Encyclopaedia Britannica, Inc

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IN THE MATTER m' ENCYCLOPAEDIA BRITANNICA, INC., ET AL.

MODIFYING ORDER IN REGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket 8908. Final Order, March 1976-Modifying Order, Oct. , 1982 This order reopens the proceeding and modifies the Commission s order issued on March 9, 1976 (87 F. C. 421), modified Oct. 28, 1980 (96 F. C. 778), hy permitting the company s salespeople to use a business card to inform consumers of the reason for their visit, instead of the X 5" card stating, The purpose of this representative s visit is to solicit the sale of encyclopaedias," a', previously required. Additionally, Britannica wil no longer have to describe limits on potential earnings during initial interviews with prospec. tive employees, but wil be required to disclose, among other things, that these limitations exist, before an applicant accepts a sales position. The modified order also substitutes the original order s restrictions on Britannica s use of the words "free" and "regular" or "retail" price with .FTC guidelines on those subjects. The modification also alters the definition of what is considered truthful. "

ORDER MODIFYING CEASE AND DESIST ORDER The Commission issued its Final Order against respondents on March 9, 1976. The Order became effective on March 17, 1980, upon the United States Supreme Court's denial of respondents' petition for certiorari. On March 18, 1980, the Commission issued a stay of Paragraphs II.A, II. , II. , and II.E of the Order to allow the Commission to consider a petition from respondents to modify these provisions. On October 28, 1980, the Commission modified these four paragraphs.

On July 2, 1981, respondents filed another petition to reopen and modify the Order together with an application for a stay of the Order pending the Commission s determination of the petition. The Commission denied the stay application on August 5, 1981. On October 9 1981, respondents filed a supplemental memorandum in support of their request to reopen the proceedings and set aside or modify the Order. Staff and respondents entered into negotiations which resulted in an agreement on proposed modifications to the Order. In a separate petition to reopen the proceedings filed October 27 1981, respondents also sought a permanent modification of Paragraph II.D of the Order. The petition presented persuasive evidence from a consumer survey that presentation of a business card before seeking admission to a customer s home or place of business would 500 Modifying Order communicate the sales purpose of a representative s call as well as the 3" X 5" card now required by the provision. The Commission has considered respondents' petitions and staffs recommendations and has determined that the public interest requires that parts of the Order should now be modified. Therefore it is ordered that the following paragraphs be modified as follows:

A. Representing, directly or by implication, either orally or in writing, that:

(2) persons wil be trained as management trainees, or for other positions of responsibility concerned with administrative offce functions unless, in fact, a formal management training program is available to persons accepting employment on the basis of such representations; or misrepresenting, in any manner, the amount and type of training that wil be given;

B. Misrepresenting, in any manner, the amount of income to be earned by any person or that may be earned by any person, the expenses that may be incurred by any person, the method of payment, or any condition or limitation imposed upon the compensation of any person.

C. Failing clearly and conspicuously to disclose in all advertising offering employment in any way involving door-to-door sales that respondent is recruiting persons for the sole purpose of soliciting or selling.

both orally and D. Failing clearly and conspicuously to provide, in writing, to any prospective sales employee at the initial face-toface interview, and prior to executing any employment agreement with any such person, the following information: (1) (a) that respondent is recruiting persons for the sole purpose of soliciting or selling;

(b) that the products or services being sold are encyclopedias or services to be used in connection therewith, or in the event that encyclopedias or such related services are not being sold, the products and services being sold; and (c) the basis for compensating persons so engaged; Modifying Order 100 F.

(2) that conditions or limitations upon the receipt of compensation, if any, do in fact exist, together with an example of such a material condition or limitation, and that all such conditions and limitations wil be stated in detail in an interview in the event an offer of employment is made to such person; (4) that expenses wil be incurred by such person in performing required duties, together with an example of such a material expense, and that all such expense items wil be stated in detail in an interview in the event an offer of employment is made to such person;

(5) (DELETED J (6) that such soliciting or sellng wil be on an "in-home" basis, if such is the fact, or will include soliciting or selling on an 'Iin-home basis, if such is the fact.

E. Failing clearly and conspicuously to provide, both orally and in writing, to any prospective sales employee at an interview at which an offer of employment is made and prior to executing any employment agreement with any such person, the following information:

(1) A complete and detailed description of each condition and limitation imposed upon the receipt of any compensation; (2) a complete and detailed description of any expense or expenses any such person may incur in performing the required duties;

(3)(a) the total number of sales employees employed by the office offering the position during the most recent calendar quarter, and (b) the number of sales employees employed by the office who, during the prior calendar quarter, received net earnings equivalent to or greater than the amount represented in the advertisement to which the prospective employee is responding; provided, however that if the office has been in existence for less than three months or has fewer than five sales employees, respondents shall provide the information described above pertaining to the Division in which the office is located; provided further that such information need not be furnished if the prospective sales employee contacts respondents more than ten days following the dissemination of the most recent advertisement that contains representations of earnings. Respondent shall afford any prospective sales employee an adequate 500 Modifying Order opportunity to review and consider the above information prior to requesting execution of any employment agreement. F. Failing to furnish to persons at an interview when an offer of employment is made, and prior to executing any employment agreement with any such person, a copy of Paragraphs I, II, III and VI of this Order, together with a cover letter as set forth in Appendix A' attached hereto. Respondent shall afford any prospective sales employee an adequate opportunity to review and consider these provisions of the Order prior to requesting execution of any employment agreement.

II.

A. Representing, directly or by implication, in any advertisement or promotional material that solicits participation in any contest drawing, or sweepstakes, or solicits any response to any offer of merchandise, service, or information, and that employs any return card, coupon, or other device to respond to such solicitation, that a person who replies as requested wil not be contacted directly by a salesperson for the purpose of sellng respondents' products, unless such is the fact. Such advertisements or promotional material shall comply with this Paragraph only if they meet the criteria set forth in Appendix B.

B. Failing, upon the written request of the Associate Director for Enforcement or his designee, to (1) submit any advertisement or promotional material or (2) test any such advertisement or promototional material, using the procedure set forth in Appendix B, determine whether it complies with Paragraph II.A. C. Failing to disclose clearly and conspicuously, during any telephone contact and before commencing any sales presentation to prospective customers, the fact that the individual making the call is either soliciting the sale, rental, or lease of publications, merchandise, or services for respondents, or is arranging for a sales solicitation to be made, and that if the prospective customer so agrees, respondents wil send a salesperson to visit said prospect for the purpose of soliciting the sale, rental, or lease of said publications merchandise, or services.

D. Visiting the home or place of business of any person for the purpose of soliciting the sale, rental or lease of any publications merchandise or service, unless at the time admission is sought into the home or place of business of such person, a business card of at See 87 F C. 421 at 541 (l978).

Modifying Order 100 F.

least 2 inches by 3X inches containing only the following information is presented to such person:

(1) the name of the corporation;

(2) the name of the salesperson;

(3) the term " sales representative (4) an address and telephone number at which the corporation or salesperson may be contacted;

(5) the product or the corporation logo or identifying mark. F. Representing, directly or by implication, either orally or in writing that:

(1) Any person telephoning or visiting the home of any prospective purchaser is:

(c) telephoning or visiting the home of said prospect for the primary purpose of delivering or disseminating prizes, gifts, gift certificates, chances in any contest, drawing, sweepstakes, educational fund, or any other merchandise or item of chance. (5) any publication, merchandise, or service is being offered free without cost, or is given as a bonus or otherwise to any purchaser of respondents' publications, merchandise, or services, pursuant to any agreement to purchase, rent, or lease any other publication, merchandise, service, or combination thereof from respondent, unless respondent complies with all of the terms of the Federal Trade Commission s " Guide Concerning Use of the Word 'Free' and Similar Representations " 16 C. R. 251, which is hereby incorporated into this Order, and with any modifications or changes that are made to this Guide. All of the provisions of the aforesaid Guide shall be construed as mandatory and binding upon the respondents. 1. Representing to any person, directly or by implication, either orally or in writing that:

(1) any price is the retail, regular, usual or words of similar import or effect, price for any publication in any binding, merchandise or service, unless such price is an actual, bona fide price for ..... .. _._ 500 Modifying Order which each such publication has been openly and actively offered for sale in the recent and regular course of business for a reasonably substantial period of time.

(2) any price is the retail, regular, usual, or words of similar import or effect, price for any set of publications in any binding and in combination with any other publication, merchandise or service unless such price is an actual, bona fide price for which each such publication has been openly and actively offered for sale in the recent and regular course of business for a reasonably substantial period of time.

(DELETED) (DELETED) It is further ordered That the foregoing modifications shall be effective upon service of this Order upon respondents. Commissioner Baily voted in the negative.

APPENDIX B This Appendix sets forth the methodology respondents shall employ to determine whether advertisements or promotional materials represent that a person who replies as requested may be contacted directly by a salesperson for the purpose of selling respondents' products, and the criteria for determining whether such advertisements or promotional materials comply with Paragraph ILA. Format-Respondents shall test the comprehension level of advertisements or promotional material by conducting a mall-intercept test, using the questionnaire attached hereto as exhibit 1.

2. Sample Size-The sample shall consist of at least 150 subjects. 3. Demogrphics-Test subjects must:

a) be between 25 and 49 years of age;

b) have at least one child fifteen years of age or younger living at home; c) have household incomes of at least $15 00 per year; provided that, upon respondents' request, the Division of Enforcement shall increase this figure by increments of $5 00 whenever the percentage of households earning at least the requested amount equals or exceeds the percentage of households that, according to the 1980 United States Census, have household incomes of at least $15 000 per year. The data for future changes shall be based on the most recently published edition of the Statistical Abstract of the United Slates. 4. Location of Markets-The interviewing wil be conducted in four geographically dispersed markets. The same central location facilities wil be used wherever possible. If it is necessary to change any interviewing facility, the new facility shall have demographic characteristics similar to those of the facility it is replacing. 5. Criteria for acceptability of new coupon copy-New coupon copy shall comply Modifying Order 100 F.

with Paragaph ILA if at least seventy-five percent of the test subjects answer "yes" to question 6(b) of the questionnaire (exhibit 1). Modifications to this Appendix, including the questionnaire, may be made upon a request by respondents and the approval of the Associate Director for Enforcement. EXHIBIT 1 ,.. . . . . . .) .,. .. .. . \:; : ), ) . . ; ;, !:. ,. . 500 Modifying Order STUDY; COUPON COMPREHEN ION STUDY MJRKETS: Cleveland Baston New York Kansas Ci t.y CI\RD:

:NTERVIEm:;R' S NAM:

DATE: TI!1E INTERVIEW BEGINS: Hello. I' Today we are conduct a survey among men and women bet\ een tho' ages of 2 dnd 49 year:s of age. from Please tell your approximate age. (READ LIST) (111 Under . TERHI!LATE '0 years. years.

years. years TER"IIft eo years. used TER;1I: Do you have any children liv ng at home ears of age or vounqer Yes. NO. RlH;;';T!: ,.,hal ace! tr.e ages of VOUr -:hildren ..ho Liv': at l'lJIn" , (CHECK AS IAN'l Ac. .;? ?L'f I (121 Ib years 01: above. .

12 years to 15 years 8 yeaes to 11 yea.r 4 years to 7 years - , years or under.

Is your total fam ly Lncome:

OOO "fie above.

8,,10w S15, OOO Refused.

4'. Sex; (121 a 1 Female.

AU: R.S:?ONDr:: T ,'0 . ?iii' 'four CE ITrtl. LCC:,':;CN ACrL: :: 3': TEE H1'1"2Wre'.-.

__..

Modifying Order 100 F.

(HOLD L:P AD IN A MANNEf'. 'THAT PERHI1S RESPO:WE TO SEE IT - COLOR !:D ''ITH QUESTIOI.NAIP.. - ;..O ';I',i:) Suppos you saw this dd 3nd the coupon that ..as. attJ.ched to it HA='D COUPON CARD - COLOR CODED HTH QUESTIONNAIRE - TO RESPONDENT AND SA'! :

Now, using your imagination for a moment, assume you want to fill in and eturn this coupon which WQuld be part of this ad for ENCYCLOPAEDIA aRITANNICA P.eild this coupon as thouqh you were interested enough to fill it in (DO NOT RUSH RESPONDENT. TAKE COUPON CARD FROM RESPONDENT WHEN HE/SHE HAS FINISHED READING.

BE SURE TES COUPON CARD AND AD ARE OUT OF SIGHT BEFORE ASKI 5.. Based n your reading of the coupon, what would you ex?ect to hap if you send in the coupon? (PROBE tully AND CLARIfn (14) (15) (16) (17) 5b. would you expect to hap?en? (PROBE fully AND Clarify) (lhi (19) (20) (211 St;. Is the e anything else you ould ex?ect to hd? en? (2)) . .. ( ): ... /;, ::, . ::;, : ; ... ......... ,...... ou, INC., .,1' AL. ENCYCLOPAEDIA BRITANNICA. Modifying Order500 :-o"". I' d like to sk YOll a few moce qc,, stions (INTERVIEWER' START AT THE " X" M1R;:2D QUESTION "tm PP-OCEED TO OIE: ONE. AND THEN BACK TO TH FIRST ONE , ETC. 6a. eased on your reading of the, coupon, would you expect to recei,ve a free booklet., 1.f you send Ln the coupon? (26) 'ies.. .

No - . .

Don t Know . (VOLUNTEERED).

6b. aased on your reading of the coupon, would you expect a sales re resentative foe ENCYCLOPAEDIA BRITANNICA to contact you Sen 1.n the coupon: (27) Yes.... No .

Don t Know - . (VOLUNTEERED). . . . "

6c. Based on your reading of the coupon, would you expect to get a free !:ok rack, if you ..end 1.11 the coupon? (28) Yes.

No ..

Don t Know . (VOLUNTEERED).

6d. Based On your reading of the coupon, would you expect to get a f ee qlabe af the wo, if you send 1n the coupon? (291 Yes.

No ..

Don t Kr'l\o . (VOLUNTEEREiJl . IF Y::S :'0 Q.

If sorr,""one sent in th" cot.?on, how likely do you thil1k it ' ..ould be that a sa.l",s e?l:e5enta.ti'Je om ENCYCLOP.oDIA BRITANNICA ,,ould contact that person? (READ FIRST four RESPONSES ONLY) DO) 'ler;' Li\(ely.

Fa i :- 1 y ..1 ; e 1, .

Not Too Lik",Ly . .

No c !.ik" / ,'t :011. . . . . . .

DOrl t Know . (VOLUNTEEREDI .

:r. ':::f ,OF. ' :o' E::( ;:OC?EP_",I' ?2.s ?r:::j::::'; r_.

AC:.':Z"S CIT:/S7X::::

n::-o:, , TII''C ::,TE".V:C:' 1 ENDED ZCJ (3L1 (JZI (3JI Modifying Order 100 F.