this type is squelched. The order provision below is, therefore, modified accordingly.

C. Litton industries Complaint counsel propose that the order herein be directed Litton Industries, Inc. , as well as against Litton Systems, Inc. , of which Litton Microwave Cooking Products is a division. Complaint counsel argue that in reality Litton Systems is no more than a paper entity, that there is . . . such complete control of the subsidiary by the parent that the subsidiary is a mere tool and its corporate identity a mere fiction." (CPFM at 47 , quoting Beneficial Corporation, 86 F. C. 119 (1975), af(d in part and reu d in part on other grounds, 542 F.2d 611 (8rd Cir. , 1976) cert. denied, 480 VB. 988 (1977). Complaint counsel then offer an elaborate factual foundation for their contention: interlocking directorates; Litton Industries supervi sion and control over Litton Systems budget, officers, (50Jmanagement services, and product development; Litton Systems use of Litton Industries' name, reputation and goodwill; and Litton Industries actual participation in the practices here at issue (CPF 221-52). The record shows that LMCP was largely an autonomous operation (George, Tr. 2011- , 2048- , 2062- , 2078-84; Craver, Tr. 4805-06). However, Litton Industries does play an important, and direct, oversight role in connection with LMCP (George, Tr. 1942 ;)2 FEDERAL TRADE COMMISSION DECISIONS Initial Dccision D7 F. 2020). Additionally, Litton Industries did provide legal advice in connection with the advertising at issue herein (George, Tr. 2051). More important, however, is the corporate structure of respondents. LMCP is merely a division and has no corporate identity of its own (Finding I, above). Therefore, the order herein must be directed to an actual legal entity-Litton Systems, Litton Industries, or both. Litton Systems is largely a paper entity (George, Tr. 1942-96). Although it may have been created for corporate organizational purposes and not for the purpose of evading responsibility for the actions of LMCP, or other divisions of Litton Systems, it has no obvious separate identity from Litton Industries. Despite the fact that he was a vice-president of Litton Systems from 1973 until 1978 (George, Tr. 1942), William George was "not familiar with the business of Litton Systems" (Tr. 1943) or with the products marketed by it (Tr. 1977). He did not even know where the corporate headquarters of Litton Systems was located (Tr. 1956, 1993), despite the fact that during his nine and one-half years with Litton he visited the corporate headquarters of Litton Industries (which has the exact same address as the corporate headquarters of Litton Systems-Finding I) approximately three times per year (Tr. 1994). Mr. George did not know how many employees Litton Systems had in 1976 and 1977 (Tr. 1993). Nor did he know how the officers of Litton Systems were chosen (Tr. 1995), or even how he was chosen as an officer of Litton Systems (Tr. 1996). All of this indicates that in actual practice LMCP was a division of Litton Industries and that Litton Systems was a mere paper corporation set up for corporate organizational purposes.

It is highly questionable under these circumstances whether an order herein can be effective without including Litton Industries. One of the basic legal principles involved in determining whether to include a parent corporation in a Commission order directed toward the operations of a subsidiary, is that liability of a parent corporation may be found where necessary to effectively enforce an order (See RPF 18:J). Due to the intercorporate relationships in this instance, such appears (5IJto be the case here. Since LMCP is not a legal entity in and of itself, but merely a division of Litton Systems, the corporation, not the division must be covered by the order. However for the purposes of this case Litton Systems is nothing more than a legal fiction; no matter what its justification for existence may be within the corporate structure of Litton Industries. Litton Systems is simply the alter-ego of Litton Industries with relationship to LMCP. Under the circumstances, failure to include Litton Industries could vitiate the order herein, if there were any change in the structure of . . . , p. H'.1V'- U'-kJ , H .b.l ,:M Initial Decision Litton Industries which would eliminate Litton Systems. Therefore Litton Industries, Inc. , should be included in the coverage of the order. Beneficial Corporation et aI., 86 F. C. 119, 158-162 (I J75); Zale Corp. v. Federal Trade Commission, 478 F. 2d 1317 , 1322 (5th Cir. , 1973); P F. CoZZier Sons Corp. v. Federal Trade Commission, 427 F. 2d 261, 267 (fith Cir. , 1970).

D. Product Coverage Complaint counsel' s proposed order would apply to "the advertising, offering for sale, sale or distribution of any commercial microwave oven, any consumer microwave oven or any other consumer product. " (emphasis added) (CPF, p. 95). Respondents allege on the other hand that the order, if any, should be limited to microwave ovens and microwave oven accessory products (RRB 182).

It is respondents' position that an "all consumer products" order would not bear a reasonable relationship to the unlawful practice found in this matter (RPF 195-197). Further, they point out that microwave ovens and accessories for such ovens are the only products produced and sold by LMCP and that the latter organization is a largely autonomous division (RPF 183-189, 205). It is also argued that microwave ovens and the accessories thereto are one of the very few consumer products produced and/or sold by any subsidiary or division of Litton Industries and that the latter corporation is not oriented toward consumer products (RPF 205- 206).

While the Commission has broad discretion in determining the type of order which should be entered in a particular case, it is well established that a cease and desist order must bear a reasonable relationship to the practices found to be violative of the Federal 1 Trade CommissionTrade Commission Act in each case. Federu,, Colgate-Palmolive Co., 380 U.S. 374, 394-95 (1965); Jay Norris, Inc. Federal Trade Commission, 598 F. 2d 1244, 1249 (2d Cir. , 1979); Chrysler Corp. v. Federal Trade Commission, 561 F.2d 357, 364 (D.C. Cir. , 1977); ITT Continental Baking Co. v. Federal Trade Commission, 532 F.2d 207, 220-21 (2d Cir., 1976). (52J The practices involved in this case related solely to microwave ovens and Litton has not been shown to have engaged in similar practices in connection with any other product (RPF 201). Microwave ovens and accessory products therefor are the only products manufactured or distributed by LMCP, the division directly involved in this proceeding (George, Tr. 1944). Moreover, the evidence reveals ;)4 FEm:RAL TRADE COMMISSION DECISIONS Initial Decision 97 FTC. that, considering aJl subsidiaries of Litton Industries, respondents are not heavily involved in, or oriented toward, the manufacture or distribution of consumer products (Craver, Tr. 4309- 11). Complaint counsel introduced in evidence Litton Industries product directories for 1977 (CX 164) and 1979 (CX 392). Such listings, in and of themselves, do not indicate that a particular product is a consumer product;" one normally sold to the general public for their personal or household use." Mr. Craver, an official of Litton Industries, described in detail the items on such lists and only a very few fit into the "consumer product category" (Craver, Tr. 4316- 43(;7- , 4389-92; See also, RRB, pp. 212-13). None of the consumer products which were identified fell into the appliance category to which microwave ovens belong.

In short, complaint counsel have demonstrated no reason why the ordcr herein should go beyond microwave ovens. Certainly, the fact that Litton is a large conglomerate which frequcntly buys and scJls businesses and, thus, might at some time in the future acquire a company which sells consumer products (CPF 264), is not ground for a broader product coverage.

Therefore, I must find that the proper order covcrage in this case as far as product is concerned, is limited to microwave ovens. In this regard, I am mindful that LMCP also sells a line of accessories for its microwave cooking products, but these do not appear to be of a nature which would make them the subject of similar advertising practices (George, Tr. 197(;, 1978-79; Craver, Tr. 43(;1- , 43(;8-70). Consequently, it would make no sense to include them in the order. (53) IX. RESPONDENTS' REQUESTS FOR OFFICIAL NOTICE At page 170 of their reply brief, respondents' request that official notice be taken of a study of non-response in telephone surveys by two professors at Northeastern University, Professors Wiseman and McDonald. They contend that such study only came to their attention recently, since it was reported in Marketing News long after the dose of the record herein. They allege further that such study is competent, reliable evidence of facts capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. I disagree. In view of the fact that several experts, all with impressive qualifications, have testified to such opposite effect on this very topic in this case, as well as to the criteria , I find Mr CraVfr delinition 01' " " consumer product" (Tr. 4:11:1-14) lo be far more realistie than that of complaint counsel (See CPY (;lI) Oflice quality, commercial l"ling cf1binet . for instance, an' diff,rent from those normally "ld lor home use and shlJlld not be con idered l! "con urt1er product.. (Craver. Tr- -1:147- 41') Initial Decision to be applied in judging thc effcacy of a survcy or study, it can hardly be stated that still another study "cannot reasonably be questioned" as to accuracy. This simply is not the type of evidence of which I can take official notice. Furthermore, the entire point is mooted, since I ruled on the "bias of non-response" issue in respondents' favor in any event (Findings 77 through 80). x. CONCLUSIONS L The Fcdcral Trade Commission has jurisdiction of thc subject matter of this proceeding and over the respondents. 2. The complaint herein states a cause of action and the proceeding is in the public interest.

3. The aforesaid acts and practices of tbe respondents as found in the foregoing Findings of Fact were and are to the prejudice and injury of the public and constituted, and now constitute, unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

ORDER It is ordered That respondents Litton Industries, Inc., a corporation, Litton Systems, Inc. , a corporation, and their successors assigns, officers, agents, representatives, and employees, directly or through any corporation, subsidiary, division, or other device, in connection with the advertising for sale, sale or distribution of microwave ovens (either for commercial or consumer use), in or affecting commerce, as (54J"commerce" is defined in the Federal Trade Commission Act, do cease and desist from representing, directly or by implication, that any commercial microwave oven or consumer microwave oven;

(a) is able to perform in any respect, or has any characteristic feature, attribute, or benefit; or (b) is superior in any respect to any or all competing products; or (c) is recommended, used, chosen, or otherwise preferred in any respect more often than any or all competing products unless and only to the extent that respondents possess and rely upon a reasonable basis for such representation at the time of its initial and each subsequent dissemination.

It is further ordered That respondents, in connection with any future comparison advertising, wherein the attributes or quality of Litton microwave ovens are compared with those of other brands Gli FEDERAL TRADE COMMISSION DECISIONS Initial Decision 97 F maintain accurate records, which may be inspected by Commission staff members upon reasonable notice, and: (a) which contain documentation in support or contradiction of any such claim included in advertising or sales promotional material disseminated or caused to be disseminated by respondents, including all documentation prepared by or for survey organizations or advertising agencies employed by respondents (such documentation shall include written instructions for the supervisors and interviewers in connection with any future market surveys of service technicians or other persons which tend to show that Litton microwave ovens are superior in any way or preferred over any other brands);

(b) which provided or contradicted the basis upon which respondents relied at the time of the initial and each subsequent dissemination of the claim; and (c) which shall be maintained by respondents for a period of three years from the date such advertising or sales promotional material was last disseminated by respondents or any subsidiary or division of respondents.

It is further ordered, That the respondents shah, within (55Jsixty (60) days after service upon them of this order, file with the Commission a report in writing, setting forth in detail the manner and form in which they have complied with this order. It is further ordered, That the respondents shall forthwith distribute a copy of this order to the Litton Microwave Cooking Products division.

It is further ordered. That respondents notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondents such as dissolution, assignment or sale resulting in the emergence of a successor or any other change in the corporation which may affect compliance obligations arising out of this order. .... ., .: :y... :.::: .. ;:,.. .:;;.,.:....,;:.;..,.,,,._.:.,. \ ::,; .,\ ,: . . ,,: :j j _!;._ :. ,. ;:!: . .;,; ,. ,;. ,. .._.. .,,., _.., . ,:. , : , LITTON INDUSTRIES, INC., ET AL.

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at tjt C'i ,i; "I . C . n.J.

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APPle.'::;: /. J :: j (!!: . \ : . , , ..,.., !: j/:::. j:; L1'TUl T.tll, 1l t;. , J:T 1\1, Initial Decision cx- 5 0;:);\ ::h:' U,y :i, : R . CDrnl : \I. JPff: :).-'1 ; iiTS .)1 ' Slop- - -- - riMED.!lL_ 30 5 r:. jd' 1\ j "ji, t irl"':110N5' LJ:no1' I'.RE YOU STJLL SKt.l-"ical ABOIJT HUYl.'JG A MIUJO..!;, VE OVEN? GR YBE YUiJ F. .LJ:;J i:t ICED About '..HJCH E.'.ulm TO BUY? well. 'rlEN IT V IES"J) '-'lllH';' .'JI\!E Q\'ENS , CP ME IS U:,cDINr. ALL THE R;.sr) (lit, S j(JCiiT! IT' S Lltion' 13 j' FkCE:NT OF TH; TECHNJCJANS WHO jl,I('JICi: r1j(l '(lvi' . OVJ NS RECE!:_'1r ND ),ITTO:- OVENS OVER ALL OTHER Mir: \VF: Cvr NS. IT' S NOT HO KD TO CUF:SS WHY , BECAUSE Quality '-:1\ C::,'E AT )- XL'ON X;I) AT L11\1('''AY , 1':35 N. COLLEGE IN . r, "I c:. :' :-1E Jr, ,e,,')) 1 U lJS IIGW YOU TJ!: FULL U'iTON LINE. ,:1 )J, FLiLL ,\\1 I(:E LI' i !I;N :)'i"JR.E. 1 N":"AY "5 1.,, 1-:\.:0 UP Will-I LJj'TON UTTON , Tile ULTH\ATE IN I(U, '" .'E:-;. \1' Pie Ll n(J ; cc' :nrNrd' jon 1.1JUU)WAVE PANGE. IT :S !, 'r,:; A : C'. nHJL":AL (j'.'::N L N!) A .'11CROWi\VE , ALL IN ONE! WITH;-. 1''-- ' 11;U:" S."1OUTIJ Jor U)GK!)\G S;' FACr.. ROAST A MOIST TUHKt"Y It) JUST Ci E HCiUR. COOK f. '''nO! EAL IN JUST II fraction OF - HF: C)USUAL TI !::\cN (:.JOK WITH METAL , AND IT' S SELF- E,'NING. f. CUt1E It 1U SEE US AT LI ../lY, rH:' 1535 N. COLL.EGE IN FAYETTEVILLE AND DISCUVE?. THE ULTlH/TE J N COOKING FROM L.l_ :_O"

1''' o ; l! ! I,l !.SS n:",1.,,1 PT'' !,,;,:KiJ1X K (i8 F;;m;HAL TRADE COMMISSION DECISIONS Opinion !J7 F. OPINION 01' Tllr COMMISSION By DIXON Commissioner The principal question in this case, as it reaches the Commission is what form of order should issue to prevent recurrence of deceptive advertising in which respondents have engaged. The complaint was issued on February I , 1979, and charged Litton Industries, Inc. with violating Section 5 of the FTC Act, 15 USe. 4:" by disseminating misleading advertisements for microwave cooking ovens produced by Litton Microwave Cooking Products Division. (LMCP)' The essence of the charge against respondents was that they and their dealers had published advertisements stating that independent microwave oven service technicians preferred Litton ovens in various respects. These preferences were said to be demonstrated by surveys conducted to determine the opinions of such independent technicians. The complaint (2Jalleged, however, that the advertisements were deceptive because the underlying surveys provided no reasonable basis" for the claims based upon them, Trial of the case was held before administrative law judge (ALJ) John J. Mathias, who concluded that Litton s surveys were defective in several respects, and could not support the claims that were based on them. The ALJ recommended entry of an order that would prohibit respondents from representing without a reasonable basis (1) the performance or other characteristics of microwave ovens; (2) the superiority of microwave ovens; and (3) that Litton microwave ovens are recommended, used, chosen, or otherwise preferred in any respect more often than competing brands. (LD. p. 54)' Respondents have not appealed from the initial decision, but complaint counsel have, arguing basically that (1) ALJ Mathias identified only some of the inadequacies in Litton s surveys; (2) the order should include paragraphs addressing the specific deceptive practices challenged in this case-misuse of survey results or use of inadequate surveys and (3) whatever order is entered should apply to all "consumer products" and not only "microwave ovens" as , The urnpl"jnt Was amended un April Hi, !!17\J tu n;!me Litton Sy tems, (ne (;! whully uwned subsidi;!ry of Liu,,, Industri,'s. Inc,) as co-resfJondpnt. IjUon Micruwave Cuukinfi Products !Jivisi"n was, during the time eov"red by the cmt1I'("inl, a direct divi ion "f Litton Systems. )"", rather- than Litt.on Indu tries. Inc , Th('fo!lowingabbreviations 1I1'e used inlhisol'inion' r D - Initial Decision, Finding!\' IJlp Initial Decisiorl. Pag"No - Complaint Counsel's Exhibit N"

- Respondent s Exhibit N"

Transcriptol' Testinwny, Page !\' Complaint Cuunsel's Appeal Briefbefore the Cummission - R'''j!ondenl' s Answ,'r Bridb"f"r!' thp Comrnj si"n Opinion proposed by Judge Mathias. Our review of each ofthese assignments of error follows.

(I) BACKGROUNO In 1976, two surveys were conducted for LMCP by Custom Research, Inc., a market research firm, to determine which brand of microwave oven was preferred by certain independent microwave oven service agencies. (I.D. 38) The first survey was aimed at agencies servicing microwave ovens used for commercial purposes, and the second at agencies that serviced microwave ovens used by consumers in their homes. (J.D. 39-40) The survey results were originally intended only for internal use but because of their highly favorable results they were made the centerpiece of two ad campaigns. (J.D. 41) The first campaign, run from October, 1976 through February, 1977, was consumer-oriented, and consisted of advertisements placed in national periodicals and metropolitan daily newspapers. (3)(J.D. 8) The second campaign comprised six advertisements run in trade journals between August and October, 1977. (J.D. 10) Litton also sent copies of its advertisements to Litton dealers, which they, in turn, placed in local newspapers or caused to be aired on radio. At least 109 of these dealer-placed ads were run between 1976 and 1978, some paid for in part by Litton. (J.D 10) A typical advertisement for consumer microwave ovens began with the headline: "Quality is No. I at Litton. " The sub-head states 7G% of the independent microwave oven service technicians sueveyed*' recommend Litton. " In the body of the advertisement, under a caption claiming that "Litton leads all brands" appears a chart in which Litton is ranked against G. , Amana, Magic Chef and then all competitors combined, on each of five criteria. In all 20 comparisons Litton comes out ahead. The text of the ad highlights two ofthe survey findings:

Among independent technicians servicing Litton and competitive microwave ovens, an average of 76% of those surveyed said they would recommend Litton to a friend. And an average of 6:1% identified Litton brand ovens as having the best quality. CX- The ALJ concluded that the foregoing advertisement and others like it represented that the majority of independent microwave oven service technicians servicing Litton and competitive microwave ovens (I) would recommend Litton to a friend; (2) believe that Litton microwave ovens are the easiest to repair of all microwave oven , Tht' l'uDlrwtestated "Survey c"nduct"d by Custum Hesel1rch. Jnc Com plett' survt'y rt'sults available on request :\ 7(1 FEDERAL TRADE COMMISSION DECISIO:"S Opinion !J FTC. brands; (:3) believe that Litton microwave ovens are superior in quality to all other microwave oven brands; (4) believe that Litton microwave ovens require the fewest repairs of any oven brand; and (5) have Litton microwave ovens in their homes. (J.D. 21) The Litton advertisements also represented that support for the foregoing five claims could he found in the survey conducted by Custom Research Inc. and that this survey constituted a reasonable basis for the claims made. (J.D. 21, 34)' Similar findings were made by Judge Mathias regarding the representations contained in advertisements for Litton commercial ovens. (J.D. 29, 34) (1) (II) DEFECTS IN LITTON SURVEYS The AL,J found the Litton surveys wanting in several substantial respects that made them unsuitable support for the advertisements that were based upon them. (J.D. 38-74) These findings have not been appealed by respondents, and our own review yields no reason to disturb them.

The challenged advertisements represented that a survey had been made of the opinions of independent microwave oven service technicians who had serviced Litton and one other brand of microwave oven. In fact, however, survey respondents were drawn only from a list of "Litton-authorized microwave oven service agencies. " The ALJ found that there were at least 100 agencies that serviced both Litton and competing products but that were not designated as "Litton-authorized" service agencies. (J.D. 59) Many of these agencies were authorized by competing manufacturers. Complaint counsel contend that there were far more than 100 such agencies (CB lifo, but Judge Mathias found complaint counsel' evi d'-:'ce insufficient to warrant any estimate beyond 100. We do not C;n(J it necessary on t;/b appeal to L' termine W::2tI:er complail finding.cnJl;Isel are corrt:d in their objection to Judge Mathias' Their evidence docs suggest that there were more agencies disre- TIll AI_J als" ruund lh"t lh.. ,. ,-d "t'I" "ii"J,t,'d implicitly that Litton microwave ovens ,u e superiur in quality 10,,11 "the" mic,' uw,,\"t. (J\" n b, ,,"ds. '\l1d "rt' 111( ",, il.S( t" "PI",ir "lid ""'ljui,' !' tl", J'l'IH'''t rpp"irs 01' all microwave (.'v " br:md", (\,1), ' :C' om))l"i lit l'oLJns,.1 "'l;u t hut Litl"!l 's mls could r"a ol1aby h"Vl' b'."\1 r""d to r pn, nt th"t fill i1\depend"nt ",.virt-' 1,'d",ici"l1s (llot just th"sl' who h"d s(', viu'd Lilto" ""d o,w o(iwr b,.nd) h"d lwel\u,' veycd. b"lous . Littun and ",It olh,' r 11,',,,d" '-lwlil ic"tjol1 w"s t"ted i" vny II'H' p,' inl 1 ,,1' removed from till ref nc" to ervic hnicians ta"d in a I'ew "d nol "l all), Wt. ".,"",. Ih"t r'l1l' print quulificationsan' oll,'n not suffcient to eliminate ih,. utl' ptiv" pot""ti,,1 "I' laq.;l' pr;nt h aulir\\s, In thi c"St. huwpver, w,. b,,\iev,. t.hal the 1\S" ui':J rme print qualificatiol1 W"b r"as""abl,' , To beJ:in ,, jth, m;ony c"" Ullwrs w(Juld l10t be d('""ived by th", holu print he(ldline. h,.caLJ " 1)llV would n un1( t.hL1t "Illy tl1,. views 01' ll'chniei"ns having exp'. ,-iel\ce with I.ittun and cum!!l,tin.: brands w(Juld 1)( olicil,'d, Beyond Ihat, il' smJ1'. ""nsUmpI" were to ;Jssumt. that Litton ,I:' j surveyed aillechnicians. it ib ""t "1,,,11' (1,,'1 this f,,! e ;lssut1p\iun wuulrllw ess\1rily pruvl' muIP,' ial to Hw ,r Ll ,mnt ()f the arls Under these eircHJHstnI1Cl.s. d"""!,ti",,, il' any. Was, inim"l, :tnd rille print wt!o n I't""U1IUblt. "",dium 1'0" disdosin.: a qu"lili""tiol1ol olllylimil,'dn'lev'lIKl' - Hycont,.nsl.clJmp,u' pl' ljill/ig ,. ), LITTON INDUSTRIES. INC., ET AL.

Opinion garded by Litton than the 100 estimated by ALJ Mathias, but it is difficult to determine from this evidence how many more agencies might have been involved. (5) What is clear, whether one accepts .Judge Mathias' estimate or complaint counsel' , is that it was misleading for Litton to take an attempted census of the opinions of "Litton-authorized" service agencies and pass it off as being a survey of the opinion of all service technicians. Litton should have endeavored to include within its attempted census oil service agencies (including those authorized by its competitors) that serviced Litton and a competitor. Alternatively, if Litton found it too difficult or expensive to take a census or a representative sample of al1 service agencies that serviced Litton and another brand, Litton should have made clear in its advertisements that it had surveyed only "Litton-authorized" entities. Such a disclosure would at once have eliminated any misrepresentation of the survey population, while permitting consumers to draw their own conclusions about the proper weight to be accorded the survey findings.

A second significant deficieney in the Litton surveys was that the list from which survey respondents were drawn included at least 52 agencies (J.D. 52), and quite probably a great many more (I.D. 5:!-56), that sold as well as serviced microwave oven products. As Litton own witnesses recognized, the inclusion of such agencies in any survey could bias the results significantly, because servicing dealers tend to prefer the brand that they sell. (J.D. 57) In recognition of this fact, Litton s surveys were intended to exclude servicing dealers, but failed of their purpose because of the way in which respondents were selected. ' (6) A third defect in the Litton surveys found hy the ALJ was that they measured the opinion of only one technician from each service agency. The ALJ determined that this did not provide a reasonable basis for advertising claims that a "survey of technicians" had been taken. The term "survey" is likely to imply projectibility to the , Al'tl'rbl.ing ca!1t"ch.d by FTC staft. Litt"n begun to disclose in vpry I'i,u' print the I' ad thlt its urvey incluth.d only "LiUon- null",'i,. ..d" ,-gencie . We d" not helipv,' thatuch Iint print disclo lir('s ..n(' "dl' quate to empdy tlw sigllil'inntly deceptiv,' chaructl' rizntLon ot' the UI'VPY popult!tinn coj1taim'd in tbe h""dlint, Uil1l1l F"IJd. Im- Iii F.T.C. :I , :14 11i. :nH- j!! (I "Ird. :te!:C F, d !177 ID.C Cir 1%:1), fel'-""lIier! :nli U.s !l71!!11;!)' SI'IIt!rmIO;/C" "/T""/iJl";I1,f(. TC 101. 170-71 (1!174), "In/o """Iitltd, 77 F d (;,,:1 (!Jth Cir. 1!I7K) Compl;lint couns,.1 "lIeg " I'urt.h", d,'I,'ct in till surveys Ulot ('"und by . Judge Ml1lhi"s). that t.hey did '''I "wasure th" views ,,(' all servicing denlprs n"t owned by" rnicrowl1ve nv,' " mnnul'''clur . \V" "gn' ,' Ihl1t !h t,"' ind"pl' ndl'1l1 ; nil"row"ve ()vell s rvicl' nf en,.y" might r""'Dn"bly he ('onst.rul'd by some Calls!",,,rs to IlWHn "11 ""CV Ih,,1 is not oWlwd "'. cOllt.-lll'd by an ovt'n 1l:\llul',,,,lu, , l'V,.n il' th!' "gC'''cv haps(' 11S to spll. " wl'lI :IS sl'rvic!' . ""11' In"",!!s) 01' mi('l"w"v,' "n. n, It is not eI",,, !o us. how"vpr, that this ,,1It'gt'd misr(' pI",'sl'nl"ti"" wuuld I\(.nss,n ily I", ",,,t..i:lI. To Slll"'. \111 SU' H'ys shuuld "i\h(' 1' h"v,' l"xl'udl'd nil sl, vicing d,."I"I'" or indud,.d "II sl'l'vi("inr~ dl',lil''-s not OW'llU by n mlillul':a' !un' . bL11 h:,,1 the 1 ''I'm,' ,' 11(,"11 :\cl'omplislwd. Wl' c:mnot I,nd On Ihi I'l'(.",.d thn! IIwl"' would I", :my 1"' ")1 tn qL1:"-'1'1 with 1111 slu v,' ' d!'I" "1;tio" ul' an ;ndc' p"I\dl'nl minow:!v,' ovell s,',' v""' f1cy \(, \\. , !,,, Opinioll J7 F T.C entire population sampled. According to the Ala, inasmuch as some service agencies employed 10 or 11 technicians, whose opinions frequently differed, a sample of only one technician per agency was insufficient to justify representations about any universp of independent service technicians (I.D. (j(j-(j7)" Of greater '3if';, ificance, the AL,j also found that the surveys fi.j led to establish that those technicians who did respond had sufficient expertise with Litton and competing brands to make any judgment about them. Verbatim comments from many of those interviewed indicated that they disavowed having sufficient experience to make any sort of informed judgment, but their tentative statements of preference were nevertbeless counted along with those of technicians who were qualified to give judgment. (J.D. 69-72) (II) ORDER PROVISIONS A. General Observations Complaint counsel have objected both to the substantive provisions of the order and to the limited product coverage. Respondents argue, generally, that no broader order than that (7)entered by the ALJ is warranted by the record. Respondents contend that the violations found by the ALJ are insubstantial, and that the lack of expert agreement about the proper way to conduct survey research precludes entry of the order recommended by complaint counsel.' In respondents' view, entry of such an order might chill the use of survey research for advertising purposes. The Commission is sensitive to respondents' concern that advertisers not be unreasonably restrained in their use of survey research in advertising. There is plainly much potential for improving the information value of advertising through the use of survey research and this is certainly to be encouraged. On the other hand, references in advertisements to "surveys tests, and the like also have considerable potential to mislead. The existence of a "survey" as support for a claim of product superiority may well imply to many - I" light or th,' unn,huu"d lJbsl'rv"ti(J" ,,,ad,' hy rl'sp,md,' nl.s ,,( HIJ :1!ln. III. we. I'ind Ih,' AI j"s I'('nsoning Oil thi" point '''l1!'wh"t (hi". Spied ion of ' (Jlll v one kl"hni,'i,m pel' ,ll Il(,Y mOly hav,' L"."" jnsullicil'n( tu quality LiUon s oU"Vl'Y us 11 l',li"hle ce",;us of' s,'nin' a) Ill'ies, l'u' I he n' l1S"n mJlt.d bv i\1 J M"thi,,". but this d(J' "ot Illc(' ,nl'ily dl' n1oI1 lnttt. 11\"1 the choice 01' tEochnil"i.uls v. ns il\ul'icil'"t I" qu"lnv ,, a "'lIdom "ml'le 01' "II ('hl1ili"Il, I ' till' , l1o((.d by rl' polldt' l\l, 'II HI' :! II1. , Ciwn till otl",,' dl'l'ici"n"ie in Iht, Litton sun-eys "o\('d lhn';I1, how!'v(' . " n' "lu! ;OI1 01' t hi, poi "t is not m'C.. a"- (0 our di it iun 01' Ih UPl1t' ,1I , Jil'sp,mdl' nls 11:"""",,( al'lwal,'d I'n"" tl1( ", d(' "mml'I1,kd by till ALJ. I\ltlwu h tl",.\ sug ( i11 Ih,'ir AI\ I' lJ('i,.I' (0 (' o""I'I"i,,( (:"ul1spl' s ;'Illl, ,1I I hat 'llll .\ ;L '" n;"..ow,.d'" Vl. i"n 01' tl", AI, ""mn,.",h'd or'd"I' i qJI" 'I'.-al(' . IHB , 11 W" l1lli,'\' ,.' Ih,,1 II", ;\je cornnwnd..d onlv, (J Ia,. "s it gm' . LS ;'PI" ,,!,,,i,,t';. We do " utt. Ihai ".' with "ny 'iuhsl"l1liati"" onl,' , II". cl"i",,, l'LJv(',n! an' ()I,I.\ tlwHf- 111,,1 would be ul)Jl1bll' 01' LJbjl'ctiv,' "il' ie:,tion ;tndtlwtYI'('"l'suh,t;liti"ti"n r' ('qLJi",'d is""lvHLJl'h,,, i'''I'I'I' ''IH' iul''lullwlYpt. ,)f cl" i",h,'ing",,,de 1-''''''' 1'-' (" "'f. FTt' ,:!!I 1' d I :I . I, III:! III. I d l'i,. I. ",./, d"I/,."j 1 U.S. I" II i(; I ; ;;;

LITTON INDUSTRIES. Ilc.. ET AL 7;j Opinion consumers a measure of precision and. accuracy that they would less wiling to attribute to the same claim made without reference to any statistical support. We .assume this is why advertisers wish to use surveys; it is also, however, a reason why those surveys mlist be suitable to demonstrate whatever they are used to show. Witnesses for both sides appear to agree that the quality of survey research used for marketing purposes leaves much to be desired (e. Tr. 4166), at least when judged by the standards of an expert. Most of this research, however, does not become the basis for advertising claims directed at consumers. When used for internal consumption by marketing personnel, such research may serve its intended purpose quite well, because those individuals making use of it are to assess forequipped by training, experience, and proximity themselves the quality of the research and to act with awareness of any dMects in it.

A consumer: reading a brief summary of a survey in an advertisement, by contrast, is not as wen situated to assess its insufficiencies. For this reason, as ALJ Mathias recognized (J.D. 73), surveys that are used as the basis for advertising claims must be held to higher standards than may prevail among- surveys (8)intended only for internal corporate use. The surveys used by Litton in this case were deficient in several significant respects enumerated by the ALJ. We do not believe that these can be regarded as trivial, or defended by reference to the poor quality of other research that is not made the basis of advertising- claims. On the other hand, the Commission docs recognize that a proper balance must be struck in this area, because standards that are too stringent may discourage the use of surveys that convey to consumers a basically accurate message. With the foregoing considerations in mind we shall assess the specific changes proposed by complaint counsel in the ALJ' s recommended order. B. Practices Covered The principal operative order paragraph recommended by the ALJ would forbld Litton to represent that any commercial or consumer microwave oven (a);s able to perform in any spcct or has any characteristic, feature, attribute, or benefit; or (b) is superior in any respect to any or aU competing products; or (c)is recommended, used, chosen, or otherwise preferred in any respect more often than ailyor a1\ competing products unless and only to the extent that respondents basis for such representation at the time 01'pOssessits initialand andrely uponeacha subsequentreasonable dissemination.

'4 0 - ,'2- Opinion !J7 F-T.C Respondents have not objected to this paragraph. Complaint counsel argue that its scope should be expanded to apply to all "consumer products " manufactured by Litton (a point to be discussed infra. and that the term "reasonable basis" should be defined in the order to mean "com peten t and reliable surveys, tests, or other evidence which substantiates the representation, with "competent and reliable" in turn defined.

A formulation nearly identical to that recommended by complaint counsel was recently applied by the Commission in Sears, Roebuck & Co., Docket No. 9101 (1980), appeal pending, No. 80-7368 (9th Cir. although it was there not subject to dispute by the respondent. It does not appear to us from (9jrespondents' brief that they dispute that "competent and reliable" is a proper characterization for the type of substantiating material that an advertiser should possess before making a claim. (Hil 29) Indeed, it is hard to see how evidence of any description could constitute adequate substantiation for a claim were it not competent and reliable. Respondents argue that these terms are subject to a variety of possible interpretations depending upon the type of substantiating evidence on which the advertiser chooses to rely. This point is certainly well taken. However, absolute precision in this area is not possible, and we note that respondents themselves have not objected to the ALJ's proposed order, which requires only a "reasonable basis" and is, therefore even less precise than the order that complaint counsel would 1m pose.

The same observations are applicable to complaint counsel' proposal to define a "competent and reliable surveyor test" as one in which persons with skill and expert knowledge, in the field of survey research or testing, conduct the surveyor test and evaluate its results in an objective manner, using procedures that insure accurate and reliable results. There may be room for doubt about the application of this standard in particular cases, but it adds at least some measure of specificity to the ALJ's order.

Respondents object further to the above-quoted provision that it may set too high a standard for survey research by requiring that it be conducted by "experts . In respondents' view, if the order is read in light of the facts of this case, it would appear implicitly to condemn as insufficiently expert those personnel who conducted the Litton surveys. Such a standard, in turn, would make the execution of survey research for use in advertising more difficult and expensive. (RB 30) We share fully respondents' concern, but we cannot accept their .:, LIJ I\Jj'l J;'luu.:lfiH' JH\" , 1'..1 J-L. Opinion premise as to the meaning or effect of complaint counsel's proposed order. The proposed order language is designed merely to give greater specificity to the term "reasonable basis, and not to cast doubt upon the qualifications of those who conducted the Litton surveys in this case. To eliminate any room for doubt on this score however, we shall amend the term "persons with skill and expert nowledge in the field of survey research or testing" to read "persons g"alified to do so." This change reflects the fact that the degree of experience and (10Jexpertise required of those who design and conduct a surveyor test must inevitably depend upon the circumstances and the nature of the surveyor test itself. Certain expertly designed surveys can obviously be conducted by lay personnel, with no survey expertise. In such a case, those lay personnel would be qualified" too conduct the survey. Indeed, it is possible that some types of surveys might be so simple that relatively little or no specialized training would be necessary even to design them. Most often, however, surveys or tests, to be competent and reliable, will require at least some expert input at the design stage. The order entered herein is intended to reflect that general point, without discouraging in any way the proper use of survey-based advertising. (Paragraph 1(1) of Commission s Final Order). Paragraphs 2 through 5 in complaint counsel's proposed order are designed to address the specific abuses in this case-misuse of survey results. In a sense they provide a gloss on the meaning of "reasonable basis" in paragraph 1 as it relates to tests or surveys. Our review of these proposed order paragraphs follows. Complaint counsel' s proposed paragraph 5 would prohibit responden ts from Misrepresenting in any manner, directly or by implication, the purpose, sample, content, validity, reliability, results or conclusions of any survey and/or test. Respondents' expert, Dr. Wilkie, endorsed the general concept of a prohibition on misrepresentations of surveyor test results as a remedy for any violations that might be found (Tr. :i883, 38851'1' and argued that it would obviate the need for certain other paragraphs proposed by complaint counsel. We agree that this paragraph is central to the violations found by the ALJ in this ease, and should be adopted'" We have deleted the word " validity" as unnecessary. (Paragraph 11(1) of Commission s Final Order). (11) Rt. p"nd(' nts l"ill' in "pp".,itioll I" !hi p;JI'''!.I' ;lpll hn,,/,',- ('up. v. FTC. :,1i1 F. 2d .j,,7 (llg Cir 1 177). wl1t'n.in " pl'hibitioTl ''') " misrt'pl tst' ntin in any manr",,., dir(.ctly ur by implicati(jn . the purpose. content. or clmclusiu" 01' tlllY t(.,!. 1'' 1'''1'1. study, n' s(. , dt. mlJnslmtion "I' unuly"is" was truly"k d"wl1. ,,(;1 F.zd at :)li4, The t'LJrt ill(.11I\', r, 11OWt'Vl' , did suslain " prohibitioTl UTl iul (' 1)1" dt'(' ptivt' rt'preselltu!iuIlS of" tpst r"Rults with resl"' l 1.0 1"0('1 (,LOIHJrny. ,,Iil F. d nt :Ui.J Till' hl'."" "'I' COUIl W;lS l OIlCt'nwd with the potentially limitle RC"f'f' "f (CO/II/lil/cd;

,. , ( . . , 'IIi n:DERAL TRADE COMMISSION DECISIONS Opinion :17 F T.C. Paragraphs 2, :J, and 4 proposed by complaint counsel are in large part elaborations on proposed paragrapb 5. We believe that proposed paragraphs 2 and :J provide useful elaboration and should be adopted, but that proposed paragraph 4 should be rejected. Paragraph 2 proposed by complaint counsel would forbid respondents from Advertising the results of a survey unless the respondents in such survey are a census or a representative sample of the popuJat.ion referred to in the advert.isement., directly or by implicat.ion. A representative sample need not be a probability sample so long as when the ad is first disseminat.ed respondents have a reasonable basis to expect t.he sampling method used would not. produce biased results. This paragraph is tailored to the deceptive practices found in this case, and we shall adopt it. There can be no argument with the proposition that if an advertisement claims, directly or by implication, that the views of a given population have been surveyed, the survey should have elicited either the views of every member of the population (as in a census), or else the views of a representative sample of the population. U A survey that did not take either a census or a representative sample of a given population could not be used to represent the views of that population. This was the fault of the Litton surveys. They were advertised as demonstrating the views of all independent microwave oven service technicians who had serviced Litton and at least one other brand. In fact, however, as the ALJ found, the surveys were neither censuses (as intended), nor representative samples from which Litton could reasonably project the views of the entire population described in its advertisements. Litton could have cured the defect by use of a representative sample, or by accurately and conspicuously disclosing the identity of the population that was actually surveyed. (12) Litton s principal objection to complaint counsel's paragrapb 2 appears to be that Litton construes "representative sample" in the first sentence to mean "probability sample" in the strict statistical senses The necessity to conduct a "probability sample, it argues, lJll .,lricKl' ll (J,.d,". pnJvisj,,, il1 li nt Dr what il chLlradl. izl.d as;1 "",;ol11lwhat thj,, '. C"mmj,%ion Cas,. 0" the merits 111 this C;1St., llw prnpo ",d o!"ll". provision is co"sid"r"bly lla,T()Wt. r. lhal1 tilt prnv;s;o" ,j,.I('lPd in Chrv.,h..r, blih b"cows" it is li",itt.J lo .' t"sls or sur "'ys .. and bec;.us ' it i,; limit,.d (0 jHlJducts comprisinf; a t.;ny I met.;o" of Litto" sule,;. while", the' onj,.r in Chn,"ln- was;1pplic"ble to the COIlP""Y b "l1t;,-,. j)l'dUCli"" " A rt' lw",s,' nt;.1iv(' sam pi" or" population is u l1mplt. lh;ot "" h"b Iw",n s"l"dt.d ill a nl11lller which permit/.5 pmjt'dinll 01' test1lts ll"rn tilt ";0"'1'1,' to lh,' u"iv('rM' fnJrn which it i5 drawn .. '1, 1:'' "1 e ,d.,.Tr. :IKK:', An utl,' mpl tD pL.rlorm II n' llsus which fail IWl"!lJ. c som!. fl'actiol\ ur ill' cpnsus p')pul"tio!1 ,,,,,nul be rol1lilct('d . may n",vel"h,.l ss yi,.ld " n' presl.ntntivl. ampl", so I"n th,' n' i 'JI to believe that. tho e l1emher ))1' tl"" p"pulation ;octel,.lIyurv,' y,.d ,,, prl'st' ntativt, or lhl' l' nli,." f)(JpLJluti"n. 1" this Sl'nSe it is not fruitfullo (ju;lrr",1 (Jver wheth r Lilto" sucr:('\'d,',-in c"ndudi,, " oj" Illel" 'ly luok " s"11plp. In either Ca e the relevant qm,sti"" 1 - tJw eOllsullin, public i, wht'lher lh,' n.sults 01' the ,;ur ey arl' I)!oject.ible 10 the .."t.ir.. populi1ion wh(J e views the ,urv"y is n' pn.s,..Ilttd as n'l1l' clirrg " Liu,m ;d " objects I.(J Ih,' (Pr", " by iJJpliculion "" inlhe p'"pus(d ", dl"., f "rj,, liabilily wht' rt' il unwillingly ",i,, pres,' rl1s. by implicaliun. th;!l" SUn'l'Y accunol,.ly n'll!'ct,; the view" of onw populalion It is well-estublished IOmlrlili..d! . . ... LITTON INIJUSTHli'S. INC. . I';T At.

Opinion imposes too great a burden on research-based advertising. To meet this objection of Litton and its expert witness Dr. Wilkie (Tr. 3735), complaint counsel have offered the second sentence of their proposed paragraph 2, making clear that a representative sample need not be a probability sample, so long as Litton has a reasonable basis to suppose that whatever sample it does select will not yield biased results. This would permit Litton to employ, for example, a properly selected "judgment sample" or "convenience sample. " (Tr. 4166) Similarly, if Litton wished to attempt a census, but failed to contact all members of the surveyed population, it might still treat the results as a representative san:lple so long as it had a reasonable basis to suppose that those population members not responding to the survey would not bias its results by virtue of their non-response. To an extent we agrec with Dr. Wilkie, respondents' expert, that proposed paragraph 2 overlaps with proposed paragraph 5. In essence, to represent the characteristics of a given population based upon a survey of an unrepresentative sample amounts to a misrepresentation of the "purpose" or "results" or "conclusions" of the survey, because the survey cannot properly be used to conclude anything about a population of which its sample is not representative. We shall include proposed paragraph 2 in our order, however (along with proposed paragraph 5) because it defines with specificity one particular practice that inevitably leads to the misrepresentation of survey results. (Paragraph 11(1) of Commission s Final Order). (13) Complaint counsel' s proposed paragraph:) requires that respondents not represent that experts were surveyed unless reasonable care was taken to insure that the survey respondents possessed sufficient expertise to qualify as respondents for the survey and to answer the survey questions. For purposes of this order, an 'expert' is an individual, group or institution held out as possessing, as a result of experience, st.udy or training, knowledge of a particular subject, which knowledge is superior to that generally acquired by ordinary individuals.

While this paragraph, too, might be subsumed within the general prohibition on misrepresentation of survey results, it too describes with specificity one of the violations that occurred in this case, and we shall incorporate it in the order. ALJ Mathias found that many of prineiplt' "r"dvt'rtising law . howeVtr. ;md lTiti(",d to ""y attempt to pn'v.."t d cpptiw ,,,iv..rtising. that advt'rtisers be held rl'spons;ble r",. irnpli,'d . as w..11 " PX)U.lss. mjH""pr.,H"nt"tjrm ;11 their udvert;seml' nts. ""))ecpptinn may rl' sult I'rolllhl. USe ol Htatt' rm' nts not t('chnic"lly I'als.. or which may be lil.H"lly true. Uniled Slal,,-,v. !!" R"'"/'/s "t' Vi""/-rlr 21;,, U. S. .I:!" I:! (l j:I). ""TIlt import:!n! nite,'ioll iH H", n..t ;mpt' ,;sion wh;(h the adverti,,'ment. ;H Ijk,'l y 10 make Upon1 Ih" g'. "(',,1 populu(t" /wr"' " "t'1I1I Hil.' 1);, ,/. COI'I'. v. FTC \1:1 F.2d lilli, !ili-HIJ (2d Cir 1'1.

FEDB;J(AL TRADE COMMISSION DECISIONS Opinion !)'( F T.G the technicians surveyed by Litton were unqualified to offer an expert view on the comparative merits of Litton and its competitors because they laeked experience with one or the other of the brands they were being asked to compare. (J.D. 69-72) It was plainly misleading to tabulate their opinions and pass them off as those of technicians familiar with competing brands, and proposed paragraph 3 is warranted to prevent similar occurrences. (Paragraph 11(3) of Commission s Final Order).

Proposed paragraph 4 would prohibit advertising references to surveys or tests unless (a) such survey and/or is dpsigned, executed and analyzed in a competent and reliable manner; and (b) the survey and/ur test results are accurately reflected in the advertisement; and (c) the survey and/or test supports or proves the claim represenled in the advertisement.

Proposed paragraph 4(a) is largely subsumed by modified paragraph , and is, therefore unnecessary. Proposed paragraph 4(b) adds nothing to proposed paragraph 5, and the useful content of proposed paragraph 4(c) is similarly captured by proposed paragraph 5. Therefore proposed order paragraph 4 is unnecessary. (14) Proposed paragraph 6 of complaint counsel's order corresponds to the first It is further ordered" paragraph of the initial decision. As reworded by ALJ Mathias it would cover only advertising claims that compare Litton with competing brands. We believe that this paragraph should, instead, be made coextensive with the substantive coverage of paragraph 1 (requiring substantiation for various claims) and have so changed it. We have also modified the language to correspond to our recent order in Sears, Roebuck Co., supra. (Paragraph 1(2) of Commission s Final Order.) C. Product Coverage The order recommended by ALJ Mathias would apply only to future advertising for "microwave ovens . Respondents agree that this is the proper scope of any order that may enter, while complaint counsel propose that the order be broadened to cover advertising for all "consumer products Court and Commission precedent yields no magic formula by which the product coverage of a given order may be divined. The purpose of any order is to prevent the repetition of violations of the law, by creating stringent monetary incentives (in the form of civil penalties) for its observance. The rationale for entry of a multiproduct order based upon violations in the advertising of only one or j,lllll: VUC)ltUrJ:). 1, 1:-,1 1\1, /:1 Opinion a few products is that many kinds of deceptive advertising are readily transferrable to a variety of products, and it would serve the public poorly to halt the use of a deceptive tactic in the advertising of one product if the respondent remained free to repeat the deceptive practice in another guise, with no threat of sanction save for another order to cease and desist FTC v. Colgate Palmolive Co., 380 U.S. 374 394-5 (1%5); Sears, Roebuck Co., supra, slip op. at 10. Relevant to any determination of the proper scope of an order is some assessment of the likelihood of repetition of the violation in the future. As we observed in our recent decision in Sears. Roebuck & Co., such a judgment entails a necessarily imprecise prediction of the future. In making it, the Commission and courts have looked to a variety of factors, including the "nature of the violation itself (its magnitude and duration), the state of mind of the perpetrator (wilful, reckless, negligent, or un intending) and the prior history of violations by the respondents Sears, supra., slip op. at 11. (15) An additional factor to be considered, and one that is implicit in Sears and the court decisions that it cites, is the burden imposed by an order viewed in light of the gravity of the offense that gives rise to it. In theory, this might seem to be an irrelevant consideration. If a heinous offense can be remedied, and related offenses fenced in, by a narrow order, no greater order can be entered. Conversely, if a less serious violation of law requires a broader order to remedy it, the mild nature of the offense should not preclude the imposition of necessary relief.

As a practical matter, however, the fashioning of many orders does not lend itself to mathematical precision. A variety of orders reasonably related to the offense, are often possible to imagine, and this means that within certain parameters the Commission must exercise its discretion to determine the scope of the order that it actually issues. Jacob Siegel Co. v. FTC, 327 U.S. 608, 611-13 (1946); FTC v. Mandel Bros. , Inc., 359 U.s. 385, 392 (1959). A reading of the court decisions leaves little doubt that this discretion should be exercised with some regard to the gravity of the violation that is being redressed g, Chrysler Corp. v. FTC, 561 F. 2d 357 , 364 (1977); Standard Oil Co. of California v. FTC, 577 F. 2d 65:J (9th Cir. 1978). Applying these considerations in this case, we believe that limitation of the first paragraph of the order to "microwave ovens alone, as recommended by Judge Mathias, is appropriate, while those paragraphs added by the Commission on this appeal should apply to all "consumer products, as defined by respondents, J.D. p. , Tr. 4:J1:J- 14.

We reject Litton s suggestion that the violation in this case was not l-O FEDERAL TRADE COMMISSION DECISIONS Opinion Ti FTC.

a serious one. As the law judge found, Litton s violation was not inadvertent; it made claims for its microwave ovens despite clear (J.D. pp.indication that it lacked a reasonable basis to make them. 47-8). Moreover, while dissemination of the offending advertisements was short-lived (perhaps because of the relatively rapid intervention by Commission staff) it was national in scope, and continued even after deficiencies in the ads were pointed out by FTC staff. To Litton s credit it did make some attempts to modify its advertisements when apprised of their shortcomings. (J.D. p. 18) We do not believe that the violations in this case rise to the seriousness of those in Sears. as complaint counsel suggest, but they are more significant than respondents would acknowledge. Misuse of survey results, as noted before, has considerable potential to deceive, and is a technique that may be applied to a variety of products. (16) Paragraph 1(1) of the Commiseion s final order (ALJ's recommended paragraph 1, as modified) defines the violations in this case in relatively broad fashion and is, therefore, appropriately confined to microwave ovens as the ALJ recommended and as respondents urge. Similarly, the recordkeeping provision (Paragraph 1(2)) will be limited to cover only claims governed by Paragraph 1(1). Those order paragraphs added by the Commission at complaint counsel' s request (Final Order Paragraphs 11(1), 11(2), and 11(3)) are narrower in focus, relating solely to the misuse and improper conduct of surveys and tests. Moreover, no record keeping requirements attach to these paragraphs. Under the circumstances, application of these paragraphs to a broader product line is reasonable and warranted to prevent recurrence of the same deceptive practices in a different guise.

In Sears the Commission imposed an order covering 14 specified categories of "major home appliances" based on misrepresentations of the characteristics of dishwashers. Litton does not produce home appliances other than microwave ovens. However, Litton has from time to time produced other "consumer products"l:J the advertising of which might lend itself to the misuse of test results. While the term "consumer products" is in theory broader than "major home appliances, given the reality of Litton s operations that term is even narrower than the product coverage in Sears, because Litton manufactures relatively few consumer products. We conclude therefore, that the order as described above is suitable to remedy the violations found in this case.

AI trial. Thl'odore Enw' " Litton oll;c;"l. dl' ,,1td "compl1wr 1,,'odLll.t.. to rLWUrL " one normally suld to the "n(' r,1i publ;( h,,- thl';r lJlroon;rll" - housl'hold Uoe'. " (I. D. p. , ,:OJ Und,' !' the circumst.ances 01' this case. "'t' bplieve that d,'I';neo an appcopri"tl' sCOfJl ro,. P"ra nrfJh l!o!' theCommiss;",, sordl' LITTON INDUSTRIES, INC. , ET AL.

Final Order The order described is appended.

FINAL ORDER This matter has been beard by the Commission upon the appeal of counsel supporting the complaint, and upon briefs and oral argument in support of and in opposition to the appeal. The Commission for the reasons stated in the accompanying Opinion, has granted the appeal in part, and denied the appeal in part. Therefore It is ordered, That the initial decision of the administrative law judge, pages 1- , and appendices, be adopted as the Findings of Fact and Conclusions of Law of the Commission, except as is otherwise inconsistent with the attached opinion.

Other Findings of Fact and Conclusions of Law of the Commission are contained in the accompanying Opinion. It is further ordered, That the following Order to Cease and Desist be entered: (2) ORDER a corpora- It is ordered. That respondents Litton Industries, Inc., tion, Litton Systems, Inc. , a corporation, and their successors, assigns, offkers, agents, representatives, and employees, directly or through any corporation, subsidiary, division, or other device, in sale, or distribution ofconnection with the advertising for sale, microwave ovens (either for commercial or consumer use), in or affecting commerce as "commerce" is defined in the Federal Trade Commission Act, do cease and desist from: I. Representing, directly or by implication, that any commercial microwave oven or consumer microwave oven (a) is able to perform in any respect, or has any characteristic, feature, attribute, or benefit; or (b) is superior in any respect to any or all competing products; or (c) is recommended, used, chosen, or otherwise preferred in any respect more often than any or all competing products unless and only to the extent that respondents possess and rely upon a reasonable basis for such representation at the time of its initial and each subsequent dissemination. Such reasonable basis shall consist of competent and reliable surveys or tests and/or other competent and reliable evidence which substantiates the representation. A competent and reliable surveyor test means one in which persons qualified to do so conduct the surveyor test and evaluate its Final Order !J7 F.T.C. results in an objective manner, using procedures that insure accurate and reliable results.

Failing to maintain acc.urate records (a) Of all materials that were relied upon in disseminating any representation covered hy paragraph I(l) ofthis order, insofar as the text of such representation is prepared, authorized, or approved by any person who is an officer or employee of respondents, or of any division, subdivision or subsidiary of respondents, or by any advertising agency engaged for such purposes by respondents, or by any of its divisions or subsidiaries; (3) (b) of all test reports, studies, surveys, or demonstrations that contradict any representation made by respondents that is covered by paragraph 1(1) of this order.

Such records shall be retained by respondents for three years from the date that the representations to which they pertain are last disseminated, and may be inspected by the staff of the Commission upon reasonable notice.

It is further on ered, That respondents Litton Industries, Inc., a corporation, Litton Systems, Inc., a corporation, and their successors assigns, officers, agents, representatives. and employees, directly or through any corporation, subsidiary, division, or other device, in connection with the advertising for sale, sale, or distribution of microwave ovens (either for commercial or consumer use) and any other product normally sold to members of the general public for their personal or household use in or affecting commerce as commerce" is defined in the Federal Trade Commission Act, do cease and desist from:

1. Misrepresenting in any manner, directly or by implication, the purpose, sample, content, reliability, results, or conclusions of any surveyor test.

2. Advertising the results of a survey unless the respondents in such survey are a census or a representative sample of the population referred to in the advertisement, directly or by implication. A representative sample need not be a probability sample so long as when the ad is first disseminated respondents have a reasonable basis to expect the sampling method used would not produce biased results.

3. Representing, directly or by implication, that experts were LITTON INDUSTRIES. ING.. ET AI. 8:J Finnl Order surveyed, unless reasonable care was taken to insure that the survey respondents possessed sufficient expertise to qualify as respondents for the survey and to answer the survey questions. For purposes of this order, an "expert" is an individual, group or institution held out as possessing, as a result of experience, study or training, knowledge of a particular subject, which knowledge is superior to that generally acquired by ordinary individuals.

It is further ordered, That the respondents shall, within sixty (60) days after service upon them of this order, file (4Jwith the Comrr;issian a report in writing, setting forth in detail the manner and form in which they have complied with this order. It is further ordered, That the respondents shall forthwith distribute a copy of this order to each of their operating divisions. It is further ordered, That the respondents shall notify the Commission at least thirty (30) days prior to any proposed change in the corporate respondents such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiaries, or any other change in the corporation which may affect compliance obligations arising out of this order. Commissioner Bailey did not participate.

Complaint !J7 F,